Cullinan Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Please also refer to those factors described in “Part I, Item 1A. Risk Factors” of our 2023 10-K and "Part II. Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company dedicated to creating new standards of care for patients. Our strategy is to identify high-impact targets, which we define as those that inhibit key drivers of disease or harness the immune system to eliminate diseased cells in both autoimmune diseases and cancer, and then select what we believe is the optimal therapeutic modality for those targets. We source innovation both internally and externally, focusing on product candidates with novel technology or differentiated mechanisms. Before we advance a product candidate into clinical development, we evaluate its potential for activity as a single agent as well as its ability to generate an immune response or to inhibit disease processes. Using this strategy, we have built a broad and deep pipeline of targeted immunology and oncology programs that includes multiple distinct clinical-stage product candidates.

Immunology

• CLN-978 is a CD19xCD3 T cell engager ("TCE") that we are developing for autoimmune diseases. Academic investigators have published data demonstrating the potential for a CD19xCD3 TCE to achieve sustained improvements in disease manifestations, including durable remission from symptoms in some cases, in multiple autoimmune disease indications, including rheumatoid arthritis (“RA”). We believe that CLN-978 has several potential advantages relative to other CD19-directed therapies currently in development, including CAR T therapies as well as other TCEs. Specifically, we believe CLN-978 demonstrates:
• Deeper B cell depletion due to CLN-978’s very high affinity binding to CD19;
• A wider therapeutic index due to CLN-978’s 10 times higher potency for B cell depletion relative to cytokine induction;
• Potential for more efficient deep tissue penetration due to the relatively small size of the CLN-978 molecule;
• Potential for deeper tissue-level B cell depletion than attainable with monoclonal antibodies that work primarily through antibody-dependent cellular cytotoxicity ("ADCC");
• Unlike most current generation autologous CAR T therapies, no need for lymphodepleting chemotherapy which is associated with significant toxicities and recognized risk of secondary malignancies; and,
• Off-the-shelf convenience without extended manufacturing lead times or limitation to certified treatment centers.

Based on the emerging clinical data supporting the efficacy of CD19-directed therapy in multiple autoimmune diseases and our belief that CLN-978 has several potential advantages compared to other CD19-directed therapies in development, we are exploring the development of CLN-978 in a variety of autoimmune diseases and are committed to assessing its broad potential. In September 2024, we received Human Research Ethics Committee approval in Australia to initiate a global Phase 1 clinical trial to evaluate CLN-978 in patients with systemic lupus erythematosus ("SLE"). In October 2024, we received clearance from the FDA for an investigational new drug ("IND") application to evaluate CLN-978 in a Phase 1 clinical trial in patients with moderate to severe SLE. We plan to share initial clinical data for CLN-978 in the fourth quarter of 2025. In the second quarter of 2025, we also plan to initiate a sponsored clinical trial to evaluate CLN-978 in patients with RA designed and executed in collaboration with the Friedrich-Alexander University of Erlangen-Nuremberg and Università Cattolica del Sacro Cuore, Rome.

Clinical observations from three patients treated in a Phase 1 dose escalation trial in patients with relapsed/refractory B cell non-Hodgkin lymphoma showed that CLN-978 was clinically active at the initial starting dose of 30 micrograms administered subcutaneously once weekly. Two of the three patients experienced objective clinical benefit, including one patient who experienced a complete response. Grade 1 cytokine release syndrome (fever) occurred in two patients following the first dose of CLN-978 only, and no patients experienced immune effector cell-associated neurotoxicity syndrome. Other adverse events were mostly low-grade and/or mechanistically based (e.g., transient lymphopenia after the first dose only). Of the two patients with detectable B cells at baseline, both experienced rapid and deep B cell depletion after administration of CLN-978. These data support that CLN-978 can not only deplete peripheral blood B cells but also demonstrate clinical activity in a tissue resident disease at a dose with a favorable safety profile.

Oncology

• CLN-619, our lead unpartnered oncology program, is a monoclonal antibody that stabilizes expression of MICA/B on the tumor cell surface to promote tumor cell lysis mediated by both cytotoxic innate and adaptive immune cells. CLN-619 is being investigated as both monotherapy and in combination with checkpoint inhibitor (“CPI”) therapy or chemotherapy in an ongoing Phase 1 clinical trial in patients with advanced solid tumors.

In June 2024, we presented the first clinical data from the CPI therapy combination dose escalation module of the clinical trial, as well as updated data from the monotherapy dose escalation module, at the American Society of Clinical Oncology Annual Meeting. The preliminary clinical data from CLN-619 in combination with the CPI pembrolizumab demonstrated objective tumor responses across multiple tumor types. Three partial responses were observed, including two in patients with non-small cell lung cancer ("NSCLC") with oncogenic mutations, which are tumor types typically unresponsive to CPI treatment. The expanded preliminary clinical observations for CLN-619 as a monotherapy demonstrated objective tumor responses and extended stable disease across multiple tumor types. We observed one complete response, two partial responses and nine stable disease for at least 18 weeks resulting in a clinical benefit rate of 41.4%. In general, this initial clinical data indicates CLN-619 has an acceptable safety profile across all doses assessed as both monotherapy and in combination with pembrolizumab. No dose-limiting toxicities were observed. Similar to other monoclonal antibodies, infusion-related reactions were limited to the first dose and were all Grade 1 or Grade 2 in patients receiving mandated pre-medication.

The Phase 1 clinical trial continues to enroll expansion cohorts in cervical cancer (monotherapy), endometrial cancers (monotherapy and combination), NSCLC (monotherapy and combination), and ovarian cancer (chemotherapy combination). Additional expansion cohorts may be initiated based on clinical activity observed in the current clinical trial. Initial data from the disease specific expansion cohorts for endometrial and cervical cancers are anticipated in the second quarter of 2025. In September 2024, we dosed the first patient in the Phase 1 clinical trial to evaluate CLN-619 in patients with relapsed/refractory multiple myeloma.

Separately, we were also issued a composition of matter patent by the United States Patent and Trademark Office, which is expected to extend CLN-619's patent protection to 2041, excluding possible patent term extension.

• Zipalertinib (CLN-081/TAS6417), which we are co-developing with an affiliate of Taiho Pharmaceutical Co., Ltd ("Taiho"), is an orally-available small-molecule, irreversible epidermal growth factor receptor ("EGFR") inhibitor that is designed to selectively target cells expressing EGFR exon 20 ("EGFRex20") insertion mutations with relative sparing of cells expressing wild-type EGFR. We are eligible to receive up to $130.0 million from Taiho tied to EGFRex20 non-small-cell lung cancer regulatory milestones. We will also receive 50% of any future pre-tax profits from potential U.S. sales of zipalertinib. The FDA has granted Breakthrough Therapy designation to zipalertinib. We are evaluating zipalertinib in the pivotal Phase 2b portion of the REZILIENT1 clinical trial in patients with EGFRex20 NSCLC who progressed after prior systemic therapy. Taiho is evaluating zipalertinib in a global Phase 3 clinical trial (“REZILIENT3”) in combination with chemotherapy as a potential first-line treatment for EGFRex20 NSCLC adult patients.

In September 2024, at the European Society for Medical Oncology Congress we announced updated clinical data from the pivotal Phase 2b portion of our REZILIENT1 clinical trial of zipalertinib in patients with NSCLC harboring EGFRex20 insertion mutations who received zipalertinib after prior treatment with amivantamab. As of a March 29, 2024 data cut-off, 45 patients had been enrolled. Patients had received a median of three prior systemic therapies including amivantamab. At the data cut-off, 30 patients were evaluable for response and showed a 40% objective response rate ("ORR"), which was similar to the ORR for patients receiving zipalertinib after prior chemotherapy in the previously reported Phase 1/2a part of the clinical trial. Zipalertinib demonstrated a manageable safety profile, similar to what has been previously reported. There were no grade 4 or grade 5 treatment-related adverse events.

In September 2024, we successfully completed enrollment of the pivotal Phase 2b portion of our REZILIENT1 clinical trial, which was originally planned for the end of 2024. We plan to share results of the pivotal Phase 2b portion of the REILIENT1 clinical trial at mid-year 2025.

• CLN-049 is a FLT3xCD3 T cell engaging bispecific antibody. CLN-049 is being investigated in an ongoing Phase 1 clinical trial in patients with relapsed/refractory acute myeloid leukemia ("AML") or myelodysplastic syndrome ("MDS"). We have also initiated a second Phase 1 clinical trial designed to evaluate the safety of CLN-049 in minimal residual disease (“MRD”)-positive AML. Following a review of data from the Phase 1 clinical trial of CLN-049, we reported that in the ongoing Phase 1 clinical trial of CLN-049 in patients with relapsed/refractory AML and MDS, dose-limiting injection site reactions were observed during dose escalation with subcutaneous administration. Based on these findings, together with observations of preliminary clinical activity, we discontinued subcutaneous administration. Dose escalation continues in the Phase 1 clinical trial of CLN-049 with intravenous administration.
• CLN-617 is a fusion protein combining two potent antitumor cytokines, interleukin-2 ("IL-2") and interleukin-12 ("IL-12") with tumor retention domains for the treatment of solid tumors. Patient enrollment continues in the ongoing CLN-617 first-in human Phase 1 clinical trial in patients with advanced solid tumors.

Preclinical and Discontinued Programs

In addition to the product candidates described above, we are developing several preclinical programs, all in the discovery stage, including our collaboration with Icahn School of Medicine at Mount Sinai for the development of novel hematopoietic progenitor kinase 1 degraders.

In August 2024, following a review of the data from the Phase 1 clinical trial of CLN-418, we notified Harbour BioMed US Inc. (“Harbour”) of our decision to terminate the license and collaboration agreement for CLN-418 (the “Harbour License Agreement”), effective November 2024. In connection with the termination of the Harbour License Agreement, we will discontinue development of CLN-418 and return development and commercial rights for CLN-418 to Harbour and focus our resources on our other product candidates. Refer to Note 5 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional detail regarding the Harbour License Agreement.

Intellectual Property

We have a controlling interest in the worldwide intellectual property rights for CLN-619, CLN-049, and CLN-617. We hold the worldwide intellectual property rights for CLN-978, and we hold the worldwide intellectual property rights or exclusive options for worldwide intellectual property for our earlier-stage programs. We are co-developing zipalertinib, for which Taiho holds the intellectual property rights, with an affiliate of Taiho. The following table shows our ownership interest as of September 30, 2024 in product candidates in which we have a controlling interest in the worldwide intellectual property rights:

Financing and Business Operations

Since our inception in 2016, we have focused all of our efforts and financial resources on raising capital, organizing and staffing our company, identifying, acquiring or in-licensing and developing product and technology rights, establishing and protecting our intellectual property portfolio and developing and advancing our programs. We do not have any products approved for sale and have not generated any revenue from product sales.

We have funded our operations primarily through the sale of equity securities and from licensing or selling the rights to our product candidates. As of September 30, 2024, we have received net proceeds of $842.2 million from equity financings. We have received $18.9 million in revenue from a previous license agreement and cash proceeds of $275.0 million from the sale of our equity interest in our zipalertinib development subsidiary to Taiho. In April 2024, we sold shares of our common stock and pre-funded warrants for shares of our common stock in a private placement (the “2024 Private Placement”) for net proceeds of $262.7 million, after deducting offering expenses of $17.3 million. Refer to Note 6 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional detail regarding the 2024 Private Placement.

As of September 30, 2024, we had cash, cash equivalents, and short-term investments of $578.1 million, and long-term investments and interest receivable of $60.9 million. Interest receivable is included in prepaid expenses and other current assets on the consolidated balance sheets and represents accrued and unpaid interest on our marketable securities. We have a history of significant operating losses and have had negative cash flows from operations since our inception. As of September 30, 2024, we had an accumulated deficit of $320.6 million. We expect to continue to generate operating losses for the foreseeable future. Our future viability is dependent on the success of our research and development and our ability to access additional capital to fund our operations. There can be no assurance that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.

We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the ability to obtain additional capital to fund operations. Our current and future product candidates will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require additional capital, adequate personnel and extensive compliance-reporting capabilities. There can be no assurance that our research and development will be successfully completed, that adequate protection for our intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.

Components of Our Results of Operations

Revenue

We have not generated any revenue from the sale of products since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates and programs. These expenses include:

• compensation costs for employees engaged in research and development functions;
• expenses incurred under agreements with organizations that support our drug discovery and development activities;
• expenses incurred in connection with the preclinical and clinical development of our product candidates and programs, including under agreements with contract research organizations ("CROs");
• costs related to contract manufacturing organizations that are primarily engaged to provide drug substance, raw materials, and drug product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;
• the costs of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;
• costs related to compliance with quality and regulatory requirements;
• payments made under third-party licensing agreements; and
• direct and allocated costs related to facilities, information technology, personnel and other overhead.

Development costs and any future potential pre-tax profits from U.S. sales of zipalertinib are shared equally between us and Taiho.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation costs for personnel in executive management, finance, legal, corporate and business development, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax, and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses; and other operating costs.

Impairment of Long-Lived Assets

Impairment of long-lived assets represents the impairment charge for the carrying value in excess of the fair value of the assets. Refer to Note 10 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional details relating to the impairment.

Other Income

Other income consists primarily of interest income earned on our cash, cash equivalents, and investments.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

The following table presents our results of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Research and Development Expenses

The following table summarizes our research and development expenses for the three and nine months ended September 30, 2024 and 2023 (in thousands):

The $1.7 million increase in research and development expenses in the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases in personnel costs relating to additional headcount ($1.8 million), other research and development costs ($1.4 million), clinical costs ($1.3 million), preclinical costs ($1.3 million), and equity-based compensation costs ($0.7 million), partially offset by a decrease in chemistry, manufacturing and controls ("CMC") costs ($4.3 million).

The $10.9 million decrease in research and development expenses in the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to the one-time upfront in-licensing fee for CLN-418 in 2023 ($25.0 million) and lower CMC costs ($3.9 million), partially offset by increases in clinical costs ($8.7 million), personnel costs relating to additional headcount ($4.1 million), preclinical costs ($3.5 million), and equity-based compensation costs ($1.4 million).

General and Administrative Expenses

The $2.4 million increase in general and administrative expenses in the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases in other professional fees ($1.3 million) and equity-based compensation costs ($1.0 million).

The $7.6 million increase in general and administrative expenses in the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases in both equity-based compensation costs ($3.9 million) and personnel costs ($3.1 million) relating to additional headcount, and increases in other professional fees ($2.0 million), partially offset by decreases in occupancy costs ($0.9 million) and legal fees ($0.5 million).

Impairment of Long-Lived Assets

Impairment of long-lived assets represents the impairment charge for the carrying value in excess of the fair value of the assets. Refer to Note 10 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional details relating to the impairment.

Other Income

The $2.2 million and $5.9 million increases in other income for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 were primarily related to higher investment income.

Net Loss Attributable to Noncontrolling Interests

Net loss attributable to noncontrolling interests is determined as the difference in the noncontrolling interests in the consolidated balance sheets between the start and end of each reporting period, after taking into account any capital transactions between our development subsidiaries and third parties.

Liquidity and Capital Resources

Overview

We have a history of significant operating losses and have had negative cash flows from operations since our inception and expect to continue to generate operating losses for the foreseeable future. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from the sale of equity securities and from licensing or selling the rights to our product candidates. As of September 30, 2024, we had cash, cash equivalents, and short-term investments of $578.1 million, and long-term investments and interest receivable of $60.9 million.

Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents, investments, and interest receivable, will be sufficient to fund operations through at least twelve months from the date of issuance of our consolidated financial statements. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We cannot guarantee that we will be able to raise additional capital on reasonable terms or at all.

In May 2023, we entered into an agreement with Cowen and Company, LLC (“Cowen”) to establish an at-the-market equity offering program (the "ATM"), pursuant to which we may offer and sell up to $125.0 million of our common stock from time to time through Cowen, acting as our sales agent. We made no sales under the ATM in the nine months ended September 30, 2024. Through September 30, 2024, we have sold approximately 3.3 million shares under the ATM and received net proceeds of $38.4 million, after deducting commissions. As of September 30, 2024, we had $85.6 million in shares of our common stock remaining under the ATM.

In April 2024, we completed the 2024 Private Placement in which we issued approximately 14.4 million shares of our common stock and pre-funded warrants to purchase approximately 0.3 million additional shares of our common stock. We received net proceeds of $262.7 million from the 2024 Private Placement, after deducting offering costs of $17.3 million. Refer to Note 6 of our notes to the consolidated financial statements in this Quarterly Report on Form 10-Q for additional detail regarding the 2024 Private Placement.

Comparison of Cash Flows for the Nine Months Ended September 30, 2024 and 2023

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2024 and 2023 (in thousands):

Cash Flow from Operating Activities

For the nine months ended September 30, 2024, our operating activities used $108.7 million of cash, which primarily consisted of our operating expenses, excluding non-cash items, of $113.5 million and a $7.5 million net change in our non-tax operating assets and liabilities, partially offset by interest income, excluding accretion on marketable securities, of $10.2 million, and a net income tax refund of $2.3 million. The non-cash operating expenses primarily consisted of equity-based compensation expense.

For the nine months ended September 30, 2023, our operating activities used $116.1 million of cash, which primarily consisted of our operating expenses, excluding non-cash items, of $122.0 million and income taxes paid of $4.7 million, partially offset by interest income, excluding accretion on marketable securities, of $9.2 million and a $1.1 million benefit from the net change in our non-tax operating assets and liabilities. The non-cash operating expenses primarily consisted of equity-based compensation expense.

Cash Flow from Investing Activities

For the nine months ended September 30, 2024, net cash used in investing activities was $152.3 million, which consisted of $553.1 million of purchases of marketable securities, partially offset by $400.8 million of proceeds from the maturities of marketable securities.

For the nine months ended September 30, 2023, net cash used in investing activities was $15.7 million, which primarily consisted of $307.4 million of purchases of marketable securities, partially offset by $291.9 million of proceeds from the maturities of marketable securities.

Cash Flow from Financing Activities

For the nine months ended September 30, 2024, net cash provided by financing activities was $264.6 million, which consisted of $262.7 million of net proceeds from the issuance of common stock under our 2024 Private Placement and $6.4 million in net proceeds from the issuance of common stock under equity-based compensation plans, partially offset by $4.4 million paid to acquire shares and options to purchase shares of our CLN-619 development subsidiary that were held by noncontrolling interests.

For the nine months ended September 30, 2023, net cash provided by financing activities was $40.5 million, which primarily consisted of $38.4 million of net proceeds from the issuance of common stock under our ATM, and $1.8 million from the issuance of a convertible note by our CLN-619 development subsidiary to a noncontrolling interest.

Future Funding Requirements

We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we:

• continue our research and development of our current and future product candidates and programs;
• conduct preclinical studies and clinical trials for our current and future product candidates;
• experience any delays or encounter any issues with any of the above, including but not limited to failed studies, or trials, complex results, safety issues, or other regulatory challenges;
• develop the necessary processes, controls, and manufacturing capabilities to obtain marketing approval for our current and future product candidates and to support manufacturing on a commercial scale;
• develop and implement plans to establish and operate in-house manufacturing operations and facilities, if deemed appropriate;
• seek regulatory approvals for our current and future product candidates that successfully complete clinical trials;
• hire and retain additional personnel, such as nonclinical, clinical, pharmacovigilance, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, medical affairs, finance, general and administrative, commercial, and scientific personnel; and
• develop, maintain, expand, and protect our intellectual property portfolio.

Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents, investments, and interest receivable will be sufficient to fund operations through at least twelve months from the date of issuance of our consolidated financial statements. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development programs and the regulatory review process, we expect to incur significant expenses related to product manufacturing, pre-commercial activities and commercialization. We may also require additional capital to pursue in-licenses or acquisitions of other programs to further expand our pipeline.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

• the scope, progress, results, and costs of drug discovery, laboratory testing, and preclinical and clinical development for our current and future product candidates;
• timely completion of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors;
• the prevalence, duration, and severity of potential side effects or other safety issues experienced by patients receiving our current and future product candidates;
• our ability to establish and maintain collaborations and license agreements on favorable terms, if at all, and the extent to which we acquire or in-license technologies or programs, if at all;
• our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development programs;
• the costs of expanding our facilities to accommodate our expected growth in personnel;
• our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our current and future product candidates, remain in good standing with regulatory authorities and develop, validate, and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices;
• the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
• the extent to which we acquire or in-license technologies or programs;
• the sales price and availability of adequate third-party coverage and reimbursement for our product candidates, if and when approved; and
• the ongoing costs of operating as a public company.

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted. If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements, or marketing and distribution arrangements, 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. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Other Commitments

We have certain payment obligations under various license and collaboration agreements. Under these agreements, we are required to make milestone payments upon successful completion and achievement of certain intellectual property, clinical, regulatory, and sales milestones. The payment obligations under the license and collaboration agreements are contingent upon future events, such as our achievement of specified development, clinical, regulatory, and commercial milestones, and we will be required to make milestone and royalty payments in connection with the sale of products developed under these agreements. As the achievement and timing of these future milestone payments are not probable or estimable, such amounts have not been included in our consolidated balance sheets as of September 30, 2024 and December 31, 2023.

As of September 30, 2024, total future minimum lease payments were $2.7 million with $1.5 million payable within twelve months. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for further detail on our lease obligations and the timing of expected future payments.

In addition, we enter into agreements in the normal course of business with CROs for clinical trials and with other vendors for preclinical studies, manufacturing services, and other services and products for operating purposes, which are generally cancelable upon written notice.

Critical Accounting Policies and Estimates

Our critical accounting policies have not materially changed from those described in the 2023 10-K.

Emerging Growth Company Status

We currently qualify as an "emerging growth company" ("EGC") under the Jumpstart Our Business Startups Act which allows us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an EGC; however, we may adopt certain new or revised accounting standards early.

Because (i) the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2024, (ii) we have been a public company for more than one year, and (iii) we have filed at least one annual report, we will cease to be an EGC as of December 31, 2024. As a result, beginning with our Annual Report on Form 10-K for the year ended December 31, 2024, we will not be able to rely on the extended transition period noted above and will be required to adopt all new accounting pronouncements within the same time periods as other public companies that are not EGCs. We will also be subject to certain other requirements that apply to other public companies but did not previously apply to us due to our status as an EGC, including the provisions of Section 404 of the Sarbanes-Oxley Act, which require that our independent registered public accounting firm provides an attestation report on the effectiveness of our internal control over financial reporting.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 of our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Information required by this Item is not applicable as we are electing scaled disclosure requirements available to smaller reporting companies with respect to this Item.

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”), designed to ensure that information required to be disclosed in the reports that 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 and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of September 30, 2024, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). 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 and management necessarily applies our judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the reasonable assurance level as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting, identified in connection with the evaluation carried out pursuant to Rules 13a-15(d) and 15d-15(d) of the Exchange Act, that occurred during the fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K"), which could materially affect our business, financial condition or future results. The risk factors disclosure in our 2023 10-K is qualified by the information that is described in this Quarterly Report on Form 10-Q. The risks described in our 2023 10-K are not our only risks. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes to our risk factors as previously disclosed in the 2023 10-K except as follows:

We will no longer qualify as an “emerging growth company” nor a “smaller reporting company” after December 31, 2024, and, as a result, we will have to comply with increased disclosure and compliance requirements.

We are currently an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act and a “smaller reporting company” (“SRC”) under the Securities and Exchange Commission (“SEC”) rules. However, because (i) the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2024, (ii) we have been a public company for more than one year, and (iii) we have filed at least one annual report, we will no longer qualify as an EGC or a SRC as of December 31, 2024 and will be a large accelerated filer beginning January 1, 2025 for future filings.

As a large accelerated filer, we will be subject to certain disclosure and compliance requirements that apply to other public companies but that did not previously apply to us due to our status as an EGC and a SRC. These requirements include, but are not limited to:

• the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002;
• compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements;
• the requirement that we provide more detailed disclosures regarding executive compensation; and
• the requirement that we hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.

We expect that the loss of EGC and SRC status and compliance with the additional requirements of being a large accelerated filer will increase our legal, accounting and financial compliance costs and costs associated with investor relations activities, and cause management and other personnel to divert attention from operational and other business matters to devote substantial time to public company reporting requirements. In addition, if we are not able to comply with changing requirements in a timely manner, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities, which would require additional financial and management resources.