Disc Medicine, Inc. (IRON) FY 2024 MD&A

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of novel treatments for patients suffering from serious hematologic diseases. We have assembled a portfolio of clinical and preclinical product candidates that aim to modify fundamental biological pathways associated with the formation and function of red blood cells, specifically heme biosynthesis and iron homeostasis. Our current pipeline includes bitopertin for the treatment of erythropoietic porphyrias, or EPs, including erythropoietic protoporphyria, or EPP, and X-linked protoporphyria, or XLP, and Diamond-Blackfan Anemia, or DBA; DISC-0974 for the treatment of anemia of myelofibrosis, or MF, and anemia of chronic kidney disease, or CKD; and DISC-3405 (formerly MWTX-003) for the treatment of polycythemia vera, or PV, and other hematologic disorders. In addition, our preclinical programs also include DISC-0998 for the treatment of anemia associated with inflammatory diseases. Our approach to product candidate development leverages well-understood molecular mechanisms that have been validated in humans. We believe that each of our product candidates, if approved, has the potential to improve the lives of patients suffering from hematologic diseases.

Bitopertin is the lead product candidate in our heme biosynthesis modulation portfolio. Bitopertin was previously evaluated by F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or collectively, Roche, in a comprehensive clinical program in over 4,000 individuals in other indications which demonstrated the activity of bitopertin as a glycine transporter 1, or GlyT1, inhibitor and its effect on heme biosynthesis. We are initially developing bitopertin for the treatment of EPs, including EPP and XLP, which are part of a group of severe diseases, known as porphyrias, caused by defects in the heme biosynthesis pathway that cause an accumulation of toxic metabolites referred to as porphyrins, resulting in skin hypersensitivity to sunlight and some types of artificial light. In June and December 2023, we presented interim data from BEACON, a Phase 2 open-label, parallel-dose clinical trial of bitopertin in EPP and XLP patients conducted at sites in Australia. In April 2024, we presented topline data from AURORA, a Phase 2, randomized, double-blind, placebo-controlled clinical trial of bitopertin in EPP patients conducted at sites in the United States. Additional analyses of the BEACON and AURORA trials were presented in June 2024 and in December 2024. In both trials, bitopertin significantly reduced the toxic metabolite, protoporphyrin IX, or PPIX, and was associated with improvements in measures of time spent in sunlight and quality of life, demonstrating a clear association between PPIX reduction and clinical endpoints. In addition, bitopertin was generally well-tolerated. All participants in AURORA and BEACON are eligible to participate in HELIOS, an ongoing open-label, long-term extension study of bitopertin in EPP and XLP. We are also planning APOLLO, a randomized, double-blind, placebo-controlled clinical trial of bitopertin in EPP and XLP patients. In our end-of-Phase 2 meeting, the U.S. Food & Drug Administration, or the FDA, agreed with the potential for reduction of PPIX to serve as a surrogate endpoint to support a potential accelerated approval of bitopertin in EPP and XLP. Under the FDA’s Accelerated Approval Program, we would have the potential to submit a New Drug Application, or NDA, for bitopertin in EPP and XLP based on our existing data, and we would be required to conduct a post-marketing confirmatory clinical trial. In our Type C meeting with the FDA in December 2024, we aligned with the FDA on the design of our APOLLO post-marketing confirmatory trial. We plan to initiate the APOLLO trial by mid-2025 and anticipate submitting an NDA for accelerated approval of bitopertin in EPP and XLP in the second half of 2025. We have also entered into a collaborative research and development agreement with the National Institutes of Health, or NIH, to conduct a clinical trial of bitopertin in DBA, which began in July 2023. We are planning additional trials of bitopertin in other indications.

DISC-0974 is the lead product candidate in our iron homeostasis portfolio and was licensed from AbbVie Deutschland GmbH & Co. KG, or AbbVie. DISC-0974 is designed to suppress hepcidin production and increase serum iron levels. We completed a Phase 1 clinical trial in healthy volunteers in the U.S. in June 2022 with results showing an acceptable tolerability profile and evidence of target engagement, iron mobilization and augmented erythropoiesis. We initiated a Phase 1b/2 clinical trial in June 2022 in patients with anemia of MF, and initiated a separate Phase 1b/2 clinical trial in February 2023 in patients with non-dialysis dependent CKD and anemia. We presented interim data from both of these trials in December 2023 as well as additional interim data for anemia of MF in June 2024 and non-dialysis dependent CKD and anemia in October 2024, which additional interim data included safety data and changes in hepcidin, iron, and hemoglobin levels for additional patients, as well as longer follow-up. In December 2024, we presented additional analyses of the Phase 1b study in anemia of MF and initiated the open-label Phase 2 portion of this clinical trial in patients with anemia of MF. We expect to report initial data from this Phase 2 trial in the second half of 2025. We also expect to report data from the multiple-ascending dose, or MAD, portion of the Phase 1b trial in patients with

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non-dialysis dependent CKD and anemia in the second half of 2025. We are also planning additional trials of DISC-0974 in other anemias of inflammation. In addition, we are developing a preclinical anti-hemojuvelin, or HJV, monoclonal antibody, DISC-0998, which also targets hepcidin suppression and was licensed from AbbVie. DISC-0998 is designed to increase serum iron levels and has an extended serum half-life as compared to DISC-0974. We believe this profile may be desirable in certain subsets of patients with anemia associated with inflammatory diseases.

Lastly, we are developing DISC-3405, a monoclonal antibody against Transmembrane Serine Protease 6, or TMPRSS6, that we licensed from Mabwell Therapeutics, Inc., or Mabwell. DISC-3405 is part of our iron homeostasis portfolio and is designed to induce hepcidin production and reduce serum iron levels. An IND for DISC-3405 was cleared by the FDA, and a Phase 1 clinical trial in healthy adult volunteers was initiated in October 2023. Interim data was presented from the single-ascending dose, or SAD, portion of the Phase 1 clinical trial of DISC-3405 in healthy volunteers in June 2024. We presented data from the MAD portion of the Phase 1 healthy volunteer study of DISC-3405 in December 2024. We expect to develop DISC-3405 for the treatment of PV and other hematologic disorders, and plan to initiate a Phase 2 clinical trial of DISC-3405 in PV in the first half of 2025.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $489.9 million. In January 2025 we completed an underwritten offering of shares of our common stock and pre-funded warrants for net proceeds of approximately $243.3 million, after deducting estimated offering expenses payable by us. We believe that our cash, cash equivalents and marketable securities, including the net proceeds of our January 2025 underwritten public offering, will be sufficient to fund our current operating and capital expenditure plans and our debt service obligations into 2028, without taking into account any potential net cash inflows from bitopertin or any other marketed product, if approved during such period. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See Liquidity and Capital Resources for additional details.

Financial Operations Overview

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts are successful and result in commercialization of one or more product candidates or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, payments from such collaboration or license agreements or a combination thereof.

Operating Expenses

Research and Development Expenses

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

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

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expenses incurred in connection with our research and development activities, including under agreements with third parties such as consultants, contractors and contract research organizations, or CROs;

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costs related to contract development and manufacturing organizations, or CDMOs, that are primarily engaged to provide drug substance and product for our preclinical studies, clinical trials and research and development programs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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the costs of acquiring and manufacturing preclinical study and clinical trial materials, including manufacturing registration and validation batches;

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costs related to compliance with quality and regulatory requirements; and

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payments made under third-party licensing agreements.

We expense research and development costs as incurred. Costs incurred for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and may be reflected in our consolidated financial statements as prepaid or accrued expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed or when it is no longer expected that the goods will be delivered or the services rendered.

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We typically use our employee and infrastructure resources across product candidates and development programs. We track external development costs by product candidate or development program, but we do not allocate personnel costs or other internal costs to specific product candidates or development programs.

We expect that our research and development expenses will increase substantially as we advance our programs into and through clinical development. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates 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 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 preclinical and clinical programs we decide to pursue;

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our ability to raise additional funds to the extent necessary to complete clinical development of and commercialize our product candidates;

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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;

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the availability of raw materials for use in production of our product candidates;

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our ability to establish 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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our ability to commercialize product candidates, if and when approved, whether alone or in collaboration with others; and

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our ability to obtain and maintain third-party insurance coverage and adequate reimbursement for any approved products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, commercial, corporate and business development, and administrative functions. Selling, general and administrative expenses also include legal fees relating to patent and corporate matters, including noncapitalizable transaction costs; professional fees for accounting, auditing, tax compliance and administrative consulting services; investor and public relations expenses; commercial planning and market research; director and officer insurance costs and other insurance costs; and facility related expenses including maintenance and allocated expenses for rent and other operating costs.

We anticipate that our selling, general and administrative expenses will increase substantially in the future as we increase our headcount to support our continued research and development and potential commercialization activities including establishing a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval.

Other Income (Expense), Net

Interest Income

Interest income primarily consists of interest earned on cash equivalents, consisting of money market funds, U.S. treasury securities and certificates of deposit, as well as marketable securities, consisting of U.S treasury securities and U.S. government agency securities.

Interest Expense

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Interest expense primarily consists of amortization of debt issuance costs and discount and interest expense under the Hercules Loan Agreement.

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 (in thousands):

Research and Development Expenses

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

Research and development expenses were $96.7 million for the year ended December 31, 2024, compared to $69.3 million for the year ended December 31, 2023. The increase of $27.4 million was primarily due to an $11.9 million increase in personnel-related costs related to higher research and development headcount, including an increase of $5.3 million in stock-based compensation driven by awards granted under our equity compensation plans. Further, external development expenses increased $10.8 million and $7.8 million related to advancing the clinical trials and drug manufacturing activity for bitopertin and DISC-0974, respectively.

These increases were partially offset by a $6.2 million decrease related to the DISC-3405 program which incurred $15.0 million in upfront and milestone license fees in 2023 related to our license agreement with Mabwell which did not recur in 2024. The decrease related to prior year license fees was offset by an increase in external development expense related to increased clinical study and drug manufacturing activity for DISC-3405 in the year ended December 31, 2024.

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Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses for the years ended December 31, 2024 and 2023 (in thousands):

Selling, general and administrative expenses were $33.0 million for the year ended December 31, 2024, compared to $21.9 million for the year ended December 31, 2023. The increase of $11.2 million was primarily due to an increase of $8.9 million in personnel-related costs due to higher selling, general and administrative headcount, including an increase of $6.0 million in stock-based compensation driven by awards granted under our equity compensation plans.

Other Income (Expense), Net

Other income (expense), net was $20.7 million for the year ended December 31, 2024, compared to $14.8 million for the year ended December 31, 2023. The change of $5.9 million was primarily due to an increase in interest income based on increases in our cash, cash equivalents and marketable securities balances.

Income Tax Expense

Income tax expense was $0.4 million for the year ended December 31, 2024, compared to $0.1 million for the year ended December 31, 2023. The expense relates to state income tax resulting from an increase in interest income.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses. We expect to continue to incur significant expenses and operating losses in the foreseeable future as we advance the clinical development of our product candidates. We expect that our research and development and selling, general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials and manufacturing for our product candidates to support commercialization and providing selling, general and administrative support for our operations, including the costs associated with operating as a public company. As a result, we may need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. See “Risk Factors” included within Item 1A of this Annual Report on Form 10-K for additional risks associated with our substantial capital requirements.

To date, we have funded our operations primarily with proceeds from the sale of our convertible preferred stock and common stock, the proceeds from the merger with Gemini, proceeds from various private and public sales of our equity securities, and proceeds from borrowings under the Hercules Loan Agreement. Through December 31, 2024, we have received net proceeds of $144.5 million from sales of our Series Seed, Series A and Series B convertible preferred stock, $89.5 million from the merger with Gemini, $477.6 million from various private and public sales of our equity securities, and $27.6 million from borrowings under the Hercules Loan Agreement. As of December 31, 2024, we had cash, cash equivalents, and marketable securities of $489.9 million.

In addition, in January 2025 we completed an underwritten offering of shares of our common stock and pre-funded warrants. The net proceeds from the offering are expected to be approximately $243.3 million, after deducting the underwriting discount and estimated offering expenses. The underwritten offering is described in more detail in Note 18 - Subsequent Events to our consolidated financial statements.

We have incurred significant operating losses since inception and, as of December 31, 2024, had an accumulated deficit of $298.0 million. In addition, we expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future. We believe that our cash, cash equivalents and marketable securities, including the net proceeds of our January 2025 underwritten public offering, will be sufficient to fund our current operating and capital expenditure plans and our debt service obligations into 2028, without taking into account any potential net cash inflows from bitopertin or any other marketed product, if approved during such period. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We may also pursue additional cash resources through public or private equity offerings, collaborations or additional debt financings.

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Cash Flows

The following table provides information regarding our cash flows for each period presented (in thousands):

Operating Activities

Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support our business. We have historically experienced negative cash flows from operating activities as we invested in developing our portfolio, drug discovery efforts, conducting clinical trials and manufacturing, and related infrastructure. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments.

During the year ended December 31, 2024, net cash used in operating activities of $93.9 million was primarily due to our net loss of $109.4 million, offset by changes in operating assets and liabilities of $3.2 million and non-cash expenses of $12.2 million which primarily related to stock-based compensation expense of $16.8 million, offset by amortization and accretion of investment securities of $5.3 million.

During the year ended December 31, 2023, net cash used in operating activities of $73.5 million was primarily due to our net loss of $76.4 million and changes in operating assets and liabilities of $3.0 million, offset by non-cash expenses of $5.9 million primarily related to stock-based compensation expense of $5.5 million.

Investing Activities

During the year ended December 31, 2024, net cash used in investing activities was primarily due to purchases of marketable securities of $386.6 million, partially offset by maturities of marketable securities of $94.8 million.

During the year ended December 31, 2023 net cash used in investing activities was due to purchases of property and equipment.

Financing Activities

During the year ended December 31, 2024, net cash provided by financing activities of $218.3 million consisted primarily of net proceeds of $172.5 million from the June 2024 underwritten offering, net proceeds from the issuance of long-term debt of $27.6 million, aggregate net proceeds of $14.8 million from at-the-market offerings, and proceeds from the exercise of stock options of $3.0 million.

During the year ended December 31, 2023, net cash provided by financing activities of $239.4 million consisted primarily of net proceeds of $147.9 million from sales of common stock and pre-funded warrants in a public follow-on offering, net proceeds of $62.4 million from sales of common stock and pre-funded warrants in a registered direct offering and aggregate net proceeds of $26.4 million from the at-the-market offerings.

Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates into and through clinical development and operate as a public company. Our funding requirements and the timing and amount of our operating expenditures will depend largely on:

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the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates or any future product candidates we may develop;

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the costs, timing and outcome of regulatory review of our product candidates;

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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 effect of competing technological and market developments;

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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;

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the payment or receipt of milestones, royalties and other collaboration-based revenues, if any;

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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 amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and

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

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that may take longer than we anticipate to become commercially available, if they become commercially available at all. Accordingly, we may need to obtain substantial additional funds to achieve our business objectives.

Until such time, if ever, as we can generate substantial revenue from product sales, 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. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders. 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. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our 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.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of December 31, 2024 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

(1) Amounts reflect contractual rent payments due for our leased and subleased office spaces in Watertown, Massachusetts as of December 31, 2024 and include contractual payments due under our forward-starting lease which is expected to commence in December 2026. The term date for our existing lease is December 31, 2029 and the term date for our existing sublease is November 30, 2026.

(2) Table excludes the impact of tenant improvement allowance reimbursements of $0.8 million which are expected to be received in less than one year. Of this total, $0.5 million relates to our existing leased office space and $0.3 million relates to our forward-starting lease.

We enter into contracts in the normal course of business with CROs, CDMOs and other third parties for preclinical studies, clinical trials and manufacturing services. These contracts typically do not contain minimum purchase commitments and are generally cancelable by us upon written 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 CDMOs, may include non-cancelable fees. These payments are not included in the table above as the amount and timing of such payments are not fixed and estimable.

We have also entered into license agreements under which we are obligated to make specified milestone and royalty payments. We have not included future payments under these agreements in the table of contractual obligations above since the payment obligations under these agreements are contingent upon future events such as regulatory 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

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information about our license agreements and amounts that could become payable in the future under such agreements, see our consolidated financial statements.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. 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, and costs and expenses in our consolidated 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.

While our significant accounting policies are described in more detail in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Research and Development Contract Costs and Accruals

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued and prepaid research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with 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 consolidated 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 makes adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

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vendors in connection with preclinical development activities;

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CROs and investigative sites in connection with preclinical studies and clinical trials; and

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CDMOs in connection with the production of preclinical study and clinical trial materials.

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. 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, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

Stock-Based Compensation Expense

We measure stock-based awards granted to employees, directors, and nonemployees based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards with service-based vesting conditions, we recognize compensation expense using the straight-line method. For stock-based awards with performance-based vesting conditions, we use the accelerated attribution method to expense the awards over the implicit service period based on the probability of achieving the performance conditions.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including:

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Fair value of our common stock: Prior to the merger closing, we determined the estimated fair value of our common-stock based on third-party valuations and certain other relevant objective and subjective factors. After the close of the merger, the fair value of our common stock is determined based on the quoted market price of our common stock. See Determination of the Fair Value of Common Stock below for additional details.

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Expected stock price volatility: Due to the lack of company-specific historical and implied volatility data, we determine the volatility for awards granted based on an analysis of reported data for a group of guideline companies that issued

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options with substantially similar terms. The expected volatility has been determined using a weighted average of the historical volatility measures of this group of guideline companies. We expect to continue to do so until such time that we have adequate historical data regarding the volatility of our own traded stock price.

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Expected term of the option. The expected term of our stock options granted to employees has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options, using the average between the vesting date and the contractual term.

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Risk-free interest rate. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

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Expected dividend yield: We have not paid, and do not anticipate paying, cash dividends on our common stock; therefore, the expected dividend yield is assumed to be zero.

If any assumptions used in the Black-Scholes option pricing model changed significantly, stock-based compensation expense for future awards may differ materially compared with the expense for awards granted previously. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates, which could materially impact our future stock-based compensation expense.

Determination of the Fair Value of Common Stock

Prior to the merger closing, the estimated fair value of our common stock had been determined by our board of directors as of the date of each option grant with input from management, considering our most recently available third-party valuation of common stock, and our board of directors’ assessment of additional objective and subjective factors that we believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Our common stock valuations were prepared using either an option pricing method, or OPM, or a hybrid method, both of which used market approaches to estimate our enterprise value. The OPM treats common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the convertible preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.

The hybrid method is a probability-weighted expected return method, or PWERM, by which the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock.

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

Upon closing of the merger, a public trading market for our common stock has been established and it is no longer necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock is now determined based on the quoted market price of our common stock.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and certain recently adopted accounting pronouncements that have or may potentially impact our financial position and results of operations is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements.

Emerging Growth Company and Smaller Reporting Company Status

Prior to December 31, 2024, we were an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, and a “smaller reporting company”, as defined under the Exchange Act. As such, we were eligible for exemptions from

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various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. As of December 31, 2024, we are no longer an emerging growth company or smaller reporting company. In accordance with SEC rules, we are availing ourselves of the exemptions from disclosure requirements, including certain of the reduced and scaled disclosure obligations, that are available to smaller reporting companies in this Annual Report on Form 10-K. However, beginning with our Quarterly Report on Form 10-Q for the quarter ending March 31, 2025, we will no longer be permitted to take advantage of the reduced reporting requirements applicable to smaller reporting companies.