VERA US Equity☆

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations, and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors."

Overview

We are a late-stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. Our lead product candidate, atacicept, a self-administered fusion protein that blocks both BLyS and APRIL, is currently being evaluated for the treatment of IgAN in the Phase 2b ORIGIN trial which we expect will complete enrollment in mid-2022 and report topline results in the fourth quarter of 2022. If the data from this trial are positive, we plan to initiate a pivotal Phase 3 clinical trial in 2023. We plan to initiate a Phase 3 clinical trial of atacicept in LN, a severe manifestation of SLE, based on positive feedback from the FDA’s review of promising clinical results in a Phase 2 clinical trial of atacicept in high disease activity patients with SLE. In December 2021, we obtained worldwide, exclusive development and commercial rights from Amplyx, a wholly owned subsidiary of Pfizer, to MAU868, a potentially first-in-class monoclonal antibody to treat BKV infections. We believe MAU868 is the only clinical-stage neutralizing monoclonal antibody that is directed against BKV, a polyoma virus that can have devastating consequences in certain settings such as kidney transplant and hematopoietic stem cell transplant. In an interim analysis of Phase 2 data in BK viremia among kidney transplant recipients, MAU868 was shown to be well tolerated and demonstrated a clinically significant reduction of virologic activity. We expect to share full results from the interim analysis in mid-2022 and expect to initiate a Phase 2b or Phase 3 clinical trial in 2023. We believe that our current pipeline programs leverage the deep expertise of the Vera Therapeutics team and have strong commercial synergies. We currently hold global rights to all of our pipeline programs.

Since our inception, we have devoted substantially all of our resources to our research and development efforts, pre-clinical studies and clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates, which we expect will take a number of years, if ever. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.

To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock, debt financing and convertible promissory notes. As of December 31, 2021, we had $79.7 million in unrestricted cash and cash equivalents.

On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021, of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. Upon the closing of our IPO, all outstanding shares of our redeemable convertible preferred stock converted into 15,464,776 shares of our Class A common stock and 309,238 shares of our Class B common stock.

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In December 2021, we entered into the Amplyx Agreement with Amplyx. Pursuant to the terms of the Amplyx Agreement, we paid $5.0 million to Amplyx to purchase assets relating to MAU868. Also in December 2021, we entered into a Loan and Security Agreement (Loan Agreement) with Oxford Finance LLC (Oxford). The Loan Agreement provides for a term loan (the Loan) in an aggregate maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021 and the balance of which is available to be drawn between January 3, 2022 and December 31, 2022. See “—Loan and security agreement” below.

In February 2022, we completed a follow-on public offering and issued 5,742,026 shares of Class A common stock for net proceeds of approximately $80.2 million, after deducting underwriting discounts and commissions and offering related expenses.

We have incurred significant operating losses since the commencement of our operations. Our net losses were $32.6 million and $53.4 million for the years ended December 31, 2021 and 2020, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates, atacicept and MAU868, to commercialization. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of December 31, 2021, we had an accumulated deficit of $124.1 million. Our primary use of cash is to fund operating expenses, which consist of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses depends on the timing of when we pay these expenses, as reflected in the changes in our working capital balances.

We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:

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continue our ongoing and planned research and development of our product candidates, atacicept for the treatment of IgAN and LN, and MAU868 for the treatment of BK viremia;

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conduct clinical trials and nonclinical studies for atacicept and MAU868;

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seek regulatory approvals for any product candidates that successfully complete clinical trials;

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continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;

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establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;

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develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know-how;

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attract, hire and retain additional clinical, scientific, quality control, manufacturing management and administrative personnel;

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add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

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incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.

We also expect to increase the size of our administrative function to support the growth of our business. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships, or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such

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agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.

COVID-19 pandemic

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus (COVID-19) has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and governments around the world, including in the United States, Europe and Asia, have implemented travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. To date, we have initiated some and may take additional, temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. For the safety of our employees and their families, we have reduced the amount of time we expect our employees to spend onsite in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials and other development timelines, as well as on our industry and the healthcare system.

As a result of the COVID-19 pandemic, we have and may in the future experience severe disruptions, including:

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interruption of or delays in receiving products and supplies from the third parties on which we rely, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

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limitations on our business operations by the local, state, or federal government;

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business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cybersecurity and data accessibility limits, or communication or mass transit disruptions; and

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limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.

Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020.

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Year EndedDecember 31, CHANGE

(dollars in thousands) 2021 2020 AMOUNT %

Operating expenses:

Other income (expense):

Gain on issuance of convertible notes — 63 (63 ) *

Change in fair value of convertible notes — (1,076 ) 1,076 *

Change in fair value of non-marketable equity securities (892 ) — (892 ) *

Gain on sale of PNAi technology 2,691 — 2,691 *

* Not meaningful

Research and development expenses

Research and development expenses represent a substantial portion of our operating expenses. Our research and development expenses consist primarily of direct and indirect expenses incurred in connection with the research and development of our product candidates. Direct expenses include costs incurred under agreements with third parties, including contract research organizations and consultants directly related to our research and development of product candidates, laboratory supplies and costs of lab studies, and license and milestone fees incurred as a result of our contractual obligations for our development candidates. Indirect expenses include employee compensation and other personnel-related expenses, including stock-based compensation, facilities and depreciation related to buildings and equipment used for research and development personnel and activities and other expenses. From October 2020 until December 2021, we have been engaged in the development of atacicept as our sole product candidate. In December 2021, we entered into the Amplyx Agreement and acquired our second product candidate, MAU868.

Research and development expenses are recorded as expense in the period in which the related activities occurred, and payments we make prior to the receipt of goods or services to be used in research and development efforts are deferred as prepaid expenses until the goods or services are received and used. We accrue expenses for contract research and development as the related services are performed by monitoring the status of specified activities and billings received from our external service providers. These expenses are accrued based on estimates and are adjusted as actual expenses become known. The cost incurred in obtaining technology licenses, including initial and subsequent milestone payments incurred under our licensing agreements, are recorded as expense in the period in which they are incurred, as the licensed technology, method or process has no alternative future uses other than for our research and development activities. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone.

The following table summarizes our research and development expenses incurred during the respective periods.

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Year EndedDecember 31, CHANGE

(dollars in thousands) 2021 2020 AMOUNT %

Direct research and development expenses

Internal laboratory expenses — 622 (622 ) *

Indirect research and development expenses

* Not meaningful

Research and development expenses decreased by $22.7 million, or 50%, to $22.5 million in the year ended December 31, 2021, from $45.2 million in the year ended December 31, 2020. The decrease was primarily due to license fees paid to Ares in 2020 pursuant to our exclusive license of atacicept, consisting of an initial payment of $13.1 million paid in shares of our Series C redeemable convertible preferred stock and a subsequent cash milestone payment of $25.0 million. In December 2021, we paid $5.0 million to Amplyx for the purchase of MAU868 and accrued $2.0 million of milestone expense in connection with the purchase. Facilities, depreciation and other expenses related to research and development decreased by $2.7 million and internal laboratory expenses decreased by $0.6 million resulting from our ceasing internal research in September 2020 and vacating and subleasing our leased facilities in South San Francisco in November 2020. These decreases were partially offset by an increase of $9.5 million in consulting and contract research expense resulting from the Phase 2b clinical trial of atacicept and contract drug manufacturing activities for atacicept, and an increase of $2.3 million of employee compensation and related expenses resulting from the increased headcount to support clinical development of atacicept during the current period.

We expect our research and development expenses to increase in future periods as we incur expenses to develop MAU868, plan and initiate our Phase 3 trial of atacicept in LN and progress to later stages of development of atacicept in IGAN.

General and administrative

General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive management, legal, finance, human resources, and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, and other general overhead costs to support our operations. General and administrative expenses are recorded as expense in the period in which incurred, and payments we make prior to the receipt of goods or services to be used for general and administrative purposes efforts are deferred as prepaid expenses until the goods or services are received and used.

Year EndedDecember 31, CHANGE

(dollars in thousands) 2021 2020 AMOUNT %

General and administrative expenses increased by $7.9 million, or 195%, to $11.9 million in the year ended December 31, 2021, from $4.0 million in the year ended December 31, 2020, due primarily to increases of $2.7 million of payroll and related expenses including stock-based compensation, an increase of $1.8 million in insurance premium expense, an increase of $1.2 million in legal expenses, an increase of $0.8 million in accounting and audit expenses, and an increase of $0.5 million in non-employee director compensation.

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Restructuring costs

Restructuring costs primarily consisted of contract termination costs related to leases and employee termination costs.

Year EndedDecember 31, CHANGE

(dollars in thousands) 2021 2020 AMOUNT %

Restructuring Costs $ — $ 2,996 $ (2,996 ) *

* Not meaningful

We restructured in September 2020, resulting in the termination of certain employees and vacating of leased facilities.

Total other income (expense)

Year EndedDecember 31, CHANGE

(dollars in thousands) 2021 2020 AMOUNT %

Total other income increased by $3.0 million to $1.8 million in the year ended December 31, 2021, from other expense of $1.2 million in the year ended December 31, 2020, due to other income of $2.7 million recognized in the current period from the sale of assets to NeuBase Therapeutics, Inc. (NeuBase), partially offset by $0.9 million of other expense recognized in the current period due to unrealized losses from non-marketable equity securities. We recorded $1.1 million of other expense from the change in fair value of convertible debt outstanding during the year ended December 31, 2020.

Liquidity and Capital Resources

Overview

To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock, debt financing and convertible notes. From our inception through December 31, 2021, we have raised aggregate net cash proceeds of $195.0 million from the issuance and sale of redeemable convertible preferred stock, convertible notes, Class A common stock and our Loan Agreement with Oxford. Since the date of our incorporation, we have not generated any revenue from product sales and have incurred substantial operating losses and negative cash flows from operations.

We use our cash to fund operations, primarily to fund our research and development efforts, clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid assets.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research and development activities of atacicept and MAU868, hire additional staff, including clinical, operational, financial and management personnel, and incur additional expenses associated with operating as a public company. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our clinical development activities and our product candidate portfolio. We expect that our research and development and general and administrative costs will increase substantially as a result of our acquisition of MAU868, including in connection with conducting additional clinical trials and clinical trials for our research programs and product candidates, contracting with third parties to support nonclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

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On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021, of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. Upon the closing of our IPO, all outstanding shares of our redeemable convertible preferred stock converted into 15,464,776 shares of our Class A common stock and 309,238 shares of our Class B common stock.

In December 2021, we entered into the Amplyx Agreement, pursuant to which we paid $5.0 million to Amplyx to purchase assets relating to MAU868. Also in December 2021, we entered into the Loan Agreement with Oxford, pursuant to which we may borrow up to an aggregate maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021, and the balance of which is available to be drawn between January 3, 2022, and December 31, 2022. See “—Loan and security agreement” below.

On February 14, 2022, we completed our follow-on public offering. In connection with our follow-on public offering, we issued and sold 5,742,026 shares of Class A common stock, including 748,959 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share, resulting in net proceeds to us of approximately $80.2 million, after deducting underwriting discounts and commissions and offering related expenses payable by us.

As of December 31, 2021, we had cash and cash equivalents balances of $79.7 million, as compared to $53.7 million as of December 31, 2020. We expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

Contractual Obligations

We enter into agreements in the normal course of business with various third parties for preclinical, clinical and other services. These contracts are generally cancellable without material penalty upon written notice.

Our operating lease obligations reflect our lease obligations for our office and laboratory space in Woburn, Massachusetts and our office and life science research space in South San Francisco, California.

During 2019, we vacated our leased facilities in Woburn, Massachusetts and recorded a discounted lease-related restructuring liability, which was calculated as the present value of the estimated future facility costs for which we would obtain no future economic benefit over the remaining term of the lease, which ended in July 2021.

During 2020, we vacated the leased facilities in South San Francisco. In November 2020, we entered into a non-cancellable sublease agreement for the facility, under the terms of which we are entitled to receive $8.8 million in lease payments over the term of the sublease, which ends concurrently with the original lease in September 2025. As tenant, we remain responsible for the $9.3 million minimum lease commitment remaining on the facilities as of December 31, 2021.

In November 2021, we entered into a lease agreement for approximately 5,000 square feet of office space in Brisbane, California. The term of the lease is three years, and rent will be approximately $0.3 million for the first year, with scheduled annual 3% increases. The lease includes renewal options.

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Cash Flows

The following table summarizes our cash flows for the periods indicated.

Year EndedDecember 31,

Net cash used in operating activities $ (23,708 ) $ (34,809 )

Net cash used in investing activities (4,204 ) (42 )

Net cash provided by financing activities 53,882 85,290

Net increase in cash, cash equivalents and restricted cash $ 25,970 $ 50,439

Operating Activities

For the year ended December 31, 2021, we used $23.7 million of cash in operating activities, attributable to a net loss of $32.6 million, a $2.7 million non-cash gain on sale of assets to NeuBase, and a $2.3 million increase in prepaid expenses and other current assets, partially offset by $5.0 million of the net loss related to the purchase of MAU868 classified as an investing activity, a $5.4 million increase in accrued and other current liabilities, and $3.0 million of non-cash stock-based compensation expense.

For the year ended December 31, 2020, we used $34.8 million of cash in operating activities, attributable to a net loss of $53.4 million, partially offset by the non-cash expenses of $13.1 million of Series C redeemable convertible preferred stock issued to Ares as partial consideration for the license of atacicept, a net increase of $2.4 million in the liability for restructuring, a net change of $0.1 million in working capital accounts, and $2.9 million of other non-cash expenses, including a $1.2 million impairment charge associated with the disposal of property, equipment and intangible assets, a $1.1 million change in fair value of convertible notes payable, $0.3 million of stock-based compensation and $0.3 million of depreciation and amortization. The net change of $0.1 million in working capital accounts was caused primarily by a $0.5 million decrease in other liabilities, a $0.6 million increase in accounts payable and a $0.1 million decrease in other assets, which were partly offset by a $0.1 million increase in prepaid expenses and other assets.

Investing Activities

For the year ended December 31, 2021, our investing activities used $4.2 million of cash, resulting from the $5.0 million cash payment for the purchase of MAU868 pursuant to the Amplyx Agreement, partially offset by $0.8 million of cash received resulting from the sale of assets to NeuBase.

For the year ended December 31, 2020, our investing activities used $99,000 of cash in the purchase of property and equipment partly offset by proceeds of $57,000 from the sale of property and equipment.

Financing Activities

For the year ended December 31, 2021, our financing activities provided $53.9 million of cash resulting from $51.2 million proceeds received from our IPO, net of underwriting discounts and commissions, partially offset by the payment of $2.8 million of related offering costs during the period, and $4.9 million of net cash proceeds from the issuance of debt to Oxford.

For the year ended December 31, 2020, our financing activities provided $85.3 million of cash resulting from $79.6 million in proceeds from our issuance of Series C redeemable convertible preferred stock, net of issuance costs, proceeds of $5.6 million from our issuance of convertible notes payable that were converted into Series C redeemable convertible preferred stock, and proceeds of $0.2 million from the exercise of stock options to purchase Class A common stock, partially offset by the payment of $0.1 million of capital lease obligations.

Loan and security agreement

On December 17, 2021, we entered into the Loan Agreement with Oxford, a Delaware limited liability company, as lender (Lender) and collateral agent. The Loan Agreement provides for a term loan in an aggregate

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maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021 and the balance of which is available to be drawn between January 3, 2022 and December 31, 2022. The Loan is available in minimum draws of $5.0 million, entirely at our option and not contingent upon the completion of clinical, regulatory, financial or other related milestones.

The final maturity date of the Loan is December 17, 2026, which may, upon achieving either (i) positive Phase 2b clinical trial data of atacicept in IgAN or (ii) positive pivotal trial data of atacicept in LN, at our option, be extended by 12 months (the Maturity Date Extension). We are required to make monthly interest-only payments for 48 months (extended to 60 months if the Maturity Date Extension is exercised) followed by full amortization through maturity.

Initially, through December 30, 2021, the Loan incurred interest at a per annum rate of 8.254%. Thereafter, the Loan bears interest at a floating per annum rate (based on the actual number of days elapsed divided by a year of 360 days) equal to the greater of (i) 8.25% and (ii) the sum of (a) the greater of (x) the 30-day U.S. LIBOR rate reported in the Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (y) 0.09%, plus (b) 8.16%. The Loan Agreement also provides for the selection of an alternative benchmark rate in the event of the discontinuance of LIBOR or any subsequent benchmark rate.

We are permitted to prepay the Loan in full or in part at any time upon 10 business days’ written notice to the Lender, subject to the applicable Prepayment Fee (as defined below). Upon the earliest to occur of the maturity date, acceleration of the Loan or prepayment of the Loan, we are required to make a final payment equal to 5.0% (7.0% if the Maturity Date Extension is exercised) of the aggregate principal amount of the Loan (the Final Fee). Any prepayments of the Loan, whether mandatory or voluntary, must include an amount equal to the sum of (a) the portion of the outstanding principal of the Loan being prepaid plus accrued and unpaid interest thereon through the prepayment date, (b) the Final Fee, (c) the Lender’s expenses and all other obligations that are due and payable to the Lender, and (d) a prepayment fee of (i) 3.0% of the portion of the Loan being prepaid if the repayment is on or before the first anniversary of the funding date of such term loan or (ii) 2.0% of the portion of the Loan being prepaid if the repayment is after the first anniversary of the funding date but on or before the second anniversary of the funding date of such term loan (the Prepayment Fee). There is no Prepayment Fee for any prepayments occurring after the second anniversary of the funding date of such term loan.

Our obligations under the Loan Agreement are secured by a security interest in all of our assets, other than our intellectual property, which is subject to a negative pledge. The Loan Agreement does not contain any financial related covenants. Included in the Loan Agreement are customary representations and covenants that, subject to exceptions, restrict our ability to, among other things: declare dividends or redeem or repurchase equity interests; incur additional liens; make loans and investments; incur additional indebtedness; engage in mergers, acquisitions and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to our existing business.

Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. Events of default under the Loan Agreement include customary events of default, including, but not limited to: (i) failure to (a) make any payment of principal or interest on its due date, or (b) pay any other obligations within three business days after such obligations are due and payable; (ii) failure to perform any obligation under specified covenants; (iii) the occurrence of a material adverse change; (iv) we or any of our subsidiaries being or becoming insolvent, beginning an insolvency proceeding, or becoming subject to an insolvency proceeding that is not dismissed or stayed within 45 days; (v) a default under any agreement with a third party resulting in a right by such third party to accelerate the maturity of any indebtedness in an amount in excess of $500,000 or that could reasonably be expected to have a material adverse change; (vi) the rendering of judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least $500,000 that remain unsatisfied, unvacated, or unstayed for a period of 10 days after the entry thereof; (vii) revocation, rescission, suspension or adverse modification of any governmental approval, or non-renewal of a governmental approval in the ordinary course for a full term, that could reasonably be expected to result in a material adverse change; and (viii) failure of a lien created under the Loan Agreement or any other loan document to constitute a valid and perfected lien on any of the collateral purported to be secured thereby, subject to no prior or equal lien, other than permitted liens.

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Emerging growth company status

We are an emerging growth company, as defined in the JOBS Act. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) December 31, 2026.

Critical Accounting Policies and Significant Judgments and Estimates

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

While our significant accounting policies are described in the notes to our financial statements, we believe that the following critical accounting policies and estimates are most important to understanding and evaluating our reported financial results.

Research contract costs and accruals

We enter into various research and development and other agreements with commercial firms, researchers and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from our estimates.

Stock-based compensation

We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors, consultants and advisors. The plan allows for the issuance of a variety of equity incentive awards, including incentive stock options, non-qualified stock options and restricted stock awards. We account for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees and non-employees based on estimated grant-date fair values. We use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period. We recognize actual forfeitures by reducing the stock-based compensation expense in the same period as the forfeitures occur. We estimate the fair value of share-based awards to employees and non-employees using the Black-Scholes model.

Estimating the fair value of equity-settled awards as of the grant date using the Black-Scholes option pricing model is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. These inputs are as follows:

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Fair value of common stock—See the subsection titled “Fair value of common stock” below.

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Expected term—The expected term represents the average period that our options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the weighted-average vesting date and the end of the contractual term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock option grants.

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Expected volatility—Since we were a privately-held company until our IPO in May 2021 and have only a limited trading history for our common stock, the expected volatility was estimated based on the historical average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage, or area of specialty. We will continue to apply this process until enough historical information regarding the volatility of our own stock price becomes available.

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Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.

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Expected dividend yield—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

We will continue to use judgment in evaluating the expected volatility, expected terms, and interest rates utilized for our stock-based compensation calculations on a prospective basis. Assumptions we used in applying the Black-Scholes option-pricing model to determine the estimated fair value of our stock options granted involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.

Fair value of common stock

Historically, for all periods prior to our IPO, the fair values of the shares of our common stock underlying our share-based awards were determined on each grant date by our board of directors with input from management and the assistance of an independent third-party valuation specialist. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid), our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

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external market conditions affecting the proteomics and genomics biotechnology industry and trends within the industry;

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our stage of development;

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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;

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the prices at which we sold shares of our redeemable convertible preferred stock;

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actual operating results and projected financial performance, including our levels of available capital resources;

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the progress of our research and development efforts and business strategy;

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equity market conditions affecting comparable public companies;

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general U.S. market conditions; and

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the lack of marketability of our common stock.

In valuing our common stock, the fair value of our business, or enterprise value, was determined using various valuation methods, including combinations of income, market and asset approaches with input from management. The income approach determines value by using one or more methods that convert anticipated economic benefits into a present single amount. The application of the income approach establishes value by methods that discount or

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capitalize earnings or cash flow, by a discount or capitalization rate that reflects investors’ rate of return expectations, market conditions, and the relative risk of the subject investment. The market approach involves identifying and evaluating comparable public companies and acquisition targets that operate in the same industry or which have similar operating characteristics as the subject company. From the comparable companies, publicly available information is used to extrapolate market-based valuation multiples that are applied to historical or prospective financial information in order to derive an indication of value. The asset approach determines the value of the underlying assets and liabilities of a business as a means of determining the value of the business in aggregate. This approach can include the value of both tangible and intangible assets.

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Option Pricing Method (OPM). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options. This method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.

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Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. This method is generally most appropriate to use when the time to a liquidity event is short, making the range of possible future outcomes relatively easy to predict.

Based on our early stage of development and other relevant factors, we determined that the OPM was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock for valuations during early 2020.

Beginning in March 2020, we used a hybrid method to determine the estimated fair value of our common stock, which included both the OPM and PWERM models.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

After the completion of our IPO, the fair value of each share of the underlying common stock has been determined based on the closing price as reported on the date of grant on the primary stock exchange on which our Class A common stock is traded.

Recent accounting pronouncements

See Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

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

Not required.

Item 8. Financial Statements and Supplementary Data.

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VERA THERAPEUTICS, INC.

Index to Financial Statements and Supplementary Data

Years ended December 31, 2021 and 2020

PageNumber

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ii

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS iii

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 185) 130

Financial Statements:

Balance Sheets 131

Statements of Operations and Comprehensive Loss 132

Statements of Cash Flows 134

Notes to Financial Statements 136

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Vera Therapeutics, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Vera Therapeutics, Inc. (the Company) as of December 31, 2021 and December 31, 2020, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, 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. 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.

San Francisco, California

March 25, 2022

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VERA THERAPEUTICS, INC.

Balance Sheets

(in thousands, except share and per share amounts)

December 31, December 31,

Assets

Current assets:

Restricted cash, current — 50

Prepaid expenses and other current assets, current 2,863 557

Restricted cash, noncurrent 293 293

Prepaid expenses and other current assets, noncurrent 51 —

Non-marketable equity securities 867 —

Current liabilities:

Restructuring liability, current 377 962

Accrued expenses and other current liabilities 5,928 535

Long-term debt 4,923 —

Restructuring liability, noncurrent 1,257 1,634

Accrued and other noncurrent liabilities 286 286

Commitments and contingencies (Note 14)

Stockholders’ equity (deficit)

Total stockholders’ equity (deficit) 69,592 (89,348 )

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

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VERA THERAPEUTICS, INC.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Restructuring costs — 2,996

Other income (expense):

Interest income 15 8

Interest expense (20 ) (166 )

Gain on issuance of convertible notes — 63

Change in fair value of convertible notes — (1,076 )

Change in fair value of non-marketable equity securities (892 ) —

Gain on sale of PNAi technology 2,691 —

Total other income (expense) 1,794 (1,171 )

Loss before provision for income taxes (32,608 ) (53,412 )

Provision for income taxes (1 ) (1 )

Net loss and comprehensive loss $ (32,609 ) $ (53,413 )

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

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VERA THERAPEUTICS, INC.

Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit)

Stock-based compensation — — — — — — 331 — 331

Stock-based compensation — — — — — — 3,012 — 3,012

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

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VERA THERAPEUTICS, INC.

Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities

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

Depreciation, amortization and accretion 176 251

Impairment loss on property and equipment and intangible asset — 1,185

Issuance of Series C redeemable convertible preferred stock for license — 13,121

Payment for MAU868 asset purchase 5,000 —

Non-cash interest expense on convertible notes — 134

Issuance costs for convertible notes — 23

Gain on issuance of convertible notes — (63 )

Gain on sale of PNAi technology (2,691 ) —

Change in fair value of convertible notes — 1,076

Change in fair value of non-marketable equity securities 892 —

Changes in operating assets and liabilities:

Prepaid expense and other current assets (2,306 ) (135 )

Other assets (51 ) 59

Accrued and other current liabilities 5,393 110

Other liabilities — (478 )

Net cash used in operating activities (23,708 ) (34,809 )

Cash flows from investing activities

Proceeds from sale of PNAi technology 796 —

Payment for MAU868 asset purchase (5,000 ) —

Purchase of property and equipment — (99 )

Proceeds from the sale of property and equipment — 57

Net cash used in investing activities (4,204 ) (42 )

Cash flows from financing activities

Proceeds from exercise of stock options 550 230

Proceeds from issuance of convertible notes — 5,602

Proceeds from borrowings, net of costs 4,921 —

Payment of offering costs related to initial public offering (2,765 ) —

Payment of issuance costs related to convertible notes — (23 )

Payment on capital lease obligations — (130 )

Net cash provided by financing activities 53,882 85,290

Net increase in cash and cash equivalents and restricted cash 25,970 50,439

Cash, cash equivalents and restricted cash, beginning of year 53,997 3,558

Cash, cash equivalents and restricted cash, end of year $ 79,967 $ 53,997

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Total cash and cash equivalents and restricted cash $ 79,967 $ 53,997

Supplemental disclosure of cash flow information

Cash paid for interest $ 17 $ 32

Receivable on exercise of stock options $ — $ 52

Lease assignment $ 136 $ —

Liability assumed in connection with MAU868 asset purchase $ 2,000 $ —

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

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VERA THERAPEUTICS, INC.

Notes to Financial Statements

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

Description of Business

Vera Therapeutics, Inc., (the Company) is a clinical late-stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. The Company is headquartered in Brisbane, California and was incorporated in May 2016 in Delaware. In 2017, the Company acquired all of the outstanding shares of PNA Innovations, Inc. (PNAi), which was based in Woburn, Massachusetts.

Reverse Stock Split

On May 7, 2021, the Company filed a certificate of amendment to its fourth amended and restated certificate of incorporation to effect a 11.5869-for-one reverse stock split of its issued and outstanding Class A common stock. Adjustments corresponding to the reverse stock split were made to the ratio at which the Company’s redeemable convertible preferred stock converted into Class A common stock. Accordingly, all share and per share amounts related to Class A common stock, stock options and restricted stock awards for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable to reflect the reverse stock split.

Initial Public Offering

On May 13, 2021, the Company’s registration statement on Form S-1 for its initial public offering (the IPO) was declared effective by the Securities and Exchange Commission (the SEC), and the shares of its Class A common stock commenced trading on the Nasdaq Global Select Market on May 14, 2021. The IPO closed on May 18, 2021, pursuant to which the Company issued and sold 4,350,000 shares of its Class A common stock at a public offering price of $11.00 per share. On May 20, 2021, the Company issued 652,500 shares of its Class A common stock to the underwriters of the IPO pursuant to the exercise of the underwriters’ option to purchase additional shares. The Company received total net proceeds of $48.4 million from the IPO, after deducting underwriting discounts and commissions of $3.9 million, and offering costs of $2.8 million. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 15,464,776 shares of Class A common stock and 309,238 shares of Class B common stock.

Liquidity

Since inception, the Company devoted substantially all of its resources to its research and development efforts, pre-clinical studies and clinical trials, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. The Company has incurred recurring net operating losses since its inception and had an accumulated deficit of $124.1 million as of December 31, 2021. The Company had cash and cash equivalents of $79.7 million as of December 31, 2021 and has not generated positive cash flow from operations. The Company has funded its operations primarily through the issuance of common stock, redeemable convertible preferred stock and convertible notes. Management expects to continue to incur losses and negative cash flows from operations for at least the next several years.

Management believes that the Company’s cash and cash equivalents as of December 31, 2021, together with net proceeds from its follow-on public offering in February 2022 (see Note 18), will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months subsequent to the issuance date of these financial statements. The Company intends to raise additional capital through public or private equity offerings or debt financing or other capital sources, which may include strategic collaborations or other arrangements with third parties in order to achieve its long-term business objectives. If the Company fails to obtain necessary capital when needed on acceptable terms, or at all, it could force the Company to delay, limit, reduce or terminate its product development programs, commercialization efforts or other operations.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and applicable rules and regulations of the SEC regarding financial reporting. The U.S. dollar is the Company’s functional and reporting currency.

Emerging Growth Company Status

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (1) is no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Use of Estimates

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management estimates that affect the reported amounts of assets and liabilities include the accrual of research and development expenses, restructuring liabilities, fair value of common stock and stock-based compensation expense, and the valuation allowance for deferred tax assets. The Company evaluates and adjusts its estimates and assumptions on an ongoing basis using historical experience and other factors. Actual results could differ materially from those estimates.

Deferred Offering Costs

Deferred offering costs consisting of legal, accounting and filing fees relating to the IPO are capitalized. The deferred offering costs were offset against the Company’s IPO proceeds upon the closing of the IPO.

Concentrations of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in a federally insured financial institution and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash and cash equivalents to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current and potential future product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed, or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

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Impact of the COVID-19 Pandemic

The COVID-19 pandemic continues to evolve. The extent of the impact of the COVID-19 pandemic on the Company’s business, operations, and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s development activities, planned clinical trial enrollment, future trial sites, contract research organizations, third-party manufacturers, and other third parties with whom the Company does business, as well as its impact on regulatory authorities and the Company’s key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, the Company is conducting business as usual, with necessary or advisable modifications to employee travel and with the Company’s employees mostly working remotely. The Company will continue to actively monitor the evolving situation related to the COVID-19 pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business. At this point, the extent to which the COVID-19 pandemic may affect the Company’s business, operations and development timelines and plans, including the resulting impact on expenditures and capital needs, remains uncertain.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of money market funds and are stated at fair value.

Restricted Cash

Restricted cash represents cash held by a financial institution as collateral for a letter of credit securing its operating lease for office and laboratory space, which is classified within current and non-current assets on the balance sheets.

Comprehensive Loss

Comprehensive loss consists of net loss and other gains and losses affecting redeemable convertible preferred stock and stockholders’ equity (deficit) that, under GAAP, are excluded from net loss. The Company has no items of other comprehensive loss for the year ended December 31, 2021 and 2020. As such, net loss equals comprehensive loss.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of employees’ salaries and related benefits, including stock-based compensation and termination expenses for employees engaged in research and development efforts, allocated overhead including rent, depreciation, information technology and utilities, contracted services, license fees, and external expenses to conduct and support the Company’s operations that are directly attributable to the Company’s research and development efforts. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Costs incurred in obtaining technology licenses including upfront and milestone payments incurred under the Company’s licensing agreements are recorded as expense in the period in which they are incurred, provided that the licensed technology, method or process has no alternative future uses other than for the Company’s research and development activities. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone.

Research Contract Costs and Accruals

The Company enters into various research and development and other agreements with commercial firms, researchers, and others for provisions of goods and services from time to time. These agreements are generally

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cancellable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. These expenses and accrued liabilities are adjusted as actual expenses become known. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates.

Redeemable Convertible Preferred Stock

The Company records all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The carrying value of the Company’s redeemable convertible preferred stock is adjusted to reflect dividends if and when declared by the Company’s board of directors. No dividends have been declared by the board of directors since inception. The Company classifies its redeemable convertible preferred stock separate from total stockholders’ equity (deficit), as the redemption of such stock is not solely under the control of the Company.

Stock-Based Compensation

The Company recognizes compensation expense based on estimated fair values for all stock-based payment awards made to the Company’s employees, nonemployee directors and consultants that are expected to vest. The valuation of stock option awards is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the inputs used in the calculations, such as the fair value of the common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. The valuation of restricted stock awards is measured by the fair value of the Company’s common stock on the date of the grant.

For all stock options granted, the Company calculated the expected term using the simplified method (derived from the average midpoint between the weighted average vesting period and the contractual term of the award) for “plain vanilla” stock option awards, as the Company has limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. The estimate of expected volatility is based on comparative companies’ volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records forfeitures when they occur.

Prior to the completion of our initial public offering, the fair value of the shares of common stock underlying the stock options was determined by the board of directors with the assistance of management and input from an independent third-party valuation firm, as there was no public market for the common stock. The board of directors determined the fair value of the Company’s common stock by considering a number of objective and subjective factors, including the valuation of comparable companies, sales of redeemable convertible preferred stock, the Company’s operating and financial performance, the lack of liquidity of common stock, and general and industry specific economic outlook, amongst other factors.

The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect tax rates expected to be in effect for the years in which the differences are expected to be reversed. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.

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Net Loss Per Share Attributable to Common Stockholders

Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis.

The Company’s participating securities include the Company’s redeemable convertible preferred stock, as the holders were entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of redeemable convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, did not and do not have a contractual obligation to share in losses of the Company, and therefore during periods of loss there is no allocation required under the two-class method.

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.

Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, because potentially dilutive shares are not assumed to have been issued if their effect is anti-dilutive.

Leases

The Company leases office and laboratory space under operating leases and laboratory equipment under capital leases. Leases for which the Company assumes substantially all risks and rewards incidental to ownership of the leased assets are classified as capital leases. The leased assets and the corresponding lease liabilities (net of interest charges) are recognized on the balance sheet as property and equipment, based on the cost of the equipment, and borrowings, respectively, at the inception of the related lease. Each lease payment is apportioned between the reduction of the outstanding lease liability and the related interest expense. The interest expense is recorded on a basis that reflects a constant periodic rate of interest on the outstanding finance lease liability.

Leases for which substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentive received from the lessors) are recorded on a straight-line basis over the period of the lease.

Restructuring Costs

Restructuring costs primarily consist of contract termination costs related to leases and employee termination costs. The Company recognizes restructuring charges when the liability has been incurred. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations, cease use date of leased property and equipment, and the timing of employees leaving the Company.

Accretion expenses related to restructuring costs are included in general and administrative expenses.

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Fair Value Option

The convertible notes issued in 2020, for which the Company elected the fair value option, are accounted for at fair value on a recurring basis with changes in fair value recognized in the statement of operations and comprehensive loss. Interest accrued on the convertible notes was recorded to interest expense during the periods in which the convertible notes were outstanding.

Fair Value Measurements

Fair value is defined as the exchange price to sell an asset or transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value should be based on the assumptions market participants would use when pricing the asset or liability. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

Fair value measurements are classified and disclosed in one of the following three categories:

Level 1 – Quoted unadjusted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.

The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to their short-term nature. The carrying amount of debt approximates fair value due to its variable interest rate.

Money market funds are highly liquid investments that are actively traded. The pricing information for the Company’s money market funds are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

The Company’s non-marketable equity securities (Note 5) are measured at fair value using an option pricing valuation methodology. The option pricing methodology relies on risk-neutral valuation which calculates the value of an asset by discounting the expected value of its future payoffs at the risk-free rate of return. The fair value of the non-marketable equity securities is derived from quoted prices for similar instruments and observable inputs in active markets. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between Levels 1, 2, or 3 for any of the periods presented. As of December 31, 2021 and 2020, the Company held $73.8 million and $52.3 million, respectively, in money market funds with no unrealized gains or losses.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from Accounting Standards Codification (ASC) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance became effective for the Company beginning on the first quarter of 2021 on a prospective basis. The Company adopted this

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standard on January 1, 2021, and it did not have a material impact on the Company's financial statements or related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees (for example, service providers, external legal counsel, suppliers, etc.). This includes allowing for the measurement of awards at the grant date and recognition of awards with performance conditions when those conditions are probable, both of which are earlier than under current guidance for nonemployee awards. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This standard modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The Company adopted this standard as of January 1, 2020 on a retrospective basis. The adoption of this standard did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), subsequently amended by ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01 and ASU 2019-10, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees of a contract. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification on the balance sheets. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. The Company adopted the prospective approach as of January 1, 2022. Additionally, the Company intends to use the package of available practical expedients, which allows it to (i) not reassess whether any expired or existing contracts are or contain leases; (ii) not reassess the lease classification for expired or existing leases; and (iii) not reassess the treatment of initial direct costs for any existing leases. The Company also has elected the practical expedient to not separate lease and non-lease components for all leases. The Company has substantially completed its evaluation of the effect that the adoption of this guidance will have on its financial statements. In connection with the adoption of the new guidance, the Company expects to recognize lease liabilities of approximately $9.0 million and right-of-use assets of approximately $7.0 million for operating leases, with immaterial impact to its statements of operations and cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In response to concerns about structural risks of the cessation of London Interbank Offered Rate (LIBOR), the amendments in this ASU provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this amendment do not apply to contract modifications made and hedge relationships entered into or evaluated after December 31, 2022. The amendments in this ASU are elective and are effective for all entities as of March 12, 2020 through December 31, 2022. The Company continues to evaluate contractual arrangements that reference LIBOR.

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In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This standard simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. ASU 2020-06 is effective for the Company for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.

3. OTHER FINANCIAL STATEMENT INFORMATION

Prepaid Expense and Other Current Assets

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

December 31,

Prepaid contract costs 320 —

Prepaid follow-on financing costs 275 —

Prepaid recruiting fees 253 —

Prepaid rent 219 —

Prepaid audit fees 123 —

Receivables from exercise of options — 52

Total prepaid expenses and other current assets $ 2,863 $ 557

Accrued Expenses and Other Current Liabilities

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

December 31,

Accrued development milestone $ 2,000 $ —

Related party payable 1,022 —

Accrued legal fees 457 —

Accrued research and development contract costs 364 —

Accrued consulting fees 341 —

Accrued expenses and other 286 130

Total accrued expenses and other current liabilities $ 5,928 $ 535

Related party payable represents amounts due to Ares Trading S.A. (Ares), an affiliate of Merck KGaA, Darmstadt, Germany, related to manufacturing technology and know-how transfer services performed for atacicept pursuant to the license agreement between the Company and Ares (see Note 12).

4. NEUBASE ASSET SALE

On January 27, 2021, the Company entered into an asset purchase agreement with NeuBase Therapeutics, Inc. (NeuBase), whereby the Company agreed to sell all assets relating to its investment in PNAi, including all inventory, machinery, intellectual property, goodwill, and licenses, and NeuBase agreed to assume certain related liabilities. The sale of the Company’s investment in PNAi closed on April 26, 2021. The Company received $0.8 million in cash and 308,635 shares of NeuBase common stock, with a fair market value of $1.8 million based on the closing price reported on the Nasdaq Capital Market on the date the sale closed. Of the total NeuBase shares issued to the Company, 162,260 were placed in escrow to secure certain obligations under the asset purchase agreement. In

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connection with the sale, the Company also assigned certain leases for research and laboratory equipment to NeuBase (see Note 14). The Company recognized a gain of $2.7 million on the sale of assets to NeuBase.

As of December 31, 2021, there were 54,070 shares eligible for release from escrow. Per the terms of the agreement, the shares may be released from escrow upon the execution of a joint instruction letter.

5. NON-MARKETABLE EQUITY SECURITIES

The Company has an investment in NeuBase common stock with restrictions on the sale or transfer of the shares. Fair value is determined using alternative pricing sources and models utilizing market observable inputs. The Company reports the restricted equity securities as non-marketable equity securities on the balance sheet, and determines current or non-current classification based on the expected duration of the restriction.

The Company recorded a net unrealized loss of $0.9 million in other expense for the year ended December 31, 2021. The carrying value is measured as the total initial cost, less the cumulative net unrealized loss. The carrying value of the non-marketable equity securities as of December 31, 2021, is summarized below (in thousands).

Change in fair value (892 )

6. NOTE PAYABLE

Note payable consists of the following:

Rate Type Maturity Effective Interest Rate December 31,2021

(in thousands)

Less: Debt issuance costs (77 )

Net carrying amount of debt $ 4,923

The carrying amount of debt approximates fair value due to its variable interest rate. The Company did not have any outstanding debt as of December 31, 2020.

In December 2021, the Company entered into a loan and security agreement (the Loan Agreement) for a non-revolving credit facility with borrowing capacity of up to $50.0 million. An initial $5.0 million (the Loan) was funded in December 2021, and an additional $45.0 million will be available in minimum draws of $5.0 million, at the Company’s option through the end of 2022. The Loan matures in December 2026, which may be extended by 12 months subject to certain clinical data milestones. The debt facility provides for at least 48-months of interest-only payments, which may be extended to 60 months if the final maturity date is extended. Initially, the Loan bears interest at 8.25%, with a floating interest rate tied to LIBOR. The Company is permitted to prepay the loan, subject to certain conditions. Upon the maturity date or prepayment of the Loan, the Company is required to make a final payment equal to 5.0% (or 7.0% if the maturity date is extended) of the aggregate principal amount of the Loan. The Loan Agreement contains a subjective acceleration clause in the case of an event of default. If such a matter occurs and is continuing, the lender may legally demand the outstanding principal and interest immediately due and payable. There are no financial covenants associated with the credit facility and the Loan is secured by the Company’s assets.

Principal installments due on the note subsequent to December 31, 2021 are as follows (in thousands):

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Total accrued expenses and other current liabilities $ 5,000

7. CONVERTIBLE NOTES

In March 2020, the Company issued convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $5.0 million in the aggregate with a fixed accrued interest rate of 4% per annum. The convertible notes were either due on or after December 31, 2020, or upon a change of control of the Company, unless earlier converted. No principal or interest was payable prior to maturity as the convertible notes and any accrued interest would automatically convert upon a qualified financing event at a conversion price equal to 85% of the price per share of the qualified financing. Holders also had the option to convert their notes to shares of Series B redeemable convertible stock at a conversion price equal to $4.2926 per share on the maturity date or upon a change of control of the Company, if no qualified financing occurred prior to such date.

Due to certain embedded features within the convertible notes, the Company elected to account for the convertible notes under the fair value option.

In April and May 2020, the Company issued additional convertible notes to certain existing investors of the Company for cash. The principal amount of the convertible notes was $0.6 million in the aggregate with the same terms as the convertible notes issued in March 2020.

In October 2020, the outstanding principal and accrued interest of $0.1 million, were automatically converted into 11,404,246 shares of the Company’s Series C redeemable convertible preferred stock in connection with the closing of the Company’s Series C redeemable convertible preferred stock financing (see Note 8) at a conversion price of $0.5030 per share, which was 85% of the $0.5918 original issuance price of the Series C redeemable convertible preferred stock.

8. REDEEMABLE CONVERTIBLE PREFERRED STOCK

As of December 31, 2020, the Company’s redeemable convertible preferred stock consisted of the following balances.

(in thousands) (in thousands)

In October 2020, the Company issued 135,180,800 shares of Series C redeemable convertible preferred stock for a purchase price of $0.5918 per share, payable in cash. Gross proceeds to the Company were $80.0 million. The Series C redeemable convertible preferred stock financing triggered the automatic conversion of the Company’s outstanding convertible notes into 11,404,246 shares of Series C redeemable convertible preferred stock based on price of $0.5030 per share (85% of the $0.5918 original issuance price of the Series C redeemable convertible preferred stock). In addition, the Company issued 22,171,553 shares of Series C redeemable convertible preferred stock to Ares as the initial payment for the Company’s license of atacicept from Ares (see Note 12).

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In May 2021, immediately prior to the completion of the IPO (see Note 1), all outstanding shares of redeemable convertible preferred stock were automatically converted into 15,774,014 shares of common stock.

9. COMMON STOCK

As of December 31, 2021, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 500,000,000 shares of Class A common stock and 14,600,000 shares of Class B common stock, each with a par value of $0.001 per share. Each share of Class A common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Class B common stock is non-voting. The holders of Class A common stock, voting exclusively and as a separate class, have the exclusive right to vote for the election of one director of the Company. Class A common stockholders and holders of Class B common stock are entitled to receive dividends, as may be declared by the board of directors. Through December 31, 2021, no cash dividends have been declared or paid.

10. STOCK COMPENSATION

In April 2021, the Company adopted the 2021 Employee Stock Purchase Plan (ESPP) and the 2021 Equity Incentive Plan (2021 EIP), each of which became effective in connection with the IPO. The Company has reserved 220,251 and 2,213,773 shares of Class A common stock for future issuance under the ESPP and 2021 EIP, respectively.

The Company may not grant any additional awards under the 2017 Equity Incentive Plan (2017 EIP). The 2017 EIP will continue to govern outstanding equity awards granted thereunder. As of December 31, 2021, there were 1,403,096 shares available for issuance under the 2021 EIP.

2017 EIP and 2021 EIP

Stock option activity under the 2017 EIP and 2021 EIP was as follows:

Cancelled and forfeited (3,095 ) 9.39

The aggregate intrinsic value of stock options exercised during the year ended December 31, 2021 was $0.2 million. The weighted-average grant date fair value of options granted during the year ended twelve months ended December 31, 2021 and 2020, was$9.36 per share and $2.24 per share, respectively.

ESPP

The ESPP enables eligible employees to purchase shares of the Company's common stock at the end of each offering period at a price equal to 85% of the fair market value of the shares on the first trading day or the last trading day of the offering period, whichever is lower. Eligible employees generally include all employees. Share purchases are funded through payroll deductions of at least 1% and up to 15% of an employee's eligible compensation for each payroll period. The number of shares reserved for issuance under the ESPP increase automatically on the first day of each fiscal year, beginning on January 1, 2022, by a number equal to the lesser of

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440,502 shares, 1% of the total number of shares of the Company's capital stock (including all classes of the Company's common stock) outstanding on the last day of the calendar month prior to the date of the increase, or such lower number of shares (including no shares) approved by the Company's board of directors. As of December 31, 2021, no shares have been issued pursuant to the ESPP. The ESPP generally provides for six-month consecutive offering periods beginning on September 14, 2021. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. As such, stock-based compensation expense has been recorded for the year ended December 31, 2021.

Stock-Based Compensation Expense

The following tables summarize the stock-based compensation expense for stock options and restricted stock awards granted to employees and nonemployees that was recorded in the Company’s statements of operations and comprehensive loss for the year ended December 31, 2021 and 2020 (in thousands).

Year Ended December 31,

Research and development $ 915 $ 4

General and administrative 2,097 327

Total stock-based compensation expense $ 3,012 $ 331

Year Ended December 31,

Total stock-based compensation expense $ 3,012 $ 331

As of December 31, 2021, the Company had $11.8 millionof unrecognized stock-based compensation expense related to unvested stock options and restricted stock awards, which is expected to be recognized over a weighted-average period of approximately 2.92 years.

The fair value of stock options granted during the year ended December 31, 2021 and 2020 was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions.

Year Ended December 31,

Expected term (in years) 5.5 – 6.1 5.5 – 6.1

Dividend yield — —

Restricted Stock Awards

In October 2020, in conjunction with the Series C redeemable convertible preferred stock issuance, the Company restricted 49,636 shares of fully issued and outstanding Class A common stock held by the Company’s Chief Executive Officer and founder. The restriction allows the Company to repurchase shares that have not vested. The vesting term of restricted stock is one year. The grant date fair value of the restricted shares was $6.37.

The following table summarizes the activity for the Company’s restricted stock for the year ended December 31, 2021.

NUMBER OF SHARES

Unvested as of December 31, 2021 —

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For the year ended December 31, 2021, the Company recognized $0.3 million of stock-based compensation expense related to restricted stock awards that vested during the period.

11. EMPLOYEE BENEFIT PLANS

The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contribute a portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. There were no employer contributions under this plan for the year ended December 31, 2021.

12. LICENSES AND COLLABORATIONS

Ares Trading S.A.

In October 2020, the Company entered into a license agreement with Ares (the Ares Agreement), pursuant to which the Company obtained an exclusive worldwide license to certain patents and related know-how to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases.

As consideration for the Ares Agreement, the Company issued to Ares a non-refundable license issue fee of 22,171,553 shares of Series C redeemable convertible preferred stock resulting in Ares becoming a related party to the Company. The Series C redeemable convertible preferred stock had a deemed issuance price of $0.5918 per share, or $13.1 million in the aggregate.

In December 2020, the Company paid Ares $25.0 million in milestone payments upon delivery and initiation of the transfer of specified information and materials. The Company is obligated to pay Ares aggregate milestone payments of up to $176.5 million upon the achievement of specified BLA filing or regulatory approval milestones and up to $515.0 million upon the achievement of specified commercial milestones.

The non-refundable license issue fee of $13.1 million and milestone payments of $25.0 million were recorded to research and development expense.

Ares is performing manufacturing technology and know-how transfer to the Company over a period not to exceed two years from the effective date of the Ares Agreement. The Company recorded related party expense of $1.7 million to Aresfor these services during the year ended December 31, 2021.

Commencing on the first commercial sale of licensed products, the Company is obligated to pay Ares tiered royalties of low double-digit to mid-teen percentages on annual net sales of the licensed products covered by the license. The Company is obligated to pay royalties on a licensed product-by- licensed product and country-by-country basis from the first commercial sale of a product in a country until the latest of (i) 15 years after the first commercial sale of such licensed product in such country; (ii) the expiration of the last valid claim of a licensed patent that covers such licensed product in, or its use, importation or manufacture with respect to, such country; and (iii) expiration of all applicable regulatory exclusivity periods, including data exclusivity, in such country with respect to such product. If the Company were to sublicense its rights under the Ares Agreement, the Company is obligated to pay Ares a percentage ranging from the mid- single-digit to the low double-digits of specified sublicensing income received.

Amplyx Pharmaceuticals Inc.

In December 2021, the Company entered into an asset purchase agreement (the Amplyx Agreement) with Amplyx Pharmaceuticals Inc. (Amplyx), a wholly owned subsidiary of Pfizer. Pursuant to the terms of the Amplyx Agreement, the Company paid $5.0 million to Amplyx to purchase assets relating to an anti-BKV monoclonal antibody referred to as MAU868 for the treatment of BKV infection pursuant to a License Agreement between Amplyx and Novartis International Pharmaceutical AG (Novartis"). In addition, the Company has recognized a $2.0 million contingent milestone obligation that is probable of achievement as an assumed liability related to the asset purchase.

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The transaction was treated as an asset acquisition as the assets acquired did not meet the definition of a business. ASC 805-10-55 states that if substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. Since the gross assets acquired are concentrated on a single identifiable asset, MAU868, the transaction was accounted for as an asset acquisition. In accordance with accounting guidance, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use. The assets purchased from Amplyx require substantial completion of research and development, regulatory and marketing approval efforts in order to reach technological feasibility. Accordingly, the acquisition cost of $7.0 million was recorded as research and development expense in the statement of operations for the year ended December 31, 2021.

In connection with the Amplyx asset purchase, Amplyx assigned the Exclusive License Agreement between Amplyx and Novartis (the Novartis License) and Manufacturing and Supply Agreements to the Company. Under the Novartis License Agreement, the Company has exclusive worldwide rights from Novartis to develop, manufacture and commercialize MAU868. The Company will be solely responsible for all research, development, regulatory, manufacturing and commercialization activities of MAU868.

Under the Amplyx Agreement, the Company is obligated to make future milestone payments to Amplyx and Novartis totaling up to approximately $76.0 million, contingent upon the achievement of various clinical development and regulatory milestones. Of this total, the Company has recognized $2.0 million of future milestone payments to Novartis as assumed liabilities upon acquisition. In the event that MAU868 is commercialized, the Company is obligated to pay to Amplyx and Novartis royalties based on net sales by country and by product.

13. INCOME TAXES

For financial reporting purposes, income (loss) before provision for income taxes, includes the following components (in thousands):

December 31,

Foreign — —

Provision for Income Taxes

The provision for income taxes consisted of the following (in thousands).

December 31,

Current:

Federal $ — $ —

Total current 1 1

Total deferred — —

Provision for income taxes $ 1 $ 1

A reconciliation of the provision for income taxes computed using the U.S. statutory federal income tax rate compared to the income tax provision included in the statement of operations and comprehensive loss is as follows (in thousands).

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December 31,

Tax on U.S. statutory rate on income before income taxes $ (6,847 ) $ (11,217 )

State valuation allowance 5,405 —

Tax credits — 122

Provision for income taxes $ 1 $ 1

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are determined based on the differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The significant components of the Company’s net deferred tax assets and liabilities are as follows (in thousands).

December 31,

Deferred tax assets:

Federal and state NOL carryforward $ 17,469 $ 9,681

Stock based compensation 535 119

Total deferred tax assets — —

Deferred tax liabilities — —

Net deferred tax assets $ — $ —

As of December 31, 2021, the Company has federal and state net operating loss carryforwards of $67.8 million and $35.7 million, respectively, of which $0.1 million of federal net operating loss carryforwards and $0.3 million of state net operating carryforwards will begin expiring in the year 2032 and 2036, respectively, if not utilized. The Company also has $57.6 million of federal net operating loss carryforwards as of December 31, 2021 that does not expire as a result of recent tax law changes. The Company has $2.4 million and $0.9 million of federal and state research and development tax credit carryforwards, which will begin to expire in the year of 2037 and 2032, respectively.

Utilization of the federal and state net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company has not performed an analysis to determine if such ownership changes have occurred. An analysis will be performed prior to recognizing the benefits of any losses or credits in the financial statements.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on the weight of all evidence including a history of operating losses, management has determined that it is not more likely than not that the net deferred tax assets will be realized. A valuation allowance of $34.5 million and $21.1 million for the year ended December 31, 2021 and 2020 has been established to offset the deferred tax assets as realization of such assets is uncertain.

Uncertain Tax Benefits

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The Company has the following activity relating to the gross amount of unrecognized tax benefits (in thousands):

Year Ended December 31,

Additions based on tax positions related to prior year — 19

Decreases based on tax positions related to prior year (97 ) (120 )

Additions based on tax positions related to current year 102 113

None of these uncertain tax positions will impact the Company's effective tax rate if assessed. The Company's policy is to classify interest and penalties associated with unrecognized tax benefits as income tax expense. The Company had no interest or penalty accruals associated with uncertain tax benefits in its balance sheet and statement of operations for the years ended December 31, 2021 and 2020. The Company files income tax returns in the U.S. and California. The Company is not currently under examination by any major tax jurisdictions nor has it been in the past. Because of net operating losses and research credit carryovers, substantially all of our tax years remain open to examination. Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.

The Company accounts for income taxes in accordance with authoritative accounting guidance which states the impact of an uncertain income tax position is recognized at the largest amount that is “more likely than not” to be sustained upon audit by the relevant taxing authority. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of December 31, 2021 and 2020, the Company had no material unrecognized tax benefits. No significant interest or penalties were recorded during the years ended December 31, 2021 and 2020.

14. COMMITMENTS AND CONTINGENCIES

The aggregate future minimum lease payments for operating leases as of December 31, 2021, are as follows (in thousands).

OperatingLeases (1) SubleaseIncome

(1)

Future minimum lease payments include repayment of outstanding restructuring liabilities.

Facilities Leases

In April 2015, PNAi entered a lease for approximately 3,800 square feet of office and laboratory space for a term of 39 months in Woburn, Massachusetts. In January 2018, the Company elected to renew this lease for three years, beginning in August 2018. This lease expired in July 2021.

In April 2018, the Company entered into the South San Francisco lease for approximately 24,606 square feet of office and life science research space, which commenced on October 1, 2018, when the Company obtained control of the rented space for a term of 84 months. In connection with the South San Francisco Lease, the Company

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maintains a letter of credit issued to the lessor in the amount of $0.3 million, which is secured by restricted cash that is classified as noncurrent based on the term of the underlying lease.

The Company’s total future minimum commitment due pursuant to the South San Francisco Lease is $9.3 million as of December 31, 2021. In November 2020, the Company entered into a non-cancellable sublease agreement for the facility, under the terms of which the Company is entitled to receive $7,925 in sublease payments over the term of the sublease, which ends concurrently with the original lease in September 2025. As tenant, the Company remains responsible for the $9.3 million minimum lease commitment on the facilities.

In November 2021, the Company entered a lease for approximately 4,900 square feet of office space for a term of 36 months in Brisbane, California. The base rent is approximately $0.3 million for the first year with scheduled annual 3% increases. The lease includes renewal options for the Company.

The Company recorded rent expense totaling $2.1 million and $24,000 for the years ended December 31, 2020 and 2021, respectively.

Equipment Lease

The Company had certain leases on research and laboratory equipment which were assigned to a certain third party as of December 31, 2021. The Company recorded equipment rent expense totaling $0.3 million for the year ended December 31, 2020. No equipment rent expense was recorded for the year ended December 31, 2021.

15. RESTRUCTURING AND RELATED ACTIVITIES

During the year ended December 31, 2019, the Company completely vacated its leased facilities in Woburn, Massachusetts. In connection with vacating the leased spaces, the Company recorded a discounted lease-related restructuring liability, which was calculated as the present value of the estimated future facility costs for which the Company would obtain no future economic benefit over the term of the lease, reduced for actual or estimated sublease rentals.

In July 2020, the Company initiated a restructuring plan to reduce operating expense as a result of the disposal of PNAi technology. The restructuring plan included reducing the number of employees, vacating leased facilities, and ceasing use of leased equipment.

As a result of this restructuring plan, the Company completely vacated its leased facilities in South San Francisco, California, which was subleased to a third party in November 2020, and returned certain leased equipment to the lessor. The Company recorded a discounted lease-related restructuring liability of $2.2 million and $0.8 million for the abandonment of the leased facilities and equipment, which was calculated as the present value of the estimated future lease costs for which the Company would obtain no future economic benefit over the term of the leases. In addition, the Company recognized restructuring liability of $0.3 million related to severance and other employee termination costs related to the reduction in the number of employees.

The activity related to the restructuring liabilities for the year ended December 31, 2021, is as follows (in thousands).

Lease - relatedexit costs Employeetermination Total

Lease assignment to NeuBase (136 ) — (136 )

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16. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following outstanding potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis).

Year Ended December 31,

Redeemable convertible preferred stock — 15,774,014

Class A common stock options issued and outstanding 2,924,521 1,855,507

Unvested restricted stock awards — 41,363

17. RELATED PARTY TRANSACTIONS

In October 2018, the Company entered into a sublease agreement for a portion of its South San Francisco office space, the term for which commenced on December 7, 2018. The Chief Executive Officer of the sublessor is a member of the Company’s board of directors. The initial sublease was established for approximately 400 square feet of space. Prior to the initial expiration of the sublease in April 2019, the space was expanded to approximately 3,700 square feet with the term of the lease extended for an additional two years. The monthly rent charged by the Company to the subtenant is subject to escalating rent payments according to the terms of the Company’s lease agreement, and the subtenant is required to reimburse the Company for monthly facility operating expenses based on its proportionate share of total square footage pursuant to the lease. The Company’s lease agreement provides that 50% of any profit resulting from the excess of the amount collected from the subtenant less the sum of monthly rent, operating expenses and reimbursement of direct expenditures made by the Company in order to arrange and maintain the sublease is to be shared with the lessor. To date, no profit has been realized on the sublease arrangement as the monthly collections from the subtenant are equivalent to the Company’s cost of rent, operating expense and recovery of professional fees to arrange the sublease. In June 2020, the sublease agreement was terminated. During the year ended December 31, 2020, the Company recognized $0.2 million of sublease income under this agreement, which was recorded as a reduction to the Company’s rent expense.

In October 2020, the Company entered into the Ares Agreement with Ares, pursuant to which the Company obtained an exclusive worldwide license to certain patents and related know-how to research, develop, manufacture, use and commercialize therapeutic products containing atacicept, a recombinant fusion protein used to inhibit B cell growth and differentiation, which could potentially treat some autoimmune diseases (See Note 3 and Note 12).

18. SUBSEQUENT EVENT

On February 14, 2022, the Company completed a follow-on public offering pursuant to which the Company issued and sold 5,742,026 shares of its Class A common stock at an offering price of $15.00 per share, including 748,959 shares of Class A common stock to underwriters to exercise the underwriters' option to purchase additional shares. On February 9, 2022, the Company's registration statement on Form S-1 for a public offering was declared effective by the SEC. The Company received total net proceeds of approximately $80.2 million, after deducting underwriting discounts and commissions of $5.2 million, and offering costs of approximately $0.8 million, of which $0.3 million was incurred as of December 31, 2021.

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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 chief executive officer (CEO) and chief financial officer (CFO), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon such evaluation, our CEO and CFO concluded that, as of December 31, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

In connection with the audit of our financial statements as of and for the years ended December 31, 2019 and 2020, we identified a material weakness in internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We did not have sufficient qualified personnel within our accounting function to adequately segregate duties, to perform sufficient reviews and approval of manual journal entries posted to the general ledger and to consistently execute review procedures over general ledger account reconciliations, financial statement preparation and accounting for non-routine transactions.

To remedy this material weakness, during the year ended December 31, 2021, we:

In connection with the review of disclosure controls and procedures as of December 31, 2021, management concluded that the previously identified material weakness had been remediated.

Changes in Internal Control over Financial Reporting

Other than the changes in connection with the remediation of our previously disclosed material weakness, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

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The Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.