Korro Bio, Inc. (KRRO) FY 2024 MD&A

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also “Cautionary Statement Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company with a mission to discover, develop and commercialize a new class of genetic medicines based on editing RNA, enabling the treatment of both rare and highly prevalent diseases.

We are generating a portfolio of differentiated programs that are designed to harness the body’s natural RNA editing process to effect a precise yet transient single base edit. By editing RNA instead of DNA, we are expanding the reach of genetic medicines by delivering additional precision and tunability, which has the potential for increased specificity and improved long-term tolerability. Using an oligonucleotide-based approach, we expect to bring our medicines to patients by leveraging our proprietary platform with precedented delivery modalities, manufacturing know-how, and established regulatory pathways of approved oligonucleotide medicines. However, the scientific evidence to support the feasibility of developing product candidates using our RNA editing technology is both preliminary and limited. Moreover, regulators have not yet established any definitive guidelines related to overall development considerations for RNA editing therapies and limited clinical data has been generated to date.

The versatility of RNA editing combined with our OPERA platform broadens the therapeutic target space significantly. While our approach can be used to repair pathogenic single nucleotide variants, or SNVs, as demonstrated by our most advanced clinical-stage program, our AATD product candidate, we can also engineer de novo SNVs and change amino acids on proteins to endow them with desired properties while preserving their broader functional capabilities, as exemplified by three of our other programs (an undisclosed rare metabolic disorder, ALS, and pain). In preclinical studies, we have demonstrated that single RNA changes can disrupt protein-protein interactions, prevent protein aggregation, selectively modulate ion channels and activate kinases. These modification approaches can unlock validated target classes that have historically been difficult to drug, enabling us to pursue a broad range of diseases traditionally out-of-scope for other genetic medicine approaches and current traditional drug modalities.

Our most advanced program is a development candidate, KRRO-110, which is in clinical development for the treatment of AATD where, using our proprietary RNA editing approach, we are repairing a pathogenic variant on RNA. KRRO-110 has the potential to be disease-modifying and provide a differentiated therapeutic option. In January 2025, we announced dosing of the first participants in our REWRITE clinical program investigating KRRO-110 as a treatment for AATD. REWRITE is a two-part single and multiple dose-escalating Phase 1/2a clinical trial that will evaluate the safety and tolerability of KRRO-110 in up to 64 participants, including healthy adults and clinically stable AATD patients with the PiZZ genotype. Secondary and exploratory endpoints include pharmacokinetic and pharmacodynamic parameters that will guide optimal dose selection for later stage studies. We have completed dosing of the first two single ascending dose cohorts in healthy adult volunteers. We have not observed any serious adverse events as of the date of this annual report on Form 10-K through completion of dosing of the first two cohorts. We continue to progress enrollment, site activation and expansion into other geographies beyond Australia, including the U.S. In March 2025, we announced that the FDA has granted orphan drug designation to KRRO-110 for the treatment of AATD. Interim data from single ascending doses in healthy volunteers and AATD patients is expected in the second half of 2025, and completion of the trial is anticipated in 2026. Based on the preclinical data, we believe KRRO-110 has best-in-class potential for the treatment of AATD. However, KRRO-110 is in early clinical development and there is no guarantee that it will be successful.

Since inception, we have focused primarily on organizing and staffing our company, business planning, raising capital, securing related intellectual property, and conducting research and development activities for our potential programs and product candidates. Since inception, we have funded our operations primarily through the private placement of our equity securities. To date, we have raised approximately $223.6 million of aggregate gross proceeds from the sale of our convertible preferred stock, and $117.3 million from the sale of shares of common stock issued in a private placement that closed immediately prior to the November 2023 business combination and $70.0 million from the April 2024 private placement of shares of our common stock.

We have incurred significant operating losses since inception. Our net losses were $83.6 million and $81.2 million for the years ended December 31, 2024 and 2023, respectively. We had an accumulated deficit of $266.6 million as of December 31, 2024. We expect to continue to incur significant and increasing expenses and operating losses and negative operating cash flows

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for the foreseeable future as we continue our research and development efforts, advance product candidates into and through clinical development, and seek regulatory approvals for our pipeline candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies, initiation and conduct of any clinical trials, and our expenditures on other research and development activities, including the expansion of our pipeline.

We do not have any product candidates approved for sale and have not generated any revenue from product sales. We will not generate revenue from product sales unless and until we successfully obtain regulatory approval for our product candidates, if ever, and as appropriate, move pipeline candidates into the clinic and complete clinical development. If we obtain regulatory approval for our product candidates and do not enter into third-party commercialization partnerships, we expect to incur significant expenses related to developing commercialization capabilities to support product sales, marketing, manufacturing and distribution activities. As a result, we will need substantial additional funding to support our continuing operations and pursue our development and growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private offerings of securities, debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a negative effect on our business, results of operations and financial condition.

Financial Operations Overview

Revenue

We have not generated any revenue from product sales, and do not expect to generate any revenue from the sale of products in the near future. During the year ended December 31, 2024, we recognized $2.3 million of collaboration revenue, which is related to our research collaboration and license agreement with Novo Nordisk. During the year ended December 31, 2023, we recognized no collaboration revenue.

For additional information about our revenue recognition policy, see Note 2 and Note 13 in the consolidated financial statements included in this Annual Report on Form 10-K.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research and development activities, including our discovery of novel genetic medicines and the development of our product candidates, salaries and benefits, and third-party license fees. We expense research and development costs as incurred, which include:

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employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for employees engaged in research and development efforts;

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expenses incurred under agreements with CROs that conduct our preclinical studies and clinical trials;

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costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials, as well as supplies and materials used to manufacture clinical trial materials;

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costs of outside consultants and contractors engaged in research and development activities, including their fees and travel expenses;

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payments made under third-party licensing agreements; and

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direct and allocated expenses for facilities.

Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical studies, clinical trials or other services performed. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. Significant judgment and estimates are made in determining the accrued expense balances and prepaid expense balances at the end of any reporting period.

A large portion of our research and development expenses have been external expenses, which we track on a program-by-program basis following nomination as a development candidate. Our internal research and development expenses are primarily personnel-related expenses, including stock-based compensation expense and facility expenses, mainly including office rent expenses and depreciation expenses. We do not allocate our internal research and development expenses to specific drug candidate programs as they are deployed across multiple projects under research and development.

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The successful development of our product candidates is highly uncertain. We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates, conduct discovery and research activities for our preclinical programs, and expands our pipeline. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. Our clinical development costs are expected to increase significantly as we commence clinical trials. We anticipate that our expenses will increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

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the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies, clinical trials and other research and development activities;

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establishing an appropriate safety profile with IND enabling studies;

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successful enrollment in and completion of clinical trials;

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whether our product candidates show safety and efficacy in our clinical trials;

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receipt of marketing approvals from applicable regulatory authorities;

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making arrangements with third-party manufacturers;

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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

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

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continued acceptable safety profile of products following any regulatory approval.

Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on other product candidates. For example, if the FDA, EMA, HREC, TGA or another regulatory authority were to delay the planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any planned clinical trial, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of employee related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs for our executive and administrative functions. General and administrative expenses also include professional services, including legal, finance, accounting, human resources and other consulting fees. General and administrative expenses also include facility costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also expect to continue to incur costs associated with being a public company and maintaining controls over financial reporting, including costs of accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses.

Other Income, Net

Other income, net primarily consists of interest income earned on money market fund accounts and marketable securities.

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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:

Collaboration Revenue

During the year ended December 31, 2024, we recognized $2.3 million of collaboration revenue from our research collaboration and license agreement with Novo Nordisk. During the year ended December 31, 2023, we recognized no collaboration revenue.

Research and Development Expenses

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

Research and development expenses were $63.6 million for the year ended December 31, 2024, compared to $57.2 million for the year ended December 31, 2023. The increase was primarily due to a $19.3 million increase in KRRO-110 external expenses, which was primarily attributable to higher manufacturing activities in 2024 to produce the clinical drug product and an increase in clinical trial activities in 2024 for the Phase 1/2a REWRITE clinical trial. A portion of the increase was also due to a $3.2 million increase in personnel-related expenses driven by an increase in headcount to support the expansion of our research and clinical development function, and a $2.1 million increase in facility costs due to the expansion of our mixed-use office spaces and overall support of research and development activities. These increases were partially offset by a $18.2 million decrease in other research and pre-development candidates expenses, which was primarily attributable to the breakout of

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KRRO-110 external expenses upon its December 2023 development candidate nomination as well as less lab supplies and consumables purchased for research and preclinical activities.

General and Administrative Expenses

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

General and administrative expenses were $30.5 million for the year ended December 31, 2024, compared to $27.3 million for the year ended December 31, 2023. The increase of $3.3 million was primarily driven a $1.9 million increase in information technology, insurance and other costs, a $1.1 million increase in professional fees, and a $0.5 million increase in facility costs primarily due to the expansion of our mixed-use office spaces and overall support of the growth of our company, partially offset by a $0.3 million decrease in employee related expenses. We incurred $2.5 million of severance cost for Frequency employees related to the November 2023 business combination during year ended December 31, 2023. No comparable costs occurred during year ended December 31, 2024.

Other Income, Net

Total other income, net was $8.5 million for the year ended December 31, 2024, compared to $3.4 million for the year ended December 31, 2023. The increase of $5.1 million was primarily due to an increase of $5.1 million in interest income earned from our cash, cash equivalents and marketable securities driven by interest rates and higher marketable securities balance.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have generated recurring net losses. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. Since inception, we have funded our operations primarily through proceeds from the issuance of convertible preferred stock and common stock. To date, we have raised approximately $223.6 million of aggregate gross proceeds from the sale of convertible preferred stock, $117.3 million from the sale of shares of common stock issued in a private placement that closed immediately prior to the November 2023 business combination and $70.0 million from the April 2024 private placement of shares of our common stock. As of December 31, 2024, we had cash, cash equivalents and marketable securities of $163.1 million.

Since inception, we have incurred significant operating losses and, as of December 31, 2024, had an accumulated deficit of $266.6 million. We expect to continue to incur significant expenses, operating losses, and negative operating cash flows for the foreseeable future. In addition, we have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all.

In December 2024, we entered into a sales agreement with TD Securities (USA) LLC, or TD Cowen, under which we may, from time to time, issue and sell shares of our common stock having aggregate sales proceeds of up to $100.0 million, in a series of one or more at-the-market equity offerings. As of December 31, 2024, we have not sold any shares of common stock under our at-the-market equity offering program.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $163.1 million. We expect that our cash, cash equivalents and marketable securities outstanding as of December 31, 2024, will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2026 (including completion of the Phase 1/2a REWRITE clinical trial of KRRO-110 and progress additional product candidates). We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. We may also pursue additional cash resources through public or private equity, collaborations or debt financings. There is no assurance that we will be successful in obtaining sufficient financing on acceptable terms to continue funding our operations.

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Funding Requirements

We expect to continue to incur significant expenses, operating losses, and negative operating cash flows for the foreseeable future as we continue our novel genetic medicine discovery efforts, advance our pipeline candidates into the clinic and through clinical trials, seek regulatory approval of our product candidates and pursue commercialization of any approved product candidates. In addition, we expect to continue to incur costs associated with operating as a public company.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact amount of our working capital requirements.

Our future capital requirements will depend on many factors, including:

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the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for KRRO-110 and other product candidates we may develop;

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the cost of continuing to build our OPERA platform and discover additional novel genetic medicines;

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the extent to which we partner our programs, acquires or in-licenses other product candidates and technologies or enters into additional collaborations;

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the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other regulatory authorities;

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the timing and amount of milestone and royalty payments that we are required to make or eligible to receive under any future collaboration and license agreements;

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our headcount growth and associated costs as we expand our research and development efforts;

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the cost of expanding, maintaining and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

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the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any product candidates for which we receive marketing approval;

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the cost and timing of completion of commercial-scale manufacturing activities;

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the effect of competing technological and market developments; and

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the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar 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 and/or may reduce the value of our common shares. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product research and development or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

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Cash Flows

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our cash flows for the years ended December 31, 2024 and 2023:

Cash Used in Operating Activities

Net cash used in operating activities was $60.1 million for the year ended December 31, 2024, which consisted of $83.6 million of net loss, $9.9 million of non-cash adjustments to net loss and an increase of $13.6 million in the net change in operating assets and liabilities. Non-cash adjustments primarily consisted of $3.3 million of amortization of operating lease right of use, or ROU, assets, $4.5 million of stock-based compensation expenses, and $3.6 million of depreciation expenses partially offset by $1.8 million of net amortization of premiums and discounts on marketable securities. The increase in net assets consisted primarily of a $1.7 million and $9.4 million increase in accounts receivable and deferred revenue, respectively, a $11.6 million increase in operating lease liabilities, a $0.7 million increase in prepaid expenses and other current assets, offset by a $4.0 million decrease in accrued expenses and other liabilities and a $1.3 million decrease in accounts payable.

Net cash used in operating activities was $67.3 million for the year ended December 31, 2023, which consisted of $81.2 million of net loss, $9.6 million of non-cash adjustments to net loss and an increase of $4.3 million in the net change in operating assets and liabilities. Non-cash adjustments primarily consisted of $3.6 million of depreciation expense, $3.6 million of amortization of operating lease ROU assets, and $2.4 million of stock-based compensation expenses. The increase in net assets consisted primarily of a $3.1 million increase in accounts payable, a $2.0 million increase in other non-current assets, a $1.3 million increase in operating lease liabilities, a $1.3 million increase in accrued expenses and other liabilities, offset by a $0.6 million decrease in prepaid and other current assets.

Cash Provided by Investing Activities

Net cash used in investing activities was $123.3 million for the year ended December 31, 2024 and consisted primarily of $146.3 million of purchase of marketable securities and $17.9 million of purchase of property and equipment, offset by $40.9 million of proceeds from maturities of marketable securities.

Net cash provided by investing activities was $11.2 million for the year ended December 31, 2023 and consisted primarily of $19.0 million proceeds from maturity of marketable securities, offset by $7.8 million of purchase of property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities was $69.4 million for the year ended December 31, 2024 and consisted primarily of net proceeds of $67.4 million from the April 2024 private placement of shares of our common stock.

Net cash provided by financing activities was $187.8 million for the year ended December 31, 2023 and consisted primarily of net proceeds of $45.5 million from the issuance of Legacy Korro’s Series B-2 convertible preferred stock, net proceeds of $117.3 million from the issuance of common stock in a private placement that closed immediately prior to the November 2023 business combination and net proceeds of $24.4 million in connection with the reverse recapitalization.

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 generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues 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. On an ongoing basis,

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we evaluate our judgments and estimate in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, 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.

Accrued and Prepaid Research and Development Expenses

As part of the process of preparing the consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with internal personnel and vendors 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 require advance payments; however, some providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met. 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 the estimates with the service providers and make adjustments if necessary.

We recognize expenses related to preclinical studies, clinical trials and other studies on our estimates of the services performed pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies, clinical trials and other studies 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. 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 prepaid expense 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. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.

Contractual Obligations and Other Commitments

Our contractual obligations and commitments relate primarily to our operating leases and non-cancelable purchase obligations under agreements with various research and development organizations and suppliers in the ordinary course of business. See Note 14, "Commitments and Contingencies" to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Recent Accounting Pronouncements

A description of recently issued and recently adopted accounting pronouncements applicable to our financial position and results of operations is included in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Smaller Reporting Company Status

We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenues exceed $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the prior June 30.