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 clinical-stage biotechnology company pioneering a new era of GPCR oral small molecule drug discovered 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 drug 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 is summarized in the figure below.
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. Our revenue to date has been generated solely from 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 $48.9 million for the year ended December 31, 2025 compared to net loss of $71.8 million for the year ended December 31, 2024. As of December 31, 2025, we had an accumulated deficit of $167.3 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;
continue to operate as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, legal, auditing, 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;
manufacture 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, an initial public offering (“IPO”), and collaborations with other companies. 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 aggregate net proceeds received by us from the IPO was $302.8 million, net of total offering costs of $28.4 million. In July 2025, upon the effectiveness of our Novo Collaboration Agreement, we received a one-time, non-refundable upfront payment of $195.0 million (see “Novo Collaboration Agreement”). In August 2025, we received a $12.5 million milestone payment from Vertex Pharmaceuticals Incorporated (“Vertex”) (see “Vertex Asset Purchase Agreement”).
We believe our cash, cash equivalents, and marketable securities of $548.7 million as of December 31, 2025 will be sufficient to fund our operations and capital expenditure requirements at least into 2029.
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.
We conduct research and manufacturing work outside of the U.S., including China, that may be affected by tariffs, including tariffs that have been or may in the future be imposed by the U.S. or other countries through reciprocal tariffs. While we do not currently believe tariffs will have a material impact on our business or results of operations, we will continue to carefully monitor the situation. Additionally, we continue to actively monitor macroeconomic conditions and market volatility resulting from global and national economic developments, political unrest, high inflation, disruptions in capital markets, changes in international trade relationships, changes in or the disruptions of U.S. governmental agencies, whether from a continued U.S. federal government shutdown or reduced resources, new laws and regulations or amendments to existing laws and regulations in the U.S. and foreign countries, and military conflicts. While we believe such factors have had no significant impact on our business or financial results during the periods presented, future developments and potential impacts on our business are uncertain and cannot be predicted with confidence.
Collaboration, Research Services, and Asset Purchase Agreements
Novo Collaboration Agreement
In May 2025, we entered into the Collaboration Agreement with Novo. Under the Novo Collaboration Agreement, we and Novo are exclusively collaborating to leverage our proprietary Native Complex Platform® to discover, develop and commercialize multiple potential oral small molecule therapies for metabolic-related diseases based on certain specified molecular targets. The collaboration objective is to discover and develop several novel mono-, dual-, or triple-acting oral small molecule drug candidates directed across five Collaboration Targets. The collaboration includes our most advanced preclinical metabolic program focused on developing an oral small molecule agonist to the GIP receptor. We and Novo have initially commenced four simultaneous research and development programs (each an “R&D Program”) with each pursuing one or more Collaboration Targets from discovery through development candidate selection.
In July 2025, the Novo Collaboration Agreement became effective and, subsequently, we received a one-time, non-refundable upfront payment of $195.0 million, which was recorded as deferred revenue in our balance sheet. For each R&D Program, we are also eligible to receive up to approximately $498.0 million in research, development, regulatory, and commercial milestone payments. In addition, we are entitled to escalating, tiered royalties ranging from mid-to-high single-digits based on global product sales on a country-by-country and product-by-product basis with respect to a R&D Program until the later of ten years after the date of first commercial sale of the first product in such R&D Program in such country, expiration of specified patent rights covering such product in such country or the expiration of specified regulatory exclusivity for the first product in such R&D Program in such country. See Note 4 to the financial statements included elsewhere in this Annual Report for additional information.
Vertex Asset Purchase and Research Service Agreement
Vertex Asset Purchase Agreement
In September 2023, we entered into an asset purchase agreement with 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 Asset Purchase Agreement”). 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.
The Vertex Asset Purchase Agreement also provided for a potential milestone payment payable to us contingent upon achievement of a certain research milestone. In July 2025, this milestone event was determined to have been achieved and, as a result, we received a payment of $12.5 million in August 2025, which was recorded as a gain on sale of the non-financial asset within total operating expenses in our statement of operations and comprehensive loss for the year ended December 31, 2025. Subsequently, there are no additional payments related to this IPR&D asset.
Vertex Research Service Agreement
In addition to the Vertex purchase agreement, we also entered into a research service agreement with Vertex (“Vertex Research Service Agreement”) under which we agreed to perform certain exploratory research activities for Vertex. We recognized revenue associated with the Vertex Research Service Agreement over the performance period of the research services as the services were provided. The Vertex Research Service Agreement expired in September 2025.
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 license and research and development (“R&D”) services. Our license and research service revenue consists of amounts recognized from the portions of the non-refundable upfront payment and R&D services performed by us.
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:
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;
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; 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 new 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 scope, 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;
the number of sites and patients included in the clinical trials;
the countries in which the clinical trials are conducted;
our ability to replicate positive results from a completed clinical study in a future clinical study;
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 FDA, EMA, or any other comparable foreign regulatory authorities;
delays or disruptions in review, approval, inspection, or other actions by the FDA or other applicable U.S. or foreign government regulatory authorities that could impact the timing, initiation, conduct, or completion of our clinical trials or marketing applications;
the number of trials required for regulatory approval;
the timing, receipt and terms of any regulatory approvals from applicable regulatory authorities;
our ability to maintain existing collaborations and strategic relationships, to identify and establish any future collaboration arrangements on favorable terms, if at all, and to realize the intended and potential benefits of such agreements and collaborations;
the performance of any current or future collaborators;
the performance of any current or 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 regulatory 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 and to advance our research and development programs.
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 U. S. federal and state income taxation. Our benefit for income taxes is recorded in accordance with Accounting Standard Codification 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.
On July 4, 2025, the One Big Beautiful Bill Act (“H.R.1”) was signed into law, which introduced significant changes to the U.S. federal income tax code. Among other changes, H.R.1 makes permanent key elements of the Tax Cuts and Jobs Act, including restoring 100% bonus depreciation, eliminating the capitalization requirement for domestic research and development expenses, and modifying the business interest expense limitation, which now allows depreciation and amortization to be included in the limitation calculation.
Results of Operations
The following table sets forth our results of operations for the years ended December 31, 2025 and 2024:
Years Ended December 31,
Change
Revenue
Operating expenses:
Research and development
General and administrative
Gain on sale of non-financial asset
Total operating expenses
Loss from operations
Other income, net:
Interest income
Other (expense) income, net
Total other income, net
Loss before provision (benefit) for income taxes
Provision (benefit) for income taxes
Net loss
Revenue
Our revenue was generated from research activities performed for Novo in connection with the Novo Collaboration Agreement and Vertex in connection with the Vertex Research Service Agreement.
$45.4 million of our total revenue for the year ended December 31, 2025 was generated from research activities performed for Novo in connection with the Novo Collaboration Agreement, of which $26.8 million was recognized from deferred revenue associated with our upfront payment, while the remainder was generated from research activities performed for Vertex in connection with the Vertex service agreement. All of our revenue for the year ended December 31, 2024 was generated from research activities performed for Vertex in connection with the Vertex service agreement.
Operating Expenses
Research and Development
The following table summarizes our research and development expenses for the periods indicated by direct and unallocated costs (in thousands):
Years Ended December 31,
Change
Direct costs:
PTH1R
MRGPRX2
Other programs
Unallocated costs:
Payroll-related expenses, including stock-based compensation
External research and development costs
Facility-related and office costs
Other costs
Total research and development expense
Research and development expense was $97.6 million and $65.3 million for the years ended December 31, 2025 and 2024, respectively. The increase of $32.2 million was primarily due to (i) $22.3 million of higher direct costs attributable to increased spending with our other programs, (ii) $10.1 million of higher direct costs associated with our MRGPRX2 program, including an increase of $6.9 million in external clinical development expenses, (iii) $9.9 million of higher employee-related costs as a result of increased headcount as we grow our business, (iv) $2.0 million of higher facility-related and office costs as we expanded our office space to accommodate
higher occupancy and larger operational activities and (v) $1.2 million of increased direct costs associated with our PTH1R program. This was partially offset by a decrease of (i) $11.8 million in unallocated external research and development costs and (ii) $1.4 million in unallocated other costs. We expect to continue to incur increased research and development expenses as we advance SEP-631, SEP-479, and our other programs in our pipeline.
General and Administrative
General and administrative expenses were $29.2 million and $16.6 million for the years ended December 31, 2025 and 2024, respectively. The increase of $12.6 million was primarily due to (i) $6.1 million of higher employee-related costs as a result of increased headcount to support our growing operations, (ii) $2.5 million of higher legal fees, (iii) $2.0 million of higher IT operation expenses, and (iv) $2.0 million of higher facility costs, consulting and other expenses, primarily attributable to our operational growth and operating as a public company.
Gain on Sale of Non-Financial Asset
Gain on sale of non-financial asset of $12.5 million during the year ended December 31, 2025 was attributable to a milestone payment under the Vertex Asset Purchase Agreement. 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 $19.5 million and $8.6 million for the years ended December 31, 2025 and 2024, respectively. The increase in interest income was due to higher average balances of invested cash in cash equivalents and marketable securities.
Provision (Benefit) for Income Taxes
Our income tax was not material for the year ended December 31, 2025. For the year ended December 31, 2024, we recorded a benefit for income taxes of $0.5 million.
Liquidity and Capital Resources
Sources of Liquidity
Our net loss was $48.9 million for the year ended December 31, 2025 compared to $71.8 million of net loss for the year ended December 31, 2024. As of December 31, 2025, we had an accumulated deficit of $167.3 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 historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, an IPO, and strategic collaborations with other companies. 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. In July 2025, upon the effectiveness of the Novo Collaboration Agreement, we received a one-time, non-refundable upfront payment of $195.0 million. In August 2025, we received a $12.5 million milestone payment from the Vertex Asset Purchase Agreement.
As of December 31, 2025, we had $548.7 million in cash, cash equivalents, and marketable securities, which we believe will be sufficient to fund our operations and capital expenditure requirements at least into 2029.
We do not have any off-balance sheet arrangements other than our indemnification agreements as described in Note 7 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):
Years Ended December 31,
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities was $110.2 million for the years ended December 31, 2025. The net cash provided by operating activities for the year ended December 31, 2025 was due to $162.8 million of net change in operating assets and liabilities, primarily resulting from the upfront payment from the Novo Collaboration Agreement and $8.8 million of non-cash charges for depreciation and amortization, stock-based compensation, non-cash operating lease expense, accretion of premiums (discounts) on marketable securities, and other adjustments, which was partially offset by net loss of $48.9 million and gain on sale of non-financial asset of $12.5 million.
Net cash used in operating activities was $67.5 million for the years ended December 31, 2024. 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 other adjustments, and (ii) $0.2 million of net change in operating assets and liabilities.
Net Cash Used in Investing Activities
Net cash used in investing activities of $229.4 million for the year ended December 31, 2025 was due to $451.0 million of purchases of marketable securities and $0.5 million of purchases of property and equipment, partially offset by the maturity of $209.6 million of marketable securities and the receipt of the $12.5 million milestone payment related to the Vertex Asset Purchase Agreement
Net cash provided by 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 Financing Activities
Net cash provided by financing activities was $1.7 million for the year ended December 31, 2025 was primarily attributable to the proceeds from the exercise of stock options and employee stock purchase plan.
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.
Future Funding Requirements
Our primary use of cash, cash equivalents, and marketable securities is to fund our operations, primarily research and development expenditures. Cash, cash equivalents, and marketable securities 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;
our ability to successfully develop, obtain regulatory and marketing approvals of our product candidates for the expected indications and patient populations;
the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
our ability to maintain existing collaborations or strategic relationships and the extent to which we identify and enter into future collaborations or other arrangements with additional third parties in order to further develop our product candidates, as well as our ability to realize the intended and potential benefits of such agreements and collaborations;
regulatory or legal developments in the United States and other countries;
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.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. However, the trading prices for our common stock and for other biopharmaceutical companies have been highly volatile. As a result, we may face difficulties raising capital through sales of our common stock, and such sales may be on unfavorable terms. Similarly, adverse macroeconomic conditions and market volatility resulting from global and national economic developments, political unrest, high inflation, disruptions in capital markets, changes in international trade relationships, changes in or the disruptions of U.S. governmental agencies, whether from a continued U.S. federal government shutdown or reduced resources, global health crises, or other factors could materially and affect our ability to consummate an equity or debt financing on terms or at all. We may be to raise additional funds or enter into such other agreements or arrangements when needed on terms, or at all. 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 or other preferences that 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 , strategic or marketing, distribution or licensing arrangements with third parties, we may have to rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be to us. If we are to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to , limit, reduce or 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, through an IPO, and strategic collaborations with other companies. In October 2024, we completed our IPO, which resulted in net proceeds of $302.8 million, net of total offering costs of $28.4 million. In July 2025, upon the effectiveness of the Novo Collaboration Agreement, we received a one-time, non-refundable upfront payment of $195.0 million. In August 2025, we received a $12.5 million milestone payment from the Vertex Asset Purchase Agreement. 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 account for revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). Under ASC 606, we recognize revenue when the customer obtains control of the promised goods or services at an amount that reflects the consideration we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following four steps: (i) confirm we have a contract with a customer that creates enforceable rights and obligations; (ii) identify promised products or services to be transferred to a customer; (iii) determine the transaction price, or the amount it expects 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 and allocated to the performance obligations; and (iv) recognize revenue when or as performance obligations are satisfied.
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. To the extent a contract includes multiple promised goods and services, we apply judgment to determine whether promised goods and services are both capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. For arrangements that include multiple performance obligations, we allocate the transaction price to the identified performance obligations based on the standalone selling price of each distinct performance obligation. In instances where standalone selling price is not directly observable, we develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract using a cost plus margin approach, which is an estimation method used when standalone selling price is not directly observable. Key assumptions used within this estimation method may include full-time equivalent personnel effort and estimated external costs associated with the performance obligation.
The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation.
We satisfy performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) the customer simultaneously receives and consumes the benefits provided our performance, (ii) our performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) our performance does not create an asset with an alternative use to us and we have an enforceable right to payment for performance completed to date. If we do not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.
Our revenues are primarily derived through our license and research and development service arrangements. Payments to us under these arrangements typically include one or more of the following: one-time, non-refundable upfront payment, research and development service funding, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain collaboration, research and development and commercial milestones, as well as royalties based on net sales of approved drugs.
Consideration received prior to revenue recognition is recorded as deferred revenue in the balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current. Contract assets represent research and development services which have been
performed but have not yet been billed and are reduced when they are subsequently billed. Such contract assets include accounts receivable when our right to consideration is unconditional. For our current contracts, we recognize revenue as the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and, if over time, revenue recognized is based on the use of an input method.
When no remaining performance obligations are required of us, or following the completion of the performance obligation period, such amounts are recognized as revenue upon transfer of control of the goods or services to the customer.
The terms of our collaborative arrangements include one or more of the following
Licenses of intellectual property, or IP - If the license to our IP is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from consideration allocated to the license when the license is transferred to the customer and the customer can use and benefit from the licenses. For a license that is determined not to be distinct, it is combined with other promises and we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluates the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. We generally recognize revenue using the cost incurred to date as compared to the total estimated cost of each performance obligation. The impact on revenue of changes in total estimated costs are recognized on a cumulative basis in the period that the change occurs. If estimates of the total cost change, or if contract amendments change the scope of the performance obligation, the required adjustments to revenue could be material.
Customer options - We evaluate the customer options for material rights or options to acquire additional goods or services at no incremental consideration or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until the option is exercised and performance obligations are satisfied. If an option is not exercised before the option right expires, we will accelerate and recognize all remaining revenue related to the material right performance obligation.
(iii)
Research and development services - The promises under our collaboration agreement include research and development services to be performed by us for or on behalf of the customer. Payments or reimbursements resulting from our research and development efforts are recognized as the services are performed and presented on a gross basis because we are the principal for such efforts. Reimbursements are recognized in revenue in our statements of operations and comprehensive loss. Expenses incurred as part of our efforts to perform the research and development services are recognized in research and development expense in our statements of operations and comprehensive loss.
Manufacturing services - The promises under our collaboration agreement include manufacturing services to be performed by us. Payments or reimbursements resulting from our manufacturing services are recognized as the services are performed and presented on a gross basis because we are the principal for such efforts. Reimbursements are recognized in revenue in our statements of operations and comprehensive loss. Expenses incurred to perform the manufacturing services are recognized in research and development expense in our statements of operations and comprehensive loss.
Milestone payments - At the inception of each arrangement that includes development or regulatory milestone payments, we evaluate the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s, such as regulatory approvals, are not considered probable of being achieved until those approvals are received, and therefore, consideration included in the transaction price is constrained. We applied the variable consideration allocation exception under ASC 606 whereby variable milestone payments are not estimated and included in the transaction price at inception. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Commercial milestone payments and royalties - For arrangements that include sales-based royalties, including milestone payments based on levels of sales, if the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied)
Stock-Based Compensation
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.
In determining the fair value of the options granted and Employee Stock Purchase Plan (“ESPP”) shares, 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.
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.
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, contract manufacturing for the production of clinical and preclinical materials, information technology-related costs, allocated overhead costs including facility-related expenses, 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 agreements with outsourced contract manufacturing and development and clinical research 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 its 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 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.
Item 7A . Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 8. F inancial Statements and Supplementary Data.
The information required by this item is presented at the end of this Annual Report beginning on page F-1. An index of those financial statements is found in Part IV, Item 15, Exhibits, Financial Statement Schedules, of this Annual Report.
Item 9. Chang es in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Con trols and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. As required by Rule 13a-15(b) or Rule 15d-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive officer and principal financial officer, or persons performing similar functions, and effected by a company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles ("GAAP") and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company's receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Under the supervision of and with the participation of our principal executive officer and principal financial officer, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 framework). Based on this evaluation, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2025.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our principal executive officer and principal financial officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, the effectiveness of any internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or in the degree of compliance with policies or procedures. Because of the inherent in a cost- control system, due to or may occur and not be detected.
