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 financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company pioneering the development of allogeneic, off-the-shelf engineered natural killer ("NK") cell therapies. Our lead pipeline program is NKX019, a chimeric antigen receptor-natural killer ("CAR NK") product candidate targeting the CD19 antigen for the treatment of patients with autoimmune diseases. Our CAR NK platform enables an on-demand, off-the-shelf approach involving scaled manufacturing to broaden patient access. We have developed proprietary technologies designed to generate an abundant supply of NK cells, increase NK cell recognition of target antigens, and enhance NK cell fitness to support scalable, off the shelf administration. NKX019 is allogeneic, which means it is produced using cells from a different person than the patient(s) being treated, and it is produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient’s own cells and must be manufactured as needed for each patient. We believe that engineered NK cells have the potential to be effective and accessible therapies for autoimmune diseases and other diseases, be well tolerated, and avoid some of the toxicities observed with other cell therapies.
Our modular engineering platform builds on the distinctive biology of NK cells and their role in eradicating aberrant and pathologically transformed cells. Our process starts with mature NK cells derived from healthy donors. We build on the intrinsic ability of these immune cells to identify and kill transformed cells with cell engineering to further enhance their activity. This engineering involves inducing the expression of a chimeric antigen receptor ("CAR") on the surface of an NK cell to enable the cell to recognize specific proteins or antigens that are present on the surface of target cells. Our engineered CAR NK cells generally consist of an NK cell engineered with a targeting receptor, OX40 costimulatory domain, CD3ζ(zeta) signaling moiety, and a membrane-bound form of the cytokine IL(interleukin)-15 ("mbIL-15").
In March 2025, we approved a reduction in workforce as a result of a review of current strategic priorities and resource allocation with the intent to decrease our costs and create a more streamlined organization to support our operations and reprioritized product pipeline.
Our Ntrust-1 clinical trial ("Ntrust-1") is a multi-center, open-label, dose-escalation Phase 1 clinical trial of NKX019 for lupus nephritis ("LN") and primary membranous nephropathy ("pMN"). Our Ntrust-2 clinical trial ("Ntrust-2") is a multi-center, open-label, dose-escalation Phase 1 clinical trial of NKX019 for systemic sclerosis ("scleroderma"), idiopathic inflammatory myopathy ("myositis") and antineutrophil cytoplasmic antibody (ANCA)-associated vasculitis ("AAV"). In order to maximize the potential success of both our Ntrust-1 clinical trial and our Ntrust-2 clinical trial, in May 2025, we announced the modification of the lymphodepleting conditioning ("LD") prior to administration of NKX019 to use a combination of fludarabine ("Flu") and cyclophosphamide ("Cy"), with the option for patients with cytopenias to continue to receive Cy alone as modified LD. At that time, we also announced that researchers at the University of California, Irvine initiated an investigator-sponsored trial ("IST") of NKX019 in patients with myasthenia gravis ("MG"). NKX019 is also being studied in an IST at Columbia University Irving Medical Center in patients with systemic lupus erythematosus ("SLE").
In November 2025, we announced that deep B-cell depletion was observed in all patients treated to date who received NKX019 with LD using Flu and Cy versus partial B-cell depletion in patients receiving only Cy. At the same time, we reported the implementation of a streamlined enrollment process that allows participant data from both the Ntrust-1 and Ntrust-2 clinical trials to be reviewed by a combined independent Data Safety Monitoring Board ("iDSMB") to inform dose-escalation decisions. This update followed engagement with the U.S. Food and Drug Administration ("FDA") and authorization by the iDSMB to initiate enrollment in the second dose-escalation cohort.
95
Since the commencement of our operations in 2015, we have devoted substantially all our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have incurred net operating losses since inception and have not generated any revenue from product sales. In the future, we expect that our operating expenses will significantly increase as we continue to develop and seek regulatory approvals for our product candidates, continue to engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, maintain and expand our product manufacturing capabilities, and ultimately establish a commercial organization. We have funded our operations primarily through the issuance of Company stock and intend to raise additional capital to fund operations until such time that we are able to generate sufficient revenues to cover our operating expenses. We may seek additional funding through the issuance of common stock, including through equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including, among other things, the pace and results of our clinical development efforts for our product candidates. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital as and when needed would compromise our ability to execute our business plan and may cause us to undertake cost containment measures and/or significantly delay, scale back or discontinue the development of some of our programs. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain “smaller reporting company” exemptions we are afforded as further described below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.
Financial Operations Overview
Operating Expenses
Research and Development
Research and development costs consist primarily of costs incurred for the discovery and clinical development of our drug candidates, which include:
•
employee-related expenses, including salaries, related benefits, travel and share-based compensation expenses for employees engaged in research and development functions;
•
expenses incurred in connection with research, laboratory consumables, sponsored research, and preclinical studies;
•
expenses incurred in connection with conducting clinical trials including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors or central laboratories and service providers engaged to conduct our trials;
•
the cost of consultants engaged in research and development related services;
•
the cost to manufacture drug product candidates for use in our preclinical studies and clinical trials;
•
facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies;
•
costs related to regulatory compliance; and
•
the cost of annual license fees under our third-party licensing agreements.
We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are generally not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis. As part of cost containment measures undertaken by us, early discovery and preclinical programs have been deprioritized with less personnel and funding allocated to advancing these programs.
We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
The following table summarizes our research and development expenses for the years ended December 31, 2025 and 2024. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline.
96
Year Ended December 31,
Direct external development program expenses: (in thousands)
Unallocated internal research and development costs:
Personnel related (including share-based compensation) 30,565 39,866
Total research and development costs $ 90,429 $ 96,744
Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the future, including as a result of Ntrust-1, our clinical trial of NKX019 for the treatment of LN and pMN, Ntrust-2, our clinical trial of NKX019 for the treatment of scleroderma, myositis, and AAV, and the ISTs for the treatment of MG and SLE.
The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug candidates can be found under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. We may never succeed in obtaining regulatory approval for any of our drug candidates.
General and Administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs.
While we continue to closely manage our expenditures, including following our cost containment measures, we still expect our general and administrative expenses will increase in the future in support of increased research and development activities and to reflect increased costs associated with operating as a public company. These anticipated increased costs will include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, insurance premiums and investor relations costs.
Other Income, net
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and short-term and long-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of cash equivalents, short-term and long-term investments.
Income Taxes
We are subject to corporate U.S. federal and state income taxation. We estimate our income tax provision, including deferred tax assets and liabilities, based on management’s judgment. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.
97
We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Results of Operations
The following table summarizes our results of operations for the periods indicated (in thousands):
Year Ended December 31,
Operating expenses:
Other income, net:
Research and development expenses
Research and development expenses were $90.4 million and $96.7 million for the years ended December 31, 2025 and 2024, respectively. The decrease of $6.3 million was attributable primarily to the following:
•
a $9.3 million decrease in personnel costs primarily from lower salaries and wages, bonus expense, and share-based compensation expense recognized due to lower headcount as a result of the reduction in force in March 2025;
•
a $0.9 million decrease in other research costs, primarily consisting of research supplies and facility expenses as a result of reduction in headcount;
•
a $1.8 million increase in program costs primarily from higher clinical spending related to NKX019 to support Phase I clinical trials in autoimmune diseases, which were partially offset by lower manufacturing, materials, and clinical expenses related to NKX101 as the program was deprioritized and reduced manufacturing and materials expenses related to NKX019; and
•
a $2.1 million increase in consulting expenses, partially as a result of the reduction in force.
General and administrative expenses
General and administrative expenses were $31.6 million and $31.5 million for the years ended December 31, 2025 and 2024, respectively. The increase of $0.1 million was primarily due to the following:
•
a $4.9 million increase in severance expenses resulting from the March 2025 reduction in force;
•
a $0.8 million increase due to an impairment of right-of-use assets in 2025 and no impairment expense in 2024;
•
a $4.2 million decrease in personnel-related expenses primarily from lower salaries and wages, bonus expense, and share-based compensation expense recognized due to lower headcount as a result of the reduction in force; and
•
a $1.4 million decrease in rent and other facilities expense primarily due to the termination of the lease for one of our suites in July 2025.
98
Interest income
Interest income was $15.5 million and $19.3 million for the years ended December 31, 2025 and 2024, respectively. The decrease of $3.8 million was primarily due to lower average investment balances and lower yields in the current period. Interest income includes interest earned from investments, partially offset by amortization of purchase premiums and accretion of discounts of investments.
Other income, net
Other income, net was $2.4 million for the year ended December 31, 2025 and immaterial for the year ended December 31, 2024. The increase of $2.3 million was primarily due to $1.5 million of recognition of employee retention tax credits received under the CARES Act and $0.8 million from sublease income which commenced in December 2024.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2025, we had cash, cash equivalents, restricted cash and short-term and long-term investments of $295.1 million. We estimate that all $265.1 million in net proceeds from our July 2020 initial public offering have been spent. On April 28, 2022, we received $215.3 million in net proceeds, after deducting underwriting discounts, commissions and other offering expenses, in connection with our secondary offering of our common stock. On March 27, 2024, we received $225.1 million in net proceeds from an underwritten public offering, after deducting underwriting discounts, commissions and expenses, described further below.
On March 17, 2023, the Company filed a Registration Statement on Form S-3, as amended by the Form S-3/A filed on April 24, 2023 (the "Shelf Registration Statement"), covering the offer and sale from time to time, pursuant to Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of up to $350.0 million in aggregate offering price of shares of the Company’s common stock, shares of the Company’s preferred stock, debt securities, warrants, rights and/or units, including up to $120.0 million in aggregate offering price of shares of the Company’s common stock, shares of the Company’s preferred stock, debt securities, warrants, rights and/or units registered on the Company’s Registration Statement on Form S-3 declared effective by the Securities and Exchange Commission (the "SEC") on September 2, 2021 (the "Prior Registration Statement") that had not yet been sold. The Shelf Registration Statement was declared effective by the SEC on May 5, 2023.
On March 27, 2024, we completed an underwritten public offering utilizing the Shelf Registration Statement, pursuant to which we sold an aggregate of (i) 21,010,000 shares of common stock at a price of $10.00 per share, and (ii) pre-funded warrants to purchase 3,000,031 shares of common stock at a price of $9.9999 per pre-funded warrant. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.0001 per share, subject to certain ownership limitations. As of December 31, 2025, none of the pre-funded warrants have been exercised. We raised $240.1 million in gross proceeds before underwriting discounts, commissions and other expenses of $15.0 million.
We have incurred net losses and negative cash flows from operations since our inception. As of December 31, 2025, we had an accumulated deficit of $648.3 million and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities.
We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy, including the potential initiation of a pivotal stage clinical trial for any or all of our current development programs. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we may seek additional funding through the issuance of our common stock, including through equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities, market conditions, and the success of our recent and any future cost-containment measures. We may not be able to raise additional capital on terms acceptable to us, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties’ rights to develop or commercialize our drug candidates that we would prefer to retain.
99
We believe that our current cash, cash equivalents, restricted cash and short-term and long-term investments as of December 31, 2025 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Annual Report on Form 10-K.
Cash Flows
The following table sets forth a summary of our cash flows for the periods indicated (in thousands):
Year Ended December 31,
Net cash used in operating activities $ (88,699 ) $ (99,696 )
Net cash provided by (used in) investing activities 100,319 (129,555 )
Net cash provided by financing activities 141 226,084
Net increase (decrease) in cash and cash equivalents $ 11,761 $ (3,167 )
Operating Activities
Net cash used in operating activities for the year ended December 31, 2025 of $88.7 million was primarily due to a net loss of $104.1 million, adjusted for a decrease in net change in operating assets and liabilities of $0.4 million, which was offset by an increase in net non-cash charges of $15.8 million. The change in net operating assets and liabilities was primarily due to an increase in prepaid expenses for the maintenance of laboratory equipment and interest receivable, and a decrease in accounts payable, accruals, and operating lease liability. The non-cash charges primarily consisted of stock-based compensation of $8.6 million, depreciation and amortization of $9.2 million, which was offset by investment accretion and amortization of $4.6 million.
Net cash used in operating activities for the year ended December 31, 2024 of $99.7 million was primarily due to our net loss of $108.8 million, adjusted for a decrease in net change in operating assets and liabilities of $12.2 million, which was offset by an increase in net non-cash charges of $21.3 million. The change in net operating assets and liabilities was primarily due to an increase in prepaid expenses for the maintenance of laboratory equipment and interest receivable, and a decrease in accounts payable, accruals, and operating lease liability. The non-cash charges primarily consisted of stock-based compensation of $16.7 million, depreciation and amortization of $9.2 million, which was offset by investment accretion and amortization of $6.9 million.
Investing Activities
Net cash used by investing activities was $100.3 million for the year ended December 31, 2025 comprised of the purchase of marketable securities of $238.6 million and the purchase of property and equipment of $1.2 million, partially offset by proceeds from the maturities of marketable securities of $340.1 million.
Net cash used by investing activities was $129.6 million for the year ended December 31, 2024 comprised of the purchase of marketable securities of $406.4 million and the purchase of property and equipment of $4.4 million, partially offset by proceeds from the maturities of marketable securities of $281.2 million.
Financing Activities
There was immaterial cash provided by financing activities for the year ended December 31, 2025.
Net cash provided by financing activities of $226.1 million for the year ended December 31, 2024, which primarily consisted of net proceeds from our underwritten public offering of $225.1 million that closed in March 2024.
Funding Requirements
Based upon our current operating plans, we believe that our existing cash, cash equivalents, and investments will be sufficient to fund our operations for at least the next 12 months from the date of this Annual Report on Form 10-K. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
100
Our future capital requirements will depend on many factors, including:
•
the type, number, scope, progress, enrollment rate, expansions, results, costs and timing of our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;
•
the outcome, timing and costs of regulatory review of our product candidates;
•
the costs and timing of manufacturing for our product candidates, including commercial manufacturing;
•
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
•
the costs associated with the continuation of our preclinical and clinical activities, including as a result of any delays or an increase in development activities;
•
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
•
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
•
patients’ willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
•
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;
•
the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights;
•
costs associated with any product candidates, products or technologies that we may in-license or acquire; and
•
our ability to implement cost containment measures, including subleasing portions of our leased corporate office space in South San Francisco.
Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. There may also be instances where our ability to access a portion of our existing cash, cash equivalents and investments may be threatened due to financial conditions affecting the banking system and financial markets. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to undertake additional cost-containment measures and/or delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
In March 2025, we approved a reduction in workforce as a result of a review of current strategic priorities and resource allocation and with the intent to decrease our costs and create a more streamlined organization to support our operations and reprioritized product pipeline.
Contractual Obligations and Commitments
We lease certain office, laboratory and manufacturing space under non-cancelable operating leases. In addition to rent, our leases are subject to additional variable charges for common area maintenance, property taxes, property insurance and other variable costs. See Note 6 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional detail.
Total undiscounted aggregate future operating lease obligations under all of our operating leases as of December 31, 2025 are $111.8 million.
101
We enter into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that non-cancelable obligations under these agreements are not material.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical trial accruals, share-based compensation, pre-funded warrants and impairment of long-lived assets. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
Recently Issued Accounting Pronouncements
See Recent Accounting Pronouncements in Note 2 to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Indemnification
As permitted under Delaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with our officers and directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of December 31, 2025 and 2024.
Segment Information
We have one business activity and operate in one reportable segment.
Smaller Reporting Company Status
We are a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act, meaning that the market value of our common stock held by non-affiliates is less than $700 million and our annual revenue is less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our common stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is less than $700 million. As a smaller reporting company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a "smaller reporting company", we are not required to provide the information required by this Item.
102
Item 8. Financial Statements and Supplementary Data.
Nkarta, Inc.
Index to Financial Statements
For the years ended December 31, 2025 and 2024
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 104
Audited Financial Statements
Balance Sheets 105
Statements of Operations and Comprehensive Loss 106
Statements of Stockholders' Equity 107
Statements of Cash Flows 108
Notes to Financial Statements 109
103
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Nkarta, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Nkarta, Inc. (the Company) as of December 31, 2025 and 2024, the related statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. We determined that there are no critical audit matters.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
San Mateo, California
March 25, 2026
104
NKARTA, INC.
Balance Sheets
(In thousands, except par value and share data)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 6,233 5,984
Liabilities and stockholders' equity
Current liabilities:
Operating lease liabilities, current portion 6,889 6,050
Accrued and other current liabilities 13,288 12,229
Operating lease liabilities, net of current portion 69,531 74,223
Other long-term liabilities 87 87
Commitments and contingencies (Note 7)
Stockholders' equity:
Accumulated other comprehensive income 407 674
Total liabilities and stockholders' equity $ 404,209 $ 501,203
See accompanying notes to the financial statements.
105
NKARTA, INC.
Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
Year Ended December 31,
Operating expenses:
Other income, net:
Comprehensive loss:
Other comprehensive loss:
Net unrealized (loss) gain on investments (267 ) 666
Net loss per share, basic and diluted $ (1.41 ) $ (1.60 )
See accompanying notes to the financial statements.
106
NKARTA, INC.
Statements of Stockholders’ Equity
(In thousands, except share data)
Common Stock Additional AccumulatedOther Total
Issuance of common stock upon exercise of stock options 144,128 — 668 — — 668
Share-based compensation expense — — 16,731 — — 16,731
Net unrealized gain on investments — — — — 666 666
Issuance of common stock upon exercise of stock options 10,630 — — — — —
Issuance of common stock under employee stock purchase plan 95,520 — 141 — — 141
Share-based compensation expense — — 8,559 — — 8,559
Net unrealized loss on investments — — — — (267 ) (267 )
See accompanying notes to the financial statements.
107
NKARTA, INC.
Statements of Cash Flows
(In thousands)
Year Ended December 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 9,193 9,152
Realized gain on investments (94 ) —
Impairment of right-of-use asset 791 —
Changes in operating assets and liabilities:
Prepaid expenses and other assets 2,113 (1,365 )
Operating lease liabilities (5,011 ) (6,416 )
Accounts payable and accrued and other liabilities 2,463 (4,469 )
Other long-term liabilities — 87
Net cash used in operating activities (88,699 ) (99,696 )
Cash flows from investing activities:
Purchases of property and equipment (1,208 ) (4,409 )
Net cash provided by (used in) investing activities 100,319 (129,555 )
Cash flows from financing activities:
Proceeds from employee stock purchase plan purchases 141 343
Proceeds from stock option exercises — 668
Net cash provided by financing activities 141 226,084
Net increase (decrease) in cash and cash equivalents 11,761 (3,167 )
Cash, cash equivalents and restricted cash at beginning of year 30,616 33,783
Cash, cash equivalents and restricted cash at end of year $ 42,377 $ 30,616
Total cash, cash equivalents and restricted cash $ 42,377 $ 30,616
Supplemental disclosures of non-cash investing activities:
See accompanying notes to the financial statements.
108
NKARTA, INC.
Notes to the Financial Statements
1. Description of Business
Description of the Business
Nkarta, Inc. ("Nkarta" or the "Company") was incorporated in the State of Delaware in July 2015. The Company is a biopharmaceutical company developing engineered natural killer ("NK") cell therapies to treat autoimmune diseases. The Company is focused on leveraging the natural potent power of NK cells to identify and kill abnormal cells and recruit adaptive immune effectors to generate responses that are specific and durable. Nkarta is combining its NK-cell expansion platform technology with proprietary cell engineering technologies to generate an abundant supply of NK cells, engineer enhanced NK-cell recognition of therapeutic targets, and improve persistence for sustained activity in the body. Nkarta’s goal is to develop off-the-shelf NK-cell therapy product candidates to improve outcomes for patients. The Company’s operations are based in South San Francisco, California, and it operates in one segment.
Liquidity and Management Plans
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, conducting preclinical studies and initiating clinical studies, and has not realized revenues from its planned principal operations. In addition, the Company has a limited operating history, has incurred operating losses since inception and expects that it will continue to incur net losses into the foreseeable future as it continues its research and development activities. As of December 31, 2025, the Company had an accumulated deficit of $648.3 million and cash, cash equivalents, restricted cash and short-term and long-term investments of $295.1 million.
Management plans to continue to incur substantial costs to conduct research and development activities for which additional capital will be needed. The Company intends to raise such capital through debt or equity financings or other arrangements to fund operations. Management believes that the Company’s current cash, cash equivalents, and investments will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including, but not limited to, accruals, fair value of assets and liabilities, impairment of assets, leases, share-based compensation and income taxes. Management bases its estimates on historical experience, knowledge of current events and actions it may undertake in the future that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash, cash equivalents and investments. The Company maintains cash, cash equivalents and investments with various high credit quality and are invested through banks and other financial institutions in the United States. Such deposits may be in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company has not experienced any losses on deposits since inception.
109
Comprehensive Loss
Comprehensive loss consists of net loss and unrealized gains or losses on investments. The Company displays comprehensive loss and its components as part of the statements of operations and comprehensive loss.
Fair Value of Financial Instruments
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of prepaid expenses and other current assets, accounts payable, accrued liabilities and other current liabilities approximate their fair value due to the short-term nature of these accounts.
Cash, Cash Equivalents, Investments and Restricted Cash
Cash and Cash Equivalents
The Company considers all highly liquid investments with insignificant interest rate risk and an original maturity of three months or less at the date of purchase to be cash equivalents. Cash includes demand deposits held in readily available checking accounts at a federally insured financial institution. Cash equivalents consist of money market funds, commercial paper, and U.S. Government securities.
Investments
Investments consist of corporate debt securities, commercial paper and Government securities, classified as available-for-sale securities and have maturities of greater than three months. The Company has classified its available-for-sale investment securities with maturities less than one year as current assets on the balance sheets because these are considered highly liquid securities and are available for use in current operations and its available-for-sale investment securities with maturities more than one year as non-current assets on the balance sheets. The Company carries these securities at fair value, and reports unrealized gains and losses as a separate component of accumulated other comprehensive income (loss). The cost of debt securities is adjusted for amortization of purchase premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income in the statements of operations and comprehensive loss. Realized gains and losses on sales of securities are determined using the specific identification method and recorded in other income, net in the statement of operations and comprehensive loss. We review our portfolio of available-for-sale securities, using both quantitative and qualitative factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors. If the decline in fair value is due to credit-related factors, we recognize a loss in the statement of operations, whereas if the decline in fair value is not due to credit-related factors, we recognize the loss in comprehensive loss.
Restricted Cash
The Company is required to maintain letters of credit related to its office and lab space leases in South San Francisco. This cash is the collateral for those letters of credit and per the terms of the leases, must remain in place until one to two months after the termination of the leases. As the remaining terms of the leases as of December 31, 2025 is greater than one year, the related restricted cash has been classified as non-current.
110
Property and Equipment, Net
Property and equipment, which consist of leasehold improvements, furniture and fixtures, research equipment, computers and software and construction-in-progress are stated at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets, which ranges from three to five years. Leasehold improvements are amortized over the remaining life of the lease at the time the asset is placed into service.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, including property and equipment and right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the asset may not be recoverable. An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. During the third quarter of 2025, the Company identified an indicator of impairment of its long-lived assets due to a sustained decline in the trading price of its common stock, which resulted in the Company’s market capitalization falling below its net asset value. There were no changes in the continued intended use of its long-lived assets. The fair value of the right-of-use assets was determined by discounting the estimated cash flows using observed market lease rates for comparable properties and an estimated market participant borrowing rate of 8.5%. The fair value of property and equipment was estimated using trend factors applied to historical cost data, together with estimates of economic depreciation and expected useful lives. Based on the results of the fair value analyses, the Company recognized an impairment charge of $0.8 million related to the right-of-use asset, which was recorded in the statements of operations for the year ended December 31, 2025. The impairment charge is included within general and administrative expenses. No additional impairment charges were recognized subsequent to the third quarter of 2025, and no impairment charge was recorded during 2024.
Restructuring
Employee severance costs are recorded based on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going termination benefit arrangements, such as those arising from employment agreements, applicable regulations or past practices, in accordance with Accounting Standards Codification (“ASC”) Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”). Under ASC 712, liabilities for post-employment benefits related to past services and that vest or are accumulated over time are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for one-time employment benefit arrangements in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). One-time termination benefits are expensed at the date the entity notifies the employee, unless the employee must provide future service over a period extending past the minimum notification period, in which case the benefits are expensed ratably over the future service period. Other associated costs are recognized in the period in which the liability is incurred. See Note 14 for additional information on the severance expense that the Company recognized for employees terminated in connection with the reduction in force.
Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether they are within the scope of Accounting Standards Codification ("ASC") Topic 808, Collaborative Arrangements ("ASC 808"), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement between the Company and its collaboration partner are within the scope of other accounting literature, including ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). If it is concluded that some or all aspects of the arrangement represent a transaction with a customer, the Company will account for those aspects of the arrangement within the scope of ASC 606.
ASC 808 provides guidance for the presentation and disclosure of transactions in collaborative arrangements, but it does not provide recognition or measurement guidance. Therefore, if the Company concludes a counterparty to a transaction is not a customer or otherwise not within the scope of ASC 606, the Company considers the guidance in other accounting literature as applicable or by analogy to account for such transaction. The classification of transactions under the Company’s arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and other benefits of research and development personnel, including associated share-based compensation, costs related to research activities, preclinical studies, clinical trial, drug manufacturing and allocated overhead and facility-related expenses. The Company
111
accounts for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made.
Clinical trial costs are a component of research and development expenses. The Company expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the clinical trial costs incurred.
Leases
At the commencement date of a lease, the Company recognizes lease liabilities which represent its obligation to make lease payments, and right-of-use assets ("ROU assets") which represent its right to use the underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date. The ROU asset is measured at cost, which includes the initial measurement of the lease liability and initial direct costs incurred by the Company and excludes lease incentives. ROU assets are recorded in operating lease ROU assets and lease liabilities are recorded in operating lease liabilities, current and noncurrent in the balance sheets. We have elected the practical expedient to account for the lease and non-lease components, such as common area maintenance charges, as a single lease component for our facilities leases, and elected the short-term lease recognition exemption for our short-term leases, under which we do not recognize lease liabilities and ROU assets for leases with an original term of twelve months or less.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. The Company does not recognize lease liabilities and ROU assets for short-term leases with terms of twelve months or less.
Share-Based Compensation
Share-based compensation expense represents the cost of the grant-date fair value of employee, officer, director, and non-employee stock option, employee stock purchase plan, and restricted stock unit grants, estimated in accordance with the applicable accounting guidance, recognized using the straight-line method over the vesting period for service-based options, employee stock purchase plan rights and restricted stock units. The vesting period generally approximates the expected service period of the awards. Forfeitures are recognized and accounted for as they occur.
The fair value of stock options and employee stock purchase plan rights are estimated using a Black-Scholes option pricing model on the date of grant. This method requires the use of the fair value of the underlying common stock and certain assumptions as inputs, including the expected term of the option before exercise, expected volatility of the Company’s common stock, expected dividend yield, and a risk-free interest rate. Options granted during the year have a maximum contractual term of ten years. The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period. The expected term of the employee stock purchase plan rights equals the six-month look-back period. The expected volatility is determined by using a blended approach of the Company's historical stock price volatility and the historical stock price volatility for a select group of other publicly traded companies in the same industry. The Company has historically not declared or paid any dividends and does not currently expect to do so in the foreseeable future. The risk-free interest rates used are based on the U.S. Department of Treasury ("U.S. Treasury") yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock options. The fair value of restricted stock units is based on the closing price of the Company's common stock as reported on The Nasdaq Global Select Market on the date of grant.
Income Taxes
Income taxes have been accounted for using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if, based upon the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
112
Segment Reporting
The Company’s chief operating decision maker ("CODM"), its Chief Executive Officer, manages its operations and business as one operating segment for the purposes of allocating resources, makes operating decisions and evaluates financial performance. No product revenue has been generated since inception and all assets are held in the United States.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Pre-funded warrants are considered outstanding for the purposes of computing basic and diluted net loss per share because shares may be issued for little or no additional consideration and are fully vested and exercisable after the original issuance date of the pre-funded warrants. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include unvested common stock, unvested restricted stock options, and outstanding stock options under the Company’s equity incentive plans, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.
Recent Accounting Pronouncements
Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. The Company adopted this standard in the fiscal year beginning January 1, 2025 and implemented the applicable disclosure requirements within this annual report on a prospective basis.
Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03"). In January 2025, the FASB issued ASU 2025-0, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, to clarify the effective date of ASU 2024-03. These amendments require public entities to disclose specified information about certain costs and expenses on an interim and annual basis and is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The new standards are expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact on the financial statements and related disclosures.
There were no other significant updates to the recently issued accounting standards other than as disclosed herewith. Although there are several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.
113
3. Net Loss Per Share
The following tables summarize the computation of the basic and diluted net loss per share (in thousands except share and per share data):
Year Ended December 31,
Numerator:
Denominator:
Net loss per share, basic and diluted $ (1.41 ) $ (1.60 )
The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:
December 31,
4. Fair Value of Financial Instruments
The following tables summarize the fair value of the Company’s financial instruments (in thousands). Prior period amounts have been reclassified to conform to the current period presentation:
Fair Value Measurements Using
Assets:
Cash equivalents:
Short-term investments:
U.S. government agency securities 8,997 — 8,997 —
Long-term investments:
Corporate debt securities $ 11,759 $ — $ 11,759 $ —
U.S. Treasury securities $ 4,029 $ — $ 4,029 $ —
U.S. government agency securities 319 — 319 —
Total long-term investments $ 16,107 $ — $ 16,107 $ —
114
Fair Value Measurements Using
Assets:
Cash equivalents:
U.S. government agency securities 300 — 300 —
Short-term investments:
U.S. government agency securities 13,422 — 13,422 —
Long-term investments:
Corporate debt securities $ 86,262 $ — $ 86,262 $ —
U.S. government agency securities 6,042 — 6,042 —
The market participant estimated borrowing rate of 8.5% that was utilized in the discounted cash flow analysis for the impairment of the right-of-use assets is an unobservable Level 3 input.
Cash Equivalents and Investments
Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and investments. Cash equivalents consisted of money market funds, commercial paper, and Government securities and investments consisted of commercial paper, corporate debt securities and Government securities. The Company obtains pricing information from its investment manager and determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.
Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $33.9 million and $25.6 million included in cash equivalents as of December 31, 2025 and 2024, respectively, were classified as Level 1 instruments.
Investments in corporate debt securities, commercial paper and Government securities included in short-term and long-term investments are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations.
The Company has classified its investment securities as current and non-current assets on the balance sheets based on each security's maturity date, and all investment securities are accounted for as available-for-sale because these investment securities are considered available for use in operations. All of our long-term investments as of December 31, 2025 had maturities between one and two years.
115
The following tables summarize the Company’s investments as of December 31, 2025 and 2024 (in thousands):
U.S. government agency securities 1 year or less 8,970 — 27 8,997
Corporate debt securities Greater than 1 year 11,757 (3 ) 5 11,759
U.S. Treasury securities Greater than 1 year 4,013 — 16 4,029
U.S. government agency securities Greater than 1 year 318 — 1 319
U.S. government agency securities Greater than 1 year 6,017 (2 ) 27 6,042
The Company considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of December 31, 2025 and 2024 were caused by fluctuations in market value and interest rates as a result of the economic environment and not credit risk. The Company concluded that an allowance for credit losses was unnecessary as of December 31, 2025 and 2024. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. During the twelve months ended December 31, 2025, the Company received $37.0 million in proceeds from available-for-sale securities called prior to maturity, resulting in an immaterial realized gain and included within maturities of investments. The available-for-sale securities were called within 90 days of the stated maturity. No investments were sold or called prior to their original maturity date during 2024. Unrealized gains and losses are included in accumulated other comprehensive income (loss).
The Company excludes accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. It is the Company's policy to present the accrued interest receivable balance as part of prepaid expenses and other current assets in the balance sheets. Accrued interest receivable related to investments was $2.0 million and $2.5 million as of December 31, 2025 and 2024, respectively.
5. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following (in thousands):
December 31,
Total prepaid expenses and other current assets $ 6,233 $ 5,984
116
Property and Equipment, Net
Property and equipment, net is comprised of the following (in thousands):
December 31,
Less accumulated depreciation and amortization (28,951 ) (20,845 )
Total property and equipment, net $ 66,721 $ 74,658
Depreciation and amortization expense was $9.2 million for each of the years ended December 31, 2025 and 2024.
Accrued and Other Current Liabilities
Accrued and other current liabilities are comprised of the following (in thousands):
December 31,
Accrued research and development costs 6,443 3,633
Accrued property and equipment — 254
Other accrued and current liabilities 780 424
Total accrued and other liabilities $ 13,288 $ 12,229
6. Leases
The Company has operating leases for its current corporate offices, laboratory space, manufacturing facility, and dedicated space in a vivarium in South San Francisco, California.
The components of lease expense were as follows (in thousands):
Year Ended December 31,
(1) Variable lease expense for the periods presented primarily included common area maintenance charges.
Supplemental information related to operating leases were as follows (in thousands):
Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases $ 12,567 $ 14,680
The weighted-average remaining lease term was 8.1 years for the corporate office and laboratory space leases as of December 31, 2025. The corporate office lease includes an option to renew for an additional seven years. However, the renewal option was not included in the lease term for calculating the lease liability, as the renewal option allows the Company to maintain operational flexibility, and the Company was not reasonably certain that it would exercise the renewal option at the time of the lease commencement. The weighted-average discount rate was 9.7% as of December 31, 2025.
117
Maturities of operating lease liabilities under existing operating leases as of December 31, 2025 were as follows (in thousands):
Year ending December 31, Amount
Less imputed interest (35,402 )
Total operating lease liabilities $ 76,420
Operating lease liabilities:
Total lease liability $ 76,420
Initial Lease Agreement
In May 2018, the Company entered into a lease agreement for corporate office and laboratory space located in South San Francisco, California with an expiration date in May 2025 (the "Initial Lease Agreement"). In April 2019, the Company executed the first amendment to the Initial Lease Agreement for additional corporate space, laboratory space and manufacturing capabilities. In May 2020, the Company executed the second amendment to the Initial Lease Agreement for additional corporate space and laboratory space in the same building. The lease for this additional space commenced in January 2021. In January 2021, the Company signed a third amendment to the Initial Lease Agreement for additional space in the same building. The lease amendment for this additional space commenced in April 2021 and expired in March 2024.In October 2021, the Company signed a fourth amendment to the Initial Lease Agreement for additional space in the same building, that commenced in April 2022. All space leased under the Initial Lease Agreement, together with the first amendment, second amendment, and fourth amendment to the Initial Lease Agreement, has a lease term through July 31, 2030, with an option to extend the lease for an additional seven-year term. This lease extension option was not considered in the right-of-use assets or the lease liability as the Company did not consider it reasonably certain the option would be exercised. In December 2024, the Company executed a sixth amendment to the Initial Lease Agreement, which updated the lease termination date for one of the spaces in the same building to July 31, 2025. In connection with the amendment, the Company agreed to pay the landlord a termination fee of $1.1 million, $0.6 million of which was paid in December 2024 and the remaining paid in July 2025. As a result of the modification, the Company decreased its right-of-use asset and lease liability each by $2.2 million.
Additional Lease Agreement
In July 2021, the Company entered into an additional lease agreement for corporate office, manufacturing and laboratory space located in South San Francisco, California with an expiration date approximately twelve years after the lease commencement date (as amended from time to time, the "Additional Lease Agreement"). The lease for this additional space and the Company's obligation to pay rent commenced in January 2022. In addition to base rent, the Company is responsible for payment of direct expenses, which include operating, insurance and tax expenses. The Additional Lease Agreement provided for certain tenant improvement allowances that were fully utilized and reimbursed to the Company, and an additional tenant improvement allowance to be utilized at the option of the Company. In June 2023, the Company entered into an amendment to utilize the additional tenant improvement allowance of $4.4 million and under this amendment the Company is required to repay the tenant improvement costs in equal monthly payments at an annual rate of 8.5% over the remainder of the lease term starting in July 2023.
Vivarium Lease Agreement
In October 2025, the Company entered into a lease modification agreement for dedicated space in a vivarium in South San Francisco, California, with an expiration date of December 31, 2028. As a result of the modification agreement in 2025, the Company increased its right-of-use asset and lease liability each by $1.1 million.
Sublease Agreements
In September 2024 and November 2024, the Company entered into agreements to sublease a portion of the Company's leased corporate office space through November 2027 and July 2030, respectively. The sublease agreements both commenced during the
118
fourth quarter of 2024 and rent payments commenced in 2025. The Company accounts for the sublease agreements in accordance with ASC 842, Leases. Sublease income during the years ended December 31, 2025 and 2024, was not material.
7. Commitments and Contingencies
Guarantee Agreement
The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts under certain circumstances and subject to deductibles and exclusions. The Company had no liabilities recorded for these agreements as of December 31, 2025 and 2024.
Letters of Credit
The Company has $2.7 million in letter of credit agreements with a financial institution that are used as collateral for the Company’s corporate headquarters’ operating leases. The letters of credit automatically renew annually without amendment unless cancelled by the financial institutions within 30 to 60 days of the annual expiration date. The letters of credit are presented as restricted cash in the balance sheets.
Contingencies
The Company, from time to time, may be involved in litigation arising in the ordinary course of business. The Company assesses its potential liability in such situations by analyzing potential outcomes, assuming various litigation, regulatory and settlement strategies. If the Company determines a loss is probable and its amount can be reasonably estimated, the Company accrues an amount equal to the estimated loss. No losses and no provision for a loss contingency have been recorded to date.
Purchase Commitments
The Company enters into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore the Company believes that non-cancelable obligations under these agreements are not material.
8. Collaboration and License Agreements
CRISPR Collaboration Agreement
On May 5, 2021, the Company entered into a Research Collaboration Agreement with CRISPR (as amended, the "CRISPR Agreement") to co-develop and co-commercialize an allogeneic, off-the-shelf CAR NK product candidate targeting the CD70 tumor antigen and an allogeneic, off-the-shelf product candidate that comprises both engineered NK cells and engineered T cells. The Company and CRISPR have entered into a number of amendments to the CRISPR Agreement to, among other things, revise the transfer of materials, nomination provisions, permit the Company's advancement of CRISPR-licensed product candidates targeting a specified tumor antigen (the "Specified TA"), and incorporate associated development and regulatory approval milestones and sales based royalties. In addition, the Company has received licenses from CRISPR for five CRISPR-Cas9 gene editing targets that can be engineered into an unlimited number of its own NK cell products. CRISPR also has an option to co-develop and co-commercialize a future CAR NK program. Subsequently, pursuant to terms of the CRISPR Agreement, CRISPR elected to exercise its right to opt-out of continuing the research of the initial collaboration product, NKX070. The opt-out became effective in September 2025. The Company retains a license to the initial collaboration product, subject to the same potential future milestone and royalty payments owed to CRISPR as described below for non-collaboration products. Currently, the Company is not performing any work on this initial collaboration product and no milestones have been achieved or are probable.
Under the terms of the CRISPR Agreement now, the Company and CRISPR share equally in all research and development costs and potential profits worldwide related to the NK+T product candidate and the potential future CAR NK program. The Company has deprioritized further development of NKX070 and NK+T.
For each non-collaboration product candidate incorporating a genome editing target licensed from CRISPR (a "CRISPR-Licensed Product Candidate"), other than those targeting the Specified TA, the Company would retain worldwide rights and may be
119
required to make potential future payments based on the achievement of development and regulatory approval milestones totaling less than mid-twenty million dollars, as well as tiered royalties up to the mid-single digits on net product sales of such product candidate. For each CRISPR-Licensed Product Candidate targeting the Specified TA, the Company would retain worldwide rights and may be required to make potential future payments based on the achievement of development and regulatory approval milestones totaling less than high-forty million dollars, as well as tiered royalties up to the mid-single digits on net product sales of such product candidate. As of December 31, 2025, the Company has not paid any amounts nor are any amounts owed by the Company under the CRISPR Agreement, and no milestones have been achieved or are probable.
MaxCyte License Agreement
On October 26, 2021, the Company entered into a license agreement (the "MaxCyte Agreement") with MaxCyte, Inc. ("MaxCyte") to obtain non-exclusive clinical and commercial rights to use MaxCyte's cell loading technology to develop and commercialize in up to ten licensed products.
In connection with the MaxCyte Agreement, the Company must pay to MaxCyte annual research license fees and commercialization license fees, ranging from $0.1 million to $0.3 million, for each instrument licensed by the Company. Further, the Company could be required to make milestone payments to MaxCyte upon completion of certain regulatory and commercial milestones related to the clinical development and commercialization of certain of the Company’s licensed products. The aggregate potential milestone payments range from $10 million to $13 million per licensed product. Additionally, the Company may be required to make net sales milestone payments totaling between $61.9 million to $116.8 million per licensed product. As of December 31, 2025, no milestones have been achieved.
University of Singapore and St. Jude Children’s License Agreement
In August 2016, the National University of Singapore ("NUS") and St. Jude Children’s Research Hospital ("St. Jude") and the Company entered into a license agreement under which NUS and St. Jude (the "Licensors") granted the Company an exclusive, royalty-bearing, worldwide license to its patent rights related to a method for expanding NK cells; a chimeric receptor with NKG2D specificity; and a method for supporting autonomous NK cell function ("NUS and St. Jude License Agreement"). The NUS and St. Jude License Agreement provides the Company with the rights to grant and authorize sublicenses to make, have made, use, sell, offer for sale and import products and otherwise exploit the patent rights.
As consideration for the license, the Company made an upfront payment of $31,800 and issued NUS 250,000 shares of the Company’s common stock. The Company determined that the upfront payment (42,750 Singapore Dollars (“SGD”)) and value of the common stock issued ($2,500 based on fair value at time of issuance) as part of the license agreement would be expensed upon execution of the contract as the license was acquired for research and development purposes which does not have alternative future uses, and the underlying technology has not reached technological feasibility, hence the Company expensed these costs during 2016.
In addition, the Company is required to pay an annual license maintenance fee of SGD 25,000, increasing to SGD 50,000 after year two of the agreement. Further, the Company could be required to make milestone payments to the Licensors upon completion of certain regulatory and commercial milestones related to the clinical development and commercialization of certain of the Company’s product candidates. The aggregate potential milestone payments are approximately SGD 5 million. The Company has also agreed to pay the Licensors royalties of 2.5% of net sales of products sold by the Company or through a sublicense. Additionally, the Company agreed to pay the Licensors a tiered percentage of sublicensing income (ranging from 7.5% to 20%) based on the timing of capital raised and stage of clinical trials. The NUS and St. Jude License Agreement also includes certain performance objectives which obligate the Company to meet various milestones related to the clinical development and commercialization of certain of the Company’s product candidates over time for up to 120 months after the effective date of the NUS and St. Jude License Agreement.
The Company recorded $37,000 of license maintenance fees included as part of research and development expenses for each of the years ended December 31, 2025 and 2024. As of December 31, 2025, no milestones have been achieved.
9. Employee Benefits
On January 1, 2018, the Company adopted a defined contribution 401(k) plan that is available to eligible employees. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, limited to the maximum amount allowable under federal tax regulations. As part of the plan, the Company elected to make non-matching contributions via mandatory 3% of compensation safe harbor nonelective contributions. The Company recognized $1.0 million and $0.9 million for expense related to the nonelective 401(k) contributions for the years ended December 31, 2025 and 2024, respectively.
120
10. Stockholders’ Equity
Common Stock
On June 13, 2024, the stockholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of total authorized shares of the Company's common stock, $0.0001 par value per share, from 100,000,000 to 200,000,000 shares.
Common stockholders are entitled to dividends if and when declared by the Company’s Board of Directors subject to the prior rights of the preferred stockholders. As of December 31, 2025 and 2024, no dividends on common stock had been declared by the Company’s Board of Directors.
Follow-on Offerings
In March 2024, the Company completed an underwritten public offering utilizing the Shelf Registration Statement, pursuant to which it sold an aggregate of (i) 21,010,000 shares of its common stock at a price of $10.00 per share, and (ii) pre-funded warrants to purchase 3,000,031 shares of its common stock at a price of $9.9999 per pre-funded warrant. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.0001 per share, subject to certain ownership limitations. As of December 31, 2025, none of the pre-funded warrants have been exercised. The Company raised $240.1 million in gross proceeds before underwriting discounts and commissions of $14.4 million and other offering expenses of $0.6 million.
In accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity and ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the Company determined that the pre-funded warrants should be equity classified because they are freestanding financial instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria.
11. Share-Based Compensation
Equity Incentive Plan
The Company’s 2020 Performance Incentive Plan (the "2020 Plan") which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the IPO in July 2020. Upon the effectiveness of the 2020 Plan, no further grants may be made under the Company’s prior equity incentive plan, the 2015 Equity Incentive Plan (the "2015 Plan"). The 2020 Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards to its officers, directors, employees, consultants and advisors.
As of December 31, 2025, a total of 14,380,237 shares of the Company’s common stock were authorized for issuance with respect to awards granted under the 2020 Plan (this number of shares gives effect to the annual increases in the 2020 Plan share limit, as described in the next sentence). The share limit will automatically increase on the first trading day in January of each year by an amount equal to the lesser of (1) 5% of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, or (2) such lesser number as determined by the Company’s board of directors. Any shares subject to awards granted under the 2020 Plan or the 2015 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, or otherwise fail to vest, as well as shares used to pay the purchase or exercise price of such awards or related tax withholding obligations, will become available for new award grants under the 2020 Plan. A total of 3,914,097 shares were available for new award grants under the 2020 Plan as of December 31, 2025.
121
The following table summarizes the stock option activity during the year ended December 31, 2025 (in thousands, except number of shares, exercise prices and contractual term):
The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted closing market price of the Company’s common stock on the applicable date for all in-the-money stock options.
Additional information related to the Company’s stock options is summarized below (in thousands, except per share amounts):
Year Ended December 31,
Intrinsic value of options exercised $ 22 $ 798
The following table summarizes the restricted stock unit activity during the year ended December 31, 2025:
The weighted-average grant-date fair values of restricted stock units granted during the years ended December 31, 2025 and 2024 were $2.50 and $6.04, respectively. The fair value of restricted stock units that vested in the years ended December 31, 2025 and 2024 totaled $0.7 million and $1.4 million, respectively.
Employee Stock Purchase Plan
The Company’s 2020 Employee Stock Purchase Plan (the "ESPP"), which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the IPO. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. During 2025 and 2024, 95,520 and 144,049 shares were issued under the ESPP resulting in aggregate cash proceeds of $0.1 million and $0.3 million, respectively. As of December 31, 2025, 2,173,680 shares remained available for issuance under the ESPP (after giving effect to share purchases made under the ESPP through and including the ESPP offering period that ended on November 30, 2025).
122
Common Stock Reserved for Future Issuance
As of December 31, 2025, the Company had reserved the following shares of common stock for future issuance:
Reserved for future equity award grants 3,914,097
Reserved for future ESPP issuances 2,173,680
Share-Based Compensation Expense
Share-based compensation expense for the years ended December 31, 2025 and 2024 were as follows (in thousands):
Year Ended December 31,
Total share-based compensation expense $ 8,559 $ 16,731
The total unrecognized compensation cost related to stock options was $10.7 million, which is expected to be recognized over a weighted-average remaining service period of 2.3 years as of December 31, 2025. The total unrecognized compensation cost related to restricted stock units was $1.7 million, which is expected to be recognized over a weighted-average remaining service period of 2.4 years as of December 31, 2025.
Fair Value Disclosures
The fair value of stock options was estimated on the date of grant using the quoted market price for the Company’s common stock on the applicable grant date and the Black-Scholes option pricing model with the following range of assumptions:
Year Ended December 31,
Options
Risk-free interest rate 3.7% - 4.5% 3.5% - 4.5%
Expected term (in years) 5.5 - 6.1 5.5 - 6.1
Expected dividend yield — —
ESPP
Risk-free interest rate 3.8% - 4.4% 4.4% - 5.4%
Expected term (in years) 0.5 0.5
Expected dividend yield — —
The Company recognizes compensation costs related to stock options granted to employees and nonemployees based on the estimated fair value of the awards on the date of grant, net of forfeitures. The Company generally recognizes grant-date fair value of stock options granted to employees and non-employee service providers on a straight-line basis over the requisite service period, which is generally the vesting term of the respective awards. The Company determines the fair value of stock options with a service condition as described above. The Company accounts for the impact of forfeitures as they occur. The determination of the fair value of share-based payment awards utilizing the Black-Scholes option-pricing model is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.
Expected term. The Company opted to use the “simplified method” for estimating the expected term of employee options, whereby the expected term equals the average of the vesting term and the original contractual term of the option (generally 10 years). The expected term of the employee stock purchase plan rights equals the six-month look-back period.
Expected volatility. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, since inception and prior to 2023, the Company based its estimate of expected volatility on an average of the historical volatilities of the common stock of comparable publicly traded biopharmaceutical companies over a period equal to the expected term
123
of the stock option grants. For the grants after 2023, the expected volatility was determined by using a blended approach of the Company’s historical stock price volatility and the historical stock price volatility for a select group of other publicly traded companies in the same industry. The comparable companies were chosen based on their similar size, stage in the life cycle, and financial leverage to the Company.
Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the stock options.
Expected dividend yield. The Company has not issued any dividends and does not expect to issue dividends over the life of the options, as a result the estimated dividend yield is zero.
12. Income Taxes
Due to the Company’s net losses for the years ended December 31, 2025 and 2024, and since the Company has a full valuation allowance against deferred tax assets, there was no tax provision or benefit for income taxes recorded in the years presented.
As further described in Note 2, we have elected to prospectively adopt the guidance in ASU 2023-09. The following table is a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2025 in accordance with ASU 2023-09 (in thousands, except percent):
Year Ended December 31,
Amount Percent
U.S. federal statutory income tax rate $ (21,858 ) 21.0 %
State and local income taxes, net of federal income tax effect (1) (273 ) 0.3
Tax credits:
Research and development tax credits (3,022 ) 2.9
Change in valuation allowance 22,337 (21.5 )
Nondeductible items:
Share-based compensation 1,721 (1.7 )
Changes in unrecognized tax benefits 726 (0.7 )
Income tax expense $ — 0.0 %
(1) The majority of the state and local income taxes, net of federal effect, category is California.
The following table is a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the year ended December 31, 2024, in accordance with the guidance prior to the adoption of ASU 2023-09 (in thousands):
Year Ended December 31,
Income tax benefit at statutory rates $ (22,846 )
State income tax, net of federal benefit (1,701 )
Permanent items 2,877
Research and development credits (3,640 )
Change in valuation allowance 25,310
Income tax expense $ —
124
Significant components of the Company’s deferred tax assets are shown below (in thousands):
December 31,
Deferred tax assets:
Net operating loss carry forwards $ 67,146 $ 53,520
Depreciation and amortization 341 338
Capitalized research and development expenditures 44,865 39,385
Valuation allowance for deferred tax assets (151,363 ) (127,479 )
Deferred tax assets, net of valuation allowance 13,083 14,463
Deferred tax liabilities:
Operating lease right-of-use asset (7,259 ) (7,644 )
Depreciation and amortization (5,824 ) (6,819 )
Net deferred tax assets $ — $ —
Public Law No. 119–21 was enacted on July 4, 2025, as H.R. 1 during the 119th Congress and formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” ("2025 Reconciliation Act"). The 2025 Reconciliation Act includes several significant tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company evaluated the impact of the 2025 Reconciliation Act and determined that it did not have a material impact on the Company’s financial statements for the year ended December 31, 2025.
The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Company’s ability to realize these assets. The valuation allowance increased by $23.9 million and $25.3 million as of December 31, 2025 and 2024, respectively.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its net deferred tax assets will not be realized, and therefore, the net deferred tax assets are substantially offset by a valuation allowance as of December 31, 2025 and 2024. The deferred tax assets were primarily comprised of federal and state tax net operating losses, capitalized research and development expenditures, and tax credit carryforwards.
As of December 31, 2025, the Company had net operating loss ("NOL") carryforwards of approximately $298.1 million and $65.1 million, available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. Of the $298.1 million federal NOL carryforwards, $3.2 million will begin expiring in 2035, if not utilized, while $294.9 million can be carried forward indefinitely. The state NOL carryforwards will begin expiring in 2036, if not utilized.
The Company also had federal and state research and development credit carry forwards of approximately $25.1 million and $11.8 million, respectively, as of December 31, 2025. The federal credits will begin expiring in 2035 if not utilized. The California credits have no expiration date.
Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state provisions. The future utilization of the Company’s NOL and tax credit carryforwards to offset future taxable income may be subject to a substantial annual limitation as a result of changes in ownership by stockholders that hold 5% or more of the Company’s common stock. An assessment of such ownership changes under Section 382 was not completed through December 31, 2025. To the extent that an assessment is completed in the future, the Company’s ability to utilize tax attributes could be restricted on a year-by-year basis and certain attributes could expire before they are utilized. The Company will examine the impact of any potential ownership changes in the future.
125
The balance of gross unrecognized tax benefits as of December 31, 2025 and 2024 was approximately $5.5 million and $4.7 million, respectively, of which none would affect the Company’s effective tax rate if recognized due to the Company's full valuation allowance position. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. No interest or penalties were recorded for the years ended December 31, 2025 and 2024.
The following table summarizes the changes in the Company’s gross unrecognized tax benefits (in thousands):
December 31,
Balance at the beginning of the year $ 4,748 $ 3,738
Increases related to tax positions taken in prior years 24 —
(Decreases) related to tax positions taken in prior years (98 ) (83 )
Increases related to tax positions taken in current year 872 1,093
Balance at the end of the year $ 5,546 $ 4,748
As of December 31, 2025, the federal and state returns for the years ended 2015 through the current period remain subject to examination by taxing authorities due to the tax attribute carryforwards. The Company is currently under examination by the Internal Revenue Service ("IRS") for the Company's 2023 United States ("U.S.") income tax return. The Company is not currently under examination by any state income or franchise tax agency.
In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law, providing numerous tax provisions and other stimulus measures. Among these was the Employee Retention Credit ("ERC"), a refundable tax credit against certain employment taxes for qualifying businesses that retained employees on their payroll during the COVID-19 pandemic.
In the third quarter of 2025, the Company received approval and payment from the IRS for ERC claims submitted. The Company received $1.7 million, including interest, in payments related to calendar years 2020 and 2021. This amount, due to the uncertainty of eventual receipt following claims made, was not recognized until receipt. For the twelve months ended December 31, 2025, $1.5 million was recognized within other income and $0.2 million was recognized in interest income in the statement of operations.
13. Segment Reporting
The Company operates as a single reporting segment, focused on the research and development of cell therapies for patients with autoimmune diseases. The Company's measure of segment profit or loss is net loss. The Chief Executive Officer, as the CODM, manages and allocates resources to the operations of the Company on a total company basis. The Company monitors its cash, cash equivalents, and investments as reported on the Company's Balance Sheets to determine funding for its research and development. The measure of segment assets is reported as total assets on the Company’s balance sheet.
As the Company is not yet generating revenue, the CODM evaluates its performance based on progress in pre-clinical and clinical research objectives. Along with the Company’s Statement of Operations and Comprehensive Loss, the CODM regularly reviews budgeted and forecasted expenses to assess liquidity requirements and allocate cash accordingly.
The following table is representative of the significant expense categories regularly provided to the CODM when managing the Company's single reporting segment.
A reconciliation to the net loss for the years ended December 31, 2025 and 2024 is included at the bottom of the table below.
126
December 31,
Segment expenses:
Direct external development program expenses 23,302 21,431
Reconciling items:
Depreciation and amortization (9,193 ) (9,152 )
Impairment of ROU asset (791 )
(1) Personnel related expenses include $4.9 million of severance and other benefits expense for the year ended December 31, 2025.
(2) Other segment items include consultants and contractor, lab supplies, and general business expenses.
14. Reduction in Force
On March 26, 2025, the Company announced a reduction in force (the "Reduction") that resulted in a reduction of 53 positions, representing approximately 34% of the Company’s workforce. The Company undertook the Reduction to decrease its costs and create a more streamlined organization to focus on upcoming clinical data updates.
Employees affected by the Reduction were entitled to receive severance payments and certain Company-funded benefits totaling approximately $5.4 million in costs. The Company recognized severance and benefit expense in full for employees who were notified of their termination in March 2025 and had no requirements for future service. The Company recognized expense for employees who were required to render services to receive their severance and benefits ratably over the service period from April 2025 to October 31, 2025. These charges were recorded pursuant to ASC 712 or ASC 420, depending on the agreements with the impacted employees. The expense was recognized in general and administrative operating expenses in the statements of operations and comprehensive loss.
The following table provides details of the severance and other termination benefit expense with the remaining balance of the liability recorded in accrued and other current liabilities on the condensed balance sheets for the year ended December 31, 2025 (in thousands):
No Future Service Period Required Future Service Period Required Total
Total severance and other benefits, at fair value $ 5,118 $ 250 $ 5,368
Liability balance, January 1, 2025 $ — $ — $ —
Payments made during the period (4,802 ) — (4,802 )
127
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and President, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and President, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. Based on this evaluation, our Chief Executive Officer and President concluded that, as of December 31, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and President, regarding the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2025.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our President, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by management override of controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.
128
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information.
None of our directors or officers adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-rule 10b5-1 trading arrangement," as each item is defined in Item 408(a) of Regulation S-K, during the fourth quarter ended December 31, 2025.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
129
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will be set forth in the Company’s proxy statement to be filed with the Securities and Exchange Commission within 120 days after the Company’s fiscal year end and is incorporated herein by reference.
130
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K: