Septerna, Inc. (SEPN) FY 2024 MD&A

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this Annual Report. This discussion and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors including, but not limited to, those set forth under the section titled “Risk Factors” and elsewhere in this Annual Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and you should carefully read the section titled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a biotechnology company pioneering a new era of G protein-coupled receptor (“GPCR”) oral small molecule drug discovery powered by our proprietary Native Complex Platform™. Our industrial-scale platform aims to unlock the full potential of GPCR therapies and has led to the discovery and development of our deep pipeline of product candidates focused initially on treating patients in three therapeutic areas: endocrinology, immunology and inflammation, and metabolic diseases.

Our proprietary Native Complex Platform™ replicates the natural structure, function, and dynamics of GPCRs outside of cells at an industrial scale for, as we believe it, the first time. Our foundational technologies enable us to isolate, purify, and reconstitute full-length, properly folded GPCR proteins within ternary complexes with ligands and transducer proteins in a lipid bilayer that mimics the cell membrane. We then apply state-of-the-art discovery tools and technologies to these defined and tunable protein complexes to structurally design, screen for, and optimize potential product candidates. Leveraging our platform, we conduct GPCR oral small molecule drug discovery using an industrialized and iterative structure-based drug design approach for a diverse collection of GPCR targets. Our Native Complex Platform™ is designed to enable us to target specific GPCRs, uncover novel binding pockets for validated receptors, and pursue a wide spectrum of pharmacologies, including agonists (which activate GPCR signaling), antagonists (which inhibit GPCR signaling), and allosteric modulators (which either increase or decrease the degree of GPCR activation by endogenous ligands), to affect GPCR signaling in different ways to achieve desired therapeutic effects.

We are advancing a deep portfolio of oral small molecule GPCR-targeted programs with novel mechanistic approaches to treat diseases across multiple therapeutic areas for patients with significant unmet needs. Our wholly-owned pipeline, summarized in the figure below, is focused initially on three therapeutic areas: endocrinology, immunology and inflammation, and metabolic diseases.

Financial Overview

We were incorporated in Delaware in December 2019 under the name GPCR NewCo, Inc. In June 2021, we changed our name to Septerna, Inc. We are headquartered in South San Francisco, California.

We have incurred significant operating losses since our inception, except for the year ended December 31, 2023, when we recorded net income of $4.2 million, resulting from the gain on sale of non-financial asset of $47.6 million for the sale of an in-progress research and development (“IPR&D”) asset related to a GPCR program. Our revenue to date has been generated solely from

104

research services. Since our founding, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our proprietary and structure-based drug discovery platform, identifying and discovering our product candidates, establishing our intellectual property portfolio, conducting research and preclinical studies, including investigational new drug(“IND”)-enabling studies, initiating and conducting clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We have not had any products approved for sale and have not generated any revenue from product sales. Further, we do not expect to generate revenue from commercial product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one or more of our product candidates. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates.

Our net loss was $71.8 million for the year ended December 31, 2024 compared to net income of $4.2 million for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of $118.4 million. We have incurred net losses in each year since inception, except for the year ended December 31, 2023. We expect to continue to incur net losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing and expenditures of our operational activities.

We expect to continue to incur significant and increasing net operating losses for the next several years as we:

•
continue to advance our product candidates through preclinical studies and into clinical trials;

•
attract, hire and retain additional personnel;

•
operate as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services;

•
continue our research and development efforts and expand our pipeline of product candidates;

•
acquire, discover, validate, and develop additional product candidates;

•
require the manufacture of supplies for our preclinical studies and clinical trials;

•
obtain, maintain, expand, and protect our intellectual property portfolio;

•
implement operational, financial and information management systems;

•
make royalty, milestone or other payments under any future, license or collaboration agreements;

•
potentially seek to identify, assess, acquire, or in-license or develop new technologies or additional product candidates;

•
potentially experience any delays, challenges, or other issues associated with the clinical development of our product candidates, including with respect to our regulatory strategies;

•
pursue regulatory approval of product candidates that successfully complete clinical trials; and

•
establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out.

Our net losses may fluctuate significantly from period to period, depending upon the timing of our expenditures on research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued expenses and other current liabilities, which includes accrued research and development, in the statements of cash flows in our audited financial statements included elsewhere in this Annual Report.

As a result, we will require substantial additional funding to further develop our product candidates and support our continuing operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. See the section titled “Liquidity and Capital Resources - Future Funding Requirements” below for additional information.

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and, most recently, through an initial public offering (“IPO”). In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of our common stock (inclusive of an additional 2.4 million shares of our common stock issued and sold pursuant to the underwriters' exercise of their option to purchase additional shares in full). The

105

aggregate net proceeds received by us from the IPO was $302.8 million, after deducting underwriting discounts and commissions, and other offering costs of $28.4 million.

Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our company, business and scientific planning, conducting discovery and research and development activities, establishing and protecting our intellectual property portfolio, developing and progressing our product candidates and preparing for clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and component materials, engaging in collaboration activities, and providing general and administrative support for these operations.

We believe our cash, cash equivalents, and marketable securities of $420.8 million as of December 31, 2024 will be sufficient to fund our operations and capital expenditure requirements into early 2028.

We use contract research and development organizations to conduct our preclinical works and clinical trials. Additionally, we utilize third-party contract manufacturing organizations (“CMOs”), to manufacture and supply our preclinical and clinical materials during the development of our product candidates. We expect to use similar contract resources for the commercialization of our products, at least until our resources and operations are at a scale that justifies investment in internal manufacturing capabilities.

Vertex Asset Purchase and Service Agreements

Asset Purchase Agreement

In September 2023, we entered into an asset purchase agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) for a total of $47.6 million under which Vertex acquired all of our IPR&D asset related to a GPCR program, including all intellectual property, materials, and compounds associated with the program (“Vertex purchase agreement”). Of the $47.6 million, $25.0 million was received in cash in September 2023 and the remainder during the year ended December 31, 2024. Additionally, as part of the agreement, Vertex assumed all claims, counterclaims and credits associated with the program, and we gave up all rights to the intellectual property. The transfer of the IPR&D asset to Vertex was completed in November 2023 and we recognized $47.6 million of gain on sale of non-financial asset for the year ended December 31, 2023 in our result of operations.

At the same time in September 2023, we entered into a research service agreement with Vertex under which we agreed to perform certain exploratory research activities for Vertex. See the subsection titled “—Service Agreement” below.

The Vertex purchase agreement also provides for a potential milestone payment payable to us contingent upon achievement of a certain research milestone. The milestone payment amount is determined based on the timing of achievement of the research milestone. The variable consideration related to this milestone payment was determined to be improbable of receipt at this time. As a result, the milestone payment was excluded from the transaction price. After the potential milestone payment, we will not receive any other payments or future royalties related to this IPR&D asset.

Service Agreement

In addition to the Vertex purchase agreement, we also entered into a research service agreement with Vertex (“Vertex service agreement”) under which we agreed to perform certain exploratory research activities for Vertex. The Vertex service agreement is for a two-year term, however, Vertex has the ability to terminate the agreement with a 30-day notice at any time. As a result, we concluded that the contract duration is 30 days, representing a month-to-month service contract. We recognize revenue associated with the Vertex service agreement over the performance period of the research services as the services are provided.

Components of Results of Operations

Revenue

We have not generated any revenue from product sales and do not expect to do so in the foreseeable future. Our ability to generate product revenue, if ever, will depend on the successful development and eventual commercialization of any product candidates that we identify. If we fail to complete the development of any future product candidates in a timely manner or to obtain regulatory approval for such product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected. Our revenues to date have been exclusively related to research services. We recognize revenue as specified research services are performed and the results of the research and development services are provided to the customer.

106

Operating Expenses

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Research and Development

Research and development expenses account for the largest component of our total operating expenses. Research and development expenses consist primarily of direct and unallocated costs incurred for the research and development of our product candidates.

Our research and development expenses consist of:

•
Direct costs, including:

▪
preclinical and research program costs, which include external research and development costs related to (i) the production of preclinical materials, including fees and milestones paid to contract manufacturers and (ii) agreements with contract development organizations, consultants and other third-party contract organizations to conduct our preclinical studies and other research and development activities on our behalf, costs incurred in connection with laboratory operations, materials and supplies, and other preclinical studies;

▪
clinical program costs, which include external costs to conduct clinical trials, including costs paid to contract research organizations (“CROs”), the production of clinical materials and fees paid to contract manufacturers, costs incurred in connection with clinical laboratory operations, materials and supplies; and

•
unallocated costs, including:

▪
payroll-related costs, including salaries, benefits and stock-based compensation for employees engaged in research and development activities;

▪
external research and development costs, including contract research and development and professional service fees for consulting and related services;

▪
facility-related and office costs, including lease/rent, building-related expenses, facility-related overhead, and depreciation expense; and

▪
other costs, including expenses related to our funded, sponsored research activities and technology licenses, laboratory operations, information technology (“IT”)-related expenses.

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

A significant portion of our research and development costs have been external costs, which we track by stage of development. However, we do not track our unallocated costs on a program specific basis because these costs are deployed across multiple projects and, as such, are not separately classified.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We expect that our research and development expenses will increase substantially in absolute dollars for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, and as we incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing product candidates, many of which are outside of our control, including the uncertainty of:

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

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

•
our ability to maintain our current research and development programs and to establish new ones;

•
establishing an appropriate safety profile with IND-enabling studies;

•
the number of sites and patients included in the clinical trials;

107

•
the countries in which the clinical trials are conducted;

•
per patient trial costs;

•
successful patient enrollment in, and the initiation of, clinical trials, as well as drop out or discontinuation rates;

•
the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (the “FDA”), European Medicines Agency (“EMA”), or any other comparable foreign regulatory authorities;

•
the number of trials required for regulatory approval;

•
the timing, receipt and terms of any regulatory approvals from applicable regulatory authorities;

•
our ability to establish collaboration arrangements;

•
the performance of any future collaborators;

•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

•
significant and changing government regulation and regulatory guidance;

•
the impact of any business interruptions to our operations or to those of the third parties with whom we work;

•
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

•
launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and

•
maintaining a continued acceptable safety profile of the product candidates following approval.

Any changes in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our product candidates. For example, if the FDA, EMA or any other comparable foreign regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may never obtain regulatory approval for any of our product candidates.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, costs related to maintenance and filing of intellectual property, legal fees related to corporate matters, professional fees paid for accounting, auditing, consulting, tax and investor relations services, insurance costs, general corporate expenses, and IT-related and facility-related costs not otherwise included in research and development expenses. Personnel-related costs include salaries, benefits, and stock-based compensation for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions.

We expect that our general and administrative expenses will increase substantially in absolute dollars for the foreseeable future as we continue to increase our headcount to support our business growth. We also anticipate that we will incur increased expenses as a result of our operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and expenses related to audit, legal, regulatory services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

108

Other Income, Net

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and marketable securities during the period.

Other Income (Expense), Net

Other income (expense), net consists primarily of changes in the fair value of our cash equivalents held in money market funds, loss on disposal of our fixed assets and foreign currency transaction gain or loss.

Benefit (Provision) for Income Taxes

We are subject to corporate United States federal and state income taxation. Our provision (benefit) for income taxes are recorded in accordance with Accounting Standard Codification (“ASC”) 740, Accounting for Income Taxes, which provides for deferred taxes using an asset and liability approach. We establish a valuation allowance against all of our net deferred tax assets. We consider all available evidence, both positive and negative, including but not limited to our historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings (losses), future taxable income (loss), and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized.

Results of Operations

The following table sets forth our results of operations for the years ended December 31, 2024 and 2023:

Revenue

Our service revenue of $1.1 million and $0.2 million for the year ended December 31, 2024 and 2023, respectively, was generated from research activities performed for Vertex in connection with the Vertex service agreement.

109

Operating Expenses (Income)

Research and Development

The following table summarizes our research and development expenses for the periods indicated by direct and unallocated costs (in thousands):

Research and development expense was $65.3 million and $36.0 million for the years ended December 31, 2024 and 2023, respectively. The increase of $29.4 million was primarily due to (i) $10.0 million of higher expenses attributable to unallocated external research and development costs, (ii) $7.4 million of higher direct costs associated with our SEP-786 clinical, preclinical and research program, including $2.4 million of clinical trial expenses, (iii) $5.4 million of higher employee-related costs as a result of increased headcount as we grow our business, (iv) $3.2 million of higher facility-related and office costs as we expanded our office space to accommodate higher occupancy and larger operational activities, and (v) an increase of $1.7 million in other research and development expense, primarily driven by higher IT operational expenses. The SEP-786 clinical study was discontinued in February 2025 and we do not anticipate incurring significant additional clinical trial costs associated with that study. We expect to continue to incur increased research and development expenses as we advance next-generation oral small molecule PTH1R agonists from our PTH1R program toward clinical development, advance SEP-631 into clinical development, and continue to advance other programs in our pipeline.

General and Administrative

General and administrative expenses were $16.6 million and $9.7 million for the years ended December 31, 2024 and 2023, respectively. The increase of $6.8 million was primarily due to (i) $2.3 million of higher consulting, audit and accounting-related fees, and $0.9 million higher legal fees, mainly attributable to costs associated with becoming a public company and ongoing operations as a public company following our IPO in October 2024, (ii) $2.4 million of higher employee-related costs as a result of increased headcount to support our growing operations, (iii) $0.5 million of higher facility-related and office costs as we expanded our office space to accommodate higher occupancy and larger operational activities, and (iv) $0.4 million increase in corporate development expenses primarily attributable to higher public and investor relations costs associated with our transition to and operations as a public company following our IPO.

Gain on Sale of Non-Financial Asset

Gain on sale of non-financial asset of $47.6 million was attributable to the sale of our IPR&D asset related to a GPCR program to Vertex during the year ended December 31, 2023. No gain on sale of non-financial asset was recorded during the year ended December 31, 2024.

Other Income, Net

Interest Income

Interest income was $8.6 million and $2.8 million for the years ended December 31, 2024 and 2023, respectively. The increase was due to higher interest rates and higher balances of invested cash in cash equivalents and marketable securities.

110

(Benefit) Provision for Income Taxes

We recognized $0.5 million of benefit for income taxes for the year ended December 31, 2024. Provision for income taxes of $0.7 million for the year ended December 31, 2023 was primarily due to the gain on sale of non-financial asset, which resulted in net income.

Liquidity and Capital Resources

Sources of Liquidity

Our net loss was $71.8 million for the year ended December 31, 2024 compared to $4.2 million of net income for the year ended December 31, 2023. As of December 31, 2024, we had an accumulated deficit of $118.4 million. We have incurred net losses in each year since inception, except for the year ended December 31, 2023. During the year ended December 31, 2023, we recorded a gain on sale of non-financial asset of $47.6 million for the sale of an IPR&D asset related to a GPCR program and $0.2 million in revenue related to research services. Of the $47.6 million gain on sale of non-financial asset, $25.0 million was received in cash in September 2023 and the remainder during the year ended December 31, 2024. We expect to continue to incur net losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing and expenditures of our operational activities.

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. Additionally, during the year ended December 31, 2023, we recorded a gain on sale of non-financial asset of $47.6 million for the sale of an IPR&D asset related to a GPCR program and $0.2 million in revenue related to research services resulting in net income of $4.2 million. Of the $47.6 million gain on sale of non-financial asset, $25.0 million was received in cash at the closing of the Vertex purchase agreement in September 2023 and the remainder during the year ended December 31, 2024. In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of common stock (inclusive of 2.4 million shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares). The aggregate net proceeds received by us from the IPO was $302.8 million, after deducting underwriting discounts and commissions, and other offering costs payable by us of $28.4 million. As of December 31 2024, we had $420.8 million in cash, cash equivalents, and marketable securities, which we believe will be sufficient to fund our operations and capital expenditure requirements into early 2028.

We do not have any off-balance sheet arrangements other than our indemnification agreements as described in Note 8 to our audited financial statements included elsewhere in this Annual Report.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

Net cash used in operating activities was $67.5 million for the years ended December 31, 2024. The net cash used in operating activities for the year ended December 31, 2024 was due to our net loss of $71.8 million, which was partially offset by (i) $4.1 million of non-cash charges for depreciation and amortization, stock-based compensation, non-cash operating lease expense, deferred income tax and accretion of premiums (discounts) on marketable securities, and (ii) $0.2 million of net change in operating assets and liabilities.

Net cash used in operating activities was $38.7 million for the years ended December 31, 2023. Net cash used in operating activities for the year ended December 31, 2023 was attributable to $47.6 million of non-cash adjustment related to gain on sale of non-financial asset, partially offset by (i) our net income of $4.2 million, (ii) $3.8 million of non-cash charges for depreciation and amortization, stock-based compensation, non-cash operating lease expense and deferred income tax, and (iii) $0.9 million of net change in operating assets and liabilities.

111

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities of $160.6 million for the year ended December 31, 2024 was due to $213.4 million of purchases of marketable securities and $2.1 million of purchases of property and equipment, partially offset by the receipt of the remaining $22.6 million from the sale of non-financial asset in 2023 and the maturity of $32.3 million of marketable securities.

Net cash provided by investing activities of $22.1 million for the year ended December 31, 2023 was due to $25.0 million proceeds from the sale of non-financial asset, partially offset by $2.9 million of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $377.8 million for the year ended December 31, 2024. Net cash provided by financing activities for the year ended December 31, 2024 was primarily due to $302.8 million of net proceeds from the issuance of our common stock in our IPO and $74.9 million of net proceeds from the sale and issuance of our Series B Convertible Preferred Stock.

Net cash provided by financing activities was $74.5 million for the year ended December 31, 2023. Net cash provided by financing activities for the year ended December 31, 2023 was primarily due to net proceeds from the sale and issuance of our Series B Convertible Preferred Stock.

Future Funding Requirements

Our primary use of cash is to fund our operations, primarily research and development expenditures. Cash used for operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•
the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

•
the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

•
the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

•
the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•
the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

•
our ability to establish additional collaborations on favorable terms, if at all;

•
the expenses required to scale up our clinical, regulatory and manufacturing capabilities;

•
the expenses of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and

•
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

112

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. In June 2023, we entered into a total of $150.0 million of Series B Convertible Preferred Stock financing, which was divided into two tranches of equal amounts. The first tranche, which was the issuance of $75.0 million of Series B Convertible Preferred Stock, was completed in June and July 2023 for total net proceeds of $74.5 million. The second tranche, which was the issuance of the remaining $75.0 million, was completed in May 2024 for net proceeds of $74.9 million. In October 2024, the we completed our IPO which resulted in net proceeds of $302.8 million, after deducting underwriting discounts, commissions and offering expenses payable by us of $28.4 million. Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our company, business and scientific planning, conducting discovery and research and development activities, establishing, maintaining, and protecting our intellectual property portfolio, developing and progressing our product candidates and preparing for clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and component materials, engaging in collaboration activities, and providing general and administrative support for these operations.

Critical Accounting Policies and Use of Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). 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 the reported revenue generated and 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 and any such differences may be material. 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.

Revenue Recognition

We generated revenue for the years ended December 31, 2024 and 2023 from service revenue for research activities performed related to an agreement with Vertex. We consider revenue to be earned when all of the following criteria are met: (i) we have a contract with a customer that creates enforceable rights and obligations; (ii) promised products or services are identified; (iii) the transaction price, or the amount we expect to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; (iv) and we have transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration we expect to receive in exchange for the goods and services expected to be transferred. When a contract contains variable consideration and the variable consideration is constrained to the extent that it is not probable that it will be received, it is excluded from the transaction price. A contract’s transaction price is allocated to each distinct performance obligation on a relative standalone selling price basis and recognized as revenue when, or as, control of the distinct good or service is transferred.

Stock-Based Compensation

Stock-based compensation is measured based on the estimated grant date fair value of the award and is recognized as expense on a straight-line basis over the requisite service period (usually the vesting period). Forfeitures are accounted for in the period in which they occur.

113

In determining the fair value of the options granted, we use the Black Scholes option pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Fair Value of Common Stock — See the subsection titled “—Fair Value of Common Stock” below.

Expected Term — The expected term represents the period that our stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the 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. We will continue to apply this process until a sufficient amount of historical information regarding employee exercise patterns and post-vesting employment termination behavior becomes available.

Expected Volatility — Due to our limited operating history and lack of company-specific historical volatility as a public company due to our recent IPO in October 2024, or implied volatility as a private company, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period, where available, equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage and area of specialty.

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.

Expected Dividend — 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 recorded stock-based compensation of $3.2 million and $1.6 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, total unrecognized stock-based compensation expense related to unvested restricted stock awards and unvested stock options was $15.0 million, which is expected to be recognized over a weighted-average period of 2.8 years.

Fair Value of Common Stock

As there has been no public market for our common stock prior to the IPO, the grant-date fair market value of our common stock underlying stock options has historically been determined by our board of directors with assistance of unrelated third-party valuation specialists. Because there was been no public market for our common stock, our board of directors have exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which include important developments in our operations, the prices at which we sold shares of our convertible preferred stock, the rights, preferences and privileges of our convertible preferred stock relative to those of common stock, actual operating results, financial performance, external market conditions in the life sciences industry, general U.S. market conditions, equity market conditions of comparable public companies, and the lack of marketability of our common stock. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including: our stage of development and material risks related to our business; the progress of our research and development programs; sales of our preferred stock; the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock; the lack of marketability of our securities; our financial condition and operating results, including our levels of available capital resources; the likelihood of achieving a liquidity event such as an initial public offering in light of prevailing market conditions; equity market conditions affecting comparable public companies; the trends, developments and conditions in the life sciences and biotechnology industry sectors; and general U.S. market and economic conditions. Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, referred to as the “Practice Aid.”

114

In accordance with the Practice Aid, prior to April 2024, the fair value of our common stock was determined using the Option Pricing Method (“OPM”) method as we determined the OPM method was the most appropriate method to utilize based on our stage of development and other relevant factors. The OPM uses the preferred stockholders’ liquidation preferences, participation rights, dividend policy, and conversion rights to determine how proceeds from a liquidity event shall be distributed among the various ownership classes at a future date. Starting April 2024, in accordance with the Practice Aid, we determined the hybrid probability-weighted expected return method (“PWERM”) method was the most appropriate method for determining the fair value of our common stock based on our stage of development and other relevant factors. The hybrid PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes with one of those outcomes incorporating the OPM method.

After the equity value was determined and allocated to the various classes of equity securities, a discount for lack of marketability (“DLOM”) was applied to arrive at the fair value of common stock on a non-marketable basis.

A DLOM is applied based on the theory that as an owner of a private company stock, the holder has limited information and opportunities to sell the stock. A market participant that would purchase this stock would recognize this risk and thereby require a higher rate of return, which would reduce the overall fair market value.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Since a public trading market for our common stock has been established in connection with the completion of our IPO, the fair value of our common stock will be determined based on the quoted market price of our common stock.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist primarily of employee-related costs, including salaries, benefits, and stock-based compensation for employees engaged in research and development activities, costs related to research activities, preclinical studies and clinical trials, production of preclinical and clinical materials, IT-related costs, allocated overhead costs including facility-related expenses, contract manufacturing, consulting fees, costs related to laboratory operations, and fees paid to other entities that conduct certain research and development activities on our behalf. Payments made prior to the receipt of goods and services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered.

We have entered into various agreements with outsourced contract manufacturing and development vendors. We estimate accrued research and development expenses as of each balance sheet date based on facts and circumstances known at that time. We periodically confirm the accuracy of our estimates with internal management personnel and external service providers, and makes adjustments, if necessary. Research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development services provided, but not yet invoiced, are included in accrued expenses on the balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.

Recent Accounting Pronouncements

See Note 2 to our audited financial statements included elsewhere in this Annual Report for more information.

Emerging Growth Company and Smaller Reporting Company Status

We qualify as “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), which permits us to take advantage of an extended transition period to comply with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) 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 new or revised accounting pronouncements as of public company effective dates. We could be an emerging growth company until the earliest to occur: (i) the last day of the fiscal year in which we have more than $1.235

115

billion in annual gross revenue; (ii) the date we qualify as a “large accelerated filers” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with at least $700.0 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or (iv) the last day of the fiscal year ending after the fifth anniversary of our IPO. Even after we no longer qualify as an emerging growth company, we may continue to qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million.