Dyne Therapeutics, Inc. (DYN) FY 2024 MD&A

Overview

We are a clinical-stage neuromuscular disease company focused on discovering and advancing innovative life-transforming therapeutics for people living with genetically driven neuromuscular diseases. Leveraging the modularity of our FORCE platform, we are developing targeted therapeutics that are designed to overcome limitations in delivery to muscle tissue and the central nervous system, or CNS. Our proprietary FORCE platform therapeutics consist of a payload that we rationally design to target the genetic basis of the disease we are seeking to treat, a linker and an antigen-binding fragment, or Fab, that we attach to the payload using the linker. With our FORCE platform, we have the flexibility to deploy different classes of payloads (such as oligonucleotides and enzymes) with specific mechanisms of action that modify target functions. We leverage this modularity to focus on neuromuscular diseases with high unmet need, with etiologic targets and with clear translational potential from preclinical disease models to well-defined clinical development and regulatory pathways.

Using our FORCE platform, we are assembling a broad portfolio of product candidates, including product candidates being developed for myotonic dystrophy type 1, or DM1, Duchenne muscular dystrophy, or DMD, facioscapulohumeral dystrophy, or FSHD, and Pompe disease. In addition, we plan to expand our portfolio through development efforts focused on rare skeletal muscle diseases, as well as cardiac and metabolic muscle diseases, including some with larger patient populations, and diseases involving the CNS. We have identified product candidates for each of our DM1, DMD, FSHD and Pompe programs that are in varying stages of preclinical and clinical development.

Our product candidate DYNE-101 is being evaluated in ACHIEVE, an ongoing Phase 1/2 global clinical trial in patients with DM1. ACHIEVE, which is designed to be a registrational trial, consists of a 24-week multiple ascending dose, or MAD, randomized, placebo-controlled period, a 24-week open-label extension, or OLE, a 96-week long-term extension, and a registrational expansion cohort. In January 2025, we announced the completion of the MAD portion of the trial and our plans to initiate a registrational expansion cohort to support submission for Accelerated Approval in the U.S. We plan to complete enrollment of the registrational expansion cohort in mid-2025 with data from this cohort in the first half of 2026 and potential submission for U.S. Accelerated Approval in the first half of 2026.

Our product candidate DYNE-251 is being evaluated in DELIVER, an ongoing Phase 1/2 global clinical trial in patients with DMD who have mutations amenable to exon 51 skipping. DELIVER, which is designed to be a registrational trial, consists of a 24-week MAD, randomized, placebo-controlled period, a 24-week OLE, a 192-week long-term extension, and a registrational expansion cohort. In September 2024, we announced the completion of the MAD portion of the trial, and in November 2024 we announced the initiation of the registrational expansion cohort to support submission for Accelerated Approval in the U.S. We plan to complete enrollment of the registrational expansion cohort in the first quarter of 2025 with data from this cohort in late 2025 and potential submission for U.S. Accelerated Approval in early 2026.

We were incorporated and commenced operations in 2017. Since our incorporation, we have devoted substantially all of our financial resources and efforts to organizing and staffing our company, business planning, raising capital, conducting research and development activities and filing and prosecuting

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patent applications. We do not have any products for sale and have not generated any revenue from product sales or otherwise. To date, we have principally raised capital through sales of equity securities.

Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates. For the years ended December 31, 2024, 2023 and 2022, we reported net losses of $317.4 million, $235.9 million and $168.1 million, respectively. As of December 31, 2024, we had an accumulated deficit of $949.9 million.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect that our expenses and capital expenditure requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

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advance our product candidates for DM1, DMD, FSHD and Pompe and conduct research programs in additional indications;

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expand the capabilities of our proprietary FORCE platform;

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

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obtain, expand, maintain, defend and enforce our intellectual property portfolio;

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hire additional clinical, regulatory and scientific personnel;

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establish manufacturing sources for any product candidate we may develop, including the Fab antibody, linkers and therapeutic payload that will comprise the product candidate, and secure supply chain capacity to provide sufficient quantities for preclinical and clinical development and commercial supply;

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ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and

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add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and future commercialization efforts, as well as to support our operations as a public company.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for any product candidates we may develop. If we obtain regulatory approval for or otherwise commercialize any product candidates we may develop, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution. Further, we expect to continue to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed, on favorable terms, or at all. If we fail to raise capital or enter into such agreements or arrangements as and when needed, we may have to significantly delay, reduce or eliminate the development or future commercialization of one or more product candidates we may develop.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.

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We believe that our existing cash, cash equivalents and marketable securities, including the net proceeds from sales of common stock under our at-the-market offering program during the first quarter of 2025, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. See “—Liquidity and capital resources” below.

Components of our results of operations

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products for at least a couple of years, if at all. If our development efforts are successful and we commercialize products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities and development of our product candidates. These expenses include:

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development and operation of our proprietary FORCE platform;

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employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions;

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expenses incurred in connection with our research programs and development of our product candidates, including those incurred under agreements with third parties, such as consultants and contract research organizations, or CROs, to conduct preclinical studies and clinical trials;

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the cost of laboratory supplies and acquiring, developing and manufacturing materials for use in our research, preclinical studies and clinical trials, including those incurred under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;

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facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; and

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costs related to compliance with regulatory requirements.

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our direct external research and development expenses consist of costs that include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs in connection with our development, manufacturing and clinical activities. We have not allocated our direct external research and development costs to specific programs or product candidates that are not in clinical development.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect that our research and development expenses will increase substantially as we advance DYNE-101 and DYNE-251 through clinical trials, in connection with our preclinical and clinical development activities of DYNE-302, our FSHD product candidate, and DYNE-401, our Pompe disease product candidate, and if and as we advance any other product candidates through preclinical studies and clinical trials. At this time, we cannot accurately estimate or know the nature, timing

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and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. The successful development of any product candidate is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:

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the timing and progress of preclinical and clinical development activities;

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the number and scope of programs we decide to pursue and their regulatory paths to market;

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the need to raise funding to complete preclinical and clinical development of any product candidates we may develop;

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our ability to establish new licensing or collaboration arrangements and the progress of the development efforts of third parties with whom we may enter into such arrangements;

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

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the successful initiation, enrollment and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

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the receipt and related terms of regulatory approvals from applicable regulatory authorities for any product candidates we may develop;

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the availability of specialty raw materials for use in production of any product candidate we may develop;

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establishing agreements with third-party manufacturers for supply of product candidate components for our clinical trials;

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our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally;

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our ability to protect our other rights in our intellectual property portfolio;

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commercializing product candidates, if and when approved, whether alone or in collaboration with others; and

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obtaining and maintaining third-party insurance coverage and adequate reimbursement for any approved products.

A change in the outcome of any of these variables with respect to the development of any product candidate we may develop could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop.

General and administrative expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, related benefits and stock-based compensation for employees in executive, finance, corporate and business development and 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; and facility-related expenses, which include allocated expenses for rent, depreciation and maintenance of facilities and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our growth strategy. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.

Interest income

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

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Other income (expense), net

Other income (expense), net consists of realized gains and losses on sales of marketable securities and foreign currency gains and losses.

Income taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2024, we had federal and state net operating loss carryforwards of $315.7 million and $332.2 million, respectively. The federal net operating loss carryforwards are indefinite lived and the state net operating loss carryforwards begin to expire in 2038. As of December 31, 2024, we also had federal and state research and development tax credit carryforwards of $31.2 million and $4.7 million which begin to expire in 2039 and 2033, respectively.

Results of operations

Comparison of the years ended December 31, 2024 and 2023

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

Research and development expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023:

Expenses related to DYNE-101 increased in the year ended December 31, 2024 compared to the year ended December 31, 2023. This was attributable to higher manufacturing activity in 2024 to produce a

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sufficient clinical supply of drug product for the ongoing ACHIEVE trial and an increase in clinical trial activity for the ACHIEVE trial. Expenses related to DYNE-251 increased in the year ended December 31, 2024 compared to the year ended December 31, 2023. This was attributable to higher manufacturing activity in 2024 to produce a sufficient clinical supply of drug product for the ongoing DELIVER trial and an increase in clinical trial activity for the DELIVER trial.

The increase in platform and external research and development expenses in the year ended December 31, 2024 was primarily due to increased external research activity associated with our preclinical programs and product candidates. The increase in personnel-related expenses was primarily due to increased headcount in our research and development function. The increase in facility-related and other expenses was primarily due to the increased costs of supporting a larger number of research and development personnel.

General and administrative expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2024 and 2023:

The increase in personnel-related expenses in the year ended December 31, 2024 compared to the year ended December 31, 2023 was due to increased headcount in our general and administrative function. The increase in stock-based compensation expense in the year ended December 31, 2024 was primarily the result of acceleration of vesting terms and modification of previously granted awards in connection with entering into separation and consulting agreements with our former chief executive officer, former chief business officer and former chief operating officer. Professional and consulting fees increased in the year ended December 31, 2024 due to the higher consulting costs to support the growth of the organization in 2024. Facility-related and other expenses decreased primarily due to decreased general business expenses, including the cost of corporate insurance policies.

Interest income

Interest income for the years ended December 31, 2024 and 2023 was $26.9 million and $7.6 million, respectively, due to interest earned on invested cash balances. The increase in interest income was due to an increased cash, cash equivalents and marketable securities balance due to the public sales of our common stock in the first and second quarters of 2024 on which we are earning interest.

Other expense, net

Other expense for the year ended December 31, 2024 was $0.5 million primarily due to foreign currency gains and losses. Other expense for the year ended December 31, 2023 was $1.4 million primarily due to foreign currency gains and losses.

Comparison of the years ended December 31, 2023 and 2022

Discussion and analysis of the results of operations for the year ended December 31, 2023 as compared to the results of operations for the year ended December 31, 2022 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 5, 2024.

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Liquidity and capital resources

Sources of liquidity

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our product candidates and platform. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates for at least a couple of years, if at all. To date, we have funded our operations primarily with proceeds from sales of equity securities. As of December 31, 2024, we had cash, cash equivalents and marketable securities of $642.3 million.

In November 2021, we filed a universal shelf registration statement on Form S-3, or the 2021 Shelf Registration Statement, to register for sale from time to time up to $400.0 million of common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. Further, in November 2021, we entered into an Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC, or Jefferies, and included in the 2021 Shelf Registration Statement a prospectus relating to the Sales Agreement, pursuant to which, from time to time, we may offer and sell shares of our common stock having an aggregate offering price of up to $150.0 million, which we refer to as our at-the-market offering program. Sales of common stock under the Sales Agreement through Jefferies may be made by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended or Securities Act. On January 4, 2024, we notified Jefferies that we were suspending and terminating the prospectus filed under our 2021 Shelf Registration Statement relating to the Sales Agreement for our at-the-market offering program.

On March 5, 2024, we filed a universal shelf registration statement on Form S-3, or the 2024 Shelf Registration Statement, and included a prospectus relating to the Sales Agreement. Under the 2024 Shelf Registration Statement, we may offer and sell debt securities, common stock, preferred stock, units and/or warrants from time to time at an indeterminate aggregate offering price in one or more offerings. In November 2024, we filed a prospectus supplement relating to the Sales Agreement, pursuant to which, in accordance with the Sales Agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $300.0 million in our at-the-market offering program.

During the year ended December 31, 2024, we issued and sold an aggregate of 3,800,465 shares of common stock pursuant to the Sales Agreement for aggregate net proceeds of $97.9 million, after deducting commissions and offering expenses payable by us. We sold such shares at a weighted average price of $26.86 per share.

In January 2024, we completed a follow-on public offering, which we refer to as the January 2024 offering, pursuant to which we issued and sold 19,722,500 shares of common stock. We received net proceeds of $323.9 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

In May 2024, we completed a follow-on public offering, which we refer to as the May 2024 offering, pursuant to which we issued and sold 12,075,000 shares of common stock. We received net proceeds of $351.3 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

In the first quarter of 2025, we issued and sold 10,660,159 shares of common stock through our at-the-market offering program pursuant to the Sales Agreement. We received net proceeds of $140.6 million, after deducting commissions and offering expenses payable by us.

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Cash flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating activities

During the year ended December 31, 2024, operating activities used $292.4 million of cash, due to our net loss of $317.4 million and changes in our operating assets and liabilities of $19.5 million, partially offset by non-cash charges of $44.5 million. Net cash used in changes in our operating assets and liabilities primarily consisted of a $9.0 million decrease in accounts payable and other liabilities and a $10.5 million increase in prepaid expenses and other current assets. During the year ended December 31, 2023, operating activities used $188.2 million of cash, due to our net loss of $235.9 million partially offset by changes in our operating assets and liabilities of $26.3 million and non-cash charges of $21.4 million. Net cash used by changes in our operating assets and liabilities primarily consisted of a $23.0 million increase in accounts payable and other liabilities and a $3.3 million decrease in prepaid expenses and other current assets. Changes in our operating assets and liabilities during these periods were generally due to the growth of our business, increased clinical trial activity, increased manufacturing activities, advancement of our product candidates, the timing of vendor invoices and payments and annual bonus payments.

Investing activities

During the year ended December 31, 2024, net cash used in investing activities was $204.1 million due to purchases of marketable securities of $317.4 million and purchases of property and equipment of $2.4 million, partially offset by maturities of marketable securities of $105.2 million and sales of marketable securities of $10.6 million. During the year ended December 31, 2023, net cash provided by investing activities was $83.3 million due to maturities of marketable securities of $126.5 million and sales of marketable securities of $1.8 million, partially offset by purchases of marketable securities of $44.3 million and purchases of property and equipment of $0.7 million.

Financing activities

During the year ended December 31, 2024, net cash provided by financing activities was $809.9 million, consisting of $675.2 million in aggregate net proceeds from sales of common stock in our January 2024 and May 2024 offerings, $97.9 million in aggregate net proceeds from sales under our at-the-market offering program and $36.8 million in proceeds received from stock option exercises.

During the year ended December 31, 2023, net cash provided by financing activities was $54.3 million, consisting of $52.4 million in aggregate net proceeds from sales of common stock under our at-the-market offering program and $1.9 million in proceeds received from stock option exercises.

A discussion of changes in our financial condition for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is included under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 5, 2024.

Funding requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we advance the clinical development of DYNE-101 and DYNE-251, the development of our FSHD and Pompe

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programs and additional research programs. The timing and amount of our operating expenditures will depend largely on:

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the identification of additional product candidates;

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the scope, progress, costs and results of preclinical and clinical development of any product candidates we may develop;

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the costs, timing and outcome of regulatory review of any product candidates we may develop;

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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;

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changes in laws or regulations applicable to any product candidates we may develop, including but not limited to clinical trial requirements for approvals;

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the cost and timing of obtaining materials to produce adequate product supply for any preclinical or clinical development of any product candidate we may develop;

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidate we may develop for which we obtain marketing approval;

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the legal costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims;

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additions or departures of key scientific or management personnel;

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our ability to establish and maintain collaborations on favorable terms, if at all, as well as the costs and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; and

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the costs of operating as a public company.

We believe that our existing cash, cash equivalents and marketable securities, including the net proceeds from sales of common stock under our at-the-market offering program during the first quarter of 2025, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed, on favorable terms, or at all. If we fail to raise capital or enter into such agreements other arrangements as and when needed, we may have to significantly delay, reduce or eliminate the development or future commercialization of one or more of our product candidates we may develop. See Item 1A. “Risk factors” in this Annual Report on Form 10-K for additional risks associated with our substantial capital requirements.

Contractual and other obligations

We enter into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. These contracts typically do not contain minimum purchase commitments and are generally cancelable by us upon written

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notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation and in the case of certain arrangements with CROs and CMOs may include non-cancelable fees.

We have also entered into a license agreement with the University of Mons under which we are obligated to make specified milestone and royalty payments. The payment obligations under this agreement are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, or generating product sales. We are unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. For additional information about our license agreement with the University of Mons and amounts that could become payable in the future under that agreement, see Item 1. “Business—Intellectual Property—License Agreement with the University of Mons” in this Annual Report.

On December 4, 2020, we entered into a lease agreement for office and laboratory space, which was amended in January 2021, March 2021, and June 2021. The lease has a term of 8.5 years that commenced when we gained access to the office and laboratory space in September 2021. Our obligation for the payment of the base rent began in April 2022 and is $0.4 million per month, increasing to $0.5 million per month during the term of the lease. We have two options to extend the term of the lease, each for a period of an additional five years.

On January 15, 2025, we entered into a master manufacturing services agreement with a CMO which secures capacity at the CMO’s manufacturing facilities for certain of our product candidates and components thereof. The agreement obligates us to compensate the CMO at least $60 million for producing certain of our product candidates and components thereof through 2026. In specified termination circumstances, the agreement requires us to pay the CMO for services completed, the cost of the CMO’s raw materials that cannot be repurposed and specified cancellation fees. This agreement formalizes and supersedes a letter agreement that we entered into with the CMO on July 18, 2024.

Critical accounting estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Management has determined that our most critical accounting policies are those relating to accrued research and development expenses and stock-based compensation. As we advance our product candidates into and through clinical development, we expect research and development expenses and, in particular, our accounting for accrued research and development expenses to be an increasingly important critical accounting policy. We believe the following accounting estimates used in the preparation of our consolidated financial statements have the most significant level of estimation uncertainty and have and are reasonably likely to have a material impact on our financial condition and results of operations. For a more detailed description of our significant accounting policies, refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements.

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Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our service providers and applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

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CROs in connection with the ACHIEVE and DELIVER clinical trials;

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CROs and investigative sites in connection with research activities;

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CMOs in connection with the production of research materials; and

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vendors in connection with preclinical development activities.

We measure the expense recognized based on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the achievement of specified milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-based compensation

We measure stock-based awards granted to employees and directors based on fair value on the date of the grant using the Black-Scholes option-pricing model for options, and we measure awards of restricted stock units based on the closing price of our common stock on the date of grant. Compensation expense for these awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line method to record the expense of awards with service-based vesting conditions. We use the graded-vesting method to record the expense of awards with both service-based and performance-based vesting conditions, commencing when achievement of the performance condition becomes probable. During 2024, all of our outstanding awards only include time-based vesting conditions.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

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Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. Since our IPO, we have determined the fair market value of our common stock using the closing price of our common stock as reported on the Nasdaq Global Select Market.

Recently issued accounting pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of significant accounting policies. There are no recently issued accounting pronouncements that have not yet been adopted that are expected to have a material impact on the Company’s financial statements.

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