SGMT US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements as a result of many important factors, including those set forth in Part I of this Annual Report on Form 10-K under the caption “Risk Factors.” Please also see the section titled “Forward-Looking Statements”. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

Overview

We are a clinical-stage biopharmaceutical company developing novel therapeutics called fatty acid synthase (FASN) inhibitors that target dysfunctional metabolic pathways in diseases resulting from the overproduction of the fatty acid, palmitate. Our lead drug candidate, denifanstat, is an oral, once-daily pill and selective first-in-class FASN inhibitor in development for the treatment of metabolic dysfunction-associated steatohepatitis (MASH), formerly known as nonalcoholic steatohepatitis (NASH). Denifanstat has been studied in over 740 people to date in our clinical trials, including our FASCINATE-1 and -2 clinical trials, and we are currently designing a pivotal Phase 3 program for denifanstat in MASH, which we plan to initiate in the second half of 2024 following our expected End-of-Phase 2 meeting with the FDA in the first half of 2024. In January 2024, we announced positive topline results at week 52 from our FASCINATE-2 Phase 2b clinical trial. The FASCINATE-2 Phase 2b clinical trial achieved statistically significant results on primary and multiple secondary endpoints at week 52 in 168 MASH patients, including statistically significant improvements in MASH resolution without worsening of fibrosis with ≥2-point reduction in NAFLD Activity Score (NAS) (denifanstat 36% vs. placebo 13%, p=0.0022), and ≥2-point reduction in NAS without worsening of fibrosis (denifanstat 52% vs. placebo 20%, p=0.0001). Denifanstat-treated patients also showed statistically significant fibrosis improvement by ≥ 1 stage with no worsening of MASH (denifanstat 41% vs. placebo 18%, p=0.0051), and also showed statistical significance in fibrosis improvement by an independent approach of artificial intelligence (AI) digital pathology-based qFibrosis assessment. Analyses of liver fat showed a greater proportion of MRI-derived proton density fat fraction (MRI-PDFF) ≥30% responders relative to placebo (denifanstat 65% vs. placebo 21%, p<0.0001). MRI-PDFF responders are patients with ≥8% liver fat content at baseline who achieve a ≥30% relative reduction of liver fat at the end of treatment. Additionally, our precision medicine approach is core to our development strategy in MASH and includes the identification of pharmacodynamic and predictive biomarkers to confirm target engagement and clinical response in patients treated with denifanstat.

We are also evaluating the promise of FASN inhibition, beyond MASH, in additional disease areas in which dysregulation of fatty acid metabolism also plays a key role, including in acne and certain forms of cancer.

Since our inception, we have devoted substantially all of our resources to researching, discovering and developing our pipeline of proprietary FASN inhibitors and other drug targets, organizing and staffing our company, performing business planning, establishing our intellectual property portfolio, raising capital and general and administration activities to support and expand such activities. We do not have any products approved for sale and have not generated any revenue from product sales. Our revenues to date have been generated solely from the license agreement from Ascletis.

To date, we have financed our operations primarily through public and private equity and debt financings, including our initial public offering of Series A common stock (IPO). Prior to this, we raised $233.3 million in gross proceeds from the sale of our redeemable convertible preferred stock and convertible notes, and on July 18, 2023, we completed our IPO, in which we issued and sold 5,312,500 shares of Series A common stock, at a price to the public of $16.00 per share. The aggregate gross proceeds of the IPO were $96.4 million, inclusive of an additional 714,272 shares of Series A common stock sold upon the partial exercise of the underwriters’ purchase option. We received approximately $86.2 million in net proceeds after deducting underwriting discounts, commissions, and offering expenses. On January 30, 2024, we closed an underwritten public offering of our Series A common stock and sold 9,000,000 shares at a price of $12.50 per share and received net proceeds of $104.7 million after deducting underwriting discounts, commissions, and offering expenses. We will continue to require additional capital to develop our drug candidates and fund operations for the foreseeable future. Accordingly, until such time as we can generate significant revenue from sales of our drug candidates, if ever, we expect to finance our cash needs through equity or debt financings, third-party funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $94.9 million. We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for

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one or more of our drug candidates, which we expect will take a number of years, if ever. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

● advance drug candidates through preclinical studies and clinical trials;

● pursue regulatory approval of drug candidates;

● hire additional personnel;

● continue to operate as a public company;

● acquire, discover, validate and develop additional drug candidates; and

● obtain, maintain, expand and protect our intellectual property portfolio.

We rely and will continue to rely on third parties in the conduct of our preclinical studies and clinical trials and for manufacturing and supply of our drug candidates. We have no internal manufacturing capabilities, and we will continue to rely on third parties for our preclinical study and clinical trial materials. Given our stage of development, we do not yet have a marketing or sales organization or commercial infrastructure. Accordingly, if we obtain regulatory approval for any of our drug candidates, we also expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.

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

License agreement with Ascletis

In January 2019, we entered into a license agreement that became effective in February 2019 with Ascletis BioScience Co. Ltd. (Ascletis), a subsidiary of Ascletis Pharma Inc., a biotechnology company incorporated in the Cayman Islands and headquartered in Hangzhou, China and a significant stockholder. We entered into this agreement with the intention to develop, manufacture, and commercialize our FASN inhibitor denifanstat, which is referred to as ASC40 in the People’s Republic of China, Hong Kong, Macau and Taiwan (referred to collectively in this Annual Report as Greater China). Under the terms of the license agreement, we granted Ascletis and its affiliates an exclusive, royalty-bearing, sublicensable right and license under our intellectual property to develop, manufacture, commercialize and otherwise exploit denifanstat and other products containing denifanstat-related compounds in Greater China. Under the license agreement, we conducted all development activities in connection with the FASCINATE-1 Phase 2 clinical trial in the United States and Greater China at our sole expense, except for certain in-kind contributions by Ascletis in Greater China. Ascletis is solely responsible at its sole expense for conducting development activities in connection with obtaining and maintaining regulatory approvals for denifanstat in Greater China. Ascletis will solely own all regulatory filings and approvals in Greater China other than those regulatory filings jointly applied for in connection with the FASCINATE-1 Phase 2 clinical trial. In July 2023, we entered into an Assignment and Assumption Agreement with Ascletis and Ascletis’ affiliate Gannex under which Ascletis, while remaining responsible for performance under the license agreement, assigned all of its rights and obligations under the license agreement to Gannex and Gannex assumed such rights and obligations, effective as of October 2019.

We are eligible to receive development and commercial milestone payments from Ascletis in an aggregate of up to $122.0 million as well as tiered royalties ranging from percentages in the high single digits to mid-teens on future net sales of denifanstat in Greater China. The license and Phase 2 research and development services components of the license agreement with Ascletis are representative of a “relationship with a customer” and therefore are subject to Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606). As discussed below, a $2.0 million development milestone payment was received in August 2023. In January 2022, Ascletis initiated dosing of a Phase 3 trial for recurrent GBM, potentially triggering a $2.0 million milestone payment, net of applicable taxes, under the license agreement. The parties were in discussions regarding the form and amount of consideration related to this milestone until July 2023, at which time we concluded that the risk of reversal was no longer present, resulting in revenue recognition of $2.0 million. In August 2023, we received a $1.7 million milestone payment (representing the $2.0 million development milestone payment, net of applicable taxes) from Ascletis.

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Unless terminated earlier, the license agreement will continue until the expiration of the last expiring royalty term. Ascletis has the right to terminate the license agreement for convenience upon ninety-day written notice to us. In addition, either party may terminate the license agreement for uncured material breach by the other party, or upon the occurrence of insolvency-related events of the other party.

Components of results of operations

Revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. Our revenues to date have been generated solely from the license agreement with Ascletis. We expect that our revenue for the next several years will be derived primarily from this agreement and any additional collaboration that we may enter into the future.

Operating expenses

Research and development expenses. Research and development expenses represent costs incurred in performing research, development and manufacturing activities in support of our own product development efforts and include personnel-related costs (such as salaries, employee benefits and stock-based compensation) for our personnel in research and development functions; costs related to acquiring, developing and manufacturing supplies for preclinical studies, clinical trials and other studies, including fees paid to contract manufacturing organizations (CMOs); costs and expenses related to agreements with contract research organizations, investigative sites and consultants to conduct non-clinical and preclinical studies and clinical trials; professional and consulting services costs; and facility and other allocated costs. We do not track research and development expenses by drug candidate.

We expect our research and development expenses to increase substantially in absolute dollars for the foreseeable future as we advance our drug candidates into and through preclinical studies and clinical trials, pursue regulatory approval of our drug candidates and expand our pipeline of drug candidates. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our drug candidates may be affected by a variety of factors, including the safety and efficacy of our drug candidates, early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our drug candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or if, when and to what extent we will generate revenue from the commercialization and sale of our drug candidates.

Our clinical development costs may vary significantly based on factors such as:

● slow enrollment and retention rate of subjects in our clinical trials;

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● lack of adequate funding to continue the clinical trial;

● subjects experiencing severe or unexpected drug-related adverse effects;

General and administrative expenses. Our general and administrative expenses consist primarily of costs and expenses related to: personnel (including salaries, employee benefits and stock-based compensation) in our executive, finance and accounting and other administrative functions; legal services, including relating to intellectual property and corporate matters; accounting, auditing, consulting and tax services; insurance; information technology; and facility and other allocated costs not otherwise included in research and development expenses.

We expect our general and administrative expenses to increase substantially in absolute dollars for the foreseeable future as we increase our headcount to support our continued research and development activities and grow our business. We also anticipate that we will incur increased expenses as a result of operating as a public company, including expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with Securities and Exchange Commission (SEC) rules and regulations and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services.

Other income (expense), net. Our other income (expense), net primarily includes interest income earned and changes in the fair value of our Series A common stock and redeemable convertible preferred stock related instruments. In connection with our IPO, all outstanding redeemable convertible preferred stock and related instruments were converted into Series A and Series B common stock and, with the exception of certain Series A common stock warrants, are no longer subject to remeasurement. Interest income consists of interest earned on our cash, cash equivalents and marketable securities.

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Results of operations

Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations for the periods indicated (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​ ​ ​

​ ​ December 31, ​ ​ ​ ​ ​

Revenue: ​ ​ ​ ​

License revenue ​ $ 2,000 ​ $ — ​ $ 2,000 ​ nm ​

Total revenue ​ ​ 2,000 ​ ​ — ​ ​ 2,000 ​ nm ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other income, net: ​ ​ ​ ​

Change in fair value of stock warrant liability ​ 4 ​ 3 ​ 1 33 %

_________________________

nm—not meaningful

Revenue. We recognized $2.0 million in revenue for the year ended December 31, 2023, in connection with a milestone payment received under our licensing agreement with Ascletis. We recognized no revenue for the year ended December 31, 2022.

Research and development expenses. Our research and development expenses decreased by $5.1 million, or 21%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. This decrease was primarily due to an $11.6 million decrease in clinical trial costs for our FASCINATE-2 Phase 2b trial as patients progressed through the trial. This decrease was partially offset by a $3.0 million increase in other clinical costs related to the conduct of clinical pharmacology trials of denifanstat, a $1.9 million increase in manufacturing costs, a $0.7 million increase in contract outside services research and preclinical activities, a $0.2 million increase in pre-clinical consultants, as well as a $0.4 million increase in salaries and benefits and a $0.1 million increase in stock-based compensation expense related to increased headcount.

General and administrative expenses. Our general and administrative expenses increased by $6.8 million, or 111%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The change was primarily due to a $3.0 million increase in stock-based compensation, a $3.0 million increase in professional services related to the IPO, a $1.7 million increase in salaries and benefits related to newly hired executives, an employee termination and corporate insurance costs, a $0.4 million increase in office related expenses, and a $0.3 million increase in taxes related to the Ascletis license revenue. These increases were partially offset by $1.4 million of capitalized deferred financing costs related to our previous IPO activities in 2021 that were expensed during the year ended December 31, 2022, and a $0.2 million decrease in recruiting costs.

Other income, net. Our other income, net increased by $2.3 million for the year ended December 31, 2023, compared to the year ended December 31, 2022. Interest income increased primarily due to interest earned on the cash proceeds received from the IPO.

Liquidity and capital resources

As of December 31, 2023, we have relied on private equity and debt financings and our IPO, which was completed in July 2023 to fund our operations. We have incurred net losses and negative cash flows from operations since inception, including net losses of $27.9 million and $30.5 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $94.9 million. We will require substantial additional capital to fund our research and development and ongoing operating expenses. On July 18, 2023, we completed our IPO, in which we issued and sold 5,312,500 shares of Series A common stock, at a price to the public of $16.00 per share. The aggregate gross proceeds of the IPO were $96.4 million,

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inclusive of an additional 714,272 shares of Series A common stock sold upon the partial exercise of the underwriters’ purchase option on August 15, 2023. We received approximately $86.2 million in net proceeds after deducting underwriting discounts, commissions, and estimated offering expenses. On January 30, 2024, we closed an underwritten public offering of our Series A common stock and sold 9,000,000 shares at a price of $12.50 per share and received net proceeds of $104.7 million after deducting underwriting discounts, commissions, and offering expenses.

Based on our current business plans, we believe that our existing cash, cash equivalents, and marketable securities, together with the net proceeds of our follow-on offering, will be sufficient for us to fund our operating expenses and capital expenditure requirements through the end of the fourth quarter of 2025. In the future, we may need to raise additional funds until we are able to generate sufficient revenues to fund our development activities. Our future operating activities, coupled with our plans to raise capital or issue debt financing, may provide additional liquidity in the future, however these actions are not solely within our control and we are unable to predict the outcome of these actions to generate the liquidity ultimately required.

Future funding requirements

Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative expenditures. We anticipate that we will continue to incur significant expenses for the foreseeable future as we continue to advance our drug candidates, expand our corporate infrastructure, including the costs associated with being a public company, further our research and development initiatives for our drug candidates, scale our laboratory and manufacturing operations, and incur marketing costs associated with potential commercialization. We are subject to all of the risks typically related to the development of new drug candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.

Until we can generate a sufficient amount of revenue from the commercialization of our drug candidates or additional revenue from collaboration agreements with third parties, if ever, we expect to finance our future cash needs through public or private equity or debt financings, third-party (including government) funding and marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. Debt financings may subject us to covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional funds may be adversely impacted by macroeconomic conditions, disruptions to and volatility in the credit and financial markets and geopolitical turmoil. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable to us, we may be forced to delay, reduce the scope of or eliminate one or more of our research and development programs.

Our future capital requirements will depend on many factors, including:

● slow enrollment and retention rate of subjects in our clinical trials;

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● lack of adequate funding to continue the clinical trial;

● subjects experiencing severe or unexpected drug-related adverse effects;

A change in the outcome of any of these or other variables could significantly change our costs and timing associated with the development of our drug candidates. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such change.

Sources and uses of cash

The following table sets forth our primary sources and uses of cash for each of the periods presented below (in thousands):

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Net cash (used in) provided by: ​ ​

Financing activities ​ 86,167 ​ (73)

Net increase (decrease) in cash and cash equivalents ​ $ 74,981 ​ $ (56,573)

​

Cash flows from operating activities. Our net cash used in operating activities was $23.8 million for the year ended December 31, 2023, consisting of a net loss of $27.9 million and net changes in our operating assets and liabilities of $1.0 million, partially offset by non-cash adjustments of $5.1 million. Non-cash adjustments primarily consisted of stock-based compensation expense of $5.0 million. Change in operating assets and liabilities primarily consisted of a $1.0 million increase in prepaid expenses and other current assets and a $0.1 million decrease in operating lease liabilities, partially offset by an increase in accounts payable and accrued expenses of $0.1 million.

Our net cash used in operating activities was $24.5 million for the year ended December 31, 2022, consisting of net loss of $30.5 million, partially offset by non-cash adjustments of $1.8 million and net changes in our operating assets and liabilities of $4.2 million. Non-cash adjustments primarily consisted of stock-based compensation expense of $1.9 million. Change in operating assets and liabilities primarily consisted of a $2.9 million increase in accounts payable and accrued expenses, a $1.4 million decrease in prepaid expenses and other current assets and a $0.1 million decrease in operating lease liabilities.

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Cash flows from investing activities. Our net cash provided by investing activities was $12.6 million for the year ended December 31, 2023, which primarily related to proceeds from sales of marketable securities of $32.2 million, partially offset by purchases of marketable securities of $19.6 million.

Our net cash used in investing activities was $32.0 million for the year ended December 31, 2022, which primarily related to purchases of marketable securities of $41.4 million, partially offset by proceeds from sales of marketable securities of $9.4 million.

Cash flows from financing activities. Our net cash provided by financing activities was $86.2 million for the year ended December 31, 2023, which primarily related to $89.7 million in proceeds from our IPO, net of underwriters’ commissions and discounts, partially offset by $3.5 million of payments of deferred financing costs.

Our net cash used in financing activities was $73 thousand for the year ended December 31, 2022, which consisted primarily of the payment of deferred financing costs of $85 thousand, partially offset by proceeds from the exercise of stock options of $12 thousand.

Critical accounting policies and estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.

While our significant accounting policies are described in more detail in Note 2 in our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers require advance payments; however, some invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary.

We base our expenses related to preclinical studies, clinical trials and other studies on our estimates of the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies, clinical trials and other studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

Revenue recognition

We recognize revenue from contracts when our customer obtains control of the promised goods or services, in an amount that reflects the consideration which we have received or expect to receive in exchange for those goods or services. We enter into collaboration and licensing arrangements that generally contain multiple elements or deliverables, which may include (i) licenses to our technology, (ii) research and development activities performed for the collaboration partner, (iii) participation on joint steering

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committees (JSCs), and (iv) the manufacturing of clinical or preclinical material. Payments under these arrangements typically include milestone payments upon achieving significant development events, research and development reimbursements, sales milestones, and royalties on future drug sales. We assess whether the promises in its arrangements with customers are considered distinct performance obligations that should be accounted for separately. Judgment may be required to determine whether the research and development services are distinct from the license to our intellectual property or participation on steering committees.

We use judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the control of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. For arrangements that include sales-based royalties or milestone payments, for which the license is deemed to be the predominant item, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Stock-Based Compensation Expense

We recognize stock-based compensation expense in an amount equal to the estimated grant date fair value of each option grant or stock award over the estimated period of service and vesting. This estimation of the fair value of each stock-based grant or issuance on the date of grant involves numerous assumptions by management. Although we calculate the fair value using the Black Scholes option pricing model, which is a standard option pricing model, this model still requires the use of numerous estimates, including, among others, the expected term of the award, the volatility of the underlying equity security, a risk-free interest rate, fair value of common stock, and expected dividends. The use of different values by management in connection with these estimates in the Black Scholes option pricing model could produce substantially different results.

For awards with service-based vesting conditions only, we recognize stock-based compensation expense on a straight-line basis over the requisite service or vesting period. For awards with service- and performance- based vesting conditions, we recognize stock-based compensation expense using the graded vesting method over the requisite service period beginning in the period in which the awards are deemed probable to vest, to the extent such awards are probable to vest. We recognize the cumulative effect of changes in the probability outcomes in the period in which the changes occur.

Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant.

Following our IPO, in connection with the accounting for granted stock options and other awards we may grant, the fair value of our common stock is determined based on the quoted market price of our common stock.

Emerging growth company and smaller reporting status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (the JOBS Act). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended

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transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenues of $1.235 billion or more, (ii) December 31, 2028, (iii) the date on which we are deemed to be a large accelerated filer, under the rules of the SEC, which means the market value of equity securities that is held by non-affiliates exceeds $700.0 million as of the prior June 30th and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently adopted accounting pronouncements

See “Notes to the Financial Statements—Note 2” included in our financial statements in Item 8 in this Annual Report for more information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) 121

Balance Sheets 122

Statements of Operations and Comprehensive Loss 123

Statements of Cash Flows 125

Notes to the Financial Statements 126

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Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Sagimet Biosciences Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Sagimet Biosciences Inc. (the "Company") as of December 31, 2023 and 2022, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

San Francisco, California

March 25, 2024

We have served as the Company's auditor since 2015.

​

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SAGIMET BIOSCIENCES INC.

BALANCE SHEETS

(in thousands, except for share and per share amounts)

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Assets ​ ​ ​ ​ ​ ​

Current assets: ​ ​

Cash and cash equivalents ​ $ 75,139 ​ $ 158

Prepaid expenses and other current assets ​ ​ 1,749 ​ ​ 447

Operating lease right-of-use assets ​ ​ 73 ​ ​ 212

Deposits ​ — ​ 27

Current liabilities: ​ ​

Operating lease liabilities ​ 65 ​ 133

Total current liabilities ​ 5,654 ​ 5,279

Long-term liabilities: ​ ​

Operating lease liabilities, less current portion ​ — ​ 78

Warrant liability ​ — ​ 4

Commitments and contingencies (Note 8) ​ ​

Stockholders’ equity (deficit): ​ ​

Accumulated other comprehensive income (loss) ​ 30 ​ (84)

Total stockholders’ equity (deficit) ​ ​ 91,065 ​ (186,950)

​

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

​

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SAGIMET BIOSCIENCES INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except for share and per share amounts)

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Revenue: ​ ​

License revenue ​ $ 2,000 ​ $ —

Total revenue ​ ​ 2,000 ​ ​ —

Operating expenses: ​ ​ ​ ​ ​ ​

Other income, net: ​ ​

Change in fair value of stock warrant liability ​ 4 ​ 3

Interest income and other ​ 2,860 ​ 553

Total other income, net ​ 2,864 ​ 556

Other comprehensive gain (loss): ​ ​

Net unrealized gain (loss) on marketable securities ​ 114 ​ (84)

Total other comprehensive gain (loss) ​ 114 ​ (84)

​

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

​

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​

​

SAGIMET BIOSCIENCES INC.

​

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​

Net loss — ​ — ​ — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ (30,499) ​ — ​ (30,499)

Net loss — ​ — ​ — ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ (27,876) ​ — ​ (27,876)

​

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

​

​

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​

SAGIMET BIOSCIENCES INC.

STATEMENTS OF CASH FLOWS

(in thousands)

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows from operating activities: ​ ​

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

Accretion of discount on marketable securities, net ​ (37) ​ (212)

Non-cash lease expense ​ 139 ​ 130

Stock-based compensation expense ​ 4,990 ​ 1,880

Change in fair value of stock warrant liability ​ ​ (4) ​ ​ (3)

Changes in operating assets and liabilities: ​ ​

Prepaid expenses and other current assets ​ (952) ​ 1,436

Accounts payable and accrued liabilities ​ 120 ​ 2,915

Operating lease liabilities ​ (146) ​ (137)

Net cash used in operating activities ​ (23,766) ​ (24,490)

Cash flows from investing activities: ​ ​

Purchases of marketable securities ​ ​ (19,620) ​ ​ (41,446)

Sales of marketable securities ​ 32,200 ​ 9,436

Net cash provided by (used in) investing activities ​ 12,580 ​ (32,010)

Cash flows from financing activities: ​ ​

Payment of deferred financing costs ​ ​ (3,518) ​ ​ (85)

Proceeds from exercise of stock options ​ 6 ​ 12

Net cash provided by (used in) financing activities ​ 86,167 ​ (73)

Net increase (decrease) in cash and cash equivalents ​ 74,981 ​ (56,573)

Cash and cash equivalents at beginning of period ​ 158 ​ 56,731

Cash and cash equivalents at end of period ​ $ 75,139 ​ $ 158

​ ​ ​ ​ ​ ​ ​

Supplemental non-cash investing and financing activities: ​ ​ ​ ​ ​ ​

Reclassification of common stock to Series A common stock ​ $ 1 ​ $ —

Deferred financing costs in accrued expenses ​ $ 323 ​ $ —

​

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

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SAGIMET BIOSCIENCES INC.

NOTES TO THE FINANCIAL STATEMENTS

1. Organization and description of business

Overview

Sagimet Biosciences Inc. (the Company) was incorporated in Delaware on December 19, 2006, as 3-V Biosciences, Inc. and is headquartered in San Mateo, California. The Company changed its name from 3-V Biosciences, Inc. to Sagimet Biosciences Inc. in August 2019. The Company is a clinical-stage biopharmaceutical company developing novel therapeutics called fatty acid synthase (FASN) inhibitors that target dysfunctional metabolic pathways in diseases resulting from the overproduction of the fatty acid, palmitate.

Reverse stock split

A one-for-79.4784 reverse stock split of the Company’s issued and outstanding common stock was effected on July 7, 2023. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the effects of the reverse stock split. Shares of common stock underlying outstanding stock options and common stock warrants were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s preferred stock were proportionately reduced and the respective conversion prices were proportionately increased.

Initial public offering

On July 18, 2023, the Company completed its initial public offering (IPO), in which it issued and sold 5,312,500 shares of Series A common stock at a price to the public of $16.00 per share. The aggregate gross proceeds of the IPO were $96.4 million, inclusive of an additional 714,272 shares of Series A common stock sold upon the partial exercise of the underwriters’ purchase option. The Company received approximately $86.2 million in net proceeds after deducting underwriting discounts, commissions, and offering expenses.

In connection with the IPO, the Company’s outstanding redeemable convertible preferred stock automatically converted into 15,117,912 shares of Series A common stock and 1,520,490 shares of Series B common stock. The rights of the holders of Series A common stock and Series B common stock are substantially identical, except with respect to voting and conversion. Each share of Series A common stock is entitled to one vote and shares of Series B common stock are non-voting, except as may be required by law. Each share of Series B common stock may be converted at any time into one share of Series A common stock at the option of its holder, subject to the ownership limitations provided for in the Company’s eleventh amended and restated certificate of incorporation (the Charter). See Note 10.

Reclassification of common stock

On July 18, 2023, each share of the Company’s common stock issued and outstanding became reclassified as one share of Series A common stock. Any stock certificate that immediately prior to July 18, 2023 represented shares of the Company’s common stock was deemed to represent shares of Series A common stock, without the need for surrender or exchange thereof.

Risks, uncertainties and going concern

The Company is subject to certain risks and uncertainties, including, but not limited to changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the availability of future financing; the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s drug candidates if approved; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and the Company’s ability to attract and retain employees necessary to support commercial success. In addition, significant changes in the biotechnology industry or the approval of competitive products or therapies could adversely affect the Company’s development and operating results.

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The Company will require substantial additional capital to fund its research and development and ongoing operating expenses. As of December 31, 2023, the Company has relied on public and private equity and debt financings, including its July 2023 IPO, to fund its operations. The Company has incurred net losses and negative cash flows from operations since inception and as of December 31, 2023, had an accumulated deficit of $249.7 million and cash, cash equivalents and marketable securities of $94.9 million. The Company expects to incur additional losses and negative cash flows from operations for at least the next 12 months.

The Company expects that its cash, cash equivalents and marketable securities as of December 31, 2023, in addition to the $104.7 million in net proceeds from the sale of Series A common stock in January 2024 (see Note 13), will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of these financial statements. In the future, the Company may need to raise additional funds until it is able to generate sufficient revenues to fund its development activities. The Company’s future operating activities, coupled with its plans to raise capital or issue debt financing, may provide additional liquidity in the future, however these actions are not solely within the control of the Company and the Company is unable to predict the outcome of these actions to generate the liquidity ultimately required.

​

2. Summary of significant accounting policies

Basis of presentation

The financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates include variable consideration related to our collaboration agreement, accruals of research and development expenses, accrued costs for services rendered in connection with third-party contractor clinical trial activities, preferred stock and common stock valuations prior to the IPO and stock option valuations and stock-based compensation. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Segment information

The Company operates and manages its business as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s current focus is on developing and commercializing therapeutics for the treatment of metabolic dysfunction-associated steatohepatitis (MASH) and other diseases where FASN plays a pathogenic role. The Company has one operating segment and therefore one reportable segment. The determination of reportable segments is based on the chief operating decision maker's (CODM) use of financial information provided for the purpose of assessing performance and making operating decisions. The Company's CODM is its chief executive officer.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, and marketable securities.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2023 and 2022, cash and cash equivalents which are denominated in U.S. dollars, consisted of bank deposits including deposits in a money market fund. All cash and cash equivalents were unrestricted as to withdrawal or use.

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Marketable securities

The Company classifies its marketable debt securities as available-for-sale and records such assets at estimated fair value in the balance sheets. The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments on January 1, 2023. Marketable debt securities for which the estimated fair value is below amortized cost are evaluated for credit impairment. Credit impairment is recorded through the statements of operations via an allowance for credit losses account, and any remaining unrealized gains and losses are reported as a component of other comprehensive income (loss) within the statements of operations and comprehensive loss and as a separate component of stockholders’ equity (deficit). The Company classifies marketable securities with remaining maturities greater than three months but less than one year as current assets on the balance sheet, and those with remaining maturities greater than one year are classified as long-term marketable securities. For all marketable securities which the estimated fair value was below amortized cost as of December 31, 2023 and 2022, the decline in fair value was not driven by credit impairment.

Deferred financing costs

Deferred financing costs, consisting of legal, accounting and other fees and costs relating to the Company’s public offerings are capitalized and recorded on the balance sheets. Upon closing of the IPO in July 2023, all deferred offering costs were reclassified to additional paid-in-capital in the balance sheet, representing a reduction in IPO proceeds. As of December 31, 2023, the Company had $0.3 million of deferred financing costs capitalized within prepaid expenses and other current assets on the balance sheet related to its upcoming public offering. Upon closing of the public offering in January 2024, all deferred financing costs were reclassified to additional paid-in-capital, representing a reduction in the proceeds from the public offering. See Note 13.

On March 21, 2022, the Company withdrew its Registration Statement on Form S-1 initially filed with the Securities and Exchange Commission (SEC) on April 6, 2021. Concurrently, all of the deferred financing costs of $1.4 million capitalized as of December 31, 2021 were expensed within operating expenses in the statement of operations and comprehensive loss for the year ended December 31, 2022.

Impairment of long-lived assets

The Company evaluates the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset. To date, there have been no such impairment losses.

Leases

The Company determines if an arrangement is or contains a lease and the classification of that lease at inception of a contract. Specifically, the Company considers whether it controls the underlying asset and has the right to obtain substantially all the economic benefits or outputs from the asset. The Company enters into lease agreements for its office facility and accounts for its lease obligations under ASU No. 2016-02, Leases (Topic 842). The Company’s operating lease asset is included in “operating lease right-of-use assets” ​(ROU assets), and the current and non-current portions of the operating lease liability are included in “operating lease liabilities”, and “operating lease liabilities, less current portion”, respectively, on the balance sheets. As of December 31, 2023 and 2022, the Company had no finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the lease commencement date. Operating lease ROU assets are based on the corresponding lease liability adjusted for (i) payments made at or before the commencement date, (ii) initial direct costs incurred, and (iii) tenant incentives under the lease. The Company does not account for renewals or early terminations unless it is reasonably certain to exercise these options at commencement. Operating lease expense is recognized on a straight-line basis over the lease term. The Company accounts for lease and non-lease components as a single lease component for operating leases. The Company does not record leases with terms of 12 months or less on the balance sheets.

As the implicit rate for the operating lease was not determinable, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The Company’s incremental borrowing rate was estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. The Company determined the incremental borrowing rate by considering various factors,

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such as its credit rating, interest rates of similar debt instruments of entities with comparable credit rating, the lease term and the currency in which the lease was denominated.

Accrued research and development expense

Research and development costs are charged to expense as incurred. Research and development expenses include certain payroll and personnel expenses, consulting costs, external contract research and development expenses, and allocated overhead, including rent, equipment depreciation and utilities. Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.

The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on the Company’s behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers and the Company’s estimates of accrued expenses and on information available at each balance sheet date. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

Redeemable convertible preferred stock

The Company recorded its redeemable convertible preferred stock at fair value on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock was recorded outside of stockholders’ deficit because the shares contained liquidation features that were not solely within the Company’s control. The Company did not adjust the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such shares because it was uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of redeemable convertible preferred stock. Upon the closing of the IPO, the redeemable convertible preferred stock automatically converted to shares of Series A and Series B common stock.

Common stock warrants

From time to time, the Company has issued warrants to investors and creditors together with the Company’s debt and equity financings. The Company accounts for warrants in accordance with the guidance contained in ASC 815, Derivatives and Hedging. Under ASC 815-40, warrants that meet the criteria for equity treatment are recorded in stockholders’ equity (deficit). The warrants are subject to re-evaluation of the proper classification and accounting treatment at each reporting period. If the warrants no longer meet the criteria for equity treatment, they will be recorded as a liability and remeasured each period with changes recorded in the statement of operations and comprehensive loss. When issued in connection with debt, the allocated value related to the warrants is generally recorded as additional interest cost on the related debt. When issued with redeemable convertible preferred stock, the allocated value related to the warrants is recorded as additional issuance costs of the redeemable convertible preferred stock. The Company values warrants using an option pricing model.

Revenue recognition

The Company enters into collaboration and licensing arrangements that generally contain multiple elements or deliverables, which may include (i) licenses to the Company’s technology, (ii) research and development activities performed for the collaboration partner, (iii) participation on joint steering committees (JSCs), and (iv) the manufacturing of clinical or preclinical material. Payments pursuant to these arrangements include milestone payments upon achieving significant development events, research and development reimbursements, sales milestones, and royalties on future drug sales. Variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.

In determining the appropriate amount of revenue to be recognized for the components of the arrangements that are within the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), the Company performs the following steps: (i) identification of the promised goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and d) the measure of progress in step (v)

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above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below.

At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties or milestone payments, for which the license is deemed to be the predominant item, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Stock-based compensation expense

The Company provides share-based payments in the form of stock options and restricted stock awards. For awards only subject to service conditions, the Company uses the straight-line attribution method for recognizing compensation expense over the requisite service period, which is generally the vesting period of the award. Compensation expense is recognized on awards ultimately expected to vest. Forfeitures are recorded when they occur.

For awards with performance vesting conditions, the Company evaluates the probability of achieving the performance condition at each reporting date. No compensation expense is recognized for awards subject to performance conditions until it is probable that the performance condition will be met. If the performance condition is probable of being achieved, the Company recognizes expense for such performance awards over the requisite service period using the accelerated attribution method.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company has historically been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. 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 time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Prior to the Company’s IPO, there was no public market for the Company’s common stock, and consequently, the estimated fair value of the common stock was determined by the board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as the board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant.

Following the Company’s IPO, in connection with the accounting for granted stock options and other awards the Company may grant, the fair value of the common stock is determined based on the quoted market price of the common stock.

Income taxes

The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment

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to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, 2023 and 2022, the Company has recorded a full valuation allowance on its deferred tax assets.

Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.

Comprehensive loss

Comprehensive loss includes all changes in stockholders’ equity (deficit) during a period from non-owner sources. The cumulative amount of these changes is reported on the balance sheets.

Net loss per share attributable to common stockholders

Basic and diluted net loss per share is computed using the two-class method required for multiple classes of common stock and participating securities. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders for all periods presented. Basic net loss per common share attributable to common stockholders is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share attributable to common stockholders calculation, the redeemable convertible preferred stock, common stock options, restricted stock units and common and redeemable convertible preferred stock warrants are considered to be potentially dilutive securities. As the Company has reported a net loss for the periods presented, basic and diluted net loss per share attributable to common stockholders is the same.

On July 18, 2023, each share of the Company’s common stock issued and outstanding became reclassified as one share of Series A common stock. The rights of the holders of Series A and Series B common stock are identical except with respect to voting and conversion. Each share of Series A common stock is entitled to one vote per share and shares of Series B common stock are non-voting. Each share of Series B common stock may be converted at any time into one share of Series A common stock at the option of the holder, subject to certain ownership limitations. As such, basic and diluted net loss per share attributable to common stockholders is presented on a combined basis as undistributed earnings, when allocated to each series of common stock, result in the same net loss per share for all periods presented.

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common, Series A and Series B common stockholders for the periods presented because including them would have been antidilutive.

​

​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Options to purchase Series A common stock 3,753,507 —

Warrant to purchase Series A common stock ​ 1,000 ​ —

Redeemable convertible preferred stock on an as converted basis — 16,638,476

Options to purchase common stock ​ — ​ 3,190,450

Warrants to purchase common stock — 40,268

Warrant to purchase redeemable convertible preferred stock — 79,545

Restricted stock units ​ 1,132,410 ​ —

​

Emerging growth company status

The Company is an emerging growth company (EGC) as defined in the Jumpstart Our Business Startups Acts of 2012, as amended (the JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates.

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Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company for the annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach, and no cumulative effect adjustment to accumulated deficit was needed as of the adoption date.

New accounting pronouncements not yet adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. This amendment is effective for fiscal years beginning after December 15, 2023. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosure of incremental segment information on an interim and annual basis and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for all public companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is assessing the impact of the adoption of this standard on its financial statements and does not expect the impact to be material.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, a final standard on improvements to income tax disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions and applies to all entities subject to income taxes. The new standard is effective for annual periods beginning after December 15, 2024. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements.

​

3. Fair value measurements and fair value of financial instruments

The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

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

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of December 31, 2023 and 2022, financial assets measured at fair value on a recurring basis consist of cash, cash equivalents, and marketable securities. The carrying amount of cash and cash equivalents was $75.1 million and $0.2 million as of December 31, 2023 and, 2022, respectively, which approximates the fair value and was determined based upon Level 1 and Level 2 inputs. The fair value of marketable securities, which are Level 2 financial instruments, is based upon market prices quoted on the last day of the fiscal period or other observable market inputs. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, bids and/or offers.

The carrying values of the Company’s accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these liabilities.

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Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The Company’s Level 3 liabilities that are measured at fair value on a recurring basis consists of the Series A common stock warrant liability and the redeemable convertible preferred stock warrant liability.

The following tables set forth the Company’s financial assets that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Valuation Amortized Unrealized Unrealized Estimated

​ ​ ​ Hierarchy ​ cost ​ Gains ​ Losses ​ Fair Value

Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Money market funds ​ ​ Level 1 ​ $ 69,516 ​ $ — ​ $ — ​ $ 69,516

Corporate debt securities ​ ​ Level 2 ​ ​ 4,622 ​ ​ — ​ ​ — ​ ​ 4,622

Total cash equivalents ​ ​ ​ ​ $ 74,138 ​ $ — ​ $ — ​ $ 74,138

Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Corporate debt securities ​ ​ Level 2 ​ 2,945 ​ 4 ​ — ​ 2,949

U.S. Treasury securities ​ ​ Level 2 ​ 6,904 ​ 7 ​ — ​ 6,911

Total marketable securities ​ ​ ​ ​ $ 19,728 ​ $ 30 ​ $ — ​ $ 19,758

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Valuation Amortized Unrealized Unrealized Estimated

​ ​ ​ Hierarchy ​ cost ​ Gains ​ Losses ​ Fair Value

Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Money market funds ​ ​ Level 1 ​ $ 38 ​ $ — ​ $ — ​ $ 38

Marketable securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Commercial paper ​ ​ Level 2 ​ ​ 15,950 ​ ​ — ​ ​ — ​ ​ 15,950

Corporate debt securities ​ ​ Level 2 ​ 12,286 ​ — ​ (65) ​ 12,221

U.S. Treasury securities ​ ​ Level 2 ​ 4,035 ​ — ​ (19) ​ 4,016

Total marketable securities ​ ​ ​ ​ $ 32,271 ​ $ — ​ $ (84) ​ $ 32,187

​

The following tables provide a summary of changes in the estimated fair value of the financial instruments using significant Level 3 inputs (in thousands):

​ ​ ​ ​

Balance - January 1, 2022 ​ $ 7

Change in fair value of Series A common stock warrant liability ​ ​ (5)

Balance - December 31, 2023 ​ $ —

​

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy during the periods presented.

Redeemable convertible preferred stock warrant liability and Series A common stock warrant liability

In connection with a note payable entered into on April 10, 2015, which was repaid in full in May 2019, the Company issued a warrant to purchase 79,545 shares of Series D redeemable convertible preferred stock. The Company completed its IPO on July 18,

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2023. Subsequently, pursuant to the terms of the warrant, the warrant was converted into a warrant to purchase 1,000 shares of Series A common stock and the expiration date was automatically extended until July 18, 2026, the third anniversary date of the closing of the Company’s IPO. See Note 10.

The Company estimates the fair value of the Series A common stock warrant liability and the redeemable convertible preferred stock warrant liability using an option pricing model and assumptions that are based on the individual characteristics of the warrants on the valuation date, Series A common stock market price, as well as assumptions for fair value of the underlying redeemable convertible preferred stock, expected volatility, expected life, dividends and risk-free interest rate.

As of December 31, 2023, the fair value of the Series A common stock warrant liability was determined to be $0.3 thousand assuming a volatility rate of 85.2%, an expected term of 2.55 years, no dividends, and a risk-free interest rate of 4.11%.

As of December 31, 2022, the fair value of the redeemable convertible preferred stock warrant liability was determined to be $4 thousand assuming a volatility rate of 97.3%, an expected term of 2.28 years, no dividends, and a risk-free interest rate of 4.36%.

4. Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following (in thousands):

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Prepaid insurance ​ $ 585 ​ $ 61

Prepaid clinical expenses ​ ​ 767 ​ ​ 352

Deferred financing costs ​ ​ 323 ​ ​ —

​

​

​

​

5. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Accrued clinical costs ​ $ 2,668 ​ $ 3,162

Employees’ compensation ​ 1,105 ​ 636

Accrued research ​ ​ 632 ​ ​ 166

Accrued outside services ​ ​ 442 ​ ​ —

Deferred offering costs ​ ​ 323 ​ ​ —

​

​

​

6. Related parties

Ascletis BioScience Co. Ltd

In January 2019, the Company entered into a license agreement that became effective in February 2019 with Ascletis BioScience Co. Ltd. (Ascletis), a subsidiary of Ascletis Pharma Inc. (Ascletis Pharma), biotechnology company incorporated in the Cayman Islands and headquartered in Hangzhou, China. Ascletis Pharma, through a subsidiary, was the lead investor in the Company’s Series E redeemable convertible preferred stock financing in February 2019. The parties entered into this agreement with the intention to develop, manufacture, and commercialize the Company’s proprietary FASN inhibitor, denifanstat. Under the terms of the license agreement, the Company granted Ascletis and its affiliates an exclusive, royalty-bearing sublicensable right and license under the Company’s intellectual property to develop, manufacture, commercialize and otherwise exploit denifanstat and other products containing denifanstat-related compounds in Greater China, consisting of the People’s Republic of China, Hong Kong, Macau and Taiwan.

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The Company will bear all expenses related to development activities in Greater China as part of a global Phase 2 trial, except for clinical operations and regulatory staff provided by Ascletis. The Company conducted all development activities in connection with the FASCINATE-1 Phase 2 clinical trial in the United States and Greater China at its sole expense, except for certain in-kind contributions by Ascletis in Greater China. Ascletis is solely responsible for all development activities in connection with obtaining and maintaining regulatory approvals for denifanstat in Greater China. The Company received $60 thousand as reimbursement pursuant to the license agreement for Greater China patent prosecution costs during the year ended December 31, 2022. The Company did not receive any such reimbursements during the year ended December 31, 2023.

The Company is eligible to receive development and commercial milestone payments from Ascletis in aggregate of up to $122.0 million as well as tiered royalties ranging from percentages in the high single digits to mid-teens on future net sales of denifanstat, which is referred to as ASC40 in Greater China.

This license and Phase 2 research and development services components of this agreement are representative of a relationship with a customer and therefore are subject to ASC 606. In January 2022, Ascletis initiated dosing of a Phase 3 trial for recurrent glioblastoma multiforme (GBM), potentially triggering a $2.0 million development milestone payment, net of applicable taxes, under the license agreement. The parties were in discussions regarding the form and amount of consideration related to this milestone until July 2023, at which time the Company concluded that the risk of reversal was no longer present, resulting in revenue recognition of $2.0 million. In August 2023, the Company received a $1.7 million milestone payment (representing the $2.0 million development milestone payment, net of applicable taxes which are recorded in general and administrative in the statement of operations and comprehensive loss) from Ascletis.

As of December 31, 2023, the Company accrued $31 thousand of expenses incurred during the year related to its portion of expenses owed under a sponsored research agreement that is co-sponsored by Ascletis. There were no payments made to Ascletis during the year ended December 31, 2023. The Company paid Ascletis under their manufacturing arrangement $4 thousand during the year ended December 31, 2022.

Assignment and Assumption Agreement

In July 2023, the Company entered into an Assignment and Assumption Agreement with Ascletis and Ascletis’ affiliate Gannex Pharma Co., Ltd. (Gannex) under which Ascletis, while remaining responsible for performance under the license agreement, assigned all of its rights and obligations under the license agreement to Gannex and Gannex assumed such rights and obligations, effective as of October 2019.

7. Leases

Facility lease agreement

On March 12, 2019, the Company executed a 38-month non-cancelable operating lease agreement for 3,030 square feet of office space for its headquarters facility which commenced April 1, 2019. The lease provides for monthly lease payments of approximately $12 thousand with annual increases. On December 20, 2021, the lease agreement was amended to extend the term of the lease through June 2024. The Company has accounted for the lease as an operating lease. Operating lease cost was $0.2 million for both the years ended December 31, 2023 and 2022.

The following is a schedule by year of future maturities of the Company’s operating lease liabilities (in thousands):

​

​ ​ ​ ​

​ ​ December 31,

Total lease payments ​ 66

Less: interest ​ (1)

Total ​ $ 65

​

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Supplemental cash flow information related to leases was as follows (in thousands):

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities: ​ ​

Operating cash flows from operating leases ​ $ 158 ​ $ 157

​

Weighted-average remaining lease term and discount rate were as follows as of December 31, 2023:

​

​ ​ ​ ​

Weighted-average remaining lease term ​ 0.5 years

Weighted-average discount rate ​ 7 %

​

​

8. Commitments and contingencies

Guarantees and indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of December 31, 2023, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

Legal

The Company is not party to any material legal proceedings at this time. From time to time, the Company may become involved in various legal proceedings that arise in the ordinary course of its business.

Defined Contribution Plan

The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis. The Company has not made any employer contributions to the 401(k) Plan as of December 31, 2023 and 2022.

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9. Redeemable convertible preferred stock

Prior to the IPO, the authorized, issued and outstanding shares of the redeemable convertible preferred stock, liquidation preferences and carrying values were as follows as of December 31, 2022 (in thousands, except share numbers):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Issued and ​ ​ ​ ​

​ ​ Authorized ​ Outstanding ​ Liquidation ​ Carrying

​ ​ Shares ​ Shares ​ Preference ​ Value

​

In connection with the IPO, all of the Company’s outstanding redeemable convertible preferred stock automatically converted into 15,117,912 shares of Series A common stock and 1,520,490 shares of Series B common stock.

10. Stockholders’ equity (deficit)

Common stock

Per the Charter, the total number of shares of capital stock authorized for issuance is 500,000,000 shares of Series A common stock, 15,000,000 shares of Series B common stock and 10,000,000 shares of undesignated preferred stock. Holders of Series A common stock are entitled to one vote and Series B common stock are not entitled to vote. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, the net assets of the Company will be distributed pro rata to the holders of Series A common stock and Series B common stock. Each share of Series B common stock is convertible, at any time at the option of the holder, into one share of Series A common stock, unless that holder would beneficially own a number of Series A common stock in excess of 4.99% of the total number of shares of Series A common stock then issued and outstanding. On July 18, 2023, upon the Company’s IPO, each share of the Company’s common stock issued and outstanding became reclassified as one share of Series A common stock (see Note 1). The Company’s reserved shares of common stock are as follows:

​

​ ​ ​

​ ​ December 31,

Options to purchase Series A common stock 3,753,507

Awards authorized and available for issuance 1,453,558

Warrant to purchase Series A Common Stock ​ 1,000

Redeemable convertible preferred stock on an as converted basis —

Series D redeemable convertible preferred stock warrant —

Warrants to purchase common stock —

Shares reserved under Employee Stock Purchase Plan ​ 215,497

​

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Warrants

​

The following tables summarize the Company’s outstanding Series A common stock warrant, common stock warrants and redeemable convertible preferred stock warrants:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Number of ​ Exercise ​ ​ ​ ​ ​ Fair Value on ​ ​

​ ​ Warrant ​ Price per ​ Expiration ​ Exercisable ​ Issuance ​ Fair Value

Issuance Date Shares Share Date for (in thousands) Recorded Against

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Number of ​ Exercise ​ ​ ​ ​ ​ Fair Value on ​ ​

​ ​ Warrant ​ Price per ​ Expiration ​ Exercisable ​ Issuance ​ Fair Value

Issuance Date Shares Share Date for (in thousands) Recorded Against

​

​

11. Stock-based compensation

In 2023, the 2023 Stock Option and Incentive Plan (2023 Plan), was adopted by the board of directors, approved by the Company’s stockholders on July 4, 2023, and became effective on July 13, 2023. The 2023 Plan replaced the 2017 Equity Incentive Plan (2017 Plan), which itself took the place of the expired 2007 plan. The 2023 Plan permits the granting of both incentive stock options to purchase Series A common stock under Section 422 of the Code and non-qualified stock options. On July 18, 2023, each share of the Company’s common stock issued and outstanding became reclassified as one share of Series A common stock, therefore, outstanding options prior to the IPO were to purchase common stock, and after the IPO are to purchase Series A common stock. The number of shares initially reserved for issuance under the 2023 Plan was 2,585,968. The number of shares of Series A common stock reserved under the 2023 Plan will automatically increase each year on January 1, by (i) 4% of the outstanding number of shares of our Series A common stock on the immediately preceding December 31 or (ii) a lesser number of shares as determined by the compensation committee of the board of directors. As of December 31, 2023, 1,453,558 shares are available for future grant under the 2023 Plan.

Options under the 2023 Plan can be granted for periods of up to ten years and generally vest over four years. The exercise price of an option shall not be less than 100% of the estimated fair value of the shares on the date of grant as determined by the Company’s board of directors, provided, however, that an ISO granted to a 10% stockholder does not have an exercise price that is less than 110% of the estimated fair value of the shares on the date of grant and shall not have a contractual term longer than five years.

The following table summarizes stock option transactions (in thousands, except share and per share data):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Weighted- ​ ​

​ ​ Number of ​ ​ ​ ​ Average ​ ​ ​

​ ​ Shares ​ Weighted- ​ Remaining ​ ​ ​

​ ​ Underlying ​ Average ​ Contractual ​ Aggregate

​ ​ Outstanding ​ Exercise ​ Term ​ Intrinsic

​ ​ Options ​ Price ​ (in Years) ​ Value

Options exercised ​ (7,614) ​ ​ 0.79 ​ ​ ​ ​ ​

Options cancelled (523) ​ ​ 4.77 ​

​

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The aggregate intrinsic value is calculated as the difference between the option exercise price and the estimated fair value of the underlying common stock. The total intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $88 thousand and $2 thousand, respectively. The weighted average grant date fair value of options granted during the years ended December 31, 2023 and 2022 was $10.28 and $6.04 per share, respectively.

As of December 31, 2023, there was $10.9 million of total unrecognized compensation cost related to the Company’s stock options which the Company expects to recognize over an estimated weighted-average period of 2.79 years.

Performance-based options

The Company may award grants of performance-based options to eligible individuals. Performance-based options vest based on performance measures against predetermined objectives that could include successful completion of qualified equity offerings or announced topline results for clinical trials and positive clinical results over a specified performance period.

The total number of Series A common stock shares underlying outstanding options, as presented in the table above, includes 619,742 performance-based options with a weighted-average exercise price of $6.38 as of December 31, 2023 and 2022. There were 598,513 performance-based shares vested and exercisable as of December 31, 2023.

The total fair value of the performance-based shares vested during the year ended December 31, 2023 was $11 thousand. As of the year ended December 31, 2023, there was $6 thousand of unrecognized compensation cost related to the awards which the Company expects to recognize over an estimated weighted-average period of 0.1 years.

Restricted stock units

Restricted stock units (RSUs) are share awards that entitle the holder to receive freely tradeable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a four-year period in equal amounts on an annual basis, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s Series A common stock on the grant date.

During the year ended December 31, 2023, the Company granted 1,132,410 RSUs with a weighted-average grant date fair value of $2.96 per share. All of the RSUs granted were outstanding as of December 31, 2023. No RSUs vested during the year ended December 31, 2023.

As of December 31, 2023 there was $3.2 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over a weighted-average period of 3.6 years.

Stock-based compensation

The Company has recorded aggregate stock-based compensation expense in the statements of operations and comprehensive loss as follows (in thousands):

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

General and administrative expense ​ $ 4,171 ​ $ 1,204

Research and development expense ​ 819 ​ 676

Total stock-based compensation expense ​ $ 4,990 ​ $ 1,880

​

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The fair value of each award granted was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions:

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Expected volatility 89 - 91 % ​ 88 - 90 %

Risk-free interest rate 3.6 % ​ 3.0 - 4.2 %

Dividend yield — ​ —

Expected term 5.0 - 7.0 years ​ 5.4 - 7.0 years

​

Employee stock purchase plan

The 2023 Employee Stock Purchase Plan (the ESPP), was adopted by the board of directors on June 22, 2023, approved by the Company’s stockholders on July 4, 2023 and became effective on July 13, 2023. A total of 215,497 shares of Series A common stock were initially reserved for issuance under this plan. The number of shares of Series A common stock reserved under the ESPP will automatically increase each year on January 1 through January 1, 2033, by the least of (i) 215,497 shares of Series A common stock, (ii) 1% of the outstanding number of shares of the Company’s Series A common stock on the immediately preceding December 31 or (iii) such lesser number of shares of Series A common stock as determined by the administrator of the ESPP. During the year ended December 31, 2023, no shares of Series A common stock were issued under the 2023 ESPP. ESPP shares will not be made available to employees until May 2024.

​

12. Income taxes

A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rate of 21% to the net loss is summarized for the years ended December 31, 2023 and 2022 is as follows:

​

​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Federal income taxes at statutory rates 21.00 % ​ 21.00 %

State income tax, net of federal benefit 0.54 ​ ​ 0.43 ​

Research and development credits 2.92 ​ ​ 3.48 ​

Stock-based compensation ​ 1.49 ​ ​ (0.81) ​

Change in valuation allowance ​ (25.95) ​ ​ (24.10) ​

Effective income tax rate ​ — % ​ — %

​

For the years ended December 31, 2023 and 2022, the Company did not record a deferred income tax expense or benefit. Income tax expense has been nominal for the years ended December 31, 2023 and 2022.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents significant components of the Company’s net deferred tax assets as of December 31, 2023 and 2022 (in thousands):

​ ​ ​ ​ ​ ​ ​

​ December 31,

Deferred tax assets: ​ ​ ​ ​ ​

Net operating loss carryforwards $ 31,097 ​ $ 28,707

Capitalized start-up costs and research expenses ​ 15,409 ​ ​ 13,004

Research and development credits ​ ​ 5,943 ​ ​ 4,977

Accruals, reserves and other ​ ​ 312 ​ ​ 221

Stock compensation ​ ​ 2,382 ​ ​ 923

Lease liabilities ​ ​ 14 ​ ​ 47

Total deferred tax assets ​ ​ 43 ​ ​ 45

Deferred tax liabilities: ​ ​ ​ ​ ​ ​

Right-of-use assets ​ ​ (15) ​ ​ (45)

Other ​ ​ (28) ​ ​ —

Total deferred liabilities ​ ​ (43) ​ ​ (45)