Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes appearing in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” You should carefully read the “Cautionary Note About Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.
Overview
We are a biotechnology company specializing in the development of potential treatments for inflammatory and immune-mediated diseases. We are developing a potentially first-in-class antibody for the treatment of inflammatory bowel disease ("IBD") and other inflammatory and immune-mediated diseases. Our expertise in protein engineering and the development of novel tumor necrosis factor ("TNF") receptor therapeutics come together in our lead program, SL-325, which we believe could be a first-in-class death receptor 3 ("DR3") antagonist antibody.
SL-325 is a high-affinity DR3 blocking monoclonal antibody. In our head-to-head preclinical studies, SL-325 blocked TL1A binding to DR3 better than sequence equivalents of leading TL1A blocking antibodies.We believe that the underlying biological differences in the expression of DR3 and TL1A, and the design characteristics of SL-325, may allow SL-325 to achieve best-in-class clinical remission rates in patients with IBD due to a more complete and durable blockade of the clinically validated DR3/TL1A pathway.
TL1A is the sole known signaling ligand for DR3, and TL1A does not signal through any other receptors. Thus, we believe that the clinical safety profile of TL1A blocking antibodies generated to date in clinical trials conducted by other parties derisks the clinical safety profile for DR3 blockade. The lack of toxicity of SL-325 in our recently completed non-human primate (“NHP”) toxicology study also suggests a potentially favorable clinical safety profile. We engineered SL-325 to lack any Fc gamma receptor binding function, and SL-325 has not shown any evidence to date of antibody dependent cellular cytotoxicity or cellular phagocytosis, which further supports a potentially derisked safety profile. We have demonstrated that SL-325 binds an epitope on DR3 that does not trigger receptor-mediated endocytosis, and the binding of SL-325 to DR3 was
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shown to be highly durable in our preclinical assays. Because DR3 is expressed on circulating, peripheral blood lymphocytes, we are able to directly measure DR3 receptor occupancy (“RO”), and our preclinical studies suggest that blockade may last for at least one month as a result of the properties of SL-325 and the stable expression of DR3. The RO and pharmacokinetic (“PK”) profile of SL-325 suggests extended dosing intervals, which we intend to further characterize in our upcoming Phase 1 clinical trial. Finally, the human protein decoy receptor 3 (“DcR3”) neutralizes soluble TL1A, Fas Ligand and LIGHT, which all induce a proinflammatory immune response. DcR3 serves as a sink for these proteins, tempering the proinflammatory immune signaling. Thus, it is desirable to block DR3, but not DcR3, to preserve the natural anti-inflammatory role of DcR3. SL-325 binds to DR3 but not to DcR3.
DR3 has a distinct expression pattern from TL1A, and, consequently, blocking the receptor may allow a more complete and durable blockade of the axis, which we believe will translate to improved efficacy in patients with IBD. DR3 and TL1A have distinct expression patterns within the gastrointestinal tract (“GI”) of patients with IBD, including both ulcerative colitis (“UC”) and Crohn’s disease (“CD”).The cells within the GI tract that are capable of expressing TL1A include tissue resident antigen presenting cells and other non-hematopoietic cells. While TL1A is not usually expressed, when antigen presenting cells are exposed to inflammatory signals, a wave of TL1A mRNA expression begins, which peaks within 12 hours and ceases within 24 hours. In contrast, DR3 is stably expressed, primarily by lymphocytes both in the peripheral blood and in tissues. Direct comparison of TL1A and DR3 expression in the GI tracts of patients with IBD shows that TL1A is only upregulated in the actively inflamed areas of the GI tract. In contrast, DR3 is more abundant than TL1A and is upregulated in both actively inflamed parts of the GI tissue and in the adjacent non-inflamed tissue.The absence of TL1A in the non-inflamed areas of the bowel eliminates the mechanism through which TL1A blocking antibodies would be retained in non-inflamed areas of the GI tract. Because inflammation observed in UC and CD can wax and wane in different areas of the bowel over time, stable blockade of DR3 may reduce the spread of inflammation and may contribute to higher rates of clinical and endoscopic remission than what TL1A blocking antibodies have achieved to date.
We are planning initial clinical development of SL-325 for patients with IBD, including UC and CD. The clinical success of several TL1A blocking antibodies to date suggests that SL-325 may have monotherapy disease modifying activity early in clinical development. As described above, we believe that targeting DR3 may be more efficacious than targeting TL1A in patients with IBD. We expect to file an Investigational New Drug ("IND") application for SL-325 in the third quarter of 2025, and we expect to complete enrollment in the full Phase 1 clinical trial in the second quarter of 2026.
Future clinical trials may explore the efficacy of SL-325 in other inflammatory and immune-mediated diseases where the DR3/TL1A axis is implicated.
For the years ended December 31, 2024 and 2023, our net loss was $75.4 million and $87.3 million, respectively. We have not been profitable since inception, and as of December 31, 2024, we had an accumulated deficit of $381.7 million and $73.0 million in cash and cash equivalents and investments. We expect to continue to incur significant expenses and operating losses in the near term in connection with our ongoing activities, as we:
•continue to advance the preclinical development and initiate Phase 1 clinical development of our product candidate, SL-325;
•initiate nonclinical studies and clinical trials for additional product candidates that we may identify in the future, including potential bispecific DR3 antagonist antibody product candidates;
•manufacture sufficient quantities of bulk drug substance and drug product to support our ongoing and planned nonclinical studies and clinical trials;
•maintain our operational, financial, and management systems;
•retain key personnel and infrastructure to support our nonclinical development, research and manufacturing, and future clinical development efforts;
•utilize our in-house process development and manufacturing capabilities;
•continue to develop, perfect, and defend our intellectual property portfolio; and
•incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company and expenses incurred in connection with ongoing and future litigation, if any.
We do not expect to generate significant product revenue unless and until we successfully complete development and obtain regulatory and marketing approval of, and begin to sell, one or more of our product candidates, if ever, which we expect will take several years. We expect to spend a significant amount in development and marketing costs prior to such time. We may never succeed in achieving regulatory and marketing approval for our product candidates. We may obtain unexpected
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results from our nonclinical studies and clinical trials. We may elect to discontinue, delay, or modify nonclinical studies and clinical trials of our product candidates. We may be adversely affected by inflationary pressures and the macroeconomic environment, which are beyond our control. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time as we can generate significant product revenue, if ever, we expect to continue to seek private or public equity and debt financing, and/or additional collaborations with third parties, to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our product candidates. In addition, we may not be profitable even if we commercialize any of our product candidates.
Global Economic Considerations
The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, changes in trade policies, including tariffs or other trade restrictions or the threat of such actions, instability in the global capital and credit markets, supply chain weaknesses, financial institution instability, and instability in the geopolitical environment. Such challenges have caused, and may continue to cause, recession fears, high interest rates, foreign exchange volatility, and inflationary pressures. At this time, we are unable to quantify the potential effects of this economic instability on our future operations.
Components of our Results of Operations
Collaboration Revenue
We have no products approved for commercial sale, and we have not generated any revenue from commercial product sales. Our total revenue to date has been generated from our collaboration and research agreements with various third parties. Revenue recognized in 2024 was a result of collaboration agreements with Ono Pharmaceutical Co., Ltd ("Ono") and ImmunoGen, Inc. (“ImmunoGen”).
In February 2024, we entered into a collaboration and license agreement with Ono (the "Ono Agreement") pursuant to which we and Ono collaborated in the research and preclinical development of certain compounds selected by Ono from our pipeline of bifunctional fusion proteins directed toward a pair of prespecified targets for potential treatment of autoimmune and inflammatory diseases. Under the terms of the Ono Agreement, we were primarily responsible for carrying out research activities in accordance with a mutually agreed upon research plan. Pursuant to the Ono Agreement, we granted Ono an exclusive option (the “Option”) to obtain an exclusive, sublicensable license to further research, develop, manufacture and commercialize products containing these specified bifunctional fusion proteins in any therapeutic area worldwide.
On September 30, 2024, we and Ono mutually agreed to terminate the Ono Agreement and Option pursuant to the terms of the agreement. We have completed all obligations under the agreement and have accordingly recognized $5.4 million in revenue pursuant to terms of the Ono Agreement including the $2.0 million paid for the Option.
As of December 31, 2024, we completed our obligations under the collaboration agreement with ImmunoGen (the “ImmunoGen Agreement”), and have recognized all revenue pursuant to the terms of that agreement.
Operating Expense
Research and Development Expense
Our research and development expenses consist primarily of costs incurred in connection with the discovery and development of our current and potential future product candidates. These expenses include:
•expenses incurred to conduct our clinical trials, including expenses associated with clinical trials of SL-325 and any potential product candidates we may advance in the future, as well as the expenses associated with prior clinical trials of SL-172154 and the associated wind-down activities;
•costs of manufacturing nonclinical study and clinical trial materials, including the costs of raw materials required for manufacturing;
•process development activities to optimize manufacturing processes, including the development and validation of Phase 3 and commercial manufacturing processes and analytical methods;
•expenses incurred to conduct our nonclinical studies;
•employee-related expenses, including salaries, benefits, and stock-based compensation;
•laboratory materials and supplies used to support our research activities;
•fees paid to third parties who assist with research and development activities;
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•expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and
•allocated expenses for facility-related costs.
The following table summarizes our research and development expenses by product candidate:
Year ended December 31,
Total research and development costs $ 67,211 $ 74,310
1 Expenses for SL-325 that were incurred prior to it being nominated a product candidate are included
in other pipeline compounds” in the table above.
Research and development activities are central to our business model. Product candidates in earlier stages of development generally have lower development costs than those in later stages of development. We have discontinued clinical development of SL-172154 and are no longer conducting research activities performed under the Ono Agreement. We are now focused on the preclinical development and future clinical trials of SL-325 and other DR3 targeted assets and conducting additional research on other potential product candidates. As a result of our discontinuing the clinical development of SL-172154 and resulting organizational changes, we expect a decrease in operating expense year-over-year, primarily associated with a reduction in clinical development, manufacturing, process development, and headcount-related costs.
The process of conducting the necessary nonclinical and clinical research to obtain regulatory approval is costly and time consuming. The actual probability of success for our product candidates may be affected by a variety of factors including:
•the safety and efficacy of our product candidates;
•nonclinical data for our product candidates;
•investment in our pipeline;
•competition;
•manufacturing capability; and
•commercial viability.
We may never succeed in achieving regulatory approval for any of our product candidates due to the uncertainties discussed above. We are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if ever.
General and Administrative Expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, business development, and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation, and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property, corporate, and litigation matters and fees for accounting and tax services.
We expect that our general and administrative expense may decrease in the future due to workforce reductions that occurred as a result of our discontinuing the clinical development of SL-172154. If any of our current or future product candidates advances to clinical development or obtains regulatory approval, we expect that we would incur increased expenses associated with building out the appropriate general and administrative support for our increased research and development activities, or building out a sales and marketing team.
Other Income
Other income consists of interest earned on our cash, cash equivalents and investments, which consists of amounts held in a money market fund and government obligations as well as investment fees and realized gain or losses on investments (if any).
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Income Taxes
Since our inception, we have not recorded any income tax benefits for the net operating losses ("NOLs") we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized. Our NOLs and tax credit carryforwards began to expire in 2024. We have recorded a full valuation allowance against our deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table sets forth our results of operations for the years ended December 31, 2024 and 2023:
Year Ended December 31, Change
(in thousands) 2024 2023 Dollar Percentage
Operating expenses:
Collaboration Revenue
Collaboration revenue increased by $4.1 million, or 245.3%, to $5.7 million for the year ended December 31, 2024 from $1.7 million for the year ended December 31, 2023. The increase in collaboration revenue was attributable to the research activities conducted pursuant to the Ono Agreement of $3.4 million, recognition of the $2.0 million Option pursuant to the termination of the Ono Agreement, offset by a decrease in revenue recognized pursuant to the Immunogen Agreement of $1.3 million in 2024. As of December 31, 2024 we have completed our obligations under the Ono and Immunogen Agreements and do not expect to recognize additional revenue pursuant to those agreements.
Research and Development Expense
Research and development expenses decreased by $7.1 million, or 9.6%, to $67.2 million for the year ended December 31, 2024 from $74.3 million for the year ended December 31, 2023. The decrease in research and development expense was primarily due to a decrease in the cGMP manufacture of clinical trial material and other manufacturing related charges of $4.3 million, a decrease in materials consumed in our lab of $2.4 million and a decrease of $2.3 million associated with our reduction in headcount, partially offset by an increase of $2.1 million in preclinical costs associated with our development of SL-325 and other potential pipeline product candidates in 2024.
General and Administrative Expense
General and administrative expenses decreased by $0.2 million, or 1.2%, to $19.1 million for the year ended December 31, 2024 from $19.3 million for the year ended December 31, 2023 and remained relatively flat between periods.
Liquidity and Capital Resources
Since our inception, our primary sources of liquidity have been generated by sales of our common stock, pre-funded warrants, convertible preferred stock, and convertible notes, and through collaboration agreements. As of December 31, 2024, we had an accumulated deficit of $381.7 million and $73.0 million of cash and cash equivalents and investments.
On December 26, 2023, we sold 4,651,163 shares of common stock through an underwritten public offering, and concurrently completed a private placement of 3,100,823 pre-funded warrants for net proceeds of $47.6 million. The purchase price per share of common stock was $6.45, and the purchase price per pre-funded warrant was $6.4499 which was the purchase price per share of common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. Each pre-funded warrant may be exercised for one share of common stock, is immediately exercisable, does not expire, and is subject to a beneficial ownership limitation of 9.99% post-exercise. As of December 31, 2024, no pre-funded warrants have been exercised and 3,100,823 pre-funded warrants remain outstanding.
In July 2022, we entered into a sales agreement (the “Sales Agreement”), with SVB Securities LLC (the “Sales Agent”), pursuant to which we may offer and sell up to $75.0 million of shares of our common stock from time to time through an at the
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market offering facility (the “ATM Facility”). The Sales Agent is generally entitled to compensation at a commission equal to 3.0% of the aggregate gross sales price per share sold under the Sales Agreement. As of December 31, 2024 there were no sales pursuant to the ATM Facility.
Capital Resources and Funding Requirements
Our primary uses of cash and cash equivalents and investments are to fund our operations, which consist primarily of research and development expenditures related to our programs, product development costs, research expenses, administrative support, capital expenditures related to bringing in-house certain process development and manufacturing capabilities, and working capital requirements. We anticipate that we will continue to incur additional net losses and negative cash flows from operations in the near future until such time, if ever, that we can generate significant sales of our product candidates currently in development. Our future funding requirements will depend on many factors, including:
•the scope, timing, progress and results of discovery, nonclinical development, laboratory testing, and clinical trials for our product candidates;
•the costs of process development and manufacturing our product candidates for preclinical studies and clinical trials, and in preparation for marketing approval and commercialization;
•the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending other intellectual property-related claims;
•the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
•the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing, distribution and storage capabilities, for any of our product candidates for which we receive marketing approval; and
•revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
Until we obtain regulatory approval to market our product candidates, if ever, we cannot generate revenues from sales of our products. Even if we are able to sell our products, we may not generate a sufficient amount of product revenues to finance our cash requirements. Accordingly, it will be necessary for us to seek to raise additional capital through equity offerings and/or debt financings or from other potential sources of liquidity, which may include new collaborations, licensing or other commercial agreements for one or more of our development programs or patent portfolios. There can be no assurance that such funding may be available to us on acceptable terms, or at all. The issuance of equity securities may result in dilution to stockholders and the issuance of debt securities may have rights, preferences and privileges senior to those of our common stock and the terms of any such debt securities could impose significant restrictions on our operations. The failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. Additionally, if additional funding is not secured when required, we may need to delay or curtail our operations until such funding is received, which would have a material and adverse impact on our business prospects and results of operations.
We believe that our cash and cash equivalents and investments as of December 31, 2024 are sufficient to fund projected operations into 2027.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Year ended December 31,
Net cash used in operating activities $ (60,515) $ (81,228)
Net cash (used in) provided by investing activities (8,511) 110,859
Net cash provided by financing activities 787 48,616
Net (decrease) increase in cash and cash equivalents $ (68,239) $ 78,247
Net Cash Used in Operating Activities
During the year ended December 31, 2024, net cash used in operating activities was $60.5 million and primarily reflected our net loss of $75.4 million, partially offset by noncash charges of $11.9 million and a net change in our operating assets and liabilities of $3.0 million. We expect to continue to use cash in our operating activities as we conduct our clinical trials and
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nonclinical studies, incur costs of manufacturing clinical trial and nonclinical study materials and continue process development activities to optimize our manufacturing processes.
During the year ended December 31, 2023, net cash used in operating activities was $81.2 million and primarily reflected by our net loss of $87.3 million and a $4.1 million net change in our operating assets and liabilities, and was offset by noncash charges of $10.2 million related to stock-based compensation expense, depreciation expense, amortization of investments, non-cash operating lease expense and impairment losses.
Net Cash Provided by Investing Activities
During the year ended December 31, 2024, net cash used investing activities was $8.5 million, due primarily to purchases of government securities, net of maturities.
During the year ended December 31, 2023, net cash provided by investing activities was $110.9 million, due to a $111.3 million increase of cash due to maturities of investments, net of purchases, offset by $0.4 million in purchases of equipment.
Net Cash Provided by Financing Activities
During the year ended December 31, 2024, net cash provided by financing activities was $0.8 million, due to the exercise of stock options and purchases pursuant to our employee stock purchase plan.
During the year ended December 31, 2023, net cash provided by financing activities was $48.6 million and was from the sale of common stock and pre-funded warrants, the exercise of stock options and purchases pursuant to our employee stock purchase plan.
Contractual Obligations and Other Commitments
See Note 6 and Note 7 to our financial statements found elsewhere in this Annual Report on Form 10-K for additional disclosures.
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, the accrual for research and development expenses, and the valuation of stock-based awards. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our financial statements. We believe that the assumptions and estimates associated with our most critical accounting policies are those relating to revenue, accrued research and development costs and stock-based compensation.
Revenue Recognition
We have and may continue to enter into collaboration agreements with other companies. Arrangements with collaborators may include licenses to intellectual property, research and development services, manufacturing services for clinical and commercial supply, and participation on joint steering and patent committees. We evaluate the promised goods or services in the contract to determine which promises, or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a performance obligation, we consider the stage of development of the underlying intellectual property, the capabilities and expertise of the customer relative to the underlying intellectual property, and whether the promised goods or services are integral to or dependent on other promises in the contract. When accounting for an arrangement that contains multiple performance obligations, we develop judgmental assumptions, which may include market conditions, reimbursement rates for personnel costs, development timelines, and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract.
Upon the amendment of an existing agreement, we evaluate whether the amendment represents a modification to an existing contract that would be recorded through a cumulative catch-up to revenue, prospective modification, or a separate contract. If it is determined that it is a separate contract, we will evaluate the necessary revenue recognition through the five-step process described below.
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When we conclude that a contract should be accounted for as a combined performance obligation and recognized over time, we then determine the period over which revenue should be recognized and the method by which to measure revenue. We generally recognize revenue using a cost-based input method.
We recognize collaboration revenue in an amount that reflects the consideration that we expect to receive in exchange for those goods or services when our customer or collaborator obtains control of promised goods or services. To determine revenue recognition for such arrangements, we perform the following five steps:
i.identify the contract(s) with a customer;
ii.identify the performance obligations in the contract;
iii.determine the transaction price;
iv.allocate the transaction price to the performance obligations within the contract; and
v.recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when we determine that it is probable we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.
At contract inception, we assess the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the arrangement may consist of a license of, or options to license, our intellectual property and research, development and manufacturing services. We may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) are separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.
We determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, we estimate the probability and extent of consideration we expect to receive under the contract utilizing either the most-likely amount method or expected amount method, whichever best estimates the amount expected to be received. We then consider any constraints on the variable consideration and includes variable consideration in the transaction price to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations that consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
We record amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue.
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in our balance sheet. Deferred revenues expected to be recognized as revenue within the 12 months following the balance sheet date are classified as a current liability. Deferred revenues not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as non-current liabilities.
Research and Development Expense
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.
We accrue expenses for manufacturing, process development, nonclinical studies and clinical trial activities performed by vendors based upon estimates of the proportion of work completed. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual
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costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.
We make estimates of our prepaid and accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Stock-Based Compensation
We measure compensation expense for all share-based awards based on the estimated fair value of the share-based awards on the grant date. We use the Black-Scholes option pricing model to value our stock option awards. The fair values of restricted stock units (“RSUs”) are based on the fair value of the Company’s common stock on the date of the grant. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. We also grant stock options that vest upon achievement of certain market-based conditions. We use the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions.
The Black-Scholes and Monte Carlo option-pricing models require the use of subjective assumptions that include the expected stock price volatility and, for options granted prior to our IPO, the fair value of the underlying common stock on the date of grant. See Note 10 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes and Monte Carlo option pricing models to determine the estimated fair value of our stock options granted during the year ended December 31, 2024.
Recent Accounting Pronouncements
See Note 2 to our financial statements found elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company as defined in the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards and delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We have evaluated the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation exemptions to the requirements for (1) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO, (ii) in which we have total annual gross revenues of at least $1.235 billion or (iii) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We are also a “smaller reporting company” as defined under the Exchange Act. We will continue to be a smaller reporting company so long as (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934. as amended, and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.
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Item 8. Financial Statements and Supplementary Data
SHATTUCK LABS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm 62
Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 66
Notes to Financial Statements 67
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Shattuck Labs, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Shattuck Labs, Inc. (the Company) as of December 31, 2024 and 2023, the related statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2018.
Austin, Texas
March 27, 2025
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SHATTUCK LABS, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 6,228 12,595
Liabilities and Stockholders’ Equity
Current liabilities:
Accrued expenses and other current liabilities 6,498 9,866
Non-current operating lease liabilities 2,506 3,406
Commitments and contingencies (Note 7)
Stockholders’ equity:
Accumulated other comprehensive income 2 4
Total liabilities and stockholders’ equity $ 91,049 $ 159,564
See accompanying notes to financial statements
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SHATTUCK LABS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
Year Ended December 31,
Operating expenses:
Other income:
Unrealized (loss) gain on investments (2) 881
Net loss per share – basic and diluted $ (1.49) $ (2.05)
See accompanying notes to financial statements
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SHATTUCK LABS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Shares Amount
Stock-based compensation expense — — 6,939 — — 6,939
Unrealized gain on investments — — — 881 — 881
Stock-based compensation expense — — 9,546 — — 9,546
Proceeds from sale of common stock — — (17) — — (17)
Unrealized loss on investments — — — (2) — (2)
See accompanying notes to financial statements
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SHATTUCK LABS, 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:
Non-cash operating lease expense 428 364
Net amortization of investments (2,151) (1,483)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 6,367 10,458
Accrued expenses and other current liabilities (3,368) (8,293)
Non-current operating lease liabilities (900) (796)
Net cash used in operating activities (60,515) (81,228)
Cash flows from investing activities:
Purchase of property and equipment (59) (407)
Net cash (used in) provided by investing activities (8,511) 110,859
Cash flows from financing activities:
Taxes paid related to net share settlement of equity awards (451) (53)
Net cash provided by financing activities 787 48,616
Increase (decrease) in cash and cash equivalents (68,239) 78,247
Cash and cash equivalents, beginning of period 125,626 47,379
Cash and cash equivalents, end of period $ 57,387 $ 125,626
Supplemental disclosures of non-cash investing and financing activities
Unpaid amounts for direct offering costs $ — $ 339
Deferred offering cost paid in prior period $ — $ 251
Unpaid amounts related to purchase of property and equipment $ — $ 71
See accompanying notes to financial statements
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SHATTUCK LABS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Description of Business
Shattuck Labs, Inc. (the “Company”) was incorporated in 2016 in the State of Delaware and is a biotechnology company specializing in the development of potential treatments for inflammatory and immune-mediated diseases. Shattuck is developing a potentially first-in-class antibody for the treatment of inflammatory bowel disease and other inflammatory and immune-mediated diseases. Shattuck’s expertise in protein engineering and the development of novel tumor necrosis factor receptor agonist and antagonist therapeutics come together in its lead program, SL-325, which it believes could be a first-in-class death receptor 3 ("DR3") antagonist antibody designed to achieve best-in-class clinical remission rates due to a more complete and durable blockade of the clinically validated TL1A/DR3 pathway.
Liquidity
The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $381.7 million as of December 31, 2024. The Company anticipates incurring additional losses and negative cash flows from operations until such time, if ever, that it can generate significant sales of its product candidates currently in development, and is highly dependent on its ability to find additional sources of funding in the form of licensing of its technology, collaboration agreements, and/or public and private debt and equity financings. Adequate additional funding may not be available to the Company on acceptable terms, or at all. The failure to raise funds as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its clinical operations, research and development and commercialization of its product candidates. Management believes that the Company’s cash and cash equivalents and investments of $73.0 million as of December 31, 2024 are sufficient to fund projected operations of the Company for at least the next twelve months.
Global Economic Considerations
The global macroeconomic environment is uncertain and could be negatively affected by, among other things, changes in trade policies, including tariffs or other trade restrictions or the threat of such actions, instability in the global capital and credit markets, supply chain weaknesses, financial institution instability, and instability in the geopolitical environment. Such challenges have caused, and may continue to cause, recession fears, high interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on its future operations.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying audited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses, and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates, if any, are recorded in the period in which they become known and actual results could differ from management’s estimates.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. Fair value measurements are classified and disclosed in one of the following categories:
•Level 1: Observable inputs such as quoted prices in active markets for identical assets the reporting entity has the ability to access as of the measurement date;
•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
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Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values stated below takes into account the market for its financial assets and liabilities, the associated credit risk and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Management believes that the carrying amounts of the Company’s financial instruments, including investments and accounts payable, approximate fair value due to the short-term nature of those instruments.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents and investments. The Company maintains its cash and cash equivalents at an accredited financial institution in amounts that exceed federally-insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company invests in only highly-rated debt securities that management believes protects the Company from risk of default and impairment of value.
All of the Company’s revenue in 2024 was derived from collaborations with Ono Pharmaceutical Co., Ltd. (“Ono”) and ImmunoGen, Inc. (“ImmunoGen”) (acquired by AbbVie in February 2024) and in 2023 the Company’s revenue was derived from a collaboration agreement with ImmunoGen and a collaboration agreement with another third-party pharmaceutical company. As of December 31, 2024, all services required pursuant to each collaboration agreement have been completed.
The Company is highly dependent on a limited number of contract development and manufacturing organizations (“CDMOs”) to supply drug products for its research and development activities of its programs, including nonclinical studies. The Company is highly dependent on a single CDMO for the supply of cGMP drug product for its clinical trials. These programs could be adversely affected by a significant interruption in the supply of such drug products.
The Company is highly dependent on a limited number of contract research organizations (“CROs”) and third-party service providers to manage and support its clinical trials. These programs could be adversely affected by a significant disruption in services provided by these CROs and third parties.
Cash and Cash Equivalents
The Company considers all demand deposits with financial institutions and all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents consisted of $2.2 million held in operating accounts and $55.2 million held in money market funds as of December 31, 2024 and $4.8 million held in operating accounts, $81.1 million held in money market funds and $39.7 million in U.S. government securities, as of December 31, 2023.
Investments
The Company's investments consist of highly-rated U.S. Treasury securities and have been classified as available-for-sale and are carried at estimated fair value as determined based upon quoted market prices. Management determines the appropriate classification of its investment securities at the time of purchase. The Company may hold securities with stated maturities greater than one year. All available-for-sale securities are considered available to support current operations and are classified as current assets. Credit impairments for available-for-sale securities are recorded through an allowance rather than a direct write-down of the security and are recorded through a charge to the statements of operations. Unrealized gains or losses not related to credit impairments are recorded in accumulated other comprehensive income (loss), a component of stockholders’ equity, until realized. The Company reviews available-for-sale debt securities for impairments related to credit losses and other factors each quarter. As of December 31, 2024 and 2023, there were no impairments related to credit losses of investments.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include prepaid expenses for general business purposes and services used in research projects, which are stated at cost and amortized on a straight-line basis over the related period of benefit. Supplies and materials that have multiple applications for alternative future use are expensed as they are consumed.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of the asset. Expenditures for repairs and maintenance that do not extend the estimated useful life or improve an asset are expensed as incurred. Upon retirement or sale, the cost and related accumulated
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depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is included in the statement of operations and comprehensive loss.
Depreciation periods are as follows:
Office equipment 3 years
Furniture and fixtures 5 to 10 years
Lab equipment 5 years
Leasehold improvements Shorter of lease term or 15 years
Impairment of Long-Lived Assets
Long-lived assets are reviewed for indications of possible impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the future undiscounted cash flows attributable to these assets. An impairment loss is recognized to the extent an asset group is not recoverable and the carrying amount exceeds the projected discounted future cash flows arising from these assets. In the years ended December 31, 2024 and 2023, the Company recorded $0.2 million and $0.3 million, respectively, of impairment losses related to lab equipment that was determined to no longer be needed, which is included in the Company's research and development costs.
Leases
The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The classification of the Company's leases as operating or finance leases, along with the initial measurement and recognition of the associated ROU assets and lease liabilities, are performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company's operating leases is recognized on a straight-line basis over the lease term. Operating lease ROU assets and long-term operating lease liabilities are presented separately and operating lease liabilities payable in the next 12 months are recorded in accrued expenses and other current liabilities. The Company has elected to not apply the recognition requirement of Accounting Standards Codification (“ASC”) 842, Leases of the Financial Accounting Standards Board (“FASB”) to leases with a term of 12 months or less for all classes of assets.
Commitments and Contingencies
The Company follows ASC 450-20, Contingencies of the FASB to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue Recognition
Collaboration revenue is recognized in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Arrangements with collaborators may include licenses to intellectual property, research and development services, manufacturing services for clinical and commercial supply and participation on joint steering committees. The Company
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evaluates the promised goods or services in the contract to determine which promises, or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a performance obligation, the Company considers the stage of development of the underlying intellectual property, the capabilities and expertise of the customer relative to the underlying intellectual property and whether the promised goods or services are integral to or dependent on other promises in the contract. When accounting for an arrangement that contains multiple performance obligations, the Company must develop judgmental assumptions, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract.
Upon the amendment of an existing agreement, the Company evaluates whether the amendment represents a modification to an existing contract that would be recorded through a cumulative catch-up to revenue, prospective modification, or a separate contract. If it is determined that it is a separate contract, the Company will evaluate the necessary revenue recognition through the five-step process described below.
When the Company concludes that a contract should be accounted for as a combined performance obligation and recognized over time, the Company must then determine the period over which revenue should be recognized and the method by which to measure revenue. The Company generally recognizes revenue using a cost-based input method.
The Company recognizes collaboration revenue in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services when its customer or collaborator obtains control of promised goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the following five steps are performed:
i.identify the contract(s) with a customer;
ii.identify the performance obligations in the contract;
iii.determine the transaction price;
iv.allocate the transaction price to the performance obligations within the contract; and
v.recognize revenue when (or as) the entity satisfies a performance obligation.
The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements may consist of a license of, or options to license, the Company’s intellectual property and research, development and manufacturing services. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources and (ii) are separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.
The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most-likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes variable consideration in the transaction price to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations that consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
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The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue.
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the Company’s accompanying balance sheet. Deferred revenues expected to be recognized as revenue within the 12 months following the balance sheet date are classified as a current liability. Deferred revenues not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as non-current liabilities.
The Company’s collaboration revenue arrangements may include the following:
Up-front License Fees: If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone Payments: At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most-likely amount approach. The Company primarily uses the most-likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. The Company then considers whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
To date, the Company has not granted a development and commercialization license nor recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.
Research and Development Services: The Company will record costs associated with development and process optimization activities as research and development expenses in the statements of operations and comprehensive loss consistent with ASC 730, Research and Development. The Company considered the guidance in ASC 808, Collaborative Arrangements (“ASC 808”) and will recognize the payments received from these agreements as revenue when the related costs are incurred.
Research and Development Costs
Research and development costs are expensed as incurred, and include salaries, stock-based compensation and other personnel-related costs, equipment and supplies, depreciation, nonclinical studies, clinical trials and manufacturing development activities.
A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers, including CROs and CDMOs. The Company accrues for expenses resulting from obligations under agreements with CROs, CDMOs and other outside service providers for which payment flows do not match the periods over which materials or services are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CDMOs and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through an evaluation of the progress or stage of completion of the services. In the event advance payments are made to a CRO, CDMO or outside service provider, the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed. As actual costs become known, the Company adjusts its accruals and prepaid assets accordingly. Inputs, such as the services performed, the number of patients enrolled or the study duration, may vary from the Company’s estimates, resulting in adjustments to research and development expense in future periods. The Company makes significant judgments and estimates in determining the accrual and/or prepaid balance in each reporting period and changes in these estimates may result in material changes to the Company’s accruals that could materially affect the Company’s results of operations.
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Pre-Funded Warrants
The Company’s pre-funded warrants are classified as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The Company determined that the sales price of the pre-funded warrants was their fair market value at the date of issuance.
Stock-Based Compensation
The Company recognizes the cost of stock-based awards issued to employees and nonemployees as compensation expense on a straight-line basis over the vesting period of the award, net of estimated forfeitures. Forfeiture estimates are based on historical cancellation data. The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options. The fair values of restricted stock units (“RSUs”) are based on the fair value of the Company’s common stock on the date of the grant. The Company also grants stock options that vest upon achievement of certain market-based conditions. The Company uses the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions. The Company adjusts expense for forfeitures in the periods they occur.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date. Additionally, any changes in income tax laws are immediately recognized in the year of enactment.
A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized. The deferred tax assets and liabilities are classified as noncurrent along with the related valuation allowance. Due to a lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.
The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on the technical merits, as the largest amount of benefits that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense.
Net Loss Per Share
Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Basic shares outstanding includes the weighted average effect of the Company’s outstanding pre-funded warrants, the exercise of which requires nominal consideration for the delivery of shares of common stock. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, or convertible notes (if any), stock options and unvested shares of restricted stock, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding as of December 31, 2024 and 2023, as they would be anti-dilutive:
As of December 31,
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Other Comprehensive Income (Loss)
Other comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income (loss) is comprised of the net loss and unrealized gains and losses on investments.
Recently Adopted Accounting Pronouncement
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, (“ASU No. 2023-07”) to require enhanced disclosures that include reportable segment expenses. The amendments in this update provide that a business entity disclose significant segment expenses and segment profit or loss (after significant segment expenses), and allows reporting of additional measures of a segment’s profit or loss if used in assessing segment performance. Such disclosures apply to entities with a single reportable segment. These amendments were effective for the Company in 2024 and retrospectively to all prior periods using the significant segment expense categories identified. The impact of the adoption of the amendments in this update was not material to the Company’s financial position and results of operations, as the requirements impact only segment reporting disclosures in the footnotes to the Company’s consolidated financial statements. The Company presented the effects of the adoption of ASU 2023-07 in Note 13. Segment Reporting.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The guidance in ASU 2023-09 will be effective for annual reporting periods in fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on its financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which is intended to provide more detailed information about specified categories of expenses (employee compensation, depreciation and amortization) included in certain expense captions presented on the consolidated statement of operations. The guidance in this ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact that the adoption of ASU 2024-03 will have on its financial statements and disclosures.
3. Fair Value of Financial Instruments
The following table represents the Company’s available-for-sale investments and money market funds by major security type (amounts in thousands):
AmortizedCost Gross UnrealizedGain TotalFair Value
Investments:
Cash Equivalents:
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AmortizedCost Gross UnrealizedGain TotalFair Value
Investments:
U.S. government securities $ 4,998 $ 1 $ 4,999
Cash Equivalents:
The Company’s money market funds are valued using Level 1 inputs and the Company’s US government securities are valued using level 2 inputs. The Company’s holdings of U.S. government securities at December 31, 2024 matured the first week of January 2025.
4. Property and Equipment
Property and equipment consisted of the following (amounts in thousands):
December 31,
Construction in progress — 100
Less: Accumulated depreciation and amortization (13,217) (9,506)
Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $3.8 million and $4.0 million, respectively.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses consisted of the following (amounts in thousands):
December 31,
Compensation and related benefits 2,288 3,794
Operating lease liabilities 900 796
Total accrued expenses and other current liabilities $ 6,498 $ 9,866
6. Leases
Operating Leases
The Company leases certain office space, laboratory facilities, and equipment. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease. These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company performed evaluations of its contracts and determined it has operating leases.
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The following table summarizes the Company’s recognition of its operating leases (in thousands):
December 31,
Accrued expenses and other current liabilities $ 900 $ 796
Non-current operating lease liabilities 2,506 3,406
The following table summarizes the weighted-average remaining lease term and discount rates for the Company’s operating leases:
December 31,
Lease term (years) 3.5 4.5
Discount rate 8.6 % 8.6 %
The Company incurred rent expense for its operating leases of $0.8 million for the years ended December 31, 2024 and 2023, which is included within operating expenses in the statements of operations and comprehensive loss. Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2024 and 2023 was $1.1 million and $1.0 million, respectively, and was included in net cash used in operating activities in the statement of cash flows.
The maturities of the Company’s operating lease liabilities as of December 31, 2024 were as follows (in thousands):
Thereafter —
Total lease payments 3,967
Less imputed interest (561)
Lease liability $ 3,406
7. Commitments and Contingencies
Kopfkino License Agreement
The Company is party to an Exclusive License Agreement (the “Kopfkino License Agreement”), with Kopfkino IP, LLC. As of October 2024, the Company discontinued clinical development of its SL-172154 product candidate that was subject to the Kopfkino License Agreement. The Company retains the exclusive license, but does not have any plans for clinical development or commercialization of any products that would be subject to the Kopfkino License Agreement and, therefore, the Company does not expect to owe milestone payments or royalties under the agreement.
Litigation
From time to time, the Company may become involved in various legal actions arising in the ordinary course of business. As of December 31, 2024, the Company was not aware of any existing, pending, or threatened legal actions that would have a material impact on the financial position, results of operations, or cash flows of the Company.
Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under agreements with third parties, and exclude contingent liabilities for which the Company cannot reasonably predict future payment. The Company’s contractual obligations result primarily from obligations for various CDMOs and CROs, which include potential payments that may be required under its agreements. The contracts also contain variable costs and milestones that are hard to predict, as they are based on such things as patients enrolled and clinical trial sites. The timing of payments and actual amounts paid under CDMO and CRO agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms
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or amounts for some obligations. Such agreements are cancellable upon written notice by the Company and, therefore, are not long-term liabilities.
8. Collaboration Agreements
Ono Pharmaceutical Co., Ltd.
In February 2024, the Company entered into a collaboration and license agreement (the “Ono Agreement”) with Ono, pursuant to which the parties collaborated in the research and preclinical development of certain compounds selected by Ono from the Company’s pipeline of bifunctional fusion proteins directed toward a pair of prespecified targets for potential treatment of autoimmune and inflammatory diseases. On September 30, 2024, the Company and Ono mutually agreed to terminate the Ono Agreement. Following the mutual termination, the Company is no longer required to satisfy any remaining performance obligations, and will not receive any future research activity reimbursements or upfront, milestone, or royalty payments from Ono. All options and licenses held by Ono under the Ono Agreement were terminated.
The Ono Agreement was a collaborative arrangement under ASC 808 as both companies were active participants that were exposed to significant risks and rewards. However, since the units of account identified under ASC 808 followed a typical vendor/customer relationship, the Company accounted for the transaction under ASC 606.
Under the Ono Agreement, the Company granted Ono an exclusive option (the “Option”) to obtain an exclusive, sublicensable license to further research, develop, manufacture and commercialize products containing the specified bifunctional fusion proteins in any therapeutic area worldwide. The Company determined that the contingent promise to provide the license upon the exercise of the Option should be accounted for as a customer option, and the $2.0 million amount allocated to that Option was recognized as revenue in 2024 pursuant to the termination of the Ono Agreement.
The Company identified a single performance obligation consisting of the preclinical research activities to develop certain bifunctional fusion proteins. The Company recognized revenue for the preclinical research activities as the services were performed using an inputs method. The Company recognized revenue pursuant to the Ono Agreement for the preclinical research activities of $3.4 million for the year ended December 31, 2024, and did not recognize any revenue pursuant to the Ono Agreement for the year ended December 31, 2023.
ImmunoGen
In 2022, the Company entered into the collaboration agreement with ImmunoGen (the “ImmunoGen Agreement”), pursuant to which ImmunoGen agreed to reimburse the Company for $2.0 million of the costs the Company incurred in the Phase 1B combination cohort evaluating SL-172154 in combination with mirvetuximab soravtansine in patients with platinum-resistant ovarian cancer. The Company dosed its first patient with mirvetuximab soravtansine in 2023 and completed all of its obligations under the ImmunoGen Agreement in the second quarter of 2024. The Company recognized revenue of $0.3 million and $1.7 million pursuant to the ImmunoGen Agreement for the years ended December 31, 2024 and 2023, respectively.
9. Equity
The Company is authorized to issue up to 300,000,000 shares of common stock and 10,000,000 shares of preferred stock, all with a par value of $0.0001 per share. The holders of the Company’s common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. The Company’s common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will receive ratably any dividends declared by the Company’s board of directors (the “Board”) out of funds legally available. In the event of the Company’s liquidation, dissolution or winding-up, the holders of the Company’s common stock will be entitled to share ratably in all assets remaining after payment of or provision for any liabilities. As of the periods presented, no common stock dividends had been declared by the Board. As of December 31, 2024, none of the 10,000,000 shares of preferred stock were outstanding, and the Company has no present plans to issue any shares of preferred stock.
On December 26, 2023, the Company sold 4,651,163 shares of common stock through an underwritten public offering, and concurrently completed a private placement of 3,100,823 pre-funded warrants for net proceeds of $47.6 million. The purchase price per share of common stock was $6.45, and the purchase price per pre-funded warrant was $6.4499 which was the purchase price per share of common stock, minus the $0.0001 per share exercise price of such pre-funded warrant. Each pre-funded warrant may be exercised for one share of common stock, is immediately exercisable, does not expire, and is subject to a beneficial ownership limitation of 9.99% post-exercise. As of December 31, 2024, no pre-funded warrants have been exercised, and 3,100,823 pre-funded warrants remain outstanding.
In July 2022, the Company entered into a sales agreement (the “Sales Agreement”) with SVB Securities LLC (the “Sales Agent”), pursuant to which it may offer and sell up to $75.0 million of shares of its common stock from time to time through an
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at the market offering facility (the “ATM Facility”). The Sales Agent is generally entitled to compensation at a commission equal to 3.0% of the aggregate gross sales price per share sold under the Sales Agreement. As of December 31, 2024, there were no sales pursuant to the ATM Facility.
10. Stock-Based Compensation and Employee Benefit Plans
2020 Equity Incentive Plan
In September 2020, the Company adopted the 2020 Stock Incentive Plan (the “2020 Plan”) which, as of the adoption date, replaced the 2016 Stock Incentive Plan. Under the 2020 Plan, the share reserve automatically increases on January 1st of each year beginning in 2021 and ending with a final increase on January 1, 2030 in an amount equal to 4% of the Company’s outstanding common stock on December 31st of the preceding calendar year. The Board may provide that there will be no increase in the share reserve for any such year or that the increase in the share reserve may be smaller than would otherwise occur. As of December 31, 2024, there were 3,586,601 shares of common stock available for future grants. On January 1, 2025, the share reserve automatically increased by 1,908,588 shares. The 2020 Plan permits the granting of options, stock appreciation rights, RSUs, performance stock, and performance cash awards. The terms of the agreements under the 2020 Plan are determined by the Board. The Company’s awards generally vest over four years and have a term of 10 years. The Company has also granted awards with certain market based conditions.
2020 Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (the “2020 ESPP”) became effective in connection with the Company’s initial public offering (“IPO”) and as of December 31, 2024, a total of 1,660,229 shares of common stock are reserved for issuance under the 2020 ESPP. Eligible employees may purchase shares of common stock under the 2020 ESPP at 85% of the lower of the fair market value of the Company’s common stock as of the first or the last day of each offering period. Employees are limited to contributing 15% of the employee’s eligible compensation and may not purchase more than $25,000 of stock during any calendar year or more than 600 shares during any one purchase period prior to December 31, 2024, and 2,000 shares for purchase periods beginning in 2025. The 2020 ESPP share reserve automatically increases on January 1st of each calendar year, for ten years, commencing on January 1, 2021, in an amount equal to 1% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The Board may act prior to January 1st of a given year to provide that there will be no January 1st increase of the share reserve for such year or that the increase in the share reserve for such year will be a smaller number of shares of common stock than would otherwise occur pursuant to the preceding sentence. The Board elected not to increase the share reserve for the ESPP on January 1, 2025. During the years ended December 31, 2024 and 2023, the Company issued 17,246 and 23,020 shares, respectively, of common stock for aggregate cash proceeds of less than $0.1 million each year.
The Company recorded stock-based compensation expense in the following expense categories of its accompanying audited statements of operations and comprehensive loss (in thousands):
Year Ended December 31,
Total stock-based compensation $ 9,546 $ 6,939
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The following table summarizes option activity under the 2020 Plan:
Options WeightedAverageExercise Price WeightedAverageRemaining Life(Years)
Options granted during the years ended December 31, 2024 and 2023 had weighted-average grant-date fair values of $5.73 and $2.50 per share, respectively. As of December 31, 2024, the unrecognized compensation cost for options issued was $12.3 million and will be recognized over an estimated weighted-average amortization period of 2.18 years. The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $1.7 million and $0.4 million, respectively. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2024 was $0.1 million.
Restricted Stock Units
The following table summarizes employee RSU activity for the year ended December 31, 2024:
Awards WeightedAverageGrant Date Fair Value
The Company recognized $2.2 million and $0.8 million of stock-based compensation related to RSUs as of December 31, 2024 and 2023, respectively. As of December 31, 2024, the unrecognized compensation cost for RSUs issued was $5.1 million and will be recognized over an estimated weighted-average amortization period of 2.53 years. The fair value of each RSU is based on the fair value of the Company's common stock on the date of the grant.
Fair Value of Stock Options and Shares Issued
The Company accounts for stock-based compensation by measuring and recognizing as compensation expense the fair value of all share-based payment awards made to employees, including employee stock options and restricted stock awards. The Company uses the Black-Scholes option pricing model to estimate the fair value of employee stock options that only have service or performance conditions. The Company uses the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions. The inputs to both pricing models require a number of management estimates such as the expected term, volatility, risk-free interest rate and dividend yield. The fair value of stock options was determined using the methods and assumptions discussed below.
•The expected term of employee stock options with service-based vesting is determined using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.
•The expected stock price volatility assumption is based on the historical volatilities of the common stock of a peer group of publicly traded companies as well as the historical volatility of the Company's common stock since the Company began trading subsequent to the IPO in October 2020 over the period corresponding to the expected life as of the grant date. The historical volatility data was computed using the daily closing prices during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of the Company's stock price becomes
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available, or until circumstances change, such that the identified entities are no longer comparable companies. In the latter case, other suitable, similar entities whose share prices are publicly available would be utilized in the calculation.
•The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the expected term.
•The expected dividend yield is 0% because the Company has not historically paid, and does not expect, for the foreseeable future, to pay dividends on its common stock.
•Prior to the Company’s IPO, the Board periodically estimated the fair value of the Company’s common stock considering, among other things, contemporaneous valuations of its common stock prepared by an unrelated third-party valuation firm. Subsequent to the Company’s IPO, options are issued with a strike price no less than the market price on date of grant.
The grant-date fair value of options calculated using the Black-Scholes option pricing model granted under the Company’s 2020 Plan were estimated using the following weighted-average assumptions:
Year Ended December 31,
Expected term - years 6.02 6.08
Expected volatility 97.4 % 84.8 %
Risk-free interest rate 4.2 % 3.6 %
Expected dividends $ — $ —
For the year ended December 31, 2024, there were no options granted that required the use of the Monte Carlo option pricing model. For the year ended December 31, 2023, the grant-date fair value of options calculated using the Monte Carlo option pricing model granted under the Company’s 2020 Plan were estimated using the following assumptions.
Expected term - years 4
Expected volatility 80.0 %
Risk-free interest rate 3.6 %
Expected dividends $ —
The grant-date fair value of shares issued calculated using the Black-Scholes option pricing model under the Company’s 2020 ESPP were estimated using the following weighted-average assumptions:
Year Ended December 31,
Expected term - years 0.5 0.5
Risk-free interest rate 5.1 % 4.0 %
Expected dividends $ — $ —
Employee Benefit Plans
The Company sponsors a 401(k) retirement plan in which substantially all of its full-time employees are eligible to participate. Participants may contribute a percentage of their annual compensation to this plan, subject to statutory limitations. The Company made matching contributions of $0.6 million and $0.7 million to the plan for the years ended December 31, 2024 and 2023, respectively.
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11. Income Taxes
The Company recorded no federal provision for income taxes as of December 31, 2024 and 2023 due to reported net losses since inception. A reconciliation of the expected income tax expense (benefit) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2024 and 2023 (amounts in thousands):
Year Ended December 31,
Income tax benefit computed at federal statutory tax rate $ (15,809) $ (18,332)
Change in uncertain tax position 948 878
Income tax benefit $ — $ —
Significant components of the Company’s deferred tax assets and liabilities are as follows (amounts in thousands):
December 31,
Deferred tax asset:
Capital loss carryforwards 576 583
Deferred tax liability:
Depreciation and amortization (533) (744)
Total deferred tax liability (1,196) (1,554)
Total net deferred tax asset $ — $ —
The Company has established a valuation allowance equal to the net deferred tax asset due to uncertainties regarding the realization of the deferred tax asset based on the Company’s lack of earnings history. The valuation allowance increased by $19.2 million and $21.3 million during the years ended December 31, 2024 and 2023, respectively, primarily due to continuing loss from operations, general business credit carryforwards, and accrued expenses.
As of December 31, 2024 and 2023, the Company had gross U.S. net operating loss (“NOL”) carryforwards of $195.8 million and $149.5 million, respectively. Additionally, as of December 31, 2024 and 2023, the Company had gross U.S. tax credit carryforwards of $21.6 million and $16.9 million, respectively. As of December 31, 2024 and 2023, the Company had capital loss carryforwards of $2.7 million. As of December 31, 2024 and 2023, the Company had gross state NOL carryforwards of $0.0 million and $0.2 million, respectively. The NOL, capital loss, and tax credit carryforwards began to expire in 2024. The NOL, capital loss, and credit carryforwards are subject to Internal Revenue Service adjustments until the statute closes on the year the NOL or credit carryforwards are utilized.
Section 382 of the Internal Revenue Code limits the utilization of U.S. NOLs following a change of control. After the 2019 financial statements were filed, the Company completed a Section 382 study from formation through October 14, 2020. Although an ownership change occurred during 2020, no deferred tax assets were impacted by the limitation.
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A reconciliation of the Company’s liability for unrecognized tax benefits is as follows (amounts in thousands):
Year Ended December 31,
Balance, beginning of the year $ 3,258 $ 2,380
Increase for tax positions related to the current year 705 642
Increase for tax positions related to prior years 243 236
All of the Company’s gross unrecognized tax benefits, if recognized, would affect its effective tax rate. The Company does not expect unrecognized tax benefits to decrease within the next twelve months due to the lapse of statute limitations. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2024, the Company has not accrued any interest or penalties related to unrecognized tax benefits.
The Company files income tax returns in the U.S. and state jurisdictions. The Company is subject to examination by taxing authorities in its significant jurisdictions for the 2021, 2022, and 2023 tax years. There are currently no federal or state income tax audits in progress.
12. Discontinuation of SL-172154 Clinical Development
On October 1, 2024, the Company approved a restructuring plan to prioritize the development of the Company’s DR3 program. The restructuring plan optimized the Company’s cost structure by aligning the size and structure of its workforce with the Company’s current goals and strategy. The organizational realignment included the discontinuation the Company’s SL-172154 program in view of overall survival data readouts from its clinical trial in higher-risk myelodysplastic syndromes and acute myeloid leukemia. Approximately 40% of Shattuck’s workforce was impacted by the changes. As a result of this restructuring, the Company incurred one-time termination benefits of $1.0 million that was recorded in the research and development and general and administrative line items in the Company’s Statements of Operations and Comprehensive Loss. The Company recognized this expense in the fourth quarter of 2024 and paid $0.9 million in 2024 and $0.1 million in January 2025.
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13. Segment Reporting
The Company has one reportable and operating segment, which is engaged in the business of drug discovery and development. The Company’s chief operating decision maker (“CODM”) is the Company’s chief executive officer. The CODM uses the Company’s net loss to monitor actual results versus the budget in assessing segment performance and the allocation of resources. The measure of segment assets is reported on the balance sheets as total assets. Accounting policies for segment reporting are the same as the accounting policies disclosed in footnote 2.
The following table sets forth information about the Company’s single reportable segment and the significant expenses reviewed by the CODM, including a reconciliation to net loss (in thousands):
Year Ended December 31,
Operating expenses:
Research and development:
Research and development non-equity compensation 14,125 17,852
Research and development equity compensation 4,894 3,462
General and administrative expenses:
General and administrative non-equity compensation 5,858 6,874
General and administrative equity compensation 4,653 3,478
Other income:
1 Expenses for SL-325 that were incurred prior to it being nominated a product candidate are included in “other research and development”.
2Other research and development expense includes technical operations expense of $4.2 million and $8.6 million, other research and development expense (primarily includes research activities for other pipeline compounds and facility expenses) of $8.2 million and $9.9 million and depreciation expense of $3.6 million and $3.9 million for the years ended December 31, 2024 and 2023, respectively.
14. Subsequent Events
None.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures. Based on this evaluation of our disclosure controls and procedures as of December 31, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.
As of December 31, 2024, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
Attestation Report of Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm. For as long as we remain an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, we intend to take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during fourth quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Trading Plans
During the quarter ended December 31, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Except as provided below, the information required by this item is incorporated herein by reference to our Proxy Statement relating to our 2025 Annual Meeting of Stockholders (the “2025 Proxy Statement”), which we expect to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K, including under the
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headings “Information Regarding Director Nominees and Continuing Directors,” “Corporate Governance,” “Insider Trading Policy,” “Executive Officers,” and, as applicable, “Delinquent Section 16(a) Reports.”
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is available on our website located at ir.shattucklabs.com, under “Governance.” We intend to disclose on our website future amendments to certain provisions of the code, and waivers of the code granted to executive officers and directors, that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K within four business days following the date of the amendment or waiver
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to our 2025 Proxy Statement, including under the headings “Executive Compensation”, “Director Compensation” and “Compensation Committee Interlock.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated herein by reference to our 2025 Proxy Statement, including under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to our 2025 Proxy Statement, including under the headings “Corporate Governance” and “Certain Relationships and Related Party Transactions.”
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to our 2025 Proxy Statement, including under the heading “Ratification of Independent Auditor Selection.”
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Part IV.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Annual Report on Form 10-K:
(a) Financial Statements.
See Index to Financial Statements at Part II, Item 8 “Financial Statements and Supplementary Data.”
(b) Financial Statement Schedules.
No financial statement schedules are provided because the information called for is not required or is included in the financial statements or the notes thereto.
(c) Exhibits.
The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report on Form 10-K:
ExhibitNumber Description of Exhibit
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10.17+* Non-Employee Director Compensation Policy, as Amended
19.1* Insider Trading Policy
23.1* Consent of Independent Registered Public Accounting Firm.
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101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
__________
* Filed herewith.
+ Indicates management contract or compensatory plan.
† Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
# The certifications on Exhibit 32 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 27th day of March 2025
Shattuck Labs, Inc.
Date: March 27, 2025 By: /s/ Dr. Taylor Schreiber
Dr. Taylor Schreiber
Chief Executive Officer
(principal executive officer)
Date: March 27, 2025 By: /s/ Andrew R. Neill
Andrew R. Neill
Chief Financial Officer
(principal financial and accounting officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Taylor Schreiber, Andrew R. Neill and Stephen Stout, and each of them, as true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign in any and all capacities (including, without limitation, the capacities listed below), this Annual Report on Form 10-K, any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and anything necessary to be done to enable the registrant to comply with the provisions of the Securities Exchange Act and all the requirements of the Securities and Exchange Commission, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the dates set forth opposite their names.
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Signature Title Date
/s/ Dr. Taylor Schreiber Chief Executive Officer and Director March 27, 2025
Dr. Taylor Schreiber (principal executive officer)
/s/ Andrew R. Neill Chief Financial Officer March 27, 2025
Andrew R. Neill (principal financial and accounting officer)
/s/ Dr. George Golumbeski Chairman of the Board March 27, 2025
Dr. George Golumbeski
/s/ Helen M. Boudreau Director March 27, 2025
Helen M. Boudreau
/s/ Dr. Neil Gibson Director March 27, 2025
Dr. Neil Gibson
/s/ Dr. Carrie Brownstein Director March 27, 2025
Dr. Carrie Brownstein
/s/ Michael Lee Director March 27, 2025
Michael Lee
/s/ Tyler Brous Director March 27, 2025
Tyler Brous
/s/ Dr. Kate Sasser Director March 27, 2025
Dr. Kate Sasser
/s/ Dr. Clay Siegall Director March 27, 2025
Dr. Clay Siegall
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