# Vera Therapeutics, Inc. (VERA) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Vera Therapeutics, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1831828/000095017022004701/vera-20211231.htm
Accession: 0000950170-22-004701
Filing date: 2022-03-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/VERA/
All MD&A years: /company/VERA/mda/
Next year: /company/VERA/mda/fy2022/ (FY 2022)

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 in conjunction with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations, and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors."

Overview

We are a late-stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. Our lead product candidate, atacicept, a self-administered fusion protein that blocks both BLyS and APRIL, is currently being evaluated for the treatment of IgAN in the Phase 2b ORIGIN trial which we expect will complete enrollment in mid-2022 and report topline results in the fourth quarter of 2022. If the data from this trial are positive, we plan to initiate a pivotal Phase 3 clinical trial in 2023. We plan to initiate a Phase 3 clinical trial of atacicept in LN, a severe manifestation of SLE, based on positive feedback from the FDA’s review of promising clinical results in a Phase 2 clinical trial of atacicept in high disease activity patients with SLE. In December 2021, we obtained worldwide, exclusive development and commercial rights from Amplyx, a wholly owned subsidiary of Pfizer, to MAU868, a potentially first-in-class monoclonal antibody to treat BKV infections. We believe MAU868 is the only clinical-stage neutralizing monoclonal antibody that is directed against BKV, a polyoma virus that can have devastating consequences in certain settings such as kidney transplant and hematopoietic stem cell transplant. In an interim analysis of Phase 2 data in BK viremia among kidney transplant recipients, MAU868 was shown to be well tolerated and demonstrated a clinically significant reduction of virologic activity. We expect to share full results from the interim analysis in mid-2022 and expect to initiate a Phase 2b or Phase 3 clinical trial in 2023. We believe that our current pipeline programs leverage the deep expertise of the Vera Therapeutics team and have strong commercial synergies. We currently hold global rights to all of our pipeline programs.

Since our inception, we have devoted substantially all of our resources to our research and development efforts, pre-clinical studies and clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates, which we expect will take a number of years, if ever. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.

To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock, debt financing and convertible promissory notes. As of December 31, 2021, we had $79.7 million in unrestricted cash and cash equivalents.

On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021, of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. Upon the closing of our IPO, all outstanding shares of our redeemable convertible preferred stock converted into 15,464,776 shares of our Class A common stock and 309,238 shares of our Class B common stock.

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In December 2021, we entered into the Amplyx Agreement with Amplyx. Pursuant to the terms of the Amplyx Agreement, we paid $5.0 million to Amplyx to purchase assets relating to MAU868. Also in December 2021, we entered into a Loan and Security Agreement (Loan Agreement) with Oxford Finance LLC (Oxford). The Loan Agreement provides for a term loan (the Loan) in an aggregate maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021 and the balance of which is available to be drawn between January 3, 2022 and December 31, 2022. See “—Loan and security agreement” below.

In February 2022, we completed a follow-on public offering and issued 5,742,026 shares of Class A common stock for net proceeds of approximately $80.2 million, after deducting underwriting discounts and commissions and offering related expenses.

We have incurred significant operating losses since the commencement of our operations. Our net losses were $32.6 million and $53.4 million for the years ended December 31, 2021 and 2020, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates, atacicept and MAU868, to commercialization. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of December 31, 2021, we had an accumulated deficit of $124.1 million. Our primary use of cash is to fund operating expenses, which consist of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses depends on the timing of when we pay these expenses, as reflected in the changes in our working capital balances.

We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:

•
continue our ongoing and planned research and development of our product candidates, atacicept for the treatment of IgAN and LN, and MAU868 for the treatment of BK viremia;

•
conduct clinical trials and nonclinical studies for atacicept and MAU868;

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

•
continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;

•
establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;

•
develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know-how;

•
attract, hire and retain additional clinical, scientific, quality control, manufacturing management and administrative personnel;

•
add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

•
incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.

We also expect to increase the size of our administrative function to support the growth of our business. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships, or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such

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agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.

COVID-19 pandemic

Since it was reported to have surfaced in December 2019, a novel strain of coronavirus (COVID-19) has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and governments around the world, including in the United States, Europe and Asia, have implemented travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets.

As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. To date, we have initiated some and may take additional, temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. For the safety of our employees and their families, we have reduced the amount of time we expect our employees to spend onsite in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials and other development timelines, as well as on our industry and the healthcare system.

As a result of the COVID-19 pandemic, we have and may in the future experience severe disruptions, including:

•
interruption of or delays in receiving products and supplies from the third parties on which we rely, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

•
limitations on our business operations by the local, state, or federal government;

•
business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cybersecurity and data accessibility limits, or communication or mass transit disruptions; and

•
limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people.

Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020.

119

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[[/GREPCENT_TABLE]]

* Not meaningful

Research and development expenses

Research and development expenses represent a substantial portion of our operating expenses. Our research and development expenses consist primarily of direct and indirect expenses incurred in connection with the research and development of our product candidates. Direct expenses include costs incurred under agreements with third parties, including contract research organizations and consultants directly related to our research and development of product candidates, laboratory supplies and costs of lab studies, and license and milestone fees incurred as a result of our contractual obligations for our development candidates. Indirect expenses include employee compensation and other personnel-related expenses, including stock-based compensation, facilities and depreciation related to buildings and equipment used for research and development personnel and activities and other expenses. From October 2020 until December 2021, we have been engaged in the development of atacicept as our sole product candidate. In December 2021, we entered into the Amplyx Agreement and acquired our second product candidate, MAU868.

Research and development expenses are recorded as expense in the period in which the related activities occurred, and payments we make prior to the receipt of goods or services to be used in research and development efforts are deferred as prepaid expenses until the goods or services are received and used. We accrue expenses for contract research and development as the related services are performed by monitoring the status of specified activities and billings received from our external service providers. These expenses are accrued based on estimates and are adjusted as actual expenses become known. The cost incurred in obtaining technology licenses, including initial and subsequent milestone payments incurred under our licensing agreements, are recorded as expense in the period in which they are incurred, as the licensed technology, method or process has no alternative future uses other than for our research and development activities. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone.

The following table summarizes our research and development expenses incurred during the respective periods.

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[[/GREPCENT_TABLE]]

* Not meaningful

Research and development expenses decreased by $22.7 million, or 50%, to $22.5 million in the year ended December 31, 2021, from $45.2 million in the year ended December 31, 2020. The decrease was primarily due to license fees paid to Ares in 2020 pursuant to our exclusive license of atacicept, consisting of an initial payment of $13.1 million paid in shares of our Series C redeemable convertible preferred stock and a subsequent cash milestone payment of $25.0 million. In December 2021, we paid $5.0 million to Amplyx for the purchase of MAU868 and accrued $2.0 million of milestone expense in connection with the purchase. Facilities, depreciation and other expenses related to research and development decreased by $2.7 million and internal laboratory expenses decreased by $0.6 million resulting from our ceasing internal research in September 2020 and vacating and subleasing our leased facilities in South San Francisco in November 2020. These decreases were partially offset by an increase of $9.5 million in consulting and contract research expense resulting from the Phase 2b clinical trial of atacicept and contract drug manufacturing activities for atacicept, and an increase of $2.3 million of employee compensation and related expenses resulting from the increased headcount to support clinical development of atacicept during the current period.

We expect our research and development expenses to increase in future periods as we incur expenses to develop MAU868, plan and initiate our Phase 3 trial of atacicept in LN and progress to later stages of development of atacicept in IGAN.

General and administrative

General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive management, legal, finance, human resources, and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, and other general overhead costs to support our operations. General and administrative expenses are recorded as expense in the period in which incurred, and payments we make prior to the receipt of goods or services to be used for general and administrative purposes efforts are deferred as prepaid expenses until the goods or services are received and used.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

General and administrative expenses increased by $7.9 million, or 195%, to $11.9 million in the year ended December 31, 2021, from $4.0 million in the year ended December 31, 2020, due primarily to increases of $2.7 million of payroll and related expenses including stock-based compensation, an increase of $1.8 million in insurance premium expense, an increase of $1.2 million in legal expenses, an increase of $0.8 million in accounting and audit expenses, and an increase of $0.5 million in non-employee director compensation.

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Restructuring costs

Restructuring costs primarily consisted of contract termination costs related to leases and employee termination costs.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

* Not meaningful

We restructured in September 2020, resulting in the termination of certain employees and vacating of leased facilities.

Total other income (expense)

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Total other income increased by $3.0 million to $1.8 million in the year ended December 31, 2021, from other expense of $1.2 million in the year ended December 31, 2020, due to other income of $2.7 million recognized in the current period from the sale of assets to NeuBase Therapeutics, Inc. (NeuBase), partially offset by $0.9 million of other expense recognized in the current period due to unrealized losses from non-marketable equity securities. We recorded $1.1 million of other expense from the change in fair value of convertible debt outstanding during the year ended December 31, 2020.

Liquidity and Capital Resources

Overview

To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock, debt financing and convertible notes. From our inception through December 31, 2021, we have raised aggregate net cash proceeds of $195.0 million from the issuance and sale of redeemable convertible preferred stock, convertible notes, Class A common stock and our Loan Agreement with Oxford. Since the date of our incorporation, we have not generated any revenue from product sales and have incurred substantial operating losses and negative cash flows from operations.

We use our cash to fund operations, primarily to fund our research and development efforts, clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid assets.

We anticipate that we will continue to incur net losses for the foreseeable future as we continue research and development activities of atacicept and MAU868, hire additional staff, including clinical, operational, financial and management personnel, and incur additional expenses associated with operating as a public company. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our clinical development activities and our product candidate portfolio. We expect that our research and development and general and administrative costs will increase substantially as a result of our acquisition of MAU868, including in connection with conducting additional clinical trials and clinical trials for our research programs and product candidates, contracting with third parties to support nonclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

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On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021, of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. Upon the closing of our IPO, all outstanding shares of our redeemable convertible preferred stock converted into 15,464,776 shares of our Class A common stock and 309,238 shares of our Class B common stock.

In December 2021, we entered into the Amplyx Agreement, pursuant to which we paid $5.0 million to Amplyx to purchase assets relating to MAU868. Also in December 2021, we entered into the Loan Agreement with Oxford, pursuant to which we may borrow up to an aggregate maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021, and the balance of which is available to be drawn between January 3, 2022, and December 31, 2022. See “—Loan and security agreement” below.

On February 14, 2022, we completed our follow-on public offering. In connection with our follow-on public offering, we issued and sold 5,742,026 shares of Class A common stock, including 748,959 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share, resulting in net proceeds to us of approximately $80.2 million, after deducting underwriting discounts and commissions and offering related expenses payable by us.

As of December 31, 2021, we had cash and cash equivalents balances of $79.7 million, as compared to $53.7 million as of December 31, 2020. We expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

Contractual Obligations

We enter into agreements in the normal course of business with various third parties for preclinical, clinical and other services. These contracts are generally cancellable without material penalty upon written notice.

Our operating lease obligations reflect our lease obligations for our office and laboratory space in Woburn, Massachusetts and our office and life science research space in South San Francisco, California.

During 2019, we vacated our leased facilities in Woburn, Massachusetts and recorded a discounted lease-related restructuring liability, which was calculated as the present value of the estimated future facility costs for which we would obtain no future economic benefit over the remaining term of the lease, which ended in July 2021.

During 2020, we vacated the leased facilities in South San Francisco. In November 2020, we entered into a non-cancellable sublease agreement for the facility, under the terms of which we are entitled to receive $8.8 million in lease payments over the term of the sublease, which ends concurrently with the original lease in September 2025. As tenant, we remain responsible for the $9.3 million minimum lease commitment remaining on the facilities as of December 31, 2021.

In November 2021, we entered into a lease agreement for approximately 5,000 square feet of office space in Brisbane, California. The term of the lease is three years, and rent will be approximately $0.3 million for the first year, with scheduled annual 3% increases. The lease includes renewal options.

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Cash Flows

The following table summarizes our cash flows for the periods indicated.

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[[/GREPCENT_TABLE]]

Operating Activities

For the year ended December 31, 2021, we used $23.7 million of cash in operating activities, attributable to a net loss of $32.6 million, a $2.7 million non-cash gain on sale of assets to NeuBase, and a $2.3 million increase in prepaid expenses and other current assets, partially offset by $5.0 million of the net loss related to the purchase of MAU868 classified as an investing activity, a $5.4 million increase in accrued and other current liabilities, and $3.0 million of non-cash stock-based compensation expense.

For the year ended December 31, 2020, we used $34.8 million of cash in operating activities, attributable to a net loss of $53.4 million, partially offset by the non-cash expenses of $13.1 million of Series C redeemable convertible preferred stock issued to Ares as partial consideration for the license of atacicept, a net increase of $2.4 million in the liability for restructuring, a net change of $0.1 million in working capital accounts, and $2.9 million of other non-cash expenses, including a $1.2 million impairment charge associated with the disposal of property, equipment and intangible assets, a $1.1 million change in fair value of convertible notes payable, $0.3 million of stock-based compensation and $0.3 million of depreciation and amortization. The net change of $0.1 million in working capital accounts was caused primarily by a $0.5 million decrease in other liabilities, a $0.6 million increase in accounts payable and a $0.1 million decrease in other assets, which were partly offset by a $0.1 million increase in prepaid expenses and other assets.

Investing Activities

For the year ended December 31, 2021, our investing activities used $4.2 million of cash, resulting from the $5.0 million cash payment for the purchase of MAU868 pursuant to the Amplyx Agreement, partially offset by $0.8 million of cash received resulting from the sale of assets to NeuBase.

For the year ended December 31, 2020, our investing activities used $99,000 of cash in the purchase of property and equipment partly offset by proceeds of $57,000 from the sale of property and equipment.

Financing Activities

For the year ended December 31, 2021, our financing activities provided $53.9 million of cash resulting from $51.2 million proceeds received from our IPO, net of underwriting discounts and commissions, partially offset by the payment of $2.8 million of related offering costs during the period, and $4.9 million of net cash proceeds from the issuance of debt to Oxford.

For the year ended December 31, 2020, our financing activities provided $85.3 million of cash resulting from $79.6 million in proceeds from our issuance of Series C redeemable convertible preferred stock, net of issuance costs, proceeds of $5.6 million from our issuance of convertible notes payable that were converted into Series C redeemable convertible preferred stock, and proceeds of $0.2 million from the exercise of stock options to purchase Class A common stock, partially offset by the payment of $0.1 million of capital lease obligations.

Loan and security agreement

On December 17, 2021, we entered into the Loan Agreement with Oxford, a Delaware limited liability company, as lender (Lender) and collateral agent. The Loan Agreement provides for a term loan in an aggregate

124

maximum principal amount of $50.0 million, of which $5.0 million was funded on December 17, 2021 and the balance of which is available to be drawn between January 3, 2022 and December 31, 2022. The Loan is available in minimum draws of $5.0 million, entirely at our option and not contingent upon the completion of clinical, regulatory, financial or other related milestones.

The final maturity date of the Loan is December 17, 2026, which may, upon achieving either (i) positive Phase 2b clinical trial data of atacicept in IgAN or (ii) positive pivotal trial data of atacicept in LN, at our option, be extended by 12 months (the Maturity Date Extension). We are required to make monthly interest-only payments for 48 months (extended to 60 months if the Maturity Date Extension is exercised) followed by full amortization through maturity.

Initially, through December 30, 2021, the Loan incurred interest at a per annum rate of 8.254%. Thereafter, the Loan bears interest at a floating per annum rate (based on the actual number of days elapsed divided by a year of 360 days) equal to the greater of (i) 8.25% and (ii) the sum of (a) the greater of (x) the 30-day U.S. LIBOR rate reported in the Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (y) 0.09%, plus (b) 8.16%. The Loan Agreement also provides for the selection of an alternative benchmark rate in the event of the discontinuance of LIBOR or any subsequent benchmark rate.

We are permitted to prepay the Loan in full or in part at any time upon 10 business days’ written notice to the Lender, subject to the applicable Prepayment Fee (as defined below). Upon the earliest to occur of the maturity date, acceleration of the Loan or prepayment of the Loan, we are required to make a final payment equal to 5.0% (7.0% if the Maturity Date Extension is exercised) of the aggregate principal amount of the Loan (the Final Fee). Any prepayments of the Loan, whether mandatory or voluntary, must include an amount equal to the sum of (a) the portion of the outstanding principal of the Loan being prepaid plus accrued and unpaid interest thereon through the prepayment date, (b) the Final Fee, (c) the Lender’s expenses and all other obligations that are due and payable to the Lender, and (d) a prepayment fee of (i) 3.0% of the portion of the Loan being prepaid if the repayment is on or before the first anniversary of the funding date of such term loan or (ii) 2.0% of the portion of the Loan being prepaid if the repayment is after the first anniversary of the funding date but on or before the second anniversary of the funding date of such term loan (the Prepayment Fee). There is no Prepayment Fee for any prepayments occurring after the second anniversary of the funding date of such term loan.

Our obligations under the Loan Agreement are secured by a security interest in all of our assets, other than our intellectual property, which is subject to a negative pledge. The Loan Agreement does not contain any financial related covenants. Included in the Loan Agreement are customary representations and covenants that, subject to exceptions, restrict our ability to, among other things: declare dividends or redeem or repurchase equity interests; incur additional liens; make loans and investments; incur additional indebtedness; engage in mergers, acquisitions and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to our existing business.

Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding loan balances, and the Lender may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. Events of default under the Loan Agreement include customary events of default, including, but not limited to: (i) failure to (a) make any payment of principal or interest on its due date, or (b) pay any other obligations within three business days after such obligations are due and payable; (ii) failure to perform any obligation under specified covenants; (iii) the occurrence of a material adverse change; (iv) we or any of our subsidiaries being or becoming insolvent, beginning an insolvency proceeding, or becoming subject to an insolvency proceeding that is not dismissed or stayed within 45 days; (v) a default under any agreement with a third party resulting in a right by such third party to accelerate the maturity of any indebtedness in an amount in excess of $500,000 or that could reasonably be expected to have a material adverse change; (vi) the rendering of judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least $500,000 that remain unsatisfied, unvacated, or unstayed for a period of 10 days after the entry thereof; (vii) revocation, rescission, suspension or adverse modification of any governmental approval, or non-renewal of a governmental approval in the ordinary course for a full term, that could reasonably be expected to result in a material adverse change; and (viii) failure of a lien created under the Loan Agreement or any other loan document to constitute a valid and perfected lien on any of the collateral purported to be secured thereby, subject to no prior or equal lien, other than permitted liens.

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Emerging growth company status

We are an emerging growth company, as defined in the JOBS Act. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) December 31, 2026.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these 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 expenses incurred during the reporting periods. Our estimates are based on our 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. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the notes to our financial statements, we believe that the following critical accounting policies and estimates are most important to understanding and evaluating our reported financial results.

Research contract costs and accruals

We enter into various research and development and other agreements with commercial firms, researchers and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from our estimates.

Stock-based compensation

We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors, consultants and advisors. The plan allows for the issuance of a variety of equity incentive awards, including incentive stock options, non-qualified stock options and restricted stock awards. We account for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees and non-employees based on estimated grant-date fair values. We use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period. We recognize actual forfeitures by reducing the stock-based compensation expense in the same period as the forfeitures occur. We estimate the fair value of share-based awards to employees and non-employees using the Black-Scholes model.

Estimating the fair value of equity-settled awards as of the grant date using the Black-Scholes option pricing model is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. These inputs are as follows:

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Fair value of common stock—See the subsection titled “Fair value of common stock” below.

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Expected term—The expected term represents the average period that our options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the weighted-average vesting date and the end of the contractual term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock option grants.

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Expected volatility—Since we were a privately-held company until our IPO in May 2021 and have only a limited trading history for our common stock, the expected volatility was estimated based on the historical average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage, or area of specialty. We will continue to apply this process until enough historical information regarding the volatility of our own stock price becomes available.

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Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.

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Expected dividend yield—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

We will continue to use judgment in evaluating the expected volatility, expected terms, and interest rates utilized for our stock-based compensation calculations on a prospective basis. Assumptions we used in applying the Black-Scholes option-pricing model to determine the estimated fair value of our stock options granted involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.

Fair value of common stock

Historically, for all periods prior to our IPO, the fair values of the shares of our common stock underlying our share-based awards were determined on each grant date by our board of directors with input from management and the assistance of an independent third-party valuation specialist. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid), our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

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external market conditions affecting the proteomics and genomics biotechnology industry and trends within the industry;

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our stage of development;

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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;

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the prices at which we sold shares of our redeemable convertible preferred stock;

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actual operating results and projected financial performance, including our levels of available capital resources;

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the progress of our research and development efforts and business strategy;

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equity market conditions affecting comparable public companies;

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general U.S. market conditions; and

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the lack of marketability of our common stock.

In valuing our common stock, the fair value of our business, or enterprise value, was determined using various valuation methods, including combinations of income, market and asset approaches with input from management. The income approach determines value by using one or more methods that convert anticipated economic benefits into a present single amount. The application of the income approach establishes value by methods that discount or

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capitalize earnings or cash flow, by a discount or capitalization rate that reflects investors’ rate of return expectations, market conditions, and the relative risk of the subject investment. The market approach involves identifying and evaluating comparable public companies and acquisition targets that operate in the same industry or which have similar operating characteristics as the subject company. From the comparable companies, publicly available information is used to extrapolate market-based valuation multiples that are applied to historical or prospective financial information in order to derive an indication of value. The asset approach determines the value of the underlying assets and liabilities of a business as a means of determining the value of the business in aggregate. This approach can include the value of both tangible and intangible assets.

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Option Pricing Method (OPM). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options. This method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.

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Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. This method is generally most appropriate to use when the time to a liquidity event is short, making the range of possible future outcomes relatively easy to predict.

Based on our early stage of development and other relevant factors, we determined that the OPM was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock for valuations during early 2020.

Beginning in March 2020, we used a hybrid method to determine the estimated fair value of our common stock, which included both the OPM and PWERM models.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

After the completion of our IPO, the fair value of each share of the underlying common stock has been determined based on the closing price as reported on the date of grant on the primary stock exchange on which our Class A common stock is traded.

Recent accounting pronouncements

See Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.