Sagimet Biosciences Inc. [SGMT] Filings

10-Q 1 sgmt-20230930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission File Number: 001-41742

Sagimet Biosciences Inc.

(Exact name of registrant as specified in its charter)


Delaware	20-5991472
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

155 Bovet Road, Suite 303
San Mateo, California	94402
(Address of principal executive offices)	(Zip Code)

(650) 561-8600

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Series A Common Stock, $0.0001 par value per share	SGMT	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒

No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Series A common stock, $0.0001 par value per share, outstanding at November 9, 2023 was 21,375,402.

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	PART I - FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)	5
	Condensed Balance Sheets	5
	Condensed Statements of Operations and Comprehensive Loss	6
	Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	7
	Condensed Statements of Cash Flows	9
	Notes to Condensed Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		41

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, drug candidates, planned preclinical studies and clinical trials, results of preclinical studies, clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report include, but are not limited to, statements about:

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our financial performance;

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our ability to obtain additional cash and the sufficiency of our existing cash, cash equivalents and short-term investments in marketable securities to fund our future operating expenses and capital expenditure requirements;

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the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

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the scope, progress, results and costs of developing denifanstat or any other drug candidates we may develop, and conducting preclinical studies and clinical trials, including our FASCINATE-2 Phase 2b clinical trial;

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the timing and costs involved in obtaining and maintaining regulatory approval of denifanstat or any other drug candidates we may develop, and the timing or likelihood of regulatory filings and approvals, including our expectation to seek special designations or accelerated approvals for our drug candidates for various indications;

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current and future agreements with third parties in connection with the development and commercialization of denifanstat or any other future drug candidate;

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our estimated number of patients in the United States who suffer from the diseases we target, including nonalcoholic steatohepatitis (NASH), and the number of subjects that will enroll in our clinical trials;

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our ability to advance drug candidates into and successfully complete clinical trials;

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our relationship with Ascletis BioScience Co. Ltd. (Ascletis), and its affiliate Gannex Pharma Co., Ltd. (Gannex), and the success of their development efforts for denifanstat;

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the ability of our clinical trials to demonstrate the safety and efficacy of denifanstat and any other drug candidates we may develop, and other positive results;

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our plans relating to commercializing denifanstat and any other drug candidates we may develop, if approved, including the geographic areas of focus and our ability to grow a sales team;

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the success of competing therapies that are or may become available;

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developments relating to our competitors and our industry, including competing drug candidates and therapies;

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our plans relating to the further development and manufacturing of denifanstat and any other drug candidates we may develop, including additional indications that we may pursue for denifanstat or other drug candidates;

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existing regulations and regulatory developments in the United States and other jurisdictions;

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our potential and ability to successfully manufacture and supply denifanstat and any other drug candidates we may develop for clinical trials and for commercial use, if approved;

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the rate and degree of market acceptance of denifanstat and any other drug candidates we may develop, as well as the pricing and reimbursement of denifanstat and any other drug candidates we may develop, if approved;

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our expectations regarding our ability to obtain, maintain, protect and enforce intellectual property protection for denifanstat and for any other future drug candidate;

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our ability to attract and retain the continued service of our key personnel and to identify, hire, and then retain additional qualified personnel and our ability to attract additional collaborators with development, regulatory and commercialization expertise;

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the impact of the COVID-19 pandemic, macroeconomic conditions and geopolitical turmoil on our business and operations;

●

our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and

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our anticipated use of our existing cash, cash equivalents and short-term investments in marketable securities.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report, whether as a result of any new information, future events or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SAGIMET BIOSCIENCES INC.

CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except for share and per share amounts)


	As of		As of
	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	101,842	$	158
Short-term investments in marketable securities		—		32,187
Prepaid expenses and other current assets		974		447
Total current assets		102,816		32,792
Operating lease right-of-use assets		109		212
Deposits		—		27
Total assets	$	102,925	$	33,031
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	1,702	$	1,125
Accrued expenses and other current liabilities		3,244		4,021
Operating lease liabilities		103		133
Total current liabilities		5,049		5,279
Long-term liabilities
Operating lease liabilities, less current portion		—		78
Series A common stock warrant liability		1		—
Redeemable convertible preferred stock warrant liability		—		4
Total liabilities		5,050		5,361

Commitments and contingencies (Note 7)

Redeemable convertible preferred stock: $0.0001 par value; no shares and 1,373,810,170 shares authorized at September 30, 2023 and December 31, 2022, respectively; no shares and 1,373,730,625 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively; liquidation value of $232,963 at December 31, 2022		—		214,620
Stockholders’ equity (deficit):
Undesignated preferred stock, $0.0001 par value; 10,000,000 shares and no shares authorized at September 30, 2023 and December 31, 2022, respectively; no shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		—		—
Common stock, $0.0001 par value; no shares and 1,608,370,000 shares authorized at September 30, 2023 and December 31, 2022, respectively; no shares and 185,084 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		—		1
Series A common stock, $0.0001 par value; 500,000,000 shares and no shares authorized at September 30, 2023 and December 31, 2022, respectively; 21,375,402 shares and no shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		2		—
Series B common stock, $0.0001 par value; 15,000,000 shares and no shares authorized at September 30, 2023 and December 31, 2022, respectively; 1,520,490 and no shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		—		—
Additional paid-in capital		339,466		35,001
Accumulated other comprehensive loss		—		(84)
Accumulated deficit		(241,593)		(221,868)
Total stockholders’ equity (deficit)		97,875		(186,950)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	102,925	$	33,031

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SAGIMET BIOSCIENCES INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except for share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
License revenue	$	2,000	$	—	$	2,000	$	—
Total revenue		2,000		—		2,000		—
Operating expenses:
Research and development		4,958		6,838		14,121		19,072
General and administrative		4,494		848		9,153		4,595
Total operating expenses		9,452		7,686		23,274		23,667
Loss from operations		(7,452)		(7,686)		(21,274)		(23,667)
Other income, net:
Change in fair value of redeemable convertible preferred stock warrant liability		—		1		(1)		3
Change in fair value of Series A common stock warrant liability		4		—		4		—
Interest income and other		1,095		218		1,546		360
Total other income, net		1,099		219		1,549		363
Net loss	$	(6,353)	$	(7,467)	$	(19,725)	$	(23,304)
Other comprehensive (loss) gain:
Net unrealized (loss) gain on investments in marketable securities		—		(56)		84		(162)
Total other comprehensive (loss) gain		—		(56)		84		(162)
Comprehensive loss	$	(6,353)	$	(7,523)	$	(19,641)	$	(23,466)
Net loss per share attributable to common stockholders, basic and diluted	$	—	$	(40.34)	$	—	$	(126.13)
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted		—		185,084		—		184,756

Net loss per share attributable to Series A and Series B common stockholders, basic and diluted	$	(0.35)	$	—	$	(3.22)	$	—
Weighted-average shares outstanding used in computing net loss per share attributable to Series A and Series B common stockholders, basic and diluted		18,194,682		—		6,131,541		—

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SAGIMET BIOSCIENCES INC.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(in thousands, except share amounts)


	Redeemable																				Accumulated
	Convertible								Series A				Series B				Additional				Other		Total
	Preferred Stock				Common Stock				Common Stock				Common Stock				Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit		(Loss) Income		(Deficit) Equity
Balance at January 1, 2023		1,373,730,625	$	214,620		185,084	$	1		—	$	—		—	$	—	$	35,001	$	(221,868)	$	(84)	$	(186,950)
Net loss		—		—		—		—		—		—		—		—		—		(6,587)		—		(6,587)
Unrealized gain on investments in marketable securities		—		—		—		—		—		—		—		—		—		—		71		71
Stock-based compensation expense		—		—		—		—		—		—		—		—		767		—		—		767
Balance at March 31, 2023		1,373,730,625	$	214,620		185,084	$	1		—	$	—		—	$	—	$	35,768	$	(228,455)	$	(13)	$	(192,699)
Net loss		—		—		—		—		—		—		—		—		—		(6,785)		—		(6,785)
Exercise of common stock warrants		—		—		25,231		—		—		—		—		—		—		—		—		—
Unrealized gain on investments in marketable securities		—		—		—		—		—		—		—		—		—		—		13		13
Stock-based compensation expense		—		—		—		—		—		—		—		—		1,057		—		—		1,057
Balance at June 30, 2023		1,373,730,625	$	214,620		210,315	$	1		—	$	—		—	$	—	$	36,825	$	(235,240)	$	—	$	(198,414)
Net loss		—		—		—		—		—		—		—		—		—		(6,353)		—		(6,353)
Conversion of Redeemable Convertible Preferred Stock to Series A and Series B Common Stock		(1,373,730,625)		(214,620)		—		—		15,117,912		1		1,520,490		—		214,619		—		—		214,620
Reclass of Common Stock to Series A Common Stock		—		—		(210,315)		(1)		210,315		1		—		—		—		—		—		—
Sale of Series A Common Stock in public offering, net of issuance costs of $10,267		—		—		—		—		6,026,772		—		—		—		86,161		—		—		86,161
Issuance of Series A Common Stock upon exercise of stock options		—		—		—		—		7,614		—		—		—		6		—		—		6
Exercise of common stock warrants		—		—		—		—		12,789		—		—		—		—		—		—		—
Stock-based compensation expense		—		—		—		—		—		—		—		—		1,855		—		—		1,855
Balance at September 30, 2023		—	$	—		—	$	—		21,375,402	$	2		1,520,490	$	—	$	339,466	$	(241,593)	$	—	$	97,875

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SAGIMET BIOSCIENCES INC.

CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT) – (Continued)

(Unaudited)

(in thousands, except share amounts)


													Accumulated
	Redeemable convertible								Additional				Other		Total
	Preferred Stock				Common Stock				Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit		Loss		Deficit
Balance at January 1, 2022		1,373,730,625	$	214,620		183,457	$	1	$	33,109	$	(191,369)	$	—	$	(158,259)
Net loss		—		—		—		—		—		(8,735)		—		(8,735)
Exercise of stock options		—		—		1,627		—		12		—		—		12
Stock-based compensation expense		—		—		—		—		387		—		—		387
Balance at March 31, 2022		1,373,730,625	$	214,620		185,084	$	1	$	33,508	$	(200,104)	$	—	$	(166,595)
Net loss		—		—		—		—		—		(7,102)		—		(7,102)
Unrealized loss on investments in marketable securities		—		—		—		—		—		—		(106)		(106)
Stock-based compensation expense		—		—		—		—		383		—		—		383
Balance at June 30, 2022		1,373,730,625	$	214,620		185,084	$	1	$	33,891	$	(207,206)	$	(106)	$	(173,420)
Net loss		—		—		—		—		—		(7,467)		—		(7,467)
Unrealized loss on investments in marketable securities		—		—		—		—		—		—		(56)		(56)
Stock-based compensation expense		—		—		—		—		389		—		—		389
Balance at September 30, 2022		1,373,730,625	$	214,620		185,084	$	1	$	34,280	$	(214,673)	$	(162)	$	(180,554)

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SAGIMET BIOSCIENCES INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(19,725)	$	(23,304)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discount on marketable securities, net		(39)		(129)
Non-cash lease expense		103		97
Stock-based compensation expense		3,679		1,159
Change in fair value of redeemable convertible preferred stock warrant liability		1		(3)
Change in fair value of Series A common stock warrant liability		(4)		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(390)		1,326
Accounts payable and accrued liabilities		(200)		3,920
Operating lease liabilities		(108)		(103)
Net cash used in operating activities		(16,683)		(17,037)
Cash flows from investing activities:
Purchases of marketable securities		—		(41,446)
Sales of marketable securities		32,200		4,000
Net cash provided (used in) by investing activities		32,200		(37,446)
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriters' commissions and discounts		86,161		—
Payment of deferred financing costs		—		(30)
Proceeds from exercise of stock options		6		12
Net cash provided by (used in) financing activities		86,167		(18)
Net increase (decrease) in cash and cash equivalents		101,684		(54,501)
Cash and cash equivalents at beginning of period		158		56,731
Cash and cash equivalents at end of period	$	101,842	$	2,230

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SAGIMET BIOSCIENCES INC.

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.	Organization and description of business

Overview

Sagimet Biosciences Inc. (the Company) was incorporated in Delaware on December 19, 2006, as 3-V Biosciences, Inc. and is headquartered in San Mateo, California. The Company changed its name from 3-V Biosciences, Inc. to Sagimet Biosciences Inc. in August 2019. The Company is a clinical-stage biopharmaceutical company developing novel therapeutics called fatty acid synthase (FASN) inhibitors that target dysfunctional metabolic pathways in diseases resulting from the overproduction of the fatty acid, palmitate.

Reverse stock split

A one-for-79.4784 reverse stock split of the Company’s issued and outstanding common stock was effected on July 7, 2023. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the effects of the reverse stock split. Shares of common stock underlying outstanding stock options and common stock warrants were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of common stock reserved for issuance upon the conversion of the Company’s preferred stock were proportionately reduced and the respective conversion prices were proportionately increased.

Initial public offering

On July 18, 2023, the Company completed its initial public offering (IPO), in which it issued and sold 5,312,500 shares of Series A common stock at a price to the public of $16.00 per share. The aggregate gross proceeds of the IPO were $96.4 million, inclusive of an additional 714,272 shares of Series A common stock sold upon the partial exercise of the underwriters’ purchase option. The Company received approximately $86.2 million in net proceeds after deducting underwriting discounts, commissions, and offering expenses.

In connection with the IPO, the Company’s outstanding redeemable convertible preferred stock automatically converted into 15,117,912 shares of Series A common stock and 1,520,490 shares of Series B common stock. The rights of the holders of Series A common stock and Series B common stock are substantially identical, except with respect to voting and conversion. Each share of Series A common stock is entitled to one vote and shares of Series B common stock are non-voting, except as may be required by law. Each share of Series B common stock may be converted at any time into one share of Series A common stock at the option of its holder, subject to the ownership limitations provided for in the Company’s eleventh amended and restated certificate of incorporation (the Charter). See Note 9.

Reclassification of common stock

On July 18, 2023, each share of the Company’s common stock issued and outstanding became reclassified as one share of Series A common stock. Any stock certificate that immediately prior to July 18, 2023 represented shares of the Company’s common stock was deemed to represent shares of Series A common stock, without the need for surrender or exchange thereof.

Risks, uncertainties and going concern

The Company is subject to certain risks and uncertainties, including, but not limited to changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: the availability of future financing; the ability to obtain regulatory approval and market acceptance of, and reimbursement for, the Company’s drug candidates if approved; the performance of third-party clinical research organizations and manufacturers; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and the

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Company’s ability to attract and retain employees necessary to support commercial success. In addition, significant changes in the biotechnology industry or the approval of competitive products or therapies could adversely affect the Company’s development and operating results.

The Company will require substantial additional capital to fund its research and development and ongoing operating expenses. As of September 30, 2023, the Company has relied on public and private equity and debt financings, including its July 2023 IPO, to fund its operations. The Company has incurred net losses and negative cash flows from operations since inception, including net losses of $19.7 million for the nine months ended September 30, 2023 and $23.3 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, and 2022, the Company had negative cash flows from operations of $16.7 million and $17.0 million, respectively. As of September 30, 2023, the Company had cash and cash equivalents of $101.8 million. The Company expects to incur additional losses and negative cash flows from operations for the next twelve months.

As of November 13, 2023, the issuance date of these unaudited condensed financial statements, the Company expects that its cash and cash equivalents as of September 30, 2023 will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of these condensed financial statements. In the future, the Company may need to raise additional funds until it is able to generate sufficient revenues to fund its development activities. The Company’s future operating activities, coupled with its plans to raise capital or issue debt financing, may provide additional liquidity in the future, however these actions are not solely within the control of the Company and the Company is unable to predict the outcome of these actions to generate the liquidity ultimately required.

Impact of COVID-19 pandemic on financial statements

We experienced modest delays in our development activities as a result of the COVID-19 pandemic, primarily due to temporary closures of certain clinical sites that delayed patient enrollment in our FASCINATE-2 trial. Although the public health emergency declarations related to COVID-19 in the United States ended on May 11, 2023, the extent to which the COVID-19 pandemic will continue to impact our operations or those of our consultants and collaborators, will depend on future developments, including the global macroeconomic effects of the virus. Economic recessions, increased inflation and/or interest rates, and any disruptions to our operations or workforce availability, including those brought on by the continued effects of the COVID-19 pandemic or a similar health epidemic may have a negative effect on our operating results.

Unaudited interim financial information

The accompanying condensed balance sheet as of September 30, 2023, the condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, the condensed statements of cash flows for the nine months ended September 30, 2023 and 2022, and the related disclosures are unaudited. These unaudited condensed financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with accounting principles generally accepted in the United States of America (GAAP). Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The condensed balance sheet as of December 31, 2022 has been derived from the audited financial statements of the Company. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements included in the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (Securities Act) with the Securities and Exchange Commission (SEC) on July 17, 2023.

2.	Summary of significant accounting policies

Basis of presentation

The condensed financial statements and accompanying notes have been prepared in accordance with GAAP and the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. These condensed financial statements have been prepared on the same basis as the annual financial statements included in the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on July 17, 2023.

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In the Company’s opinion, the information furnished in these condensed financial statements reflects all adjustments, all of which are of a normal and recurring nature necessary for a fair presentation of the financial position and results of operations for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of expenses during the reporting period. Such estimates include accruals of research and development expenses, accrued costs for services rendered in connection with third-party contractor clinical trial activities, preferred stock, common stock and stock option valuations and stock-based compensation. On an ongoing basis, the Company evaluates its estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant accounting policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2022, and the unaudited financial statements as of March 31, 2023, filed with the SEC as part of the final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on July 17, 2023. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies except as disclosed below in recently adopted accounting pronouncements.

Marketable securities

The Company classifies its marketable debt securities as available-for-sale and records such assets at estimated fair value in the balance sheets. The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments on January 1, 2023. Marketable debt securities for which the estimated fair value is below amortized cost are evaluated for credit impairment. Credit impairment is recorded through the unaudited condensed statements of operations via an allowance for credit losses account, and any remaining unrealized gains and losses are reported as a component of other comprehensive income (loss) within the unaudited condensed statements of operations and comprehensive loss and as a separate component of stockholders’ equity (deficit). The Company classifies marketable securities with remaining maturities greater than three months but less than one year as short-term investments, and those with remaining maturities greater than one year are classified as long-term investments. For all marketable securities which the estimated fair value was below amortized cost as of December 31, 2022, the decline in fair value was not driven by credit impairment.

The Company had no short-term investments in marketable securities as of September 30, 2023.

Deferred financing costs

Deferred financing costs, consisting of legal, accounting and other fees and costs relating to the Company’s IPO are capitalized and recorded in the accrued expenses and other current liabilities in the condensed balance sheets. Upon closing of the IPO in July 2023, all deferred offering costs were reclassified to additional paid-in-capital in the condensed statements of operations and comprehensive loss, representing a reduction in IPO proceeds.

On March 21, 2022, the Company withdrew its prior Registration Statement on Form S-1 initially filed with the SEC on April 16, 2021. Concurrently, all of the deferred financing costs of $1.4 million capitalized as of December 31, 2021 were expensed within operating expenses in the unaudited condensed statement of operations and comprehensive loss for the nine months ended September 30, 2022.

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Revenue recognition

The Company enters into collaboration and licensing arrangements that generally contain multiple elements or deliverables, which may include (i) licenses to the Company’s technology, (ii) research and development activities performed for the collaboration partner, (iii) participation on joint steering committees (JSCs), and (iv) the manufacturing of clinical or preclinical material. Payments pursuant to these arrangements include milestone payments upon achieving significant development events, research and development reimbursements, sales milestones, and royalties on future drug sales. Variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.

In determining the appropriate amount of revenue to be recognized for the components of the arrangements that are within the scope of Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (ASC 606), the Company performs the following steps: (i) identification of the promised goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and d) the measure of progress in step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below.

At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties or milestone payments, for which the license is deemed to be the predominant item, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

In January 2022, Ascletis BioScience Co. Ltd. (Ascletis) initiated dosing of a Phase 3 trial for recurrent glioblastoma multiforme (GBM), potentially triggering a $2.0 million development milestone payment, net of applicable taxes, under the license agreement. The parties were in discussions regarding the form and amount of consideration related to this milestone until July 2023, at which time the Company concluded that the risk of reversal was no longer present, resulting in revenue recognition of $2.0 million. In August 2023, the Company received a $1.7 million milestone payment recorded as license revenue in the condensed statements of operations and comprehensive loss (representing the $2.0 million development milestone payment, net of applicable taxes) from Ascletis.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and marketable securities.

Emerging growth company status

The Company is an emerging growth company (EGC) as defined in the Jumpstart Our Business Startups Acts of 2012, as amended (the JOBS Act), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (FASB) standards’ effective dates.

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Recently adopted accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which, together with subsequent amendments, amends the requirement on the measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company for the annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023, using the modified retrospective approach, and no cumulative effect adjustment to accumulated deficit was needed as of the adoption date.

New accounting pronouncements not yet adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40); Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. This amendment is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the potential impact on its financial statements.

3.	Fair value measurements and fair value of financial instruments

The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities. The Company’s deposits in a money market fund are Level 1 financial instruments.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s short-term investments including commercial paper, corporate debt and U.S. Treasury securities are Level 2 financial instruments.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s Series A common stock warrant liability (Series A Common Stock Warrant Liability) and redeemable convertible preferred stock warrant liability (Redeemable Convertible Preferred Stock Warrant Liability) are Level 3 financial instruments.

As of September 30, 2023 and December 31, 2022, financial assets measured at fair value on a recurring basis consist of cash and cash equivalents. The carrying amount of cash and cash equivalents was $101.8 million and $0.2 million as of September 30, 2023 and December 31, 2022, respectively, which approximates the fair value and was determined based upon Level 1 inputs. The fair value of short-term investments is based upon market prices quoted on the last day of the fiscal period or other observable market inputs. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, bids and/or offers.

The carrying values of the Company’s accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these liabilities.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The Company’s Level 3 liabilities that are measured at fair value on a recurring basis consists of the Series A Common Stock Warrant Liability and the Redeemable Convertible Preferred Stock Warrant Liability.

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Marketable securities, all of which are classified as available-for-sale securities, consisted of the following (in thousands):


	As of December 31, 2022
	Amortized		Unrealized		Unrealized		Estimated
	cost		Gains		Losses		Fair Value
Commercial paper	$	15,950	$	—	$	—	$	15,950
Corporate debt securities		12,286		—		(65)		12,221
U.S. Treasury securities		4,035		—		(19)		4,016
Total	$	32,271	$	—	$	(84)	$	32,187

There were no investments in marketable securities as of September 30, 2023.

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	September 30, 2023
	Total
	fair value		Level 1		Level 2		Level 3
Liabilities:
Series A Common Stock Warrant Liability	$	1	$	—	$	—	$	1


	December 31, 2022
	Total fair
	value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents - money market funds	$	38	$	38	$	—	$	—
Commercial paper		15,950		—		15,950		—
Corporate debt securities		12,221		—		12,221		—
U.S. Treasury securities		4,016		—		4,016		—
Total	$	32,225	$	38	$	32,187	$	—
Liabilities:
Redeemable Convertible Preferred Stock Warrant Liability	$	4	$	—	$	—	$	4

The following tables provide a summary of changes in the estimated fair value of the financial instruments using significant Level 3 inputs (in thousands):


Balance - January 1, 2023	$	4
Change in fair value of Redeemable Convertible Preferred Stock Warrant Liability		1
Change in fair value of Series A Common Stock Warrant Liability		(4)
Balance - September 30, 2023	$	1

Balance - January 1, 2022	$	7
Change in fair value of Redeemable Convertible Preferred Stock Warrant Liability		(3)
Balance - December 31, 2022	$	4

During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy during the periods presented.

Redeemable Convertible Preferred Stock Warrant Liability and Series A Common Stock Warrant Liability

In connection with a note payable entered into on April 10, 2015, which was repaid in full in May 2019, the Company issued a warrant to purchase 79,545 shares of Series D redeemable convertible preferred stock. See Note 9. The Company completed its IPO on July 18, 2023. Subsequently, pursuant to the terms of the warrant, the warrant was converted into a warrant to purchase 1,000

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shares of Series A common stock and the expiration date was automatically extended until July 18, 2026, the third anniversary date of the closing of the Company’s IPO. The exercise was deemed a cashless exercise.

The Company estimates the fair value of the Series A Common Stock Warrant Liability and the Redeemable Convertible Preferred Stock Warrant Liability using an option pricing model and assumptions that are based on the individual characteristics of the warrants on the valuation date, Series A common stock market price, as well as assumptions for fair value of the underlying redeemable convertible preferred stock, expected volatility, expected life, dividends and risk-free interest rate.

As of September 30, 2023, the fair value of the Series A Common Stock Warrant Liability was determined to be $1.4 thousand assuming a volatility rate of 91.5%, an expected term of 2.80 years, no dividends, and a risk-free interest rate of 4.87%. As of December 31, 2022, the fair value of the Redeemable Convertible Preferred Stock Warrant Liability was determined to be $4.0 thousand assuming a volatility rate of 97.3%, an expected term of 2.28 years, no dividends, and a risk-free interest rate of 4.36%.

For the change in fair value of the Series A Common Stock Warrant Liability, the Company recorded other income of $4.0 thousand for both the three and nine months ended September 30, 2023, respectively, in its unaudited condensed statement of operations and comprehensive loss. For the change in fair value of the Redeemable Convertible Preferred Stock Warrant Liability, the Company recorded other expense of $1.0 thousand for the nine months ended September 30, 2023, and other income of $1.0 thousand and $3.0 thousand for the three and nine months ended September 30, 2022, respectively, in its unaudited condensed statement of operations and comprehensive loss.

4.	Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following (in thousands):


	As of		As of
	September 30,		December 31,
	2023		2022
Prepaid insurance	$	865	$	61
Prepaid clinical expenses		32		352
Other		77		34
Total	$	974	$	447

5.	Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	As of		As of
	September 30,		December 31,
	2023		2022
Accrued clinical costs	$	2,239	$	3,162
Employees’ compensation		689		636
Accrued research		221		—
Accrued preclinical costs		—		166
Other		95		57
Total	$	3,244	$	4,021