Oruka Therapeutics, Inc. (ORKA) FY 2024 MD&A

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 consolidated
financial statements and the related notes included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2024
(this “Annual Report”). This discussion contains forward-looking statements that involve risks and uncertainties, such as
statements regarding our plans, objectives, expectations, intentions, hopes, beliefs, strategies or projections regarding the future
of its pipeline and business and words such as “may,” “will,”, “should,” “could,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,”
“potential,” “seek,” “target,” “goal,” “intend” and variations of such words
and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying
assumptions, and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on these
forward-looking statements. These forward-looking statements are based on current expectations and beliefs concerning future developments
and their potential effects. There can be no assurance that future developments affecting us will be those that have been anticipated.
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions
that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Annual
Report entitled “Risk Factors” and elsewhere in this Annual Report. These and many other factors could affect our future
financial and operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date
of this Annual Report. As used in this Annual Report, unless the context suggests otherwise, “we,” “us,” “our,”
“the Company,” “Oruka Therapeutics, Inc.,” “Oruka,” “ARCA biopharma, Inc.,” “ARCA,”
refers to Oruka Therapeutics, Inc. and its consolidated subsidiaries, including Oruka Therapeutics Operating Company LLC, taken as a
whole.

Overview

We
are a clinical-stage biotechnology company focused on developing novel monoclonal antibody therapeutics for psoriasis (“PsO”)
and other inflammatory and immunology (“I&I”) indications. Our name is derived from or, for “skin,”
and arukah, for “restoration,” and reflects our mission to deliver therapies for chronic skin diseases that provide
patients the most possible freedom from their condition. Our strategy is to apply antibody engineering and format innovations to validated
modes of action, which we believe will enable us to improve meaningfully upon the efficacy and dosing regimens of standard-of-care medicines
while significantly reducing technical and biological risk. Our programs aim to treat and potentially modify disease by targeting mechanisms
with proven efficacy and safety involved in disease pathology and the activity of pathogenic tissue-resident memory T cells (“TRMs”).

Our
lead program, ORKA-001, is designed to target the p19 subunit of interleukin-23 (“IL-23p19”) for the treatment of PsO. Our
co-lead program, ORKA-002, is designed to target interleukin-17A and interleukin-17F (“IL-17A/F”) for the treatment of PsO,
psoriatic arthritis (“PsA”), and other conditions. These programs each bind their respective targets at high affinity and
incorporate half-life extension technology with the aim to increase exposure and decrease dosing frequency. We believe that our focused
strategy, differentiated portfolio, and deep expertise position us to set a new treatment standard in large I&I markets with
continued unmet need.

Since
our inception in February 2024, we have devoted substantially all of our resources to raising capital, organizing and staffing the
company, business and scientific planning, conducting discovery and research activities, establishing arrangements with third parties
for the manufacture of our programs and component materials, and providing general and administrative support for these operations. We
do not have any programs approved for sale and have not generated any revenue from product sales. To date, we have funded our operations
primarily with proceeds from the issuance of convertible preferred stock, common stock, a convertible note, pre-funded warrants, and
the proceeds from the reverse recapitalization and merger with ARCA biopharma, Inc., our Pre-Closing Financing and subsequent PIPE Financing
(as defined and further described in “Recent developments” below).

Since
our inception, we have incurred significant losses and negative cash flows from our operations. Our ability to generate product revenue
sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of any programs
we may develop. We generated net losses of $83.7 million for the period from February 6, 2024 (inception) to December 31, 2024.
For the period from February 6 (inception) to December 31, 2024, we have used net cash of $57.8 million for our operating activities.

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We
had cash, cash equivalents, and marketable securities of $393.7 million as of December 31, 2024. We expect that our existing cash, cash
equivalents, and marketable securities will be sufficient to fund our operating plans for at least twelve months from the date of filing
of this Annual Report. We expect to continue to incur substantial losses for the foreseeable future, and our transition to profitability
will depend upon successful development, approval and commercialization of our product candidates and upon achievement of sufficient
revenues to support our cost structure.

ORKA-001

ORKA-001
is a high affinity, extended half-life monoclonal antibody (“mAb”) designed to target IL-23p19. IL-23 is a pro-inflammatory
cytokine that plays a critical role in the proliferation and development of T helper 17 (“Th17”) cells, which are the primary
drivers of several autoimmune and inflammatory disorders, including PsO. IL-23 is composed of two subunits: a p40 subunit that is
shared with IL-12 and a p19 subunit that is specific to IL-23. First-generation IL-23 antibodies bound p40 and inhibited both IL-12 and
IL-23 signaling, while more recent IL-23 antibodies targeting the p19 subunit have shown improved efficacy and safety. Based on preclinical
evidence, we believe that ORKA-001 could achieve higher response rates than established therapies in PsO while requiring less frequent
dosing and maintaining the favorable safety profile of therapies targeting IL-23p19.

ORKA-001
is engineered with YTE half-life extension technology, a specific three amino acid change in the fragment crystallizable (“Fc”)
domain to modify the pH-dependent binding to the neonatal Fc receptor. As a result, it has a pharmacokinetic profile designed to support
a subcutaneous (“SQ”) injection as infrequently as once or twice a year. In addition, emerging evidence suggests that IL-23
blockade can modify the disease biology of PsO, possibly leading to durable remissions and preventing the development of PsA. We
believe that the expected characteristics of ORKA-001 increase its potential to deliver these disease-modifying benefits.

We
initiated the dosing of healthy volunteers in a Phase 1 trial of ORKA-001 in the fourth quarter of 2024. We expect to share interim data
from the first-in-human trial in healthy volunteers, including initial pharmacokinetic data, in the second half of 2025 and initial efficacy
data in PsO patients in the second half of 2026. Based on recent precedent for PsO, we anticipate that the entire development program
from first-in-human to biologics license application (“BLA”) filing could take as little as six to seven years based
on the averages for recently approved medicines. However, we have no control over the length of time needed for United States Food and
Drug Administration (“FDA”) review, and this timeline could vary.

ORKA-002

ORKA-002
is a high affinity, extended half-life mAb designed to target IL-17A and IL-17F (“IL-17A/F”). IL-17 inhibition has become
central to the treatment of psoriatic diseases, including PsO and PsA, and has also shown efficacy in other I&I indications,
such as hidradenitis suppurativa and axial spondyloarthritis. More recently, the importance of inhibiting the IL-17F isoform along
with IL-17A has become appreciated, and dual blockade with the recently approved therapy Bimzelx (bimekizumab) has led to higher response
rates in patients than blockade of IL-17A alone. ORKA-002 is designed to bind IL-17A/F at similar epitopes, or binding sites, and affinity
ranges as bimekizumab, but incorporates half-life extension technology that could enable more convenient dosing intervals. We plan to
initiate the dosing of healthy volunteers in a Phase 1 trial of ORKA-002 in the third quarter of 2025. We expect to share interim
data from the first-in-human trial in healthy volunteers, including initial pharmacokinetic data, in the first half of 2026.

We
view ORKA-002 and ORKA-001 as highly complementary. Patients with moderate-to-severe PsO that have purely skin manifestations are most
often treated with IL-23 inhibitors due to the high efficacy and tolerability of this mechanism. However, for patients who also have
joint involvement, or signs and symptoms of PsA, an IL-17 inhibitor is typically used due to its efficacy in addressing both skin and
joint symptoms. In addition, IL-17 inhibitors are often used in patients with highly resistant skin symptoms that do not adequately resolve
through treatment with an IL-23 inhibitor. Furthermore, we have the potential opportunity to administer ORKA-002 and ORKA-001 sequentially,
called ORKA-021, to combine two features of each program: the rapid response of an IL-17 inhibitor with the ideal maintenance profile
of an IL-23 inhibitor. We believe that ORKA-001 and ORKA-002 provide the potential to offer a highly compelling product profile for most
patients with PsO and/or PsA, as well as the opportunity to address additional I&I indications.

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Additional
Pipeline Program

We
have a third mAb program, ORKA-003, designed to target an undisclosed pathway. Our strategy as a company is to remain highly focused
on I&I diseases, and specifically on inflammatory dermatology conditions. Our third program provides the potential for indication
expansion beyond PsO and may create combination opportunities with our more advanced programs.

Recent
Developments

Acquisition
of Pre-Merger Oruka

On
August 29, 2024 (the “Merger Closing”), we completed our acquisition (the “Merger”) of Oruka Therapeutics, Inc.
(“Pre-Merger Oruka”) pursuant to an Agreement and Plan of Merger and Reorganization, dated as of April 3, 2024 (the “Merger
Agreement”). Following the transactions contemplated by the Merger Agreement, Pre-Merger Oruka merged with and into Atlas Merger
Sub Corp., a wholly owned subsidiary of ARCA biopharma, Inc. (“ARCA”) and following that, Pre-Merger Oruka then merged with
and into Atlas Merger Sub II, LLC (“Second Merger Sub”), with Second Merger Sub being the surviving entity. Second Merger
Sub changed its corporate name to “Oruka Therapeutics Operating Company, LLC.” Pre-Merger Oruka was a pre-clinical stage
biotechnology company that was incorporated on February 6, 2024 under the direction of Peter Harwin, a Managing Member of Fairmount Funds
Management LLC (“Fairmount”), for the purposes of holding rights to certain intellectual property being developed by Paragon
Therapeutics, Inc. (“Paragon”). On August 29, 2024, we changed our name from “ARCA biopharma, Inc.” (“ARCA”)
to “Oruka Therapeutics, Inc.” and our Nasdaq ticker symbol from “ABIO” to “ORKA”.

Pre-Closing
Financing

Immediately
prior to the execution and delivery of the Merger Agreement on April 3, 2024, certain new and existing investors of Pre-Merger Oruka
entered into a subscription agreement with Pre-Merger Oruka (the “Subscription Agreement”), pursuant to which, and on the
terms and subject to the conditions of which, immediately prior to the Closing, those investors purchased shares of common stock of Pre-Merger
Oruka (“Pre-Merger Oruka Common Stock”) and Pre-Merger Oruka pre-funded warrants for gross proceeds of approximately $275.0
million (which includes $25.0 million of proceeds previously received from the issuance of the Convertible Note (refer to Note 7 in our
consolidated financial statements included in Part II – Item 8 of this Annual Report for additional details) and accrued interest
on such note which converted to shares of Pre-Merger Oruka Common Stock) (the “Pre-Closing Financing”). We incurred transaction
costs of $20.5 million, which was recorded as a reduction to additional paid-in capital in the consolidated financial statements. At
the Closing, the shares of Pre-Merger Oruka Common Stock and Pre-Merger Oruka pre-funded warrants issued pursuant to the Subscription
Agreement were converted into shares of Company Common Stock and pre-funded warrants of Company Common Stock in accordance with the Exchange
Ratio (defined below).

In
accordance with an Exchange Ratio determined by terms of the Merger Agreement and upon the effective time of the First Merger (the “First
Effective Time”), (i) each then-issued and outstanding share of Pre-Merger Oruka Common Stock including outstanding and unvested
Pre-Merger Oruka restricted stock and shares of Pre-Merger Oruka Common Stock issued in connection with the Subscription Agreement, were
converted into the right to receive a number of shares of Company Common Stock, equal to the exchange ratio of 6.8569 shares of Company
Common Stock (the “Exchange Ratio”), which were subject to the same vesting provisions as those immediately prior to the
Merger, (ii) each share of Pre-Merger Oruka Series A convertible preferred stock, par value $0.0001 (“Pre-Merger Oruka Series A
Preferred Stock”), outstanding immediately prior to the First Effective Time was converted into the right to receive a number of
shares of ARCA Series B non-voting convertible preferred stock, par value $0.001 per share, which are convertible into shares of Company
Common Stock at a conversion ratio of approximately 83.3332:1 after the reverse stock split discussed below, (iii) each outstanding option
to purchase Pre-Merger Oruka Common Stock was converted into an option to purchase shares of Company Common Stock, (iv) each outstanding
warrant to purchase shares of Pre-Merger Oruka Common Stock was converted into a warrant to purchase shares of Company Common Stock,
and (v) each share of Company Common Stock issued and outstanding at the First Effective Time remain issued and outstanding in accordance
with its terms and such shares. Subsequent to the close of the merger, the common stock shares were then, subject to a reverse stock
split of 1-for-12 effected on September 3, 2024 (“Reverse Stock Split”).

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As
part of the Pre-Closing Financing and the Closing, the investors in the Pre-Closing Financing received 22,784,139 shares of Company Common
Stock in exchange for 39,873,706 shares of Pre-Merger Oruka Common Stock (which includes the issuance of 2,722,207 shares of Company
Common Stock in exchange for 4,764,032 shares of Pre-Merger Oruka Common Stock on the conversion of Convertible Note along with the accrued
interest through the conversion date) and 5,522,207 Company pre-funded warrants in exchange for 9,664,208 Pre-Merger pre-funded warrants.

The
Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Pre-Merger Oruka
was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the fact that, immediately
following the Merger: (i) Pre-Merger Oruka stockholders own a substantial majority of the voting rights in the combined company; (ii)
Pre-Merger Oruka’s largest stockholders retain the largest interest in the combined company; (iii) Pre-Merger Oruka designated
a majority of the initial members of the board of directors of the combined company; and (iv) Pre-Merger Oruka’s executive management
team became the management team of the combined company. Accordingly, for accounting purposes: (i) the Merger was treated as the equivalent
of Pre-Merger Oruka issuing stock to acquire the net assets of ARCA; (ii) the reported historical operating results of the combined company
prior to the Merger are those of Pre-Merger Oruka; and (iii) Pre-Merger Oruka was not a variable interest entity as it had sufficient
equity at risk in order to fund its next development milestones at the time of the reverse recapitalization. Additional information regarding
the Merger is included in Note 3 to the consolidated financial statements included in Part II – Item 8 of this Annual Report.

Reverse
Stock Split

On
September 3, 2024, we effected the Reverse Stock Split, a 1-for-12 reverse stock split of Company Common Stock. The par value per share
and the number of authorized shares were not adjusted as a result of the Reverse Stock Split. The shares of Company Common Stock underlying
outstanding stock options, common stock warrants and other equity instruments were proportionately reduced and the respective exercise
prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. All references
to common stock, options to purchase common stock, outstanding common stock warrants, common stock share data, per share data, and related
information contained in the consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse
Stock Split for all periods presented, unless otherwise specifically indicated or the context otherwise requires.

PIPE
Financing

On
September 11, 2024, we entered into a Securities Purchase Agreement for a private placement (the “PIPE Financing”) with certain
institutional and accredited investors. The closing of the PIPE Financing occurred on September 13, 2024.

Pursuant
to the Securities Purchase Agreement, the investors purchased an aggregate of 5,600,000 shares of Company Common Stock at a purchase
price of $23.00 per share, an aggregate of 2,439 shares of the Company’s Series A non-voting convertible preferred stock, par value
$0.001 per share (“Company Series A Preferred Stock”), at a purchase price of $23,000.00 per share (each Company Series A
Preferred Stock is convertible into 1,000 shares of Company Common Stock), and pre-funded warrants to purchase an aggregate of 680,000
shares of Company Common Stock at a purchase price of $22.999 per pre-funded warrant, for aggregate net proceeds of approximately $188.7
million (net of issuance costs of $11.9 million).

Components
of Results of Operations

Revenue

To
date, we have not generated revenue from any sources, including product sales, and do not expect to generate any revenue from the sale
of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory
approval, we may generate revenue in the future from product sales or payments from future collaboration or license agreements that we
may enter into with third parties, or any combination thereof. We cannot predict if, when, or to what extent we will generate revenue
from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product
candidates.

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Operating
Expenses

Research
and Development

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

We
expense research and development costs as incurred. Non-refundable 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, or when it is no longer expected that the goods will be delivered or the services
rendered. Our primary focus since inception has been the identification and development of our pipeline programs. Our research and development
expenses primarily consist of external costs, such as fees paid to Paragon under the Option Agreements. See “—Contractual
Obligations and Commitments” below for further details on the Option Agreements.

We
expect our research and development expenses will increase substantially for the foreseeable future as we continue to invest in research
and development activities related to the continued development of our programs, developing any future programs, including investments
in manufacturing, as we advance any program we may identify and continue to conduct clinical trials. The success of programs we may identify
and develop will depend on many factors, including the following:

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Any
changes in the outcome of any of these variables with respect to the development of programs that we may identify could mean a significant
change in the costs and possible delays in timing associated with the development of such programs. For example, if the FDA or another
regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the
completion of clinical development of a program, or if we experience significant delays in our clinical trials due to patient enrollment
or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
We may never obtain regulatory approval for any of our programs.

General
and Administrative

General
and administrative expenses consist primarily of personnel-related expenses, including salaries, bonuses, employee benefits, travel,
and stock-based compensation, for our executive and other administrative personnel. Other significant general and administrative expenses
include legal services, including intellectual property and corporate matters; professional fees for accounting, auditing, tax, insurance,
and allocated human resource costs, information technology costs, and facility-related costs, including rent, utilities, maintenance,
and depreciation for our leased office space.

We
expect our general and administrative expenses will increase substantially for the foreseeable future as we anticipate an increase in
our personnel headcount to support the expansion of research and development activities, as well as to support our operations generally.
We also expect to continue to incur significant expenses associated with being a public company, including costs related to accounting,
audit, legal, regulatory, and tax-related services associated with maintaining compliance with applicable Nasdaq and SEC requirements;
director and officer insurance costs; and investor and public relations costs. We also expect to incur additional intellectual property-related
expenses as we file patent applications to protect innovations arising from our research and development activities.

Other
Income, Net

Other
income, net consists of interest earned on our cash, cash equivalents, and marketable securities; interest expense on the convertible
note from a related party (see discussion herein); and foreign currency transactions gains and losses. Interest expense relates to a
convertible note (the “Convertible Note”) issued to Fairmount Healthcare Fund II, L.P. (“Fairmount”), a
related party, in March 2024. At the effective time of the Merger, the Convertible Note, along with the accrued interest, was automatically
converted into Company Common Stock.

Income
Taxes

No
provision for income taxes was recorded for the period from February 6, 2024 (inception) through December 31, 2024. Deferred tax
assets generated from our net operating losses have been fully offset by the valuation allowance as we believe it is not more likely
than not that the benefit will be realized due to our cumulative losses generated to date.

Results
of Operations for the Period from February 6, 2024 (inception) to December 31, 2024

The
following table summarizes our results of operations for the period presented (in thousands):

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Research
and Development Expenses

The
following table summarizes our research and development expenses for the period presented (in thousands):

Research
and development expenses were $75.1 million for the period from February 6, 2024 (inception) to December 31, 2024 and consisted
primarily of the following:

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General
and Administrative Expenses

The
following table summarizes our general and administrative expenses for the period presented (in thousands):

General
and administrative expenses were $13.1 million for the period from February 6, 2024 (inception) to December 31, 2024 and consisted
primarily of the following:

Total
Other Income, Net

Interest
income from cash equivalents and marketable securities was $5.9 million for the period from February 6, 2024 (inception) to December
31, 2024.

Interest
expense was $1.5 million for the period from February 6, 2024 (inception) to December 31, 2024 relating to the Convertible Note from
Fairmount.

Liquidity
and Capital Resources

As
of December 31, 2024, we had $393.7 million of cash, cash equivalents, and marketable securities.

Since
our inception, we have incurred significant operating losses and negative cash flow from operations. We expect to incur significant expenses
and operating losses for the foreseeable future as we continue the pre-clinical and clinical development of our programs and our early-stage
research activities. We have not yet commercialized any products, and we do not expect to generate revenue from sales of products for
several years, if at all. Through December 31, 2024, we had funded our operations primarily with proceeds from issuances of convertible
preferred stock, common stock, a convertible note, and pre-funded warrants. In March 2024, we received $2.9 million in net
proceeds from the issuance of Pre-Merger Oruka Series A Preferred Stock and $25.0 million in gross proceeds from the issuance
of the Convertible Note, both of which were related party transactions. In August 2024, we raised approximately $228.0 million in net
proceeds from Pre-Closing Financing and received $4.9 million in cash from ARCA upon consummation of the Merger. In September 2024, we
received approximately $188.7 million in net proceeds from the issuance of common stock, Company Series A Preferred Stock, and pre-funded
warrants in connection with the PIPE Financing.

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Our
primary use of cash is to fund the development of our product candidates and advance our pipeline. This includes both the research and
development costs and the general and administrative expenses required to support those operations. Since we are a clinical stage biotechnology
company, we have incurred significant operating losses since our inception and we anticipate such losses, in absolute dollar terms, to
increase as we continue to pursue clinical development of our product candidates, prepare for the potential commercialization of our
product candidates, and expand our development efforts in our pipeline of nonclinical candidates. We expect that our existing cash, cash
equivalents, and marketable securities will be sufficient to fund our operating plans for at least twelve months from the date of filing
of this Annual Report. We will need to secure additional financing in the future to fund additional research and development, and before
a commercial drug can be produced, marketed, and sold. If we are unable to obtain additional financing or generate license or product
revenue, the lack of liquidity could have a material adverse effect on our company.

Cash
Flows

The
following table summarizes our cash flows for the period presented (in thousands):

Operating
Activities

From
February 6, 2024 (inception) to December 31, 2024, net cash used in operating activities was $57.8 million, which was primarily
attributable to a net loss of $83.7 million, offset by net non-cash charges of $14.3 million and net changes in operating activities
of $11.6 million. Non-cash charges primarily consisted of $14.9 million in stock-based compensation expense (including $10.4 million
related to the Paruka warrant) and $1.5 million of non-cash interest expense, partially offset by net accretion of premiums and discounts
on marketable securities of $2.2 million. Net changes in our operating activities primarily consisted of a $3.5 million increase in accounts
payable, a $3.3 million increase in accrued expenses and other current liabilities, a $6.0 million increase in related parties accounts
payable and other current liabilities, partially offset by a $1.1 million increase in prepaid expenses and other current assets. The
increase in amounts due to related parties, accounts payable, and accrued expenses and other current liabilities was primarily due to
an increase in our business activity, as well as vendor invoicing and payments. The increase in prepaid expenses and other current assets
was primarily due to prepaid research and development expenses with our contract research organization.

Investing
Activities

From
February 6, 2024 (inception) to December 31, 2024, net cash used in investing activities was $330.1 million, which was primarily
attributable to purchases of marketable securities.

Financing
Activities

From
February 6, 2024 (inception) to December 31, 2024, net cash provided by financing activities was $449.5 million, consisting of $228.0
million of net proceeds from the Pre-Closing Financing, $188.7 million of net proceeds from the PIPE Financing, $25.0 million of net
proceeds from the issuance of notes payable to related parties, $4.9 million of cash acquired in connection with the reverse recapitalization
and $2.9 million of net proceeds from issuance of the Pre-Merger Oruka Series A Preferred Stock.

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Contractual
Obligations and Commitments

We
enter into contracts in the normal course of business with CROs, CMOs and with other vendors for preclinical research studies, clinical
trials, manufacturing, and other services and products for operating purposes. These contracts generally provide for termination on notice
or may have a potential termination fee if a purchase order is cancelled within a specified time, and therefore, are cancelable contracts.
We do not expect any such contract terminations and did not have any non-cancellable obligations under these agreements as of December
31, 2024.

Paragon
Therapeutics - Option Agreements

In
March 2024, we entered into two antibody discovery and option agreements (“Option
Agreements”) with Paragon and Paruka Holding, LLC (“Paruka”). Under the
terms of each agreement, Paragon identifies, evaluates, and develops antibodies directed
against certain mutually agreed therapeutic targets of interest to us. From time to time,
we can choose to add additional targets to the collaboration upon agreement with Paragon
and Paruka. Under the Option Agreements, we have the exclusive option to, on a research program-by-research
program basis, be granted an exclusive, worldwide license to all of Paragon’s right,
title, and interest in and to the intellectual property resulting from the applicable research
program to develop, manufacture, and commercialize the antibodies and products directed to
the selected target(s) (each, an “Option”). We have initiated certain research
programs with Paragon that generally focus on discovering, generating, identifying and/or
characterizing antibodies directed to a particular target (each, a “Research Program”),
including for IL-23 and IL-17A/F for ORKA-001 and ORKA-002, respectively. Our exclusive option
with respect to each Research Program is exercisable at our sole discretion at such time
as specified in the Option Agreements (the “Option Period”). There is no payment
due upon exercise of an Option pursuant to the Option Agreements. For each of these agreements,
once we enter into the corresponding license agreements, we will be required to make non-refundable
milestone payments to Paragon of up to $12.0 million under each respective agreement upon
the achievement of certain clinical development milestones, up to $10.0 million under each
respective agreement upon the achievement of certain regulatory milestones, as well as a
low single-digit percentage royalty for antibody products beginning on the first commercial
sale in each program.

We
may terminate any Option Agreement or any Research Program at any time for any or no reason upon 30 days’ prior written notice
to Paragon, provided that we must pay certain unpaid fees due to Paragon upon such termination, as well as any non-cancellable obligations
reasonably incurred by Paragon in connection with its activities under any terminated Research Program. Paragon may terminate any Option
Agreement or a Research Program immediately upon written notice to us if, as a result of any action or failure to act by us or our affiliates,
such Research Program or all material activities under the applicable Research Plan are suspended, discontinued or otherwise delayed
for a certain consecutive number of months. Each party has the right to terminate the Option Agreements or any Research Program
upon material breach that remains uncured or the other party’s bankruptcy.

Additionally,
as part of the Option Agreements, on December 31, 2024 and December 31, 2025, we granted and will grant, respectively, Paruka a
warrant to purchase a number of shares equal to 1.00% of outstanding shares as of the date of the grant on a fully-diluted basis, with
an exercise price equal to the fair market value of the underlying shares on the grant date.

The
warrant is liability-classified and after the initial recognition, the liability is adjusted to fair value at the end of each reporting
period, with changes in fair value recorded in the consolidated statement of operations and comprehensive loss as stock-based compensation
expenses under research and development expenses. On issuance of the December 31, 2024 warrant to Paruka, the change in fair value of
the warrant immediately prior to issuance was recorded in the consolidated statement of operations and comprehensive loss and the resultant
carrying value of the liability was reclassified to equity on the consolidated balance sheet as of December 31, 2024.

Pursuant
to the Option Agreements, on a research program-by-research program basis following the finalization of the research plan for each respective
research program, we were required to pay Paragon a one-time, nonrefundable research initiation fee of $0.8 million related to the
ORKA-001 program. This amount was recognized as a research and development expense during the period from February 6, 2024 (inception)
to December 31, 2024. In June 2024, pursuant to the Option Agreements with Paragon, we completed the selection process of our development
candidate for IL-23 antibody for ORKA-001 program. We were responsible for 50% of the development costs incurred through the completion
of the IL-23 selection process. We received the rights to at least one selected IL-23 antibody in June 2024. During the period from February
6, 2024 (inception) to December 31, 2024, we exercised our option for ORKA-001 and recorded a $1.5 million milestone payment related
to the achievement of development candidate as research and development expense in our consolidated statement of operations and comprehensive
loss. In addition, during the period from February 6, 2024 (inception) to December 31, 2024, we recorded a $2.5 million milestone payment
related to the first dosing of a human subject in a Phase 1 trial of ORKA-001 in December 2024 as research and development expense in
our consolidated statement of operations and comprehensive loss. Our share of development costs incurred for the period from February
6, 2024 (inception) to December 31, 2024 was $13.5 million, which was recorded as research and development expenses. An amount of $2.8
million related to ORKA-001 is included in related party accounts payable and other current liabilities as of December 31, 2024.

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We
were also required to reimburse Paragon $3.3 million for development costs related to ORKA-002 incurred by Paragon through December 31,
2023 and certain other development costs incurred by Paragon between January 1, 2024 and March 6, 2024 as stipulated by the
Option Agreements. This amount was recognized as a research and development expense during the period from February 6, 2024 (inception)
to December 31, 2024. We are also responsible for the development costs incurred by Paragon from January 1, 2024 through the completion
of the IL-17 selection process. We recognized an amount of $0.8 million payable to Paragon for the research initiation fee related
to ORKA-002 following the finalization of the ORKA-002 research plan. This was recognized as research and development expenses in the
period from February 6, 2024 (inception) to December 31, 2024. During the period from February 6, 2024 (inception) to December 31, 2024,
we exercised our option for ORKA-002 and recorded a $1.5 million milestone payment related to the achievement of development candidate
as research and development expense in our consolidated statement of operations and comprehensive loss. We accounted for development
costs of $7.8 million for the period from February 6, 2024 (inception) to December 31, 2024 as research and development expenses. An
amount of $2.7 million related to ORKA-002 is included in related party accounts payable and other current liabilities as of December
31, 2024.

We
expense the service fees as the associated costs are incurred when the underlying services
are rendered. Such amounts are classified within research and development expenses in the
accompanying consolidated statement of operations and comprehensive loss.

We
concluded that the rights obtained under the Option Agreements represent an asset acquisition whereby the underlying assets comprise
in-process research and development assets with no alternative future use. The Option Agreements did not qualify as a business combination
because substantially all of the fair value of the assets acquired was concentrated in the exclusive license options, which represent
a group of similar identifiable assets. The research initiation fee represents a one-time cost on a research program-by-research program
basis for accessing research services or resources with benefits that are expected to be consumed in the near term, therefore the amounts
paid are expensed as part of research and development costs immediately. Amounts paid as reimbursements of on-going development cost,
monthly development cost fee and additional development expenses incurred by Paragon due to work completed for selected targets prior
to the effective date of the Option Agreements that is associated with services being rendered under the related Research Programs are
recognized as research and development expense when incurred.

For
the period from February 6, 2024 (inception) to December 31, 2024, we recognized $42.0 million of expenses in connection with services
provided by Paragon and Paruka under the Option Agreements.

Paragon
Therapeutics – License Agreements

In
September 2024, we exercised the Option to acquire certain rights to ORKA-001, and in December 2024, we entered into the corresponding
license agreement with Paragon (the “ORKA-001 License Agreement”), pursuant to which Paragon granted us a royalty-bearing,
world-wide, exclusive license to develop, manufacture, commercialize or otherwise exploit certain antibodies and products targeting IL-23
in all fields other than the field of inflammatory bowel disease (“ORKA-001 Field”). In December 2024, we exercised the Option
with respect to ORKA-002 for the IL-17A/F program, and in February 2025, we entered into the corresponding license agreement with Paragon
(the “ORKA-002 License Agreement” and together with the ORKA-001 License Agreement, the “License Agreements”),
pursuant to which Paragon granted us a royalty-bearing, world-wide, exclusive license to develop, manufacture, commercialize or otherwise
exploit certain antibodies and products targeting IL-17A/F in all fields (“ORKA-002 Field” and together with the ORKA-001
Field, the “Fields”).

The
License Agreements provide us with exclusive licenses in the Fields to Paragon’s patent applications covering the related antibodies,
their method of use and their method of manufacture and Paragon has agreed not to conduct any new campaigns that generate anti-IL-23
monospecific antibodies or anti-IL-17A/F monospecific antibodies for the ORKA-001 Field or the ORKA-002 Field, respectively, for at least
five years. Each of the ORKA-001 and ORKA-002 License Agreements may be terminated on 60 days’ notice to Paragon, on material breach
without cure, and on a party’s insolvency or bankruptcy to the extent permitted by law.

Pursuant
to the terms of each of the ORKA-001 and ORKA-002 License Agreements, we are obligated to
pay Paragon non-refundable milestone payments of up to $12.0 million under each respective
agreement upon the achievement of certain clinical development milestones and up to $10.0
million under each respective agreement upon the achievement of certain regulatory milestones,
including a $1.5 million fee for nomination of a development candidate (or initiation of
an IND-enabling toxicology study) and a further milestone payment of $2.5 million upon the
first dosing of a human patient in a Phase 1 trial for each of ORKA-001 and ORKA-002. In
addition, we are obligated to pay Paragon a low single-digit percentage royalty for antibody
products for each of ORKA-001 and ORKA-002. For each of the License Agreements, the royalty
term ends on the later of (i) the last-to-expire licensed patent or our patent directed to
the manufacture, use or sale of a licensed antibody in the country at issue or (ii) 12 years
from the date of first sale of a Company product. There is also a royalty step-down if there
is no Paragon patent in effect during the royalty term for each program.

82

Cell
Line License Agreement

In March 2024, we entered
into the Cell Line License Agreement (the “Cell Line License Agreement”) with WuXi Biologics Ireland Limited (“WuXi
Biologics”). Under the Cell Line License Agreement, we received a non-exclusive, worldwide, sublicensable license to certain of
WuXi Biologics’ know-how, cell line, biological materials (the “WuXi Biologics Licensed Technology”) and media and feeds
to make, have made, use, sell and import certain therapeutic products produced through the use of the cell line licensed by WuXi Biologics
under the Cell Line License Agreement (the “WuXi Biologics Licensed Products”). Specifically, the WuXi Biologics Licensed
Technology is used in certain manufacturing activities in support of the ORKA-001 and ORKA-002 programs.

In
consideration for the license, we agreed to pay WuXi Biologics a non-refundable license fee of $150,000, which was recognized as a research
and development expense during the period from February 6, 2024 (inception) to December 31, 2024. Additionally, to the extent that
we manufacture our commercial supplies of bulk drug product with a manufacturer other than WuXi Biologics or its affiliates, we are required
to make royalty payments to WuXi Biologics at a rate of less than one percent of net sales of WuXi Biologics Licensed Products manufactured
by the third-party manufacturer. Pursuant to an amendment to the Cell Line License Agreement effective in November 2024, a provision
was added that permits the royalties owed under the agreement to be bought out on a product-by-product basis for a lump-sum payment.

The
Cell Line License Agreement will continue indefinitely unless terminated (i) by us upon six months’ prior written notice and our
payment of all undisputed amounts due to WuXi Biologics through the effective date of termination, (ii) by WuXi Biologics for a material
breach by us that remains uncured for 60 days after written notice, (iii) by WuXi Biologics if we fail to make a payment and such failure
continues for 30 days after receiving notice of such failure, or (iv) by either party upon the other party’s bankruptcy.

Note Payable
with Related Party

In
March 2024, we entered into a Series A Preferred Stock and Convertible Note Purchase Agreement (the “Purchase Agreement”)
with Fairmount, whereby we issued the Convertible Note, with an initial principal amount of $25.0 million that, at the time of issuance,
could be converted into Pre-Merger Oruka Series A Preferred Stock (or a series of preferred shares that is identical in respect
to the shares of preferred shares issued in its next equity financing) or shares of Pre-Merger Oruka Common Stock in exchange for aggregate
proceeds of $25.0 million. The Convertible Note accrued interest at a rate of 12.0% per annum. At issuance, the Convertible Note
required all unpaid interest and principal to mature on December 31, 2025 (the “Maturity Date”) and prepayment was not
permitted without prior written consent of Fairmount. At issuance, the principal payment along with the accrued interest on the Convertible
Note was due in full on the Maturity Date. Pursuant to the Purchase Agreement, we had the right to sell and issue additional convertible
notes up to an aggregate principal amount equal to $30.0 million, in addition to the $25.0 million initial principal amount of the Convertible
Note.

Immediately
prior to the completion of the Merger, the Convertible Note was converted into shares of Pre-Merger Oruka Common Stock based on the aggregate
principal amount of $25.0 million, plus unpaid accrued interest of $1.5 million divided by the conversion price, which was determined
based upon the Company’s fully-diluted capitalization immediately prior to the Merger. At the effective time of the Merger, the
Pre-Merger Oruka Common Stock issued upon the conversion of the Convertible Note (including accrued interest) automatically converted
into shares of Company Common Stock. 2,722,207 shares of Company Common Stock were issued on conversion of the Convertible Note and accrued
interest. As of December 31, 2024, there is no note payable to a related party.

83

Lease
Agreement

Our
contractual obligations include minimum lease payments under our operating lease obligation for our headquarters in Menlo Park, California.
See Note 13 to the consolidated financial statements elsewhere in this report for additional information.

Critical
Accounting Policies and Significant Judgments and Estimates

Our
management’s discussion and analysis of its financial condition and results of operations is based on its financial statements,
which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the reported revenues recognized and expenses incurred during the reporting
periods. Our estimates are based on its historical experience and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While
our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere
in this Annual Report, we believe the following accounting policies used in the preparation of our financial statements require the most
significant judgments and estimates.

Research
and Development Expenses

Research
and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and
development activities, including salaries and bonuses, overhead costs, contract services and other related costs. The value of goods
and services received from contract research organizations and contract manufacturing organizations in the reporting period are estimated
based on the level of services performed, and progress in the period in cases when we have not received an invoice from the supplier.
In circumstances where amounts have been paid in excess of costs incurred, we record a prepaid expense. When billing terms under these
contracts do not coincide with the timing of when the work is performed, we are required to make estimates of outstanding obligations
to those third parties as of period end. Any accrual estimates are based on a number of factors, including our knowledge of the progress
towards completion of the specific tasks to be performed, invoicing to date under the contracts, communication from the vendors of any
actual costs incurred during the period that have not yet been invoiced and the costs included in the contracts. Significant judgments
and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the
estimates made by us.

Stock-Based
Compensation

We
measure stock options granted to employees and non-employees based on the estimated fair values of the awards as of the grant date using
the Black-Scholes option-pricing model. The model requires management to make a number of assumptions, including common stock fair value,
expected volatility, expected term, risk-free interest rate and expected dividend yield. For restricted stock awards and restricted stock
units, the estimated fair value is the fair market value of the underlying stock on the grant date. We expense the fair value of our
equity-based compensation awards on a straight-line basis over the requisite service period, which is the period in which the related
services are received. We account for award forfeitures as they occur. The expense for stock-based awards with performance conditions
is recognized when it is probable that a performance condition is met during the vesting period.

Determination
of Fair Value of Common Stock

A
public trading market for Company Common Stock has been established in connection with the completion of the Merger. As such, it is no
longer necessary for our board of directors to estimate the fair value of our stock-based awards in connection with its accounting for
granted stock-based awards or other such awards we may grant, as the fair value of Company Common Stock and share-based awards is determined
based on the quoted market price of Company Common Stock.

84

Prior
to the merger, Pre-Merger Oruka’s common stock valuations were prepared using a hybrid method, including an option pricing method
(“OPM”). The OPM treats common stock and 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 exceed the value of the preferred
stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The hybrid method is a probability-weighted
expected return method (“PWERM”), where the equity value in one or more of the 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. 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
assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application
of management’s judgment. As a result, if Pre-Merger Oruka had used significantly different assumptions or estimates, the fair
value of Pre-Merger Oruka’s incentive shares and its stock-based compensation expense could have been materially different.

Recently
Issued Accounting Pronouncements

See
Note 2 to the consolidated financial statements included in Part II - Item 8 of this Annual Report for more information regarding recently
issued accounting pronouncements.

Off-Balance
Sheet Arrangements

As
of December 31, 2024, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.