SPRB US Equity☆

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes to those statements included later in this Annual Report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Item 1A. “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Unless otherwise indicated, all references in this Annual Report to “Spruce,” the “company,” “we,” “our,” “us” or similar terms refer to Spruce Biosciences, Inc.

Overview

We are a biopharmaceutical company focused on developing and commercializing novel therapies for neurological disorders with significant unmet medical need. We have a diverse portfolio of product candidates aimed at addressing diseases with high unmet medical need and clear biology for treatment, for which there are either no approved therapies treating the underlying disease or suboptimal treatment options. We were founded in April 2016 and are led by a management team experienced in the development and commercialization of groundbreaking therapeutics.

Since our inception in November 2014, we have focused primarily on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of, and manufacturing development for, our product candidate, tildacerfont. Since November 2024 we have shifted our focus to the development of tralesinidase alfa enzyme replacement therapy (“TA-ERT”), an investigational treatment for mucopolysaccharidoses type IIIB (“MPS IIIB”), or Sanfilippo Syndrome Type B. In October 2025, TA-ERT received breakthrough therapy designation from the U.S. Food and Drug Administration (“FDA”) for the treatment of Sanfilippo Syndrome Type B. TA-ERT has received Rare Pediatric Disease Designation, Fast Track Designation, Breakthrough Therapy Designation, and Orphan Drug Designation in the United States and European Union (“EU”). We anticipate submitting a biologics license application of TA-ERT for the treatment of Sanfilippo Syndrome Type B in the fourth quarter of 2026. Currently, there is no FDA-approved therapy for the treatment of MPS IIIB, and disease management consists of limited palliative care.

We have no products approved for commercial sale and have not generated any product revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development of TA-ERT and our other current and future product candidates.

Since inception, we have incurred significant losses and negative cash flows from operations. During the years ended December 31, 2025 and 2024, we incurred net losses of $39.0 million and $53.0 million, respectively, and used $33.3 million and $56.0 million of cash in operations, respectively. As of December 31, 2025, we had an accumulated deficit of $289.2 million, and we do not expect positive cash flows from operations for the foreseeable future. We expect to continue to incur significant and increasing losses for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our planned research and development activities.

Since inception through December 31, 2025, we have raised aggregate gross proceeds of $343.1 million, including $103.5 million from our initial public offering (“IPO”) in October 2020, $116.0 million from the sale of our redeemable convertible preferred stock, $5.0 million from the issuance of debt, $53.6 million from a private placement financing in February 2023, $15.0 million upfront payment from Kaken Pharmaceutical Co. Ltd. received in April 2023, and $50.0 million from a private placement financing in October 2025. As of December 31, 2025, we had cash and cash equivalents of $48.9 million.

Without alternative financing or proceeds from other strategic alternatives, we believe, based on our current operating plan, that our cash and cash equivalents as of December 31, 2025 and gross proceeds received in January 2026 under the Loan Agreement with Avenue Capital (each as defined below) will be insufficient to fund our operations and debt obligations for at least 12 months following the issuance date of our financial statements included elsewhere in this Annual Report.

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We expect our expenses will increase significantly in connection with our ongoing activities, as we:

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pursue regulatory approval of TA-ERT in patients with MPS IIIB;

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build a highly specialized commercial organization to support the commercialization of TA-ERT, if approved, in the United States;

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seek strategic collaborations to benefit from the resources of biopharmaceutical companies specialized in either relevant disease areas or geographies in markets outside the United States;

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advance TA-ERT through a planned confirmatory study in patients with MPS IIIB and expanded access programs;

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expand manufacturing capacity to accommodate anticipated global demand of TA-ERT, if approved, for the treatment of MPS IIIB;

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advance pre-clinical and clinical development of SPR202 in congenital adrenal hyperplasia (“CAH”);

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implement operational, financial, and management information systems;

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hire additional personnel; and

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

Global economic and business activities continue to face widespread macroeconomic uncertainties, including global trade disputes, labor shortages, declines in consumer confidence, inflation and monetary supply shifts, recession risks, potential disruptions from the ongoing wars in Ukraine and the Middle East and related sanctions, declines in economic growth, tariffs and related legal challenges, and uncertainty about economic stability.

The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact our business.

Reverse Stock Split

We effected a one-for-seventy-five (1:75) reverse stock split of our outstanding common stock (the “Reverse Stock Split”) on August 4, 2025.

All of the outstanding common stock share numbers (including shares of common stock subject to our options), share prices, exercise prices and per share amounts contained in the financial statements have been retroactively adjusted in the financial statements to reflect this Reverse Stock Split for all periods presented.

Material Agreements

Loan Agreement with Avenue Capital

On January 7, 2026 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) and a Supplement to the Loan and Security Agreement (together with the Loan and Security Agreement, the “Loan Agreement”), with Avenue Capital Management II, L.P., as administrative agent and collateral agent (the “Agent”) and Avenue Venture Opportunities Fund II, L.P., as lender (the “Lender”, together with Agent, “Avenue Capital”).

The Loan Agreement makes available to the company term loans in an aggregate principal amount of up to $50.0 million with (i) $15.0 million funded within 5 business days after the Closing Date (“Tranche 1”), (ii) up to $10.0 million to be made available to the company between March 1, 2026 and September 30, 2026, subject to, among other things, the company’s achievement of a key regulatory milestone related to our development of TA-ERT for the treatment of MPS IIIB (“Tranche 2”) and (iii) up to $15.0 million to be made available to the company between September 1, 2026 and March 31, 2027, subject to, among other things, the company’s achievement of an additional key regulatory milestone with respect to our development of TA-ERT for the treatment of MPS IIIB (“Tranche 3”). The Lender may make additional term loans of up to an additional $10.0 million (the “Discretionary Tranche 4” and collectively with Tranche 1, Tranche 2 and Tranche 3, the “Loans”), to be funded between October 1, 2027 and June 30, 2028, subject to, among other things, (i) the company’s achievement of a certain commercial

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milestone and (ii) the mutual written agreement of the company and the Lender (upon the Lender’s investment committee approval). The Loans bear interest at an annual rate equal to the greater of (x) the sum of 5.25% plus the prime rate as reported in The Wall Street Journal and (y) 12.25%. The Loans are secured by a lien on and security interest in all of our assets, including intellectual property, subject to agreed exceptions. The maturity date of the Loans is July 1, 2029 (the “Maturity Date”). The Loan Agreement does not contain any minimum cash requirement or other financial covenants. As of the date hereof, $15.0 million has been funded under the Loan Agreement.

We will make interest only payments on the Loans until the 12-month anniversary of the Closing Date, subject to (i) a 6-month extension, so long as at least $5.0 million from Tranche 2 has been funded and (ii) an additional 12-month extension if the company achieves the Tranche 3 milestone. The Loan principal is repayable in equal monthly installments from the end of interest only period to the Maturity Date.

We may, at our option at any time, prepay the Loans in their entirety by paying the then-outstanding principal balance and all accrued and unpaid interest on the Loans, subject to a prepayment fee equal to (i) 3.0% of the principal amount outstanding if the prepayment occurs on or prior to the first anniversary following the Closing Date, (ii) 2.0% of the principal amount outstanding if the prepayment occurs after the first anniversary following the Closing Date, but on or prior to the second anniversary following the Closing Date, and (iii) 1.0% of the principal amount outstanding if the prepayment occurs after the second anniversary following the Closing Date. We will pay a final payment of 4.00% of the aggregate commitment amounts for Tranche 1, Tranche 2 and Tranche 3, which shall be increased to include the commitment amount of Discretionary Tranche 4 upon the funding of such tranche, on the earlier of (x) the Maturity Date and (y) the date that we prepay all of the outstanding principal amount of the Loans in full. On the Closing Date, we paid to the Lender a commitment fee of $0.4 million.

The Loan Agreement contains customary representations, warranties and covenants, including covenants by the company limiting, among other things, additional indebtedness, liens, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The Loan Agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, bankruptcy and the occurrence of a material adverse effect on the company. After the occurrence of an event of default, the Agent may (i) accelerate payment of all obligations, impose an increased rate of interest, and terminate the Lender’s commitments under the Loan Agreement and (ii) exercise any other right or remedy provided by contract or applicable law, including a foreclosure on our assets.

Components of Results of Operations

Collaboration Revenue

To date, all of our revenue has been derived from a collaboration and license agreement (the “Kaken License Agreement”) with Kaken Pharmaceutical Co. Ltd. (“Kaken”), pursuant to which we granted Kaken the exclusive right to develop and commercialize tildacerfont for CAH in Japan.

We have not generated any revenues from the commercial sale of approved products and we do not expect to generate revenues from the commercial sale of our product candidates for at least the foreseeable future, if ever.

Operating Expenses

We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist of external and internal expenses incurred in connection with our research activities and development programs.

These expenses include:

▪

external expenses, consisting of:

o

clinical development—expenses associated with clinical research organizations (“CROs”) engaged to manage and conduct clinical trials, in-process research and development and other outside services;

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preclinical studies—expenses associated with preclinical studies and clinical pharmacology;

o

manufacturing—expenses associated with contract manufacturing; labeling, packaging, and distribution of clinical trial supplies, and other outside services;

o

other research and development—expenses associated with business operations, quality and regulatory compliance; and

▪

internal expenses, consisting of personnel, including expenses for salaries, bonuses, benefits, stock-based compensation, as well as allocation of certain expenses.

To date, these expenses have been incurred primarily to advance tildacerfont and acquire and develop TA-ERT. These expenses will primarily consist of personnel costs, expenses for the conduct of clinical trials, manufacturing costs for clinical drug supply, and in-process research and development. We expect that significant additional spending will be required to progress TA-ERT through clinical development and potential regulatory approval and advancing our other investigational product candidates through clinical and pre-clinical development.

Research and development expenses are recognized as they are incurred, including licenses of intellectual property that have no alternative future use at the time of the acquisition. If deposits are required by external vendors, a portion of the deposit is included as a prepaid expense until the activity has been performed or when the goods have been received to amortize the deposit to expense in the statements of operations and comprehensive loss.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, and stock-based compensation expense, for executive, finance, and other administrative functions. General and administrative expenses also include legal fees, professional fees, insurance costs, facility costs not otherwise included in research and development expenses, and public company expenses such as costs associated with compliance with the rules and regulations of the SEC, and those of the Nasdaq Stock Market LLC (“Nasdaq”) listing rules.

We expect that our general and administrative expenses will continue to increase in the foreseeable future as additional administrative personnel and services are required to manage these functions of a public company, and as we advance TA-ERT through potential regulatory approval.

Interest Expense

Interest expense consists of interest incurred and non-cash amortization of debt discount and issuance costs in connection with the debt previously outstanding with Silicon Valley Bank, which we voluntarily prepaid in full on November 3, 2025.

Change in Fair Value of Warrants

The change in fair value of warrants consists of the change in the fair value of the warrant liability.

Interest and Other Income, Net

Interest and other income, net primarily consists of interest income earned on our cash and cash equivalents.

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Results of Operations

Comparisons of the Year Ended December 31, 2025 and 2024

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

Year Ended December 31,

Collaboration revenue $ — $ 4,911 $ (4,911 )

Operating expenses:

Change in fair value of warrant liability (3,500 ) — (3,500 )

Collaboration Revenue

During the year ended December 31, 2024 we recognized $4.9 million as collaboration revenue under the Kaken License Agreement.

Research and Development Expenses

The following table sets forth research and development expenses for the periods presented (in thousands):

Year Ended December 31,

External expenses:

Preclinical studies (46 ) 31 (77 )

Internal expenses:

Research and development expenses decreased by $26.9 million during the year ended December 31, 2025 compared to the year ended December 31, 2024.

The decrease in clinical development expenses of $15.9 million was primarily related to the discontinuation of the tildacerfont CAH development program of $14.0 million. Additionally, there was a decrease in expenses associated with the TA-ERT development program for MPS IIIB of $7.4 million due to lower acquisition related costs and the reduction of certain contingent liabilities resulting from the concluded Allievex bankruptcy proceedings. These decreases in clinical development expenses were offset by the acquisition of SPR202 from HBM Alpha Therapeutics, Inc. for $5.7 million.

The decrease in manufacturing expenses of $5.1 million was primarily related to one-time expenses incurred in connection with the TA-ERT development program of $3.5 million and the discontinuation of the tildacerfont CAH development program of $1.5 million.

There was also a decrease in personnel-related expenses of $5.5 million due to a decrease in headcount, including a decrease in stock-based compensation expense of $2.1 million.

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We anticipate that research and development expenses will increase into the foreseeable future as we advance TA-ERT through an anticipated biologics license application in the fourth quarter of 2026 and potential FDA approval.

For a description of the terms of our license and purchase agreements, see Note 8 to our financial statements “License and Purchase Agreements” presented elsewhere in this Annual Report.

General and Administrative Expenses

General and administrative expenses increased by $2.3 million during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to an increase in professional fees of $3.1 million, driven by patent litigation and other legal costs, offset by a decrease in stock-based compensation expense of $0.7 million.

Interest Expense

Interest expense decreased by $0.2 million during the year ended December 31, 2025 compared to the year ended December 31, 2024 due to the decrease in the principal balance on the debt previously outstanding with Silicon Valley Bank year over year.

Change in Fair Value of Warrants

The change in fair value of warrants of $3.5 million during the year ended December 31, 2025 was due to a loss on the fair value of the warrant liability due to an increase in the fair value of our common stock.

Interest and Other Income, Net

Interest and other income, net decreased by $2.3 million during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to a decrease in interest income of $2.3 million primarily due to lower average daily balances earning yield in money market accounts.

Liquidity and Capital Resources

Liquidity

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. We anticipate that we will continue to incur net losses for the foreseeable future. As of December 31, 2025, we had an accumulated deficit of $289.2 million. As of December 31, 2025, we had cash and cash equivalents of $48.9 million. Since inception through December 31, 2025, we have raised aggregate gross proceeds of $343.1 million, including $103.5 million from our IPO in October 2020, $116.0 million from the sale of our redeemable convertible preferred stock, $5.0 million from the issuance of debt, $53.6 million from a private placement financing in February 2023, $15.0 million from the Kaken upfront payment received in April 2023, and $50.0 million from a private placement financing in October 2025.

On January 7, 2026, we entered into a Loan Agreement with Avenue Capital, which makes available to us term loans in an aggregate principal amount of up to $50.0 million, subject to the company’s achievement of certain regulatory milestones. As of the date hereof, $15.0 million has been funded under the Loan Agreement.

Until we can generate sufficient revenue, if ever, to fund our operations, we will need to finance future cash needs through public or private equity offerings, license agreements, debt financings or restructurings, collaborations, strategic alliances and marketing or distribution arrangements, and there can be no assurance that such arrangements will be available to us on a timely basis, or, if available, will be available on terms acceptable to us. Without alternative financing or proceeds from other strategic alternatives, we believe, based on our current operating plan, that our cash and cash equivalents as of December 31, 2025 and gross proceeds received in January 2026 under the Loan Agreement with Avenue Capital will be insufficient to fund our operations for at least 12 months following the issuance date of our financial statements included elsewhere in this Annual Report. These conditions raise substantial doubt about our ability to continue as a going concern.

Funding Requirements

To date, we have not generated any product revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval and commercialize TA-ERT or any other current or future product candidates, and we do not know when, or if at all, that will occur. We will continue to require additional capital to

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develop TA-ERT and fund operations for the foreseeable future. Our primary uses of cash are to fund our operations, which consist primarily of research and development expenses related to our clinical development programs, and to a lesser extent, general and administrative expenses.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, TA-ERT or any of our other current or future product candidates. We expect our research and development expenses to increase significantly in the foreseeable future as we continue to invest in activities related to the clinical development and commercialization of TA-ERT and as we pursue regulatory approval of TA-ERT for the treatment of MPS IIIB. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and we may never succeed in achieving regulatory approval for TA-ERT in patients with MPS IIIB.

We may seek to raise capital through equity or debt financings, collaborative agreements, potentially including agreements to out-license rights to develop and commercialize TA-ERT, or other arrangements with other companies, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:

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the progress, costs, trial design, results of, and timing of our ongoing and planned clinical trials of our product candidates;

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the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

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the number and characteristics of product candidates that we may pursue;

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our ability to manufacture sufficient quantities of our product candidates;

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our plan to expand our research and development activities;

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the costs associated with manufacturing our product candidates and establishing clinical and commercial supplies, and sales, marketing, and distribution capabilities;

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our ability to enter into favorable out-licensing agreements for the development and commercialization of our product candidates;

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the costs associated with commercialization;

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the costs of acquiring, licensing, or investing in product candidates;

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our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense, and enforcement of any patents or other intellectual property rights;

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our need and ability to retain key management and hire scientific, technical, business, and medical personnel;

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the effect of competing products and product candidates and other market developments;

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the timing, receipt, and amount of sales from our product candidates and any future product candidates, if approved;

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our need to implement additional internal systems and infrastructure, including financial and reporting systems;

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the economic and other terms, timing of, and success of any collaboration, licensing, or other arrangements which we may enter in the future; and

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the effects of the disruptions to and volatility in the credit and financial markets in the United States and worldwide from geopolitical and macroeconomic events, including global trade disputes, labor shortages, declines in consumer confidence, inflation and monetary supply shifts, recession risks,

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tariffs and related legal challenges, and the ongoing wars in Ukraine and the Middle East and related sanctions.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. If we raise additional capital through debt financing, we may be subject to covenants that restrict our operations including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from macroeconomic events, global trade disputes, labor shortages, declines in consumer confidence, inflation and monetary supply shifts, recession risks, potential disruptions from the wars in Ukraine and the Middle East and related sanctions, declines in economic growth, tariffs and related legal challenges, and uncertainty about economic stability. If the equity and credit markets continue to deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of our product candidates or other research and development initiatives. We also could be required to seek collaborators for our product candidates and any future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates and any future product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

The amount and timing of our future funding requirements will depend on many factors including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

Material Cash Requirements

As of December 31, 2025, the total undiscounted lease payments for our non-cancelable operating lease for office space, which terminates in February 2028 unless renewed, was $0.8 million. On January 7, 2026, we entered into the Loan Agreement with Avenue Capital, which makes available to us term loans in an aggregate principal amount of up to $50.0 million, subject to the company’s achievement of certain regulatory milestones. As of the date hereof, $15.0 million has been funded under the Loan Agreement.

We enter into contracts in the normal course of business with third-party contract manufacturing organizations and CROs for clinical trials, non-clinical studies, drug substance and product manufacturing and other services for operating purposes. These contracts are generally cancelable by us upon prior written notice after a certain period, except for certain contracts with contract manufacturing organizations containing minimum purchase obligations. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.

We have also entered into license and collaboration agreements under which we are obligated to make aggregate milestone payments upon the achievement of specified milestones as well as royalty payments. As of December 31, 2025, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. For a description of the terms of our license and collaboration agreements, see “Item 1. Business — License and Collaboration Agreements” above.

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Summary Statements of Cash Flows

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

Year Ended December 31,

Net cash provided by (used in) financing activities 43,481 (1,622 ) 45,103

Cash Used in Operating Activities

Net cash used in operating activities decreased by $22.6 million during the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to lower payments driven by decreased clinical development activities offset by payments made for asset acquisitions of $7.4 million.

Cash Provided by Financing Activities

For the year ended December 31, 2025, net cash provided by financing activities was $43.5 million, consisting primarily of net proceeds from a private placement financing in October 2025 of $46.6 million offset by payments on the debt previously outstanding with Silicon Valley Bank of $2.1 million.

For the year ended December 31, 2024, net cash used in financing activities was $1.6 million, consisting primarily of principal payments on the debt previously outstanding with Silicon Valley Bank of $1.6 million.

Segments

We operate and manage our business as one operating segment, which is the business of developing and commercializing novel therapies for serious neurological disorders with significant unmet medical need.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded. We have determined that we have no critical accounting estimates material to our financial position, results of operations or cash flow related to our financial statements included in this report.

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

Interest Rate Risk

Our cash and cash equivalents as of December 31, 2025 consisted of $48.9 million in bank deposits and money market funds. Previously, we have held U.S treasury securities and corporate bonds. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are capital preservation, liquidity, safeguarding of capital and total return. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate exposure. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. Additionally, the interest rates for our loans are variable.

As of December 31, 2025 and 2024, a hypothetical 1% change in interest rates would not have had a material effect on our financial statements. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

Foreign Currency Exchange Risk

Our operations include activities in the United States. In addition, we contract with vendors that are located outside of the United States and certain invoices are denominated in foreign currencies. While our operating results are exposed to changes in foreign currency exchange rates between the U.S. dollar and various foreign currencies, there was no material impact on our results of operations for any periods presented herein.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein. While we are seeing, and expect to continue to see, inflation due to geopolitical and macroeconomic uncertainties, as of December 31, 2025, we do not expect anticipated changes in inflation to have a material effect on our business, financial condition or results of operations for future reporting periods.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Balance Sheets 102

Statements of Operations and Comprehensive Loss 103

Statements of Stockholders’ Equity 104

Statements of Cash Flows 105

Notes to Financial Statements 106

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Spruce Biosciences, Inc.

South San Francisco, California

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Spruce Biosciences, Inc. (the “Company”) as of December 31, 2025 and 2024, the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations and does not expect positive cash flows from operations in the foreseeable future, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

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

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

Critical Audit Matter

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

Classification and Valuation of Pre-Funded Warrants Issued with HBM License Agreement

As described in Notes 3 and 8 to the financial statements, in January 2025, the Company issued pre-funded warrants that in total will be equal to 4.99% of the Company’s outstanding common stock as of the date of exercise of the pre-funded warrants. The pre-funded warrants are recorded at fair value as a liability with the initial expense being

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recognized as research and development and changes in the fair value of the warrant liability are included in the statement of operations and comprehensive loss.

We identified the classification and valuation of the pre-funded warrants issued with the HBM License Agreement as a critical audit matter. Our principal considerations included the existence of accounting complexities related to certain provisions of the warrant agreement, including settlement provisions. Auditing these elements involved especially complex auditor judgment due to the terms of the applicable agreements, including the extent of specialized knowledge and skills needed.

The primary procedures we performed to address this critical audit matter included:

•

Utilizing personnel with specialized knowledge and skills in technical accounting to assist in: (i) evaluating the terms of the warrant agreements in relation to the relevant accounting literature, and (ii) assessing the appropriateness of conclusions reached by the Company.

•

Developing an independent estimate of fair value using alternative assumptions and comparing to the fair value estimates recorded by management.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2020.

San Jose, California

March 9, 2026

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SPRUCE BIOSCIENCES, INC.

BALANCE SHEETS

(in thousands, except share and per share amounts)

December 31,

ASSETS

Current assets:

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and other current liabilities 9,143 12,329

Term loan, current portion — 1,622

Lease liabilities, net of current portion 419 736

Term loan, net of current portion — 124

Other liabilities — 282

Commitments and contingencies (Note 7)

Stockholders’ equity:

Total liabilities and stockholders’ equity $ 53,021 $ 45,209

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

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SPRUCE BIOSCIENCES, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

Year Ended December 31,

Collaboration revenue $ — $ 4,911

Operating expenses:

Interest expense (90 ) (307 )

Change in fair value of warrant liability (3,500 ) —

Interest and other income, net 1,137 3,422

Net loss and comprehensive loss (38,966 ) (53,036 )

Net loss per share, basic and diluted $ (50.83 ) $ (96.40 )

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

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SPRUCE BIOSCIENCES, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Additional Total

Common Stock Paid-In Accumulated Stockholders'

Shares Amount Capital Deficit Equity

Issuance of common stock related to employee stock purchase plan 2,107 — 66 — 66

Stock-based compensation — — 5,348 — 5,348

Exercise of common stock options 61 — 5 — 5

Issuance of common stock related to employee stock purchase plan 5,485 — 25 — 25

Stock-based compensation — — 2,574 — 2,574

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

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SPRUCE 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:

Stock-based compensation expense 2,574 5,348

Depreciation and amortization 21 46

Loss on disposal of property and equipment — 2

Change in fair value of warrant liability 3,500 —

Changes in operating assets and liabilities:

Prepaid expenses and other current assets 2,447 391

Other assets — 494

Accrued expenses and other current liabilities (2,502 ) (2,271 )

Deferred revenue — (4,911 )

Other liabilities (317 ) (237 )

Net cash used in operating activities (33,327 ) (55,964 )

Cash flows from financing activities

Proceeds from issuance of common stock and warrants 50,000 —

Proceeds from exercise of pre-funded warrants 40 —

Proceeds from exercise of common stock options 5 180

Payment of debt and equity offering costs (3,701 ) —

Tax withholding payments on restricted stock units (831 ) (246 )

Net cash provided by (used in) financing activities 43,481 (1,622 )

Cash, cash equivalents, and restricted cash at beginning of period 38,788 96,374

Cash, cash equivalents, and restricted cash at end of period $ 48,942 $ 38,788

Reconciliation of cash, cash equivalents, and restricted cash

Restricted cash, long-term (included in other assets) 36 35

Total cash, cash equivalents, and restricted cash $ 48,942 $ 38,788

Supplemental cash flow data:

Cash paid for interest on term loan $ 68 $ 225

Supplemental disclosure of non-cash investing and financing activities:

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

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SPRUCE BIOSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Principal Activities

Description of Business

Spruce Biosciences, Inc. (the “Company”) is a late-stage biopharmaceutical company focused on developing and commercializing novel therapies for neurological disorders with significant unmet medical need. The Company is located in South San Francisco, California and was incorporated in the state of Delaware in April 2016.

Reverse Stock Split

Effective April 29, 2025, the Company’s common stock was delisted from Nasdaq as a result of the Company’s ongoing failure to comply with the minimum bid price requirement under Nasdaq. As a result, the Company’s common stock began trading publicly on the over-the-counter market on April 29, 2025 under its symbol “SPRB”.

Subsequently, the Company effected a one-for-seventy-five (1:75) reverse stock split of its outstanding common stock (the “Reverse Stock Split”). The Company's common stock began trading on the OTCQB on a split-adjusted basis on August 7, 2025 (the “Split Effective Date”) under the ticker symbol “SPRBD”. The Company’s common stock resumed trading on the Nasdaq Capital Market on September 15, 2025 under the ticker symbol “SPRB”.

At the Split Effective Date, every 75 shares of the Company’s issued and outstanding common stock were automatically converted into one issued and outstanding share of common stock, without any change in authorized common stock or par value per share. The Reverse Stock Split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the Reverse Stock Split, as well as the number of shares of common stock available for issuance under the Company’s equity incentive plans and employee stock purchase plan. In addition, the Reverse Stock Split effected a reduction in the number of shares of common stock issuable upon the exercise of warrants, stock options and restricted stock units outstanding immediately prior to the effectiveness of the Reverse Stock Split with a corresponding increase in the exercise price per share applicable to such warrants and stock options. No fractional shares were issued because of the Reverse Stock Split. Stockholders who were otherwise entitled to receive a fractional share received a cash payment in lieu thereof.

All of the outstanding common stock share numbers (including shares of common stock subject to the Company’s options), share prices, exercise prices and per share amounts contained in the financial statements have been retroactively adjusted in the financial statements to reflect this Reverse Stock Split for all periods presented.

Private Placement of Common Stock and Pre-Funded Warrants

On October 7, 2025, the Company entered into a Securities Purchase Agreement with certain institutional investors to sell and issue (i) 502,181 shares of the Company’s common stock and (ii) pre-funded warrants to purchase up to 233,144 shares of the Company’s common stock in a private placement transaction, which were exercised in full by December 31, 2025. The purchase price per share of common stock was $68.00 per share and the purchase price for the pre-funded warrants was $67.99. The private placement transaction closed on October 9, 2025. The total gross proceeds to the Company were $50.0 million, before deducting placement agent fees and other expenses.

Reduction in Force

On April 21, 2025, the Company effected a workforce reduction of 55% to prioritize development and potential accelerated approval of tralesinidase alfa enzyme replacement therapy (“TA-ERT”) for the treatment of Sanfilippo Syndrome Type B (“MPS IIIB”). The workforce reduction was effective immediately, with a termination date of May 2, 2025 for affected individuals. During the year ended December 31, 2025, the Company incurred total operating expenses of $0.9 million in connection with the workforce reduction, consisting of expenses related to severance payments and healthcare coverage assistance and related costs. Of the total expense, $0.8 million was included in research and development expenses and $0.1 million in general and administrative expenses on the statement of operations and comprehensive loss during the year ended December 31, 2025. The workforce reduction was completed as of June 30, 2025.

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Liquidity and Capital Resources

The Company has incurred significant losses and negative cash flows from operations. During the year ended December 31, 2025, the Company incurred a net loss of $39.0 million and used $33.3 million of cash in operations. As of December 31, 2025, the Company had an accumulated deficit of $289.2 million and does not expect positive cash flows from operations in the foreseeable future. The Company has funded its operations primarily through the issuance and sale of equity securities, debt and collaboration revenue.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which assumes the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Without alternative financing or proceeds from other strategic alternatives, the Company believes that based on its current operating plan, its cash and cash equivalents of $48.9 million as of December 31, 2025 and gross proceeds of $15.0 million received in January 2026 under the Loan Agreement with Avenue Capital (see Note 15), will be insufficient to fund its planned operations and debt obligations for at least 12 months following the issuance date of these financial statements. The Company’s ability to continue as a going concern will require the Company to raise additional capital to fund the Company's operations and there can be no assurance that additional financing will be available to the Company or that such financing, if available, will be available on terms acceptable to the Company. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern for at least 12 months following the issuance date of these financial statements.

In order to meet these additional cash requirements, the Company may seek to out-license rights to develop and commercialize its investigational product candidates or sell additional equity or issue debt, convertible debt or other securities that may result in dilution to its stockholders. If the Company raises additional funds through the issuance of debt or convertible debt securities, these securities could have rights senior to those of its shares of common stock and could contain covenants that restrict its operations. There can be no assurance that the Company will be able to obtain additional equity or debt financing on terms acceptable to it, if at all. Additional debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. The Company’s failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on its business, results of operations, financial condition and prospects.

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses as well as related disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, accrued research and development expenses, stock-based compensation, and uncertain tax positions. The Company bases its estimates on its historical experience and on assumptions that it believes are reasonable; however, actual results could significantly differ from those estimates.

Risks and Uncertainties

Any product candidates developed by the Company will require approvals from the U.S. Food and Drug Administration or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s current and future product candidates will meet desired efficacy and safety requirements to obtain the necessary approvals. If approval is denied or delayed, it may have a material adverse impact on the Company’s business and its financial statements.

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The Company is subject to a number of risks similar to other late-stage biopharmaceutical companies including, but not limited to, dependency on the clinical success of the Company’s product candidates, ability to obtain regulatory approval of its product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and consumers, significant competition, untested manufacturing capabilities, and dependence on key individuals and sole source suppliers.

Global economic and business activities continue to face widespread macroeconomic and geopolitical uncertainties, including global trade disputes, labor shortages, declines in consumer confidence, inflation and monetary supply shifts, recession risks, potential disruptions from the ongoing wars in Ukraine and the Middle East and related sanctions, declines in economic growth, tariffs and related legal challenges, the recent U.S. government shutdown and uncertainty about economic stability. The Company continues to actively monitor the impact of these macroeconomic and geopolitical factors on its financial condition, liquidity, operations, and workforce. The extent of the impact of these factors on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, which are uncertain and cannot be predicted; however, any continued or renewed disruption resulting from these factors could negatively impact the Company’s business.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets.

Segment Reporting

The Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializing novel therapies for serious neurological and disorders with significant unmet medical need. The Company’s chief executive officer, who is the chief operating decision maker (“CODM”), reviews financial information on an aggregate basis for allocating and evaluating financial performance. All long-lived assets are maintained in the United States of America.

The Company's prior year segment revenue is derived from a collaboration and license agreement with Kaken Pharmaceutical Co, Ltd. The CODM assesses performance and decides how to allocate resources based on net loss. Net loss is used to monitor budget versus actual results. The measure of segment revenue, segment net loss and segment expenses is reported on the statement of operations. The measure of segment assets is reported on the balance sheet as total assets.

Cash and Cash Equivalents

The Company considers all highly liquid investments with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value.

Restricted Cash

The Company's restricted cash is related to collateralized cash in connection with letters of credit issued on behalf of the Company for the security deposit required under an operating lease. Restricted cash is included in other assets on the balance sheets and is included in the reconciliation of cash, cash equivalents, and restricted cash on the statements of cash flows.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

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The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

▪

Level 1—Quoted prices in active markets for identical assets and liabilities;

▪

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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; and

▪

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.

The Company’s financial instruments primarily consist of cash and cash equivalents, prepaid expenses, accounts payable, warrant liability and accrued expenses. The carrying value of cash and cash equivalents, prepaid expenses, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. The estimated fair value of the warrant liability was based on the Black-Scholes option pricing model, which was considered a Level 3 fair value measurement.

Leases

The Company determines if an arrangement includes a lease at inception. Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The right-of-use asset includes any lease payments made on or before the lease commencement date, less lease incentives received. The incremental borrowing rate is used in determining the present value of future payments. The Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease terms may include options to extend or terminate the lease. Lease expense for operating leases is recognized on a straight-line basis over the non-cancelable lease term. Variable lease expense relates primarily to office lease common area maintenance, insurance, and property taxes, is expensed as incurred, and is excluded from the calculation of the lease liability and right-of-use-asset.

The Company has elected not to recognize a right-of-use asset and lease liability for short-term leases. A short-term lease is a lease with an expected lease term of 12 months or less and which does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Lease agreements that include lease and non-lease components are accounted for as a single lease component.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation and are included in other assets on the balance sheets. Depreciation expense is calculated using the straight-line method over the estimated useful life of the respective asset and begins at the time the asset is placed into service. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized.

The useful lives of property and equipment are as follows:

Computer and office equipment 3 years

Computer software 3 years

Furniture and fixtures 5 years

Manufacturing machinery and equipment 7 years

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Long-Lived Assets

Long-lived assets, such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no such impairment losses during the years ended December 31, 2025 and 2024.

Accrued Research and Development Expenses

Clinical trial costs are charged to research and development expense as incurred. The Company accrues for expenses resulting from contracts with clinical research organizations (“CROs”), consultants, and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. The Company’s policy is to reflect the appropriate expense in the financial statements by matching the appropriate expenses with the period in which services and efforts are expended.

The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, laboratory fees and other miscellaneous costs. The Company determines accrual estimates through reports from and discussion with clinical personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The Company estimates accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. The clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from the CROs and other third-party vendors.

If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments associated with licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Revenue Recognition

The Company recognizes revenues when, or as, the promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services. To determine revenue recognition for arrangements, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied.

The Company previously entered into a licensing and collaboration agreement that primarily included the following: (i) upfront cash consideration; (ii) payments associated with achieving certain milestones; and (iii) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company analyzes each unit of account within the contract to determine if the counterparty is a customer in the context of the unit of account.

At contract inception, the Company assesses the goods or services promised and enforceable in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. If a promised good or service is not distinct, the Company combines that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. Promised goods and services that are not material in the context of the contract are not considered performance obligations. Additional goods or services that are exercisable at a customer’s discretion are assessed to determine if they provide a material right to the customer and if so, they are considered performance obligations.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer

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may include fixed amounts, variable amounts, or both. Non-refundable upfront payments are considered fixed consideration and included in the transaction price. At the inception of arrangements that include variable consideration, the Company uses judgment to estimate the amount of variable consideration to include in the transaction price using the most likely method. If it is probable that a significant revenue reversal will not occur, then the estimated amount is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not included in the transaction price until those approvals are received. For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and if the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. At the end of each reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint and, as necessary, adjusts the estimate of the overall transaction price. Any adjustments will be recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices, unless the consideration is variable and meets the criteria to be allocated entirely to one or more, but not all, performance obligations in the contract. Other components of the transaction price are allocated based on the relative standalone selling price, over which the Company applies significant judgment. The Company develops assumptions that require judgment to determine the standalone selling price for license-related performance obligations under the adjusted market assessment approach, which may include forecasted revenues, development timelines, discount rates and probabilities of success.

Revenue is recognized when, or as, the Company satisfies a performance obligation. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input method based on the nature of the good or service promised to the customer. The Company uses judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided.

If a customer pays consideration, or the Company has an unconditional right to the consideration, before the satisfaction of the revenue recognition criteria, the amounts are recorded as deferred revenue in the Company’s balance sheet. The current portion of deferred revenue represents the amount of the performance obligation that is expected to be satisfied within the next twelve months. Amounts recognized as revenue prior to receipt or before they are due are recorded as contract assets in the Company’s balance sheet, excluding any amounts presented as accounts receivable. If the Company has an unconditional right to receive consideration, the contract assets are accounted for as accounts receivable and presented separately from contract assets. A net contract asset or liability is presented for each contract with a customer.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses include, but are not limited to, purchases of acquired in-process research and development, personnel costs, fees paid to external entities that conduct certain non-clinical and clinical development activities on our behalf, manufacturing costs, outside service and consulting costs, and allocated overhead, including rent. Assets acquired that are utilized in research and development that have no alternative future use are also expensed as incurred. Purchases of acquired in-process research and development are included as an operating activity on the statements of cash flow.

Stock-Based Compensation

The Company accounts for stock-based compensation using a fair value-based method, which requires the recognition of compensation expense for costs related to all stock-based payments including stock options, restricted stock units (“RSUs”) and purchase rights under the Employee Stock Purchase Plan (“ESPP”). The Company estimates the fair value of stock options and purchase rights granted under the ESPP on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of the Company’s common stock, as well as changes in assumptions regarding a number of variables. The model requires management to make a number of assumptions which include the following:

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▪

Expected Term. The expected term is based on the simplified method as the Company’s stock options qualify as “plain vanilla” options and the Company has limited history of exercise data. For ESPP, the expected term is based on the term of the purchase period.

▪

Expected Volatility. The expected volatility is based on the historical volatility of the Company's stock.

▪

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected term of the options.

▪

Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend rate of zero in the valuation model.

▪

Forfeitures. The Company accounts for forfeitures as they occur.

The fair value of RSUs, including RSUs subject to performance-based vesting conditions, is based on the fair value of the Company's stock price on the grant-date.

The Company recognizes compensation expense on a straight-line basis over the requisite service period of the award, which is generally the vesting period. The Company accounts for forfeitures as they occur.

Options generally vest over a four-year period: 25% of the shares vest on the first anniversary from the vesting commencement date of the option and an additional 1/48th of the shares vest on each monthly anniversary thereafter, subject to the employee’s continuous service through each vesting date. RSUs generally vest ratably over four years.

For options and RSUs that vest upon the satisfaction of certain performance conditions, the Company recognizes compensation expense when it becomes probable that the performance conditions will be met. When the criteria are deemed probable of being met, the Company records cumulative compensation expense in the period the performance criteria are deemed probable of being met and recognizes the remaining compensation expense on a straight-line basis over the remaining period for which the performance criteria are expected to be completed.

Income Taxes

The Company accounts for income taxes under the asset and liability method. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statements of operations and comprehensive loss become deductible expenses under applicable income tax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

The Company assesses the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income and on-going prudent and feasible tax planning initiatives. Based upon the weight of available evidence, the Company has determined that net deferred tax assets should be fully offset by a valuation allowance. When the Company establishes or reduces the valuation allowance against its net deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

The Company accounts for uncertainty in income taxes in accordance with Accounting Standards Codification (“ASC”) 740. Tax positions are evaluated in a two-step process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by tax authorities, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to be recognized in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to unrecognized tax benefits.

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Comprehensive Loss

Comprehensive loss is equal to net loss as there are no components of other comprehensive loss.

Net Loss per Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period including any outstanding pre-funded warrants, without consideration for potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, outstanding stock options, RSUs, outstanding common stock warrants and shares expected to be issued pursuant to the ESPP are considered to be potentially dilutive securities. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods.

Recent Accounting Pronouncements Adopted

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2023-09, Income Taxes - Improvements to Income Tax Disclosures (“ASU 2023-09”) requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 does not change the recognition or measurement of income taxes under ASC 740. The Company adopted ASU 2023-09 on a prospective basis for the fiscal year ended December 31, 2025 and other than the presentation of additional disaggregated data in the income tax footnote disclosure, there was no material impact on the Company's financial statements. Prior-period comparative disclosures for the income tax footnote have not been recast to the expanded format required by ASU 2023-09, consistent with the transition guidance in ASU 2023-09.

Recent Accounting Pronouncements - Not Yet Adopted

In November 2024, the FASB issued Accounting Standards Update 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disaggregated information about certain income statement expense line items on an annual and interim basis. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and can be applied prospectively or retrospectively. The Company is evaluating the impact of the adoption of this standard on the Company’s financial statements and related disclosures.

3. Fair Value Measurements

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 classifies money market funds as Level 1 investments as the Company uses quoted prices in active markets for identical assets to determine the fair value. The Company classified its previous warrant liability as a Level 3 instrument as it was valued using the Black-Scholes option pricing model.

The following table summarizes the Company's financial assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

Total Level 1 Level 2 Level 3

Financial assets:

Cash equivalents:

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Total Level 1 Level 2 Level 3

Financial assets:

Cash equivalents:

The Company did not have any financial liabilities recorded at fair value on a recurring basis as of December 31, 2025 and 2024.

HBM Warrant Liability

In January 2025, the Company issued pre-funded warrants that in total were to be equal to 4.99% of the Company's issued and outstanding common stock as of the date of exercise of such pre-funded warrants. See Note 8 “License and Purchase Agreements — HBM Alpha Therapeutics, Inc.” for further discussion regarding such pre-funded warrants. In June 2025, the Company amended these pre-funded warrants to extend the exercise period to December 31, 2025. In December 2025, these pre-funded warrants were fully exercised.

These pre-funded warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these pre-funded warrants provided for a settlement provision that did not meet the requirements of the indexation guidance under ASC 815-40. These pre-funded warrants were recorded at fair value as a liability. The change in fair value of the warrant liability is included on the face of the statement of operations and comprehensive loss.

These pre-funded warrants were measured using a Black-Scholes option pricing model with the following inputs as of issuance and exercise:

Grant Date Exercise Date

Expected term (in years) 0.5 0.0 - 0.1

Risk-free interest rate 4.3 % 3.7% - 3.8%

Expected dividend rate 0.0 % 0.0 %

Expected stock price volatility 65.8 % 75.2% - 132.6%

The following table provides a roll forward of the aggregate fair value of the Company’s warrant liability (in thousands):

Warrant Liability

Fair value as of December 31, 2024 $ —

Grant date fair value 748

Change in fair value 3,500

Reclass to additional paid-in capital upon exercise (4,248 )

Fair value as of December 31, 2025 $ —

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4. Balance Sheet Components

Accrued Expenses and Other Current Liabilities

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

December 31,

Accrued research and development expenses $ 3,496 $ 10,635

Accrued general and administrative expenses 3,556 529

Accrued compensation and benefits 1,774 882

Lease liabilities, current portion 317 283

Total accrued expenses and other current liabilities $ 9,143 $ 12,329

Accrued research and development expenses were primarily related to clinical trials and manufacturing of clinical drug supply as well as accruals related to the Allievex asset purchase. See Note 8 “License and Purchase Agreements — Allievex Corporation” for further information regarding such asset purchase.

5. Leases

The Company leases space under a non-cancelable operating lease, which requires the Company to pay base rent, real estate taxes, insurance, general repairs, and maintenance.

In December 2022, the Company entered into a non-cancelable operating lease for approximately 6,500 square feet of office space in South San Francisco, California, which commenced in December 2022 and expires in February 2028 (the “South San Francisco Lease”). Total minimum rental payments for the South San Francisco Lease are $1.7 million over the lease term. The Company has an option to extend the lease term of the South San Francisco Lease for an additional three years which has not been included in the lease term as it is not reasonably certain that the Company will exercise this option. The Company will also be responsible for the payment of additional rent to cover the Company's share of the annual operating and tax expense for the building. Under the terms of the South San Francisco Lease, the Company issued a letter of credit to the landlord of $29 thousand, which is collateralized by a restricted cash deposit of $36 thousand as of December 31, 2025.

Other information related to the operating lease was as follows (dollar amounts in thousands):

Year Ended December 31,

Operating lease costs $ 337 $ 336

Cash paid for operating lease liabilities $ 354 $ 344

Weighted average remaining lease term (years) 2.2 3.2

Weighted average discount rate 8.0 % 8.0 %

Variable lease expense for the years ended December 31, 2025 and 2024 was immaterial.

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Future minimum lease commitments under the Company’s leases as of December 31, 2025 were as follows (in thousands):

Year ending December 31,

Total undiscounted lease payments 805

Less: present value discount (69 )

Total lease liabilities $ 736

Lease liabilities, current portion* $ 317

Lease liabilities, net of current portion 419

Total lease liabilities $ 736

6. SVB Term Loan

In September 2019, the Company entered into a Loan and Security Agreement, as subsequently amended in March 2021 and May 2022 (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”) providing for a term loan (the “SVB Term Loan”) for an aggregate principal amount of $5.0 million.

On November 3, 2025, the Company terminated the SVB Loan Agreement and voluntarily prepaid in full the outstanding principal balance of the SVB Term Loan and all other outstanding obligations under the SVB Loan Agreement, which was $0.7 million, inclusive of all principal and all accrued and unpaid interest and fees under the SVB Loan Agreement.

7. Commitments and Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party and records a loss contingency on an undiscounted basis when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are subjective and based on the status of such legal proceedings, the merits of the Company’s defenses, and consultation with legal counsel. Actual outcomes of these legal proceedings may differ materially from the Company’s estimates. The Company estimates accruals for legal expenses when incurred as of each balance sheet date based on the facts and circumstances known to the Company at that time.

See Note 8 for discussion over commitments associated with the Company's license and purchase agreements.

Legal Matters

The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Other than as disclosed below, the Company was not subject to any material legal proceedings during the years ended December 31, 2025 and 2024 and management is not aware of any pending or threatened litigation that, individually or in the aggregate, could have a material adverse effect on the Company's business, financial condition or results of operations.

In January 2025, Neurocrine Biosciences, Inc. (“Neurocrine”) initiated proceedings seeking to invalidate European Patent 3,784,233 (the “Patent”) in the United Kingdom Patents Court (“UKPC”), and in August 2025, initiated similar proceeds before the Unified Patent Court (collectively, the “Patent Proceedings”). In February 2026, the UKPC issued a judgment ordering the Company to pay Neurocrine an interim payment of approximately $1.2

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million for its legal costs. As of the year ended December 31, 2025, the Company accrued $1.9 million for loss contingencies associated with the Patent Proceedings which is included in accrued expenses and other current liabilities on the balance sheet and in general and administrative expenses on the statement of operations and comprehensive loss

8. License and Purchase Agreements

Eli Lilly and Company

In May 2016, the Company entered into a license agreement (the “Lilly License Agreement”), with Eli Lilly and Company (“Lilly”). Pursuant to the terms of the Lilly License Agreement, Lilly granted the Company an exclusive, worldwide, royalty bearing, sublicensable license under certain technology, patent rights, know-how and proprietary materials related to certain compounds, to research, develop, and commercialize such compounds for all pharmaceutical uses.

As partial consideration for the rights granted to the Company under the Lilly License Agreement, the Company made a one-time upfront payment to Lilly of $0.8 million during the year ended December 31, 2016, which was recorded as research and development expense as there was no alternative use due to the early stage of the technology. The Company is also required to pay Lilly up to an aggregate of $23.0 million upon the achievement, during the time the Lilly License Agreement remains in effect, of certain milestones relating to the clinical development and commercial sales of products licensed under the Lilly License Agreement. Such payments are for predetermined fixed amounts, are paid only upon the first occurrence of each event, and are due shortly after achieving the applicable milestone. In addition, the Company is required to pay Lilly tiered royalties on annual worldwide net sales with rates ranging from mid-single-digits to sub-teens. No amounts were paid by the Company to Lilly during the years ended December 31, 2025 and 2024, nor were due as of such dates pursuant to the Lilly License Agreement.

The Lilly License Agreement will remain in effect, unless earlier terminated, until the expiration of the royalty payment obligations. Royalties are payable on a product-by-product and country-by-country basis from the first commercial sale of the product until the later of (i) the tenth anniversary of the date of first commercial sale in such country, (ii) the expiration in such country of the last-to-expire licensed patent having a valid claim covering the manufacture, use or sale of the licensed product as commercialized in such country, and (iii) the expiration of any data or regulatory exclusivity period for the licensed product in such country.

HMNC Holding GmbH

In May 2024, the Company entered into a license, development and option agreement (the “HMNC Agreement”) with HMNC Holding GmbH (“HMNC”). Under the terms of the HMNC Agreement, HMNC funded and conducted a Phase 2 proof-of-concept study of tildacerfont in MDD patients, who were screened using Cortibon Genetic Selection Tool (“Cortibon”), HMNC’s proprietary genetic selection tool.

The study was discontinued in the first quarter of 2026. The Company has an option to in-license exclusive worldwide rights to Cortibon. . If the Company exercises its option, it will be responsible for the future worldwide development and commercialization of tildacerfont and Cortibon for the treatment of MDD under a collaboration framework that leverages HMNC’s ongoing expertise in precision psychiatry and companion diagnostics. Pursuant to the license terms, HMNC would be entitled to receive certain milestone payments and tiered royalties on net sales of tildacerfont in MDD.

No amounts were paid to the Company during the years ended December 31, 2025 and 2024, nor were due as of such dates pursuant to the HMNC Agreement.

Allievex Corporation

On October 4, 2024, the Company entered into that certain Asset Purchase Agreement (the “Allievex Purchase Agreement”) with AVX (ABC), LLC, a Delaware limited liability company, in its sole and limited capacity as the assignee for the benefit of creditors of Allievex Corporation (“Allievex”). Pursuant to the Allievex Purchase Agreement, the Company acquired all intellectual property and inventory relating to Allievex's product candidates and that certain Exclusive License Agreement, by and between BioMarin Pharmaceutical Inc. (“BioMarin”) and Allievex, dated October 22, 2019 (the “BioMarin License Agreement”).

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As consideration, the Company paid $5.0 million to Allievex in November 2024. The Company also assumed certain liabilities of Allievex of $8.3 million, of which $7.5 million was paid as of December 31, 2025 and the remaining $0.8 million is included in accrued expenses and other current liabilities on the balance sheet as of December 31, 2025. The Company also recorded an estimated receivable of $2.6 million in other current assets on the balance sheet as of December 31, 2025 related to the completed Allievex bankruptcy proceedings. The receivable was fully collected by the Company in January 2026. The Company also incurred transaction costs of $0.3 million during the year ended December 31, 2024, which were included in general and administrative expenses on the statement of operations and comprehensive loss.

The Company concluded that the assets purchased in conjunction with the Allievex Purchase Agreement represent an asset acquisition whereby the underlying assets comprise in-process research and development assets with no alternative future use. The Company recognized aggregate net acquisition cost of $15.1 million, which was reported as a component of research and development expense for the year ended December 31, 2024. During the year ended December 31, 2025, changes in estimates to recorded liabilities associated with the Allievex Purchase Agreement reduced the aggregate net acquisition cost to $11.0 million.

The Company also assumed the obligations of Allievex to pay BioMarin up to an aggregate of $88.0 million upon the achievement of certain development and regulatory milestones (up to $25.5 million for the first MPS IIIB product) and up to an aggregate of $100.0 million per licensed product upon the achievement of certain sales milestones. In addition, the Company is required to pay to BioMarin certain (i) high-single digit to low-double digit tiered royalties on aggregate annual net sales of licensed MPS IIIB products and (i) mid-to-high single digit tiered royalties on aggregate annual net sales of licensed products other than MPS IIIB products, in each case during the applicable royalty term, subject to certain customary reductions and floors. No amounts were paid by the Company to BioMarin nor were any due as of December 31, 2025 pursuant to the Allievex Purchase Agreement.

The Company may terminate the BioMarin License Agreement at any time for convenience upon prior written notice provided within a specified period of time. BioMarin may terminate the BioMarin License Agreement upon written notice if we (i) challenge the validity, enforceability or scope of any of the patents licensed by us under the BioMarin License Agreement, subject to certain conditions, or (ii) cease all material research and development activity for any licensed product for a specified period of time, subject to certain exceptions. Either the Company or BioMarin may also terminate the BioMarin License Agreement (i) in the event the other party shall have materially breached its obligations thereunder and such default shall have continued for a specified period after written notice thereof or (ii) upon the bankruptcy or insolvency of the other party.

HBM Alpha Therapeutics, Inc.

On January 15, 2025, the Company entered into a collaboration and license agreement (the “HBM License Agreement”) with HBM Alpha Therapeutics, Inc. (“HBM”). Under the terms of the HBM License Agreement, HBM granted the Company a limited exclusivity, royalty bearing, and sublicensable license to certain technology, patent rights, manufacturing rights, know-how, and proprietary materials relating to certain compounds developed by HBM.

As consideration, the Company made a one-time upfront payment to HBM of $5.0 million in February 2025. Additionally, in January 2025, the Company issued pre-funded warrants to HBM and its affiliates that in total were to be equal to 4.99% of the Company's outstanding common stock as of the date of exercise of such pre-funded warrants. In June 2025, the Company amended the pre-funded warrants to extend the exercise period to December 2025. In December 2025, these pre-funded warrants were fully exercised.

The Company concluded that the rights acquired under the HBM License Agreement have no alternative future use. Therefore, the consideration paid of $5.0 million, along with the initial fair value of the pre-funded warrants issued of $0.7 million (see Note 3 “Fair Value Measurements — Warrant Liability”), was recognized as acquired in-process research and development expense, which is reported as a component of research and development expense for the year ended December 31, 2025.

The Company is also obligated to pay HBM up to an aggregate of $390.0 million upon the achievement of certain development, regulatory, and sales milestones. In addition, the Company is required to pay to HBM certain mid to high-single digit tiered royalties on aggregate annual net sales of licensed products during the applicable royalty term, subject to certain customary reductions.

The Company may terminate the HBM License Agreement on a licensed product-by-licensed product basis or

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in its entirety at any time for convenience upon prior written notice provided within a specified period of time. Either the Company or HBM may also terminate the HBM License Agreement (i) in the event the other party shall have materially breached its obligations thereunder and such default shall have continued for a specified period after written notice thereof or (ii) upon the bankruptcy or insolvency of the other party. HBM may terminate the HBM License Agreement upon prior written notice if the Company (i) ceases all development or commercialization activities for a specified period of time, subject to certain exceptions, or (ii) challenges the validity, enforceability or scope of any of the patents licensed by the Company to HBM under the HBM License Agreement, subject to certain conditions.

Kaken Pharmaceutical Co. Ltd.

On January 5, 2023, the Company entered into a collaboration and license agreement (the “Kaken License Agreement”) with Kaken Pharmaceutical Co. Ltd. (“Kaken”). Under the terms of the Kaken License Agreement, the Company granted to Kaken the exclusive right to develop, manufacture and commercialize the Company’s product candidate, tildacerfont, for the treatment of CAH in Japan. Pursuant to the Kaken License Agreement, Kaken is responsible for securing and maintaining regulatory approvals necessary to commercialize tildacerfont in Japan. The Company will retain all rights to tildacerfont in all other geographies.

Pursuant to the Kaken License Agreement, Kaken made an upfront payment to the Company of $15.0 million in April 2023. In addition to the upfront payment, the Company is entitled to receive up to an aggregate of approximately $65.0 million (at exchange rates in effect on the date of the Kaken License Agreement) upon the achievement of specified milestones related to the development, regulatory approval and commercialization of tildacerfont in Japan, including the achievement of specified net sales thresholds, if approved. Kaken has agreed to pay the Company a non-creditable, non-refundable specified purchase price for each unit of Company-manufactured product supplied to Kaken for commercial sale. In addition, the Company will also be entitled to receive a royalty for each unit of non-Company manufactured product sold equal to a range of double-digit percentages up to the mid-twenties based on annual net sales of tildacerfont in Japan. Both the purchase price for each unit and the royalty rate are subject to reduction in certain circumstances as specified in the Kaken License Agreement. Kaken’s obligation to pay royalties will continue for ten years after the first commercial sale in Japan or, if later, until the expiration of regulatory exclusivity of tildacerfont or the expiration of the last valid claim of a Company-licensed patent covering tildacerfont in Japan.

The Company identified a combined performance obligation consisting of the license and know-how granted to Kaken as well as certain non-contingent research and development activities. The Company determined that the transaction price at the inception of the Kaken License Agreement consisted of the upfront payment of $15.0 million. The transaction price was recognized as revenue using the cost-based input method over the estimated period of its non-contingent research and development obligations, which was approximately two years. During the year ended December 31, 2024, the Company recognized collaboration revenue of $4.9 million. The transaction price was fully recognized as of December 31, 2024 as the performance obligation was satisfied.

9. Capital Structure

Common Stock

As of December 31, 2025 and 2024, the Company was authorized to issue 200,000,000 shares of $0.0001 par value common stock, respectively. Holders of the Company’s common stock are entitled to dividends if and when declared by the Board of Directors of the Company (“Board of Directors”). The holder of each share of common stock is entitled to one vote. As of December 31, 2025, no dividends were declared.

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Common stock reserved for future issuance, on an as converted basis, consisted of the following:

December 31,

Common stock warrants, issued and outstanding 169,147 169,154

Common stock options, issued and outstanding 42,421 46,122

Restricted stock units, issued and outstanding 47,200 29,863

Redeemable Preferred Stock

On May 28, 2025, the Company entered into a Purchase Agreement with Michael Grey, the Executive Chairman of the Company’s Board of Directors, pursuant to which the Company issued and sold one share of the Company’s newly designated Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred”), to Mr. Grey for a purchase price of $100.00. On July 22, 2025, immediately following stockholder approval of the Reverse Stock Split (as defined in Note 1), the outstanding share of Series A Preferred was redeemed for a redemption price of $100.00.

10. Stock-Based Compensation

Equity Incentive Plans

The Company adopted the 2020 Equity Incentive Plan (the “2020 Plan”) in October 2020. The 2020 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants. The number of shares of common stock available for issuance under the 2020 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2020 Plan, beginning with January 1, 2021 and ending with January 1, 2030, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year or such lesser amount as determined by the Company’s Board of Directors. As of December 31, 2025, 19,715 shares remained available for issuance under the 2020 Plan. On January 1, 2026, shares available for issuance under the 2020 Plan were automatically increased by 68,602 shares.

Under the 2020 Plan, individuals can be granted the ability to early exercise their options. As of December 31, 2025, there were no shares subject to repurchase by the Company related to the early exercise of options.

A summary of the Company’s stock option activity and related information is as follows (in thousands, except share and per share amounts):

For the years ended December 31, 2025 and 2024, the weighted-average fair value of options granted was $50.72 and $48.06 per share, respectively.

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The aggregate intrinsic values of options outstanding and exercisable were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of the respective balance sheet date. The total intrinsic value of options exercised was immaterial and $0.3 million for the years ended December 31, 2025 and 2024, respectively. The total fair value of options vested was $9.3 million and $2.1 million for the years ended December 31, 2025 and 2024, respectively.

Restricted Stock Units (“RSUs”)

A summary of the Company’s RSU activity and related information is as follows (in thousands, except share and per share amounts):

Number of RSUs Weight-Average Grant Date Fair Value

For the years ended December 31, 2025 and 2024, the weighted-average fair value of RSUs granted was $85.35 and $119.27 per share, respectively.

The total fair value of RSUs vested was $1.8 million and $2.8 million for the years ended December 31, 2025 and 2024, respectively.

Performance-Based RSUs

As of December 31, 2025, the Company had 2,970 RSUs outstanding subject to performance-based vesting conditions, of which none are considered probable of achievement.

Employee Stock Purchase Plan

The Company adopted the 2020 Employee Stock Purchase Plan (the “ESPP”) in October 2020. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each purchase period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock as of the offering date or the applicable purchase date. The number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2021 and ending with January 1, 2030, by an amount equal to the lessor of (i) 1% of the outstanding number of shares of the Company’s common stock on December 31st of the preceding calendar year, (ii) 5,883 shares of common stock or (iii) such lesser amount as determined by the Board of Directors. As of December 31, 2025, 12,531 shares of common stock remained available for issuance under the ESPP. On January 1, 2026, shares available for issuance under the ESPP were automatically increased by 5,883 shares.

Except for the initial offering period, the ESPP provides for 24-month offering periods starting every January 1st and July 1st, each consisting of four six-month purchase periods.

Stock-Based Compensation Expense

The Company estimated the fair value of stock options and purchase rights under ESPP using the Black-Scholes option-pricing model, with the following weighted-average assumptions:

Options ESPP Options ESPP

Risk-free interest rate 3.8 % 4.1 % 4.5 % 5.1 %

Expected dividend rate 0.0 % 0.0 % 0.0 % 0.0 %

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The following table summarizes stock-based compensation expense related to stock options, RSUs and ESPP that is included in the Company’s statements of operations and comprehensive loss (in thousands):

Year Ended December 31,

Research and development $ (72 ) $ 2,013

Total stock-based compensation expense $ 2,574 $ 5,348

As of December 31, 2025, there was approximately $3.5 million of total unrecognized stock-based compensation expense related to awards that are expected to vest, which is expected to be recognized over an estimated weighted-average vesting term of 1.8 years.

11. Income Taxes

The Company did not have any income tax expense for the years ended December 31, 2025 and 2024. The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

December 31,

Amount Percentage

U.S. federal taxes at statutory rate $ (8,183 ) 21.0 %

Nontaxable and nondeductible items:

Loss on fair value of warrant liability 735 (1.9 )

Nondeductible expenses related to tax credits 780 (2.0 )

Change in valuation allowance (21,441 ) 55.0

Deferred tax true ups 154 (0.4 )

Changes in unrecognized tax benefits (3,668 ) 9.4

Effective tax rate $ — — %

December 31,

U.S. federal taxes at statutory rate 21.0 %

Nondeductible items (2.9 )

Tax credits 17.9

Change in valuation allowance (34.3 )

Prior year true up (1.7 )

Effective tax rate — %

Upon adoption of ASU 2023-09 for the year ended December 31, 2025, the Company expanded its income tax rate reconciliation disclosures to conform to the enhanced presentation requirements of the standard. As a result, certain reconciling items that were previously aggregated are now presented as separate categories in the rate reconciliation. For the year ended December 31, 2024, amounts reflected in the rate reconciliation were presented on a combined basis, including the impact of unrecognized tax benefits, which was included within tax credits. The prior-period presentation has not been recast to conform to the current-period presentation.

Deferred Tax Assets and Liabilities

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. Significant components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

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December 31,