PRAX US Equity☆

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing needs, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

As noted in our Company Overview in Part I of this report, we are a clinical-stage biopharmaceutical company translating insights from genetic epilepsies into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal excitation-inhibition imbalance. Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, can lead to abnormal function and both rare and more prevalent neurological disorders. We are applying genetic insights to the discovery and development of therapies for neurological disorders through two proprietary platforms, using our understanding of shared biological targets and circuits in the brain. Each platform currently has multiple programs, with significant potential for additional program and indication expansion:

•CerebrumTM, our small molecule platform, utilizes deep understanding of neuronal excitability and neuronal networks and applies a series of computational and experimental tools to develop orally available precision therapies

•SolidusTM, our antisense oligonucleotide, or ASO, platform, is an efficient, targeted precision medicine discovery and development engine anchored on a proprietary, computational methodology

Our platforms utilize a deliberate, pragmatic and patient-guided approach, leveraging a suite of translational tools, including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients. Through this approach, we have established a diversified, multimodal CNS portfolio with four clinical-stage product candidates across movement disorders and epilepsy. For our most advanced product candidate under the CerebrumTM platform, ulixacaltamide (formerly known as PRAX-944), we expect to announce topline results from the Phase 2b Essential1 clinical trial in essential tremor, or ET, in the first quarter of 2023. We also plan to initiate an ulixacaltamide Phase 2 clinical trial in Parkinson's disease, or PD, in the first quarter of 2023 and expect topline results in the fourth quarter of 2023. We plan to initiateour PRAX-562 Phase 2 EMBOLD study in the first quarter of 2023, with initial cohorts in SCN2A-DEE and SCN8A-DEE, and expect to announce topline results for both cohorts in the second half of 2023. We also initiated a Phase 1 healthy volunteer study of PRAX-628 in the fourth quarter of 2022 and expect to report topline results in mid-2023. For our most advanced product candidate under the SolidusTM platform, PRAX-222, we expect to announce topline results from the first dose cohort of our EMBRAVE study in mid-2023. For further details on our business, refer to the Business section of Part I of this report.

We were incorporated in 2015 and commenced operations in 2016. Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property, or IP, portfolio, business planning, raising capital and providing general and administrative support for these operations. We employ a “virtual” research and development model, relying heavily upon external consultants, collaborators, contract development and manufacturing organizations and contract research organizations, or CROs, to conduct our preclinical and clinical activities. Since inception, we have financed our operations primarily with proceeds from the sale and issuance of equity securities.

We are a development stage company and we have not generated any revenue from product sales, and do not expect to do so for several years, if at all. All of our product candidates are still in preclinical and clinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. We have incurred recurring operating losses since inception, including net losses of $214.0 million and $167.1 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated

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deficit of $530.6 million. We expect to incur significant expenses and operating losses for the foreseeable future as we expand our research and development activities. In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

•advance our lead product candidate, ulixacaltamide, to a late stage clinical trial for the treatment of ET;

•advance ulixacaltamide in our Phase 2 clinical trial for the treatment of PD;

•advance our PRAX-562 product candidate in the EMBOLD clinical trial;

•advance our PRAX-222 product candidate in the EMBRAVE clinical trial;

•advance our PRAX-628 product candidate in the Phase 1 clinical trial;

•advance our preclinical candidates to clinical trials;

•further invest in our pipeline;

•further invest in our manufacturing capabilities;

•seek regulatory approval for our product candidates;

•maintain, expand, protect and defend our IP portfolio;

•acquire or in-license technology;

•establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and

•when needed, increase our headcount to support our development efforts and any future commercialization efforts.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $100.5 million, which will enable us to fund our operating expenses and capital expenditures into the first quarter of 2024. Since our cash, cash equivalents and marketable securities as of December 31, 2022 are not sufficient to fund our operations for at least the next twelve months from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, there is substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to raise additional capital to finance our operations. We expect to finance our operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all. We have based our assessment on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. See “—Liquidity and Capital Resources.”

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Restructuring

In June 2022, we began a strategic realignment to focus resources on our ulixacaltamide, PRAX-562, PRAX-222 and PRAX-628 product candidates, as well as our preclinical programs across our CerebrumTM and SolidusTM platforms, which resulted in a reduction of our workforce.

We incurred $1.0 million of costs related to the realignment, of which $0.6 million has been recognized in research and development expenses and $0.4 million has been recognized in general and administrative expenses in the consolidated statement of operations during the year ended December 31, 2022. These costs relate to employee severance, benefits and related costs.

As of December 31, 2022, all costs related to the strategic realignment were paid.

Financial Operations Overview

Revenue

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.

As discussed in Note 9 to our audited consolidated financial statements, we have entered into a collaboration agreement that will result in the recognition of $5.0 million of revenue upon the satisfaction of the performance obligation identified within the agreement.

Operating Expenses

Research and Development Expenses

The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for the following:

•costs to develop our portfolio;

•discovery efforts leading to development candidates;

•clinical development costs for our product candidates; and

•costs to develop our manufacturing technology and infrastructure.

The costs above comprise the following categories:

•personnel-related expenses, including salaries, benefits and stock-based compensation expense;

•expenses incurred under agreements with third parties, such as consultants, investigative sites and CROs, that conduct our preclinical and clinical studies and in-licensing arrangements;

•costs incurred to maintain compliance with regulatory requirements;

•costs incurred with third-party contract development and manufacturing organizations to acquire, develop and manufacture materials for preclinical and clinical studies; and

•depreciation, amortization and other direct and allocated expenses, including rent and other operating costs, such as information technology, incurred as a result of our research and development activities.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued expenses. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative

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future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

As a company operating in a virtual environment, a significant portion of our research and development costs have been external costs. We track direct external research and development expenses to specific platforms and product candidates upon commencement. Due to the number of ongoing studies and our ability to use resources across platforms, indirect or shared operating costs incurred for our research and development platforms, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a platform-specific basis.

The following table reflects our research and development expenses, including direct expenses summarized by platform and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands):

Year Ended December 31,

Personnel-related (including stock-based compensation) 37,392 31,090

Other indirect research and development expenses 7,440 8,858

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will be maintained or increase in the foreseeable future as we advance our product candidates through the development phase, and as we continue to discover and develop additional product candidates, build manufacturing capabilities and expand into additional therapeutic areas.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:

•our ability to add and retain key research and development personnel;

•the timing and progress of preclinical and clinical development activities;

•the number and scope of preclinical and clinical programs we decide to pursue;

•our ability to successfully complete clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration, or the FDA, or any comparable foreign regulatory authority;

•our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;

•our successful enrollment in and completion of clinical trials;

•the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations;

•our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our product candidates;

•our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;

•the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;

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•our ability to obtain and maintain patent, trade secret and other IP protection and regulatory exclusivity for our product candidates, if approved;

•our receipt of marketing approvals from applicable regulatory authorities;

•our ability to commercialize products, if approved, whether alone or in collaboration with others; and

•the continued acceptable safety profiles of our product candidates.

A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete our clinical development activities. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and require significant development costs.

General and Administrative Expense

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, commercial and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; commercial-related costs to support market assessments and scenario planning; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs, such as information technology. Costs to secure and defend our IP are expensed as incurred and are classified as general and administrative expenses. These costs relate to the operation of the business and are unrelated to the research and development function or any individual platform or product candidate.

We anticipate that our general and administrative expenses may increase in the future as we increase our headcount, when needed, to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to incur additional IP-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Other Income

Other Income, Net

Other income, net consists of interest income from our cash, cash equivalents and marketable securities and amortization of investment premiums and discounts.

Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits due to our uncertainty of realizing a benefit from those items. As of December 31, 2022 and 2021, we had U.S. federal and state net operating loss carryforwards which may be available to offset future taxable income and which begin to expire in 2035. As of December 31, 2022 and 2021, we also had federal and state research and development tax credit carryforwards which may be available to offset future income tax liabilities and which begin to expire in 2031.

Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. There was no income tax provision recognized for the years ended December 31, 2022 and 2021.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our consolidated statements of operations for each period presented (in thousands):

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Year Ended December 31, Change

Operating expenses:

Other income:

Research and Development Expense

The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):

Year Ended December 31, Change

Personnel-related (including stock-based compensation) 37,392 31,090 6,302

Other indirect research and development expenses 7,440 8,858 (1,418)

The $34.8 million increase in research and development expenses was primarily attributable to the following:

•$20.0 million increase in expense related to our CerebrumTM platform, driven primarily by:

◦an increase in clinical, manufacturing and toxicology-related spend for our ulixacaltamide program, including our Phase 2b Essential1 clinical trial;

◦an increase in clinical-related spend for our PRAX-114 Phase 2 clinical trials, all of which were wound down during the second and third quarters of 2022 due to our strategic realignment;

◦an increase in clinical-related spend for our PRAX-628 Phase 1 clinical trial; and

◦an increase in costs associated with our Phase 1 PRAX-562 clinical trial in healthy volunteers and startup costs related to the EMBOLD Phase 2 clinical trial, partially offset by a decrease related to prior year toxicology-related spend for PRAX-562.

•$9.9 million increase in expense related to our SolidusTM platform, driven primarily by an increase in clinical-related spend to support the initiation of the PRAX-222 EMBRAVE clinical trial, an increase in preclinical activities for our earlier stage assets and the payment of a $2.0 million license fee to Ionis Pharmaceuticals, Inc. in January of 2022 upon exercise of our exclusive option to obtain the rights and license to further develop and commercialize PRAX-222; and

•$6.3 million increase in personnel-related costs due to changes in headcount.

General and Administrative Expense

The $12.9 million increase in general and administrative expenses was primarily attributable to an $11.8 million increase in personnel-related costs due to changes in headcount, including an increase of $5.3 million in stock-based compensation expense.

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Other Income

Other income for the years ended December 31, 2022 and 2021 was comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant losses in each period. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all.

To date, we have financed our operations primarily with proceeds from the issuance of redeemable convertible preferred stock and from the sale of common stock through an initial public offering, a follow-on public offering and at-the-market offerings under our shelf registration statement. From inception through December 31, 2022, we have raised $526.0 million in aggregate cash proceeds from such transactions, net of issuance costs. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $100.5 million.

On November 3, 2021, we entered into an Open Market Sale Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, to provide for the offering, issuance and sale of up to an aggregate amount of $125.0 million of common stock from time to time in at-the-market offerings for which Jefferies acts as sales agent. During the year ended December 31, 2022, we issued and sold 3,595,273 shares under the Sales Agreement for aggregate net proceeds of $9.6 million after deducting commissions and offering expenses payable by us. As of December 31, 2022, we have issued and sold a total of 3,987,270 shares under the Sales Agreement for aggregate net proceeds of $16.6 million after deducting commissions and offering expenses payable by us. Subsequent to December 31, 2022, we issued and sold a total of 2,942,083 shares under the Sales Agreement for aggregate net proceeds of $11.2 million after deducting commissions and offering expenses payable by us.

Cash Flows

The following table provides information regarding our cash flows for each period presented (in thousands):

Year Ended December 31,

Net cash (used in) provided by:

Operating Activities

Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we have invested in developing our portfolio, drug discovery efforts and related infrastructure. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments.

During the year ended December 31, 2022, net cash used in operating activities of $185.0 million was primarily due to our $214.0 million net loss and $1.8 million in changes in operating assets and liabilities primarily related to a decrease in accrued expenses, partially offset by $30.8 million of non-cash charges primarily related to stock-based compensation.

During the year ended December 31, 2021, net cash used in operating activities of $124.6 million was primarily due to our $167.1 million net loss, partially offset by $26.4 million of non-cash charges primarily related to stock-based compensation and $16.1 million in changes in operating assets and liabilities primarily related to increases in accounts payable and accrued expenses.

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Investing Activities

During the year ended December 31, 2022, net cash provided by investing activities of $96.9 million primarily related to the maturities of marketable securities, partially offset by purchases of marketable securities.

During the year ended December 31, 2021, net cash used in investing activities of $140.5 million primarily related to the purchase of marketable securities, partially offset by the maturities of marketable securities.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities of $10.5 million consisted of net proceeds from at-the-market offerings of $9.6 million and proceeds from purchases of common stock under our employee stock purchase plan and from the exercise of stock options of $1.4 million, partially offset by the payment of issuance costs for our at-the-market offerings and the payment of taxes related to the vesting of restricted stock units.

During the year ended December 31, 2021, net cash provided by financing activities of $107.6 million consisted of net proceeds from our follow-on public offering of $98.4 million and at-the-market offerings of $7.3 million and net proceeds from the exercise of stock options of $2.4 million, partially offset by the payment of issuance costs for our initial public offering.

Plan of Operation and Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

•advance the clinical development of our clinical-stage product candidates within our CerebrumTM and SolidusTM platforms;

•advance the development of any additional product candidates;

•conduct research and continue preclinical development of potential product candidates;

•make strategic investments in manufacturing capabilities;

•maintain our IP portfolio and opportunistically acquire complementary IP;

•seek to obtain regulatory approvals for our product candidates;

•potentially establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval;

•when needed, add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company; and

•experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges.

As of December 31, 2022 we had cash, cash equivalents and marketable securities of $100.5 million. Subsequent to December 31, 2022, we issued and sold a total of 2,942,083 shares under the Sales Agreement for aggregate net proceeds of $11.2 million after deducting commissions and offering expenses payable by us. We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of December 31, 2022, together with net proceeds raised under the Sales Agreement subsequent to December 31, 2022, will enable us to fund our operating expenses and capital expenditures into the first quarter of 2024. We have incurred recurring losses since our inception, including a net loss of $214.0 million for the year ended December 31, 2022. In addition, as of December 31, 2022, we had an accumulated deficit of $530.6 million. We expect to continue to generate operating losses for the foreseeable future. We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year of the issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Since we

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expect that our cash, cash equivalents and marketable securities as of December 31, 2022 will not be sufficient to fund operations for at least the next twelve months from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, there is substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to raise additional capital to finance our operations. We expect to finance our operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all. We have based our assessment on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

Because of the numerous risks and uncertainties associated with product development and potential collaborations with third parties for the development of our product candidates, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:

•the scope, progress, results and costs of preclinical studies and clinical trials for our platforms and product candidates;

•the number and characteristics of product candidates and technologies that we develop or may in-license;

•the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

•the costs necessary to obtain regulatory approvals, if any, for products in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;

•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our IP rights and defending any IP-related claims;

•the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements;

•the costs we incur in maintaining business operations;

•the costs associated with being a public company;

•the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval;

•the effect of competing technological and market developments;

•the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates, although we currently have no commitments or agreements to complete any such acquisitions or investments in businesses.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Market volatility could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock.

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If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

We have entered into certain agreements under which we have incurred or may in the future incur obligations and commitments that could have a material impact on our capital resources.

We sublease building space in Boston, Massachusetts. Our sublease will expire on January 31, 2026. As of December 31, 2022, our operating lease commitments for the remainder of the lease term were $4.0 million.

In addition, we have entered into collaboration and license agreements with RogCon Inc., or RogCon, and Ionis Pharmaceuticals, Inc., or Ionis, under which we could be obligated to pay certain fees, milestone payments and cost reimbursements.

Under our license agreement with RogCon, Inc., or RogCon, we are obligated to reimburse RogCon for its out-of-pocket costs incurred for activities performed under the license agreement. Additionally, we may be obligated to pay RogCon a milestone payment of $3.0 million and profit share payments. The $3.0 million milestone payment is due when the first profit share payment has become due and payable and certain contingent payments have become due and payable to Ionis under our collaboration agreement with Ionis. The profit share payments are based on a low-double-digit percentage of net profits, depending on sales volume. Either party may terminate the license agreement for material breach or insolvency of the other party. Additionally, we may terminate for convenience with prior notice to RogCon. See “Business—License Agreements—License Agreement with RogCon.”

Under our collaboration agreement with Ionis Pharmaceuticals, Inc., or Ionis,, we reimbursed Ionis for identifying a development candidate and conducting an investigational new drug application, or IND, enabling toxicology study, as well as out of pocket costs incurred by Ionis related to research activities. Ionis granted us an exclusive option to obtain the rights and license to further develop and commercialize the development candidate in the field of epilepsy and neurodevelopmental disorders, other than Dravet Syndrome, following the results of the IND-enabling toxicology study. We exercised this exclusive option in January 2022 and paid a $2.0 million license fee. We may be required to make additional payments to Ionis including development milestone payments, additional milestone payments and sales royalties or sublicense fees. Either party may terminate the collaboration agreement upon material breach or insolvency of the other party. Ionis may terminate if we fail to achieve a performance milestone. See “Business—License Agreements—Ionis Collaboration Agreement.”

We have also entered into multiple agreements with third parties under which we may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified product candidates. Payments under these agreements generally become due and payable upon achievement of such milestones and sales. When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in our financial statements.

We have agreements with certain vendors for various services, including services related to clinical operations and support, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors. Under such agreements, we are contractually obligated to make certain payments to vendors to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination and the exact terms of the relevant agreement and cannot be reasonably estimated.

In addition, we enter into indemnification agreements and agreements containing indemnification provisions in the ordinary course of business. Pursuant to these agreements, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business collaborators, in connection with any U.S. patent or any copyright or other IP infringement claim by any third party with respect to our product candidates. The term of these indemnification agreements is generally perpetual upon execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements cannot be reasonably estimated.

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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Research and Development Expenses and Related Accruals and Prepaids

Research and development expenses include costs directly attributable to the conduct of research and development activities, including personnel-related expenses such as salaries, benefits and stock-based compensation expense; materials; supplies; manufacturing and external costs related to outside vendors engaged to conduct both preclinical studies and clinical trials; and the allocable portions of facility costs, such as rent, utilities, depreciation and general support services. All costs associated with research and development activities are expensed as incurred.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued and prepaid research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates in determining our accrued and prepaid research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. When evaluating the adequacy of the accrued liabilities and prepaid expenses, we analyze progress of the studies or trials related to these services, including the phase or completion of events, invoices received and contracted costs. Examples of estimated accrued and prepaid research and development expenses include fees paid to:

•CROs in connection with performing research services and preclinical and clinical studies;

•investigative sites or other providers in connection with preclinical and clinical studies;

•vendors in connection with preclinical and clinical development activities; and

•vendors related to product manufacturing, development and distribution of preclinical and clinical supplies.

The financial terms of our agreements with CROs are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of milestones. In expensing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the expense accordingly. Significant judgments and estimates are made in determining the accrued and prepaid research and development expenses at the end of any reporting period. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

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Recently Issued Accounting Pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our current operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Fluctuation Risk

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash, cash equivalents and marketable securities are or may be in the form of money market funds or marketable debt securities and are or may be invested in U.S. Treasury and U.S. government agency obligations. However, because of the short-term nature and low risk profile of the instruments in our portfolio, an immediate change in market interest rates of 100 basis points would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.

Foreign Currency Fluctuation Risk

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K.

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 97

Consolidated Balance Sheets 99

Consolidated Statements of Operations 100

Consolidated Statements of Comprehensive Loss 101

Consolidated Statements of Stockholders’ Equity 102

Consolidated Statements of Cash Flows 104

Notes to Consolidated Financial Statements 105

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Praxis Precision Medicines, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Praxis Precision Medicines, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

The Company's Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has limited financial resources, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These 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 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. 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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Ulixacaltamide Essential1 Accrued and Prepaid Research and Development Costs

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.

Boston, Massachusetts

February 7, 2023

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PRAXIS PRECISION MEDICINES, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 10,351 11,498

Property and equipment, net 971 1,213

Operating lease right-of-use assets 2,901 3,653

Other non-current assets 416 472

Liabilities and stockholders’ equity

Current liabilities:

Operating lease liabilities 1,005 810

Current portion of deferred revenue 2,818 —

Long-term liabilities:

Non-current portion of operating lease liabilities 2,495 3,501

Non-current portion of deferred revenue 2,182 —

Commitments and contingencies (Note 8)

Stockholders’ equity:

Accumulated other comprehensive loss (173) (176)

Total liabilities and stockholders’ equity $ 115,128 $ 292,747

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

Year Ended December 31,

Operating expenses:

Other income:

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands, except share and per share data)

Year Ended December 31,

Change in unrealized losses on marketable securities, net of tax 3 (176)

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

Shares Amount

Stock-based compensation expense — — 7,886 — — 7,886

Vesting of restricted stock units 81,130 — — — — —

Issuance of common stock upon exercise of stock options 72,278 — 333 — — 333

Stock-based compensation expense — — 7,611 — — 7,611

Issuance of common stock under employee stock purchase plan 51,645 — 454 — — 454

Vesting of restricted stock units 6,361 — — — — —

Issuance of common stock upon exercise of stock options 13,143 — 67 — — 67

Change in unrealized loss on marketable securities, net of tax — — — — (74) (74)

Stock-based compensation expense — — 6,730 — — 6,730

Vesting of restricted stock units 5,312 — — — — —

Issuance of common stock upon exercise of stock options 180,241 — 409 — — 409

Change in unrealized loss on marketable securities, net of tax — — — — 144 144

Stock-based compensation expense — — 6,366 — — 6,366

Issuance of common stock under employee stock purchase plan 89,739 — 163 — — 163

Vesting of restricted stock units 12,000 — — — — —

Change in unrealized loss on marketable securities, net of tax — — — — 363 363

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(Amounts in thousands, except share data)

Shares Amount

Stock-based compensation expense — — 4,666 — — 4,666

Issuance of common stock upon exercise of stock options 352,506 — 851 — — 851

Change in unrealized loss on marketable securities, net of tax — — — — (86) (86)

Stock-based compensation expense — — 5,400 — — 5,400

Issuance of common stock upon exercise of stock options 322,113 — 809 — — 809

Change in unrealized loss on marketable securities, net of tax — — — — 36 36

Stock-based compensation expense — — 6,521 — — 6,521

Issuance of common stock upon exercise of stock options 90,909 — 309 — — 309

Change unrealized loss on marketable securities, net of tax — — — — 25 25

Stock-based compensation expense — — 6,106 — — 6,106

Issuance of common stock upon exercise of stock options 124,446 — 478 — — 478

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

Year Ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash operating lease expense 752 1,412

Amortization of premiums and discounts on marketable securities, net 1,003 2,087

Changes in operating assets and liabilities:

Prepaid expenses and other current assets 547 (5,780)

Operating lease liabilities (811) (763)

Deferred revenue 5,000 —

Cash flows from investing activities:

Purchases of property and equipment (444) (1,050)

Net cash provided by (used in) investing activities 96,889 (140,520)

Cash flows from financing activities:

Proceeds from at-the-market offerings, net of issuance costs 9,561 7,301

Proceeds from follow-on public offering, net of issuance costs — 98,413

Net cash provided by financing activities 10,465 107,586

Decrease in cash, cash equivalents and restricted cash (77,689) (157,488)

Cash, cash equivalents and restricted cash, beginning of period 139,720 297,208

Cash, cash equivalents and restricted cash, end of period $ 62,031 $ 139,720

Reconciliation of cash, cash equivalents and restricted cash:

Total cash, cash equivalents and restricted cash $ 62,031 $ 139,720

Supplemental disclosures of non-cash activities:

Offering costs included in accrued expenses $ — $ 262

Purchases of property and equipment included in accrued expenses $ — $ 267

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business

Praxis Precision Medicines, Inc. (“Praxis” or the “Company”) is a clinical-stage biopharmaceutical company translating insights from genetic epilepsies into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal excitation-inhibition imbalance. Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, can lead to abnormal function and both rare and more prevalent neurological disorders. The Company is applying genetic insights to the discovery and development of therapies for neurological disorders through two proprietary platforms, using its understanding of shared biological targets and circuits in the brain. Each platform has multiple programs currently, with significant potential for additional program and indication expansion:

•CerebrumTM, the Company's small molecule platform, utilizes deep understanding of neuronal excitability and neuronal networks and applies a series of computational and experimental tools to develop orally available precision therapies

•SolidusTM, the Company's antisense oligonucleotide, or ASO, platform, is an efficient, targeted precision medicine discovery and development engine anchored on a proprietary, computational methodology

The Company's platforms utilize a deliberate, pragmatic and patient-guided approach, leveraging a suite of translational tools, including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients. Through this approach, the Company has established a diversified, multimodal CNS portfolio with four clinical-stage product candidates across movement disorders and epilepsy. For the Company's most advanced product candidate under the CerebrumTM platform, ulixacaltamide (formerly known as PRAX-944), it expects to announce topline results from the Phase 2b Essential1 clinical trial in essential tremor in the first quarter of 2023. The Company also plans to initiate an ulixacaltamide Phase 2 clinical trial in Parkinson's disease in the first quarter of 2023 and expects topline results in the fourth quarter of 2023. The Company plans to initiateits PRAX-562 Phase 2 EMBOLD study in the first quarter of 2023, with initial cohorts in SCN2A-DEE and SCN8A-DEE, and expects to announce topline results for both cohorts in the second half of 2023. The Company also initiated a Phase 1 healthy volunteer study of PRAX-628 in the fourth quarter of 2022 and expects to report topline results in mid-2023. For the Company's most advanced product candidate under the SolidusTM platform, PRAX-222, it expects to announce topline results from the first dose cohort of its EMBRAVE study in mid-2023.

Praxis was incorporated in 2015 and commenced operations in 2016. The Company has funded its operations primarily with proceeds from the issuance of redeemable convertible preferred stock, and from the sale of common stock through an initial public offering ("IPO"), a follow-on public offering and at-the-market offerings under its shelf registration statement. From inception through December 31, 2022, the Company raised $526.0 million in aggregate cash proceeds from these transactions, net of issuance costs.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Liquidity

In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40),

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

The Company has incurred recurring losses since its inception, including a net loss of $214.0 million for the year ended December 31, 2022. In addition, as of December 31, 2022, the Company had an accumulated deficit of $530.6 million. The Company expects to continue to generate operating losses for the foreseeable future.

The Company expects that its cash, cash equivalents and marketable securities as of December 31, 2022, together with net proceeds raised under the Open Market Sale Agreement ("the Sales Agreement") subsequent to December 31, 2022, may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these consolidated financial statements which raises substantial doubt about the Company's ability to continue as a going concern, and the Company will need to obtain additional funding. The Company expects to finance its operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and ASUs of the FASB.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Praxis Security Corporation and Praxis Precision Medicines Australia Pty Ltd. All intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, accrued and prepaid research and development expense, stock-based compensation expense and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Segments

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of assessing performance and allocating resources. The majority of the Company’s long-lived assets are held in the United States.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market funds. Cash equivalents are carried at cost, which approximates their fair market value.

Restricted cash comprises letters of credit for the benefit of the landlord in connection with the Company’s lease facilities. Restricted cash is classified as either current or non-current based on the terms of the underlying lease arrangement.

The following table presents cash and cash equivalents and restricted cash as reported on the consolidated balance sheets that equal the total amounts on the consolidated statements of cash flows (in thousands):

December 31,

Marketable Securities

The Company invests its excess cash in money market funds and debt instruments of the U.S. Treasury, financial institutions, corporations and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1 or P-1 by two of the three nationally recognized statistical rating organizations. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its marketable securities. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity, and periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. The Company classifies its investments in debt instruments as available-for-sale. Available-for-sale investments are reported at fair value at each balance sheet date, and include any unrealized holding gains and losses in accumulated other comprehensive loss, a component of stockholders’ equity. Realized gains and losses are included in the Company's consolidated statements of operations. All of the Company's available-for-sale securities are available for use in its current operations. As a result, the Company has categorized all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.

The Company evaluates securities for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the Company, and the Company's intent and ability to hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes unless deemed other than temporary.

Concentrations of Credit Risk and Significant Suppliers and License Agreements

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. The Company's investment portfolio comprises money market funds, marketable debt securities, including debt securities issued by U.S. government agencies and corporations, and commercial paper. The Company investments are limited to investment-grade securities with strong credit ratings with the objective of maintaining safety and liquidity. The Company also maintains deposits in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

accredited financial institutions in excess of federally insured limits. Bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to $250,000. As of December 31, 2022 and 2021, the Company’s primary operating accounts significantly exceeded the FDIC limits. The Company deposits its cash in financial institutions that it believes have high credit quality, and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply materials for research and development activities of its programs, including preclinical and clinical testing. In particular, the Company relies, and expects to continue to rely, on a small number of third-party manufacturers to produce and process its current and potential product candidates and to manufacture supply of its current and potential product candidates for preclinical and clinical activities. These programs could be adversely affected by a significant interruption in the supply of the necessary materials. The Company is also dependent on third parties who provide license rights used in the development of certain programs. The Company could experience delays in the development of its programs if any of these license agreements are terminated, if the Company fails to meet the obligations required under its arrangements, or if the Company is unable to successfully secure new strategic alliances or licensing agreements.

Off-Balance Sheet Risk

As of December 31, 2022 and 2021, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts or other hedging arrangements.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. The fair values of the Company’s financial assets and liabilities reflects the Company’s estimate of the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1: Quoted prices in active markets for identical assets or liabilities.

•Level 2: Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3: Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

An entity may choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings.

Items measured at fair value on a recurring basis include cash equivalents and marketable securities (Note 4 and Note 5). The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Estimated Useful Life

Office furniture and equipment 5 years

Laboratory equipment 3 years

Computer equipment 3 years

Upon disposal, retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Expenditures for repairs and maintenance that do not improve or extend the lives of the respective assets are charged to expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the years ended December 31, 2022 and 2021.

Leases

The Company accounts for leases in accordance with ASC 842. The Company determines if an arrangement is a lease at contract inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating right-of-use assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

The Company uses the implicit rate when readily determinable and uses its incremental borrowing rate when the implicit rate is not readily determinable, based upon the information available at the commencement date in determining the present value of the lease payments. The incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.

The lease payments used to determine operating lease right-of-use assets may include lease incentives and stated rent increases. The Company’s lease agreements may include both lease and non-lease components, which the Company accounts for as a single lease component when the payments are fixed, for all classes of underlying assets. Variable payments included in the lease agreement are expensed as incurred.

The Company’s operating leases are reflected in operating lease right-of-use assets and in current operating lease liabilities and long-term operating lease liabilities in its consolidated balance sheets. The Company’s operating lease right-of-use asset as of December 31, 2022 and 2021 did not include any lease incentives. Lease expense for future lease payments is recognized on a straight-line basis over the lease term.

Collaboration Agreements

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(Continued)

The Company analyzes its collaboration arrangements to assess whether they are within the scope of 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.

Revenue Recognition

The Company enters into collaboration agreements which are within the scope of ASC 606 under which the Company may license or provide options to license certain development or product candidates and, in certain cases, may perform research and development services. The terms of these agreements may include payment of non-refundable, upfront fees, option exercise fees, development and commercial milestone payments and royalties on net sales of licensed products.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for agreements determined to be within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then assesses whether each promised good or service is distinct. When the Company offers options for additional goods or services, such as an option to obtain a license, it evaluates whether such options are material rights that should be treated as separate performance obligations.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each agreement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received to estimate the amount expected to be received. The amount of variable consideration included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period.

The Company recognizes as revenue the amount of the transaction price that it allocated to the respective performance obligation when or as each performance obligation is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, the Company recognizes revenue based on the use of an output or input method. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. For example, for research and development services that are recognized over time, the Company measures its progress using an input method. The input methods used are based on the effort the Company expends or costs it incurs toward the satisfaction of its performance obligation.

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The Company estimates the amount of effort it expends, including the time it estimates it will take to complete the activities, or costs it incurs in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that is multiplied by the transaction price to determine the amount of revenue recognized each period. If the estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that is recognized in the current and future periods.

Upfront payments are recorded as contract liabilities within deferred revenue on the consolidated balance sheets until the Company performs its obligations under these agreements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

As of December 31, 2022, the Company had one collaboration, option and license agreement with UCB Biopharma SRL ("UCB"), which it entered into in December 2022. The accounting accounting related to the collaboration agreement is outlined in Note 9, UCB Option and License Agreement.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, third-party license fees, and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as to manufacture research and development materials. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed or until it is no longer expected that the goods will be delivered or the services rendered. Costs incurred to obtain licenses are recognized as research and development expense as incurred if the technology licensed has no alternative future uses.

The Company has entered into various research and development related contracts with parties both inside and outside of the United States. These agreements are cancellable, and related fees are recorded as research and development expenses as incurred. The Company records accrued liabilities and prepaid expenses for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities and prepaid expenses, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued and prepaid balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical estimates have not been materially different from the actual costs.

Patent-Related Costs

Patent-related costs incurred in connection with patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statement of operations.

Stock-Based Compensation

The Company accounts for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718, Compensation—Stock Compensation ("ASC 718"). For stock-based awards issued to employees, non-employees and members of the Company’s board of directors (the “Board”) for their services on the Board, the Company measures the estimated fair value of the stock-based award on the date of the grant. The Company recognizes compensation expense for those awards granted to employees and members of the Board over the requisite service period, which is generally the vesting period of the respective award. For non-employee awards, compensation expense is recognized as the services are provided, which is generally ratably over the vesting period. The Company issues stock-based awards with service-based vesting conditions and records the expense for these awards on a straight-line basis over the vesting period. To date, the Company has not issued any stock-based awards with performance or market-based vesting conditions. The Company accounts for forfeitures as they occur.

The Company classifies stock-based compensation expense in its consolidated statement of operations in the same manner in which the award recipient’s salary or service payments are classified.

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The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including: (i) the expected volatility of the Company’s stock; (ii) the expected term of the award; (iii) the risk-free interest rate; (iv) expected dividends; and (v) the fair value of common stock. Due to the lack of Company-specific historical and implied volatility data, the Company determines the volatility for awards granted based on an analysis of reported data for a group of guideline publicly-traded companies that issued options with substantially similar terms. For this analysis, the Company selects companies with comparable characteristics including enterprise value, risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. The Company determines expected volatility using a weighted average of the historical volatilities of the guideline group of companies. The Company expects to continue to apply this process until such time as it has adequate historical data regarding the volatility of its own traded stock price. As permitted under ASC 718, the Company has elected to use the contractual term as the expected term for certain non-employee awards, on an award-by-award basis. For all other awards, the expected term of the Company’s stock options has been determined utilizing the “simplified” method whereby the expected term equals the average of the vesting term and the original contractual term of the option, on a weighted basis based on the vesting of each tranche. The Company utilizes this method as it has insufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for instruments with a term commensurate with the expected term assumption. The expected dividend yield is assumed to be zero as the Company has never paid dividends, and does not have current plans to pay any dividends on its common stock. Subsequent to the IPO, the fair value of the common stock underlying the Company's stock-based awards is the closing price of the Company's common stock on the date of grant.

The grant date fair value of restricted stock units is estimated based on the fair value of the Company's underlying common stock on the date of grant.

Foreign Currency

The functional currency of the Company’s wholly owned foreign subsidiary in Australia is the U.S. dollar. Monetary assets and liabilities resulting from transactions denominated in currencies other than the functional currency are remeasured into the functional currency at exchange rates prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are measured using historical exchange rates prevailing at the date of the transaction and are not subsequently remeasured. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss. There were no material foreign currency gains or losses for the years ended December 31, 2022 and 2021.

Income Taxes

Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that it believes based upon the weight of available evidence it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established.

The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Comprehensive Loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss. For the years ended December 31, 2022 and 2021,comprehensive loss consists of net loss and changes in unrealized losses on marketable securities.

Net Loss per Share

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Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, which excludes shares of restricted common stock that are not vested. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, after giving consideration to the dilutive effect of potentially dilutive common shares. For purposes of this calculation, outstanding options to purchase shares of common stock, unvested restricted common stock and potential shares issuable under the employee stock purchase plan are considered potentially dilutive common shares. The Company has generated a net loss in all periods presented so the basic and diluted net loss per share are the same as the inclusion of the potentially dilutive securities would be anti-dilutive.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes, related to the approach for allocating income tax expense or benefit for the year to continuing operations, discontinued operations, other comprehensive income, and other charges or credits recorded directly to shareholders’ equity; the methodology for calculating income taxes in an interim period; and the recognition of deferred tax liabilities for outside basis differences. On January 1, 2021, the Company early adopted ASU 2019-12 on a prospective basis, with no material impact on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments, which has been subsequently amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11 and ASU No. 2020-03 (“ASU 2016-13”). The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. On October 1, 2021, the Company early adopted ASU 2016-13 and its related amendments using a modified retrospective approach. Given the composition of the Company's investment portfolio, there was no material impact on the Company's consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

None.

3. Restricted Cash

As of December 31, 2022 and 2021the Company had restricted cash of $0.4 million and $1.0 million, respectively, held as letters of credit for the benefit of its current and former landlords. The Company's Boston, Massachusetts sublease expires on January 31, 2026, and the related letter of credit of $0.4 million was classified within other non-current assets on the consolidated balance sheet as of December 31, 2022 and 2021. The Company's Cambridge, Massachusetts sublease expired on December 31, 2021, and the related letter of credit of $0.6 million was classified within prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2021.

4. Marketable Securities

The following is a summary of the Company's investment portfolio as of December 31, 2022 and 2021 (in thousands):

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Gross Unrealized Estimated

Cost Gains Losses Fair Value

Available-for-sale securities:

Debt securities issued by U.S. government agencies 4,005 — (10) 3,995

Gross Unrealized Estimated

Cost Gains Losses Fair Value

Available-for-sale securities:

Debt securities issued by U.S. government agencies 12,111 — (8) 12,103

As of December 31, 2022, the Company had 7 securities with a total fair market value of $38.9 million in an unrealized loss position. The Company believes that any unrealized losses associated with the decline in value of its securities is temporary and is primarily related to the change in market interest rates since purchase, and believes that it is more likely than not that it will be able to hold its debt securities to maturity. Therefore, the Company anticipates a full recovery of the amortized cost basis of its debt securities at maturity and an allowance for credit losses was not recognized.

Securities are evaluated for impairment at the end of each reporting period. The Company did not record any impairment related to its available-for-sale securities during the years ended December 31, 2022 and 2021.

5. Fair Value of Financial Assets

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2022 and 2021 (in thousands):

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Level 1 Level 2 Level 3 Total

Assets:

Cash equivalents:

Marketable securities:

Debt securities issued by U.S. government agencies 3,995 — — 3,995

Level 1 Level 2 Level 3 Total

Assets:

Cash equivalents:

Marketable securities:

Debt securities issued by U.S. government agencies 12,103 — — 12,103

The Company estimates the fair value of its marketable securities classified as Level 2 by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

December 31,

Office furniture and equipment 545 545

Less: Accumulated depreciation (572) (153)

Property and equipment, net $ 971 $ 1,213

Depreciation expense was $0.4 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively.

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7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

December 31,

Accrued external research and development expenses $ 10,734 $ 17,763

Accrued personnel-related expenses 2,803 7,180

8. Commitments and Contingencies

Leases

In May 2021, the Company entered into a sublease agreement for office space located in Boston, Massachusetts. The sublease expires on January 31, 2026, with no option to renew or terminate early. The base rent increases by approximately 2% annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash (Note 3). This lease qualifies as an operating lease. At inception, the Company recorded an operating lease right-of-use asset and operating lease liability of $4.1 million.

In October 2018, the Company entered into a sublease agreement for office space located in Cambridge, Massachusetts which expired on December 31, 2021. The base rent increased by approximately 1% annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash (Note 3). This lease qualified as an operating lease.

The following table summarizes the presentation of the operating leases in the Company’s consolidated balance sheets (in thousands):

As of December 31,

Assets:

Operating lease right-of-use assets $ 2,901 $ 3,653

Liabilities:

Current operating lease liabilities $ 1,005 $ 810

Non-current portion of operating lease liabilities 2,495 3,501

The following table summarizes total lease costs recognized in the Company’s consolidated statements of operations (in thousands):

For the year ended December 31,

Variable lease costs 37 34

Variable lease costs were primarily related to operating expenses, taxes and insurance associated with the operating leases, which were assessed based on the Company’s proportionate share of such costs for the leased premises. As these costs are generally variable in nature, they were not included in the measurement of the operating lease right-of-use asset and related lease liability. Total lease costs are included as operating expenses in the Company’s consolidated statements of operations and comprehensive loss.

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Future lease payments under non-cancelable lease agreements as of December 31, 2022 were as follows (in thousands):

Year Ended December 31, Future LeasePayments

Total future lease payments $ 3,997

Less: interest (497)

Present value of operating lease liabilities $ 3,500

The weighted average remaining lease term and weighted average incremental borrowing rate of the Company’s operating lease were as follows:

As of December 31,

Weighted average remaining lease term (in years) 3.1 4.1

Weighted average incremental borrowing rate 9.0 % 9.0 %

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the years ended December 31, 2022 and 2021, and no material legal proceedings are currently pending or threatened.

Purchase Orders

The Company has agreements with third parties for various services, including services related to research, preclinical and clinical operations and support, for which the Company is not contractually able to terminate for convenience to avoid future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, the Company is contractually obligated to make certain payments to vendors, primarily to reimburse them for their unrecoverable outlays incurred prior to cancellation. The actual amounts the Company could pay in the future to the vendors under such agreements may differ from the purchase order amounts due to cancellation provisions.

Indemnification Agreements

The Company enters into indemnification agreements and agreements containing indemnification provisions in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual upon execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

Agreements

The Company has entered into multiple agreements with third parties under which it may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified product candidates. Payments under these agreements generally become due and payable upon achievement of such milestones and sales. When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in the Company's financial statements.

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9. UCB Option and License Agreement

In December 2022, the Company entered into an Option and License Agreement (“the Collaboration Agreement”) with UCB for the discovery of small molecule therapeutics as potential treatments of KCNT1 related epilepsies. Under the terms of the Collaboration Agreement, the Company has agreed to perform general biology-related research services as part of a mutually agreed upon research plan in exchange for a $5.0 million upfront payment. In addition, the Company provided UCB an exclusive option to in-license global development and commercialization rights to any resulting KCNT1 small molecule development candidate identified as part of the research plan. If UCB exercises its option to in-license global development and commercialization rights, the Collaboration Agreement stipulates that UCB will assume research, development, manufacturing and commercialization responsibilities and costs. Under the terms of the Collaboration Agreement, the Company will be eligible to receive an option fee and future success-based development and commercialization milestone payments, totaling up to $98.5 million, in addition to tiered royalties on net sales of any resulting products from the Collaboration Agreement.

At the commencement of the Collaboration Agreement, the Company identified one performance obligation, which was to perform the research services for UCB. The Company determined the transaction price to be $5.0 million, comprised of the upfront payment it received. The option provided to UCB was determined not to be a material right.

The Company will recognize revenue for its research services performance obligation over time using an input method over the duration of the research services. During the year ended December 31, 2022, the Company did not recognize any collaboration revenue related to the Collaboration Agreement as no services had been provided. As of December 31, 2022, the $5.0 million upfront payment is included in deferred revenue in the consolidated balance sheet.

10. Common Stock and Preferred Stock

Common Stock

On May 18, 2021, the Company completed a follow-on public offering in which the Company issued and sold 5,750,000 shares of its common stock at a public offering price of $18.25 per share, including 750,000 shares of common stock issued and sold pursuant to the underwriters' exercise, in full, of their option to purchase additional shares of common stock, for aggregate gross proceeds of $104.9 million. The Company received approximately $98.4 million in net proceeds after deducting discounts, commissions and offering expenses payable by the Company.

On November 3, 2021, the Company filed an automatic shelf registration with the Securities and Exchange Commission, which was automatically declared effective on November 3, 2021 in relation to the registration of common stock, preferred stock, debt securities, warrants and units or any combination thereof. The Company also simultaneously entered into the Sales Agreement with Jefferies LLC ("Jefferies"), to provide for the offering, issuance and sale of up to an aggregate amount of $125.0 million of common stock from time to time in at-the-market offerings under the shelf registration and subject to the limitations thereof. Jefferies is entitled to compensation at a commission rate of 3% of the gross sales price of common stock sold under the Sales Agreement. During the year ended December 31, 2022, the Company issued and sold 3,595,273 shares under the Sales Agreement for aggregate net proceeds of $9.6 million after deducting commissions and offering expenses payable by the Company. As of December 31, 2022, the Company issued and sold a total of 3,987,270 shares under the Sales Agreement for net proceeds of $16.6 million after deducting commissions and offering expenses payable by the Company.

As of December 31, 2022 and 2021, the authorized capital stock of the Company included 150,000,000 shares of common stock, $0.0001 par value, pursuant to the Amended and Restated Certificate of Incorporation effective upon the completion of the IPO. Holders of such shares of common stock have the exclusive right to vote for the election of the Company's directors and are entitled to one vote per share. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to a pro

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rata distribution of the Company's net assets. Dividends may be declared and paid to such holders only when, as, and if declared by the Board or an authorized committee thereof.

As of December 31, 2022, the Company did not hold any treasury shares.

Shares Reserved for Future Issuance

The Company had reserved the following shares of common stock for future issuance:

December 31,

Shares reserved for exercise of outstanding stock options 8,838,028 6,468,501

Shares reserved for vesting of restricted stock units 743,950 440,079