FRACTYL HEALTH INC

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Part I. Item 1A. Risk Factors and the section titled “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “will,” “would,” and similar expressions to identify forward-looking statements.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties, assumptions, and other important factors. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Part I. Item 1A. Risk Factors and the section titled “Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “will,” “would,” and similar expressions to identify forward-looking statements.

Previous wording

We are a metabolic therapeutics company focused on pioneering new approaches to the treatment of metabolic diseases, including type 2 diabetes and obesity. We aim to develop durable disease-modifying therapies that are designed to provide long-term maintenance of metabolic health without requiring lifetime treatment by targeting the organ-level root causes of T2D and obesity.

Current wording

We are a metabolic therapeutics company focused on breaking the pattern of treatment of metabolic diseases, including obesity and T2D. We aim to develop durable disease-modifying therapies that are designed to provide long-term maintenance of metabolic health without requiring lifetime treatment by targeting the organ-level root causes of obesity and T2D.

Previous wording

Since our formation in 2010, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our product candidates. The Revita DMR System, or Revita, is approved in Europe under a Conformitè Europëenne, or CE, Mark and has received reimbursement authorization through NUB in Germany for the treatment of T2D. In the first half of 2023, we initiated a limited commercial pilot in a single center in Dusseldorf, Germany. We do not have any products approved for sale in the United States. To date, we have financed our operations primarily through the proceeds from sales of our convertible preferred stock, sales of our common stock in our initial public offering and debt financing.

Current wording

Since our formation in 2010, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our product candidates. We are evaluating Revita in a two-part, parallel cohort, randomized, open-label clinical study, the REMAIN-1 pivotal study, for weight maintenance in patients with obesity who have lost at least 15% of their total body weight on GLP-1 therapy and wish to discontinue their GLP-1 without weight regain. The open label cohort is called the REVEAL-1 cohort. In addition, we had been enrolling our pivotal REVITALIZE-1 pivotal study in patients with inadequately controlled T2D despite being on at least one GLA. On January 31, 2025, we announced a Strategic Reprioritization pursuant to which we intend to prioritize our REMAIN-1 pivotal study and advance Rejuva. We have paused investment in our Revita programs for T2D consisting of the REVITALIZE-1 pivotal study and the Germany Real-World Registry study. For the REVITALIZE-1 pivotal study, patients with inadequately controlled T2D, who are on at least one GLA and previously randomized, will continue to be followed per protocol to 48 weeks. Patients randomized to the sham arm will be offered an opportunity to receive the Revita DMR procedure (crossover) once unblinded. Patients who crossover and undergo the Revita DMR procedure will be followed per protocol. We intend to follow the existing patients in the Germany Real-World Registry study per protocol and continue to report on clinical, health economic, and patient-relevant outcomes from this study on an ongoing basis. We do not have any products approved for sale in the United States. To date, we have financed our operations primarily through the proceeds from sales of our convertible preferred stock, sales of our common stock in our IPO and debt financing.

Previous wording

We have incurred significant operating losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and commercialization of one or more of our current or future product candidates in the United States. For the years ended December 31, 2023 and 2022, we incurred net losses of $77.1 million and $46.5 million respectively. As of December 31, 2023, we had an accumulated deficit of $346.6 million. We expect to continue to incur significant losses for the foreseeable future and we expect these losses to increase substantially if and as we:

Current wording

We have incurred significant operating losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and commercialization of one or more of our current or future product candidates in the United States. For the years ended December 31, 2024 and 2023, we incurred net losses of $68.7 million and $77.1 million respectively. As of December 31, 2024, we had an accumulated deficit of $415.3 million. We expect to continue to incur significant losses for the foreseeable future and we expect these losses to increase substantially if and as we:

Previous wording

We generate revenue from sales and leasing of Revita in Germany, which is approved in Europe under a CE Mark and has received reimbursement authorization through NUB in Germany for the treatment of T2D. To date, we have generated insignificant revenue in Germany since the limited pilot commercial launch of Revita in the first quarter of 2023. In the United States, we have not generated any revenue, and do not expect to generate any revenue unless and until we successfully complete clinical development and obtain marketing approvals for one or more of our product candidates, if ever. If our development efforts for our product candidates are successful and result in regulatory approval or collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof. We cannot predict if, when or to what extent we will generate revenue from our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates in the United States.

Current wording

To date, we have generated revenue in Germany since the limited pilot commercial launch of Revita in the first quarter of 2023. In the United States, we have not generated any revenue, and do not expect to generate any revenue unless and until we successfully complete clinical development and obtain marketing approvals for one or more of our product candidates, if ever. If our development efforts for our product candidates are successful and result in regulatory approval or collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof. We cannot predict if, when or to what extent we will generate revenue from our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates in the United States. On January 31, 2025, we approved a Strategic Reprioritization, in which we have paused investment in our Revita programs for T2D, which consists of the REVITALIZE-1 study and the Germany Real World Registry study.

Previous wording

We currently manage the final assembly and testing of Revita in the manufacturing space at our headquarter in Burlington, Massachusetts. We contract with third-party manufacturers to produce certain key parts of our single-use devices and consoles. Cost of goods sold primarily consist of material costs, direct labor and manufacturing overhead costs.

Current wording

We currently manage the final assembly and testing of Revita in the manufacturing space at our headquarters in Burlington, Massachusetts. We contract with third-party manufacturers to produce certain key parts of our single-use devices and consoles. Cost of goods sold primarily consist of material costs, direct labor and manufacturing overhead costs.

Previous wording

We expect our research and development expenses will increase significantly in the future as we:

Current wording

We expect our research and development expenses will increase in the future as we:

Previous wording

continue to advance the research and development of our discovery and preclinical programs, such as Rejuva;

Current wording

continue to advance the research and development of our discovery preclinical programs;

Previous wording

We anticipate that our selling, general and administrative expenses will increase significantly in the future as we:

Current wording

We anticipate that our selling, general and administrative expenses will increase in the future as we:

Previous wording

continue to expand our commercial and administrative function to support the growth of our Revita commercialization in Germany as well as potential future launches in other geographic locations;

Current wording

expand our commercial and administrative function to support future product launches and company growth;

Previous wording

Other income (expense), net is primarily comprised of interest income, change in fair value of notes payable, change in fair value of warrant liabilities and loss from debt extinguishment.

Current wording

Other income (expense), net is primarily comprised of interest income, change in fair value of notes payable and change in fair value of warrant liabilities.

Previous wording

In January 2022, we entered into a financing arrangement with certain lenders in which we issued convertible promissory notes, or the 2022 Convertible Notes. In July 2023, we repaid one of the promissory notes to one lender and issued amended and restated convertible promissory notes to the remaining lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. In September 2023, we entered into a credit agreement with certain lenders that provides for term loans, or the 2023 Notes. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources - Loan and Security Agreements section below for more details about our debt financing agreements. We elected the fair value option to account for these notes payable, which are remeasured at the end of each reporting period with changes in fair value recognized as a component of other income (expense), net. We will continue to recognize changes in fair value of the notes payable until they are repaid in cash or converted into equity upon an equity financing event or a change of control event. In connection with our IPO in February 2024, the 2022 Convertible Notes converted into common stock and the liability was reclassified to common stock and additional paid-in capital.

Current wording

In January 2022, we entered into a financing arrangement with certain lenders in which we issued convertible promissory notes, or the 2022 Convertible Notes. In July 2023, we repaid one of the promissory notes to one lender and issued amended and restated convertible promissory notes to the remaining lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. In September 2023, we entered into a credit agreement with certain lenders that provides for term loans, or the 2023 Notes. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources - Loan and Security Agreements section below for more details about our debt financing agreements. We elected the fair value option to account for these notes payable, which are remeasured at the end of each reporting period with changes in fair value recognized as a component of other income (expense), net. We will continue to recognize changes in fair value of the notes payable until they are repaid in cash or converted into equity upon an equity financing event or a change of control event. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity.

Previous wording

The fair value of the 2022 Convertible Notes was estimated using a Monte Carlo simulation model, which incorporates significant assumptions and estimates. These assumptions and estimates include, but are not limited to, the timing and probability of the conversion events, expected volatility of the price of the underlying equity, risk-free interest rate, scenario weightings, and estimated equity values, which are impacted by external market conditions. The assumptions underlying these valuations represent management’s best estimates, 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 fair value of the notes payable could be materially different.

Current wording

Prior to our IPO, the fair value of the 2022 Convertible Notes was estimated using a Monte Carlo simulation model, which incorporates significant assumptions and estimates. These assumptions and estimates include, but are not limited to, the timing and probability of the conversion events, expected volatility of the price of the underlying equity, risk-free interest rate, scenario weightings, and estimated equity values, which are impacted by external market conditions. The assumptions underlying these valuations represent management’s best estimates, 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 fair value of the notes payable could be materially different. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity. The fair value of the 2022 Convertible Notes at the time of the conversion was determined by the actual number of common stock being converted into and the trading price of our common stock on the Nasdaq Global Market as of the conversion date.

Previous wording

The fair value of the 2023 Notes at the inception date of September 7, 2023 was estimated at the difference between the total proceeds from the 2023 Notes and the estimated fair value of the associated warrants issued. This assumption was based on the rationale that the fair value of the notes and warrants at issuance equated to the total proceeds of the 2023 Notes as the credit agreement of the 2023 Notes were entered into with the lenders in an arm's-length transaction. The fair value of the 2023 Notes at December 31, 2023 was estimated using a discounted cash flow model by discounting projected future cash flows associated with the 2023 Notes to their present value. The discount rate used in the model is based on observable market yields for similarly rated instruments, adjusted for any specific risks inherent in the 2023 Notes.

Current wording

The fair value of the 2023 Notes at the inception date of September 7, 2023 was estimated at the difference between the total proceeds from the 2023 Notes and the estimated fair value of the associated warrants issued. This assumption was based on the rationale that the fair value of the notes and warrants at issuance equated to the total proceeds of the 2023 Notes as the credit agreement of the 2023 Notes were entered into with the lenders in an arm's-length transaction. The fair value of the 2023 Notes as of December 31, 2024 and 2023 was estimated using a discounted cash flow model by discounting projected future cash flows associated with the 2023 Notes to their present value. The discount rate used in the model is based on observable market yields for similarly rated instruments, adjusted for any specific risks inherent in the 2023 Notes.

Previous wording

Research and development expenses increased by $3.7 million, or 10.7%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to increased personnel-related expenses as well as clinical, medical affairs and facilities expenditures. Personnel-related expenses, including salaries, bonuses and other compensatory benefits, increased by $1.7 million as a result of the expansion of our workforce and our effort to bring certain clinical and scientific resources in house. In addition, stock-based compensation increased by $1.2 million due to new option grants issued to new hires and existing employees. Medical affairs expenses increased by $1.2 million, primarily driven by activities in connection with collaborative medical research. Clinical study expenses increased by $1.0 million due to the progress made in Revitalize-1 upon the approval of a new study protocol. Facilities expenses increased by $1.2 million as the Burlington Lease commenced on November 1, 2023 and the monthly lease expense for the Lexington Lease increased compared to the first half of 2022 upon its extension in June 2022. These increases were partially offset by a decrease of $3.1 million in engineering, manufacturing, and preclinical study expenditures primarily as a result of reduced product development effort and the timing of the expenditures incurred with the Rejuva program.

Current wording

Research and development expenses increased by $32.4 million, or 85.3%, during the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to the advancements made in our Revita and Rejuva programs, increased facilities expenditures, as well as personnel-related expenses. Revita-related expenses increased by $13.8 million, primarily due to a $12.5 million increase in clinical expenses due to progress made in our REMAIN-1 and REVITALIZE-1 studies, a $0.8 million increase in device development effort and a $0.3 million increase in medical research spending. Rejuva-related expenditures increased by $4.9 million due to continued development in our Rejuva program, primarily due to a $3.9 million increase in gene therapy research expenses and a $0.9 million increase in device development effort. In addition, allocated facilities expenses increased by $4.2 million as our new office and laboratory space lease in Burlington, MA, commenced on November 1, 2023. Personnel-related expenses, including salaries, bonuses and other compensatory benefits, increased by $5.4 million as a result of the expansion of our workforce and our effort to bring certain preclinical, clinical and scientific research resources in house. In addition, stock-based compensation increased by $4.0 million primarily due to new option and RSUs issued.

Previous wording

We recognized a loss of $6.8 million from the increase in fair value of warrant liabilities during the year ended December 31, 2023, mainly related to the warrants issued in connection with the reissuance of the 2022 Convertible Notes in July 2023. The increase was primarily driven by an increase in estimated underlying equity value due to reduced remaining estimated time to assumed conversion events.

Current wording

We recognized a gain of $17.9 million from the decrease in fair value of warrant liabilities during the year ended December 31, 2024, which consisted of a $15.3 million gain related to the July 2023 Warrants, $2.5 million gain related to the September 2023 Warrants and $0.1 million gain related to the 2014 Warrant. The decrease in the fair value of these warrants was mainly due to the decrease in the fair value of the underlying shares of common stock. We recognized a loss of $6.8 million from the change in fair value of warrant liabilities during the year ended December 31, 2023 mainly related to the July 2023 Warrants, which was due to an increase in estimated underlying equity value due to reduced remaining estimated time to assumed conversion events.

Previous wording

We recognized a loss of $19.4 million from the increase in fair value of the 2022 Convertible Notes during the year ended December 31, 2023 compared to a gain of $2.3 million from the decrease in fair value of the 2022 Convertible Notes during the year ended December 31, 2022, resulting in a total fluctuation of $21.7 million between the two comparative periods. The loss from increase in fair value of the 2022 Convertible Notes during the year ended December 31, 2023 was primarily driven by a reduction in the remaining estimated time to assumed conversion events and the new debt terms associated with the reissuance of the 2022 Convertible Notes along with the concurrent issuance of warrants to purchase common stock. The gain from decrease in fair value of the 2022 Convertible Notes during the year ended December 31, 2022 was primarily driven by adverse external market conditions which resulted in declining estimated equity value, reduced probability-weighting of the IPO scenario and an increase in the estimated time to an IPO event. In addition, we also recognized a loss of $1.3 million from the increase in fair value of the 2023 Notes during the year ended December 31, 2023 related to interest accrued on the 2023 Notes.

Current wording

We recognized a gain of $8.0 million from the decrease in fair value of 2022 Convertible Notes during the year ended December 31, 2024, which was primarily driven by the change in our common stock value after the IPO. Upon the closing of the IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes were converted into our common stock. The 2022 Convertible Notes were marked to market to its fair value as of the time of the conversion before being reclassified to equity. The gain from the decrease in fair value of the 2022 Convertible Notes was offset by a loss of $5.2 million from the increase in fair value of the 2023 Notes during the year ended December 31, 2024 due to a combination of the fluctuation of market interest rate and the accrual of the interest.

Previous wording

We believe that we maintain a level of liquidity sufficient to allow us to meet our cash needs in the short-term. Over the long-term, we manage our cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements and future investments.

Current wording

We manage our cash and capital structure to maximize shareholder return, maintain its financial condition and maintain flexibility for future strategic initiatives. We continuously assess our working capital needs, debt and leverage levels, debt maturity schedule, capital expenditure requirements and future investments.

Previous wording

On July 11, 2023, we repaid $0.1 million in cash to one of the original lenders and issued amended and restated convertible notes to certain of the lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. Following these amendments, $20.9 million in aggregate principal under the 2022 Convertible Notes remained outstanding, accruing interest at the rate of 10% per year until they were paid or converted in full. In connection with entering into these amendments, we issued to such lenders warrants, or the July 2023 warrants, to purchase shares of our common stock immediately exercisable for a variable number of shares based on the principal amount of the 2022

Current wording

On January 11, 2022, we entered into a financing arrangement with certain lenders in which we issued the 2022 Convertible Notes in exchange for an aggregate principal amount of $20.1 million. On July 11, 2023, we repaid $0.1 million in cash to one of the original lenders and issued amended and restated convertible notes to certain of the lenders in replacement of, but not in payment of, the remainder of the 2022 Convertible Notes. Following these amendments, $20.9 million in aggregate principal under the 2022 Convertible Notes remained outstanding, accruing interest at the rate of 10% per year until they were paid or converted in full. Pursuant to the terms of the Convertible Notes, effective upon the closing of our IPO on February 6, 2024, all of the outstanding principal plus accrued interest under the 2022 Convertible Notes of $22.1 million automatically converted into 1,841,321 shares of our common stock at a conversion price equal to 80% of the public offering price per share of $15.00, or $12.00.

Previous wording

On September 7, 2023, we entered into a credit agreement, as amended from time to time, with Symbiotic Capital Opportunities Holding, L.P. and Catalio Structured Opportunities AIV I LP, or the Lenders, that provides for term loans in an aggregate principal amount of $45.0 million, or the 2023 Notes, payable in two tranches. The first tranche, with a principal amount of $30.0 million, was extended on September 7, 2023, resulting in net proceeds of approximately $28.4 million. The second tranche, with a principal amount of $15.0 million, may be extended upon our achievement of certain operating and funding milestones as defined in the 2023 Notes, by July 31, 2024. The 2023 Notes also provide for a third tranche with an uncommitted principal amount of $20.0 million that may be extended to us, subject to the Lenders’ prior written consent in their sole discretion.

Current wording

On September 7, 2023, we entered into a credit agreement, as amended from time to time, with Symbiotic Capital Opportunities Holding, L.P. and Catalio Structured Opportunities AIV I LP, or the Lenders, that provides for term loans in an aggregate principal amount of $45.0 million, or the 2023 Notes, payable in two tranches. The first tranche, with a principal amount of $30.0 million, was extended on September 7, 2023, resulting in net proceeds of approximately $28.4 million. The second tranche, with a principal amount of $15.0 million, would have been extended upon our achievement of certain operating and funding milestones as defined in the 2023 Notes, by July 31, 2024. Due to a shift in business strategy, we decided not to pursue the milestones required to access the second tranche. As a result, the second tranche was not extended. The 2023 Notes also provide for a third tranche with an uncommitted principal amount of $20.0 million that may be extended to us, subject to the Lenders’ prior written consent in their sole discretion.

Previous wording

The credit agreement, as amended, contains the following financial covenants: (i) a minimum liquidity covenant requiring us to maintain a minimum $10.0 million balance in cash and cash equivalents on deposit in accounts, subject to certain exceptions, and (ii) a financing milestone covenant requiring that (a) we have received proceeds from an equity financing or series of financings (including the net proceeds from the IPO) of at least $40.0 million during the period commencing on September 7, 2023 and ending on or prior to February 15, 2024, and (b) we have received equity financing or series of financings of at least $100.0 million (inclusive of such equity financing or series of financings in the preceding clause (a)) during the period commencing as of September 7, 2023 and prior to June 30, 2024.

Current wording

The credit agreement, as amended, contains financial covenants including a minimum liquidity covenant requiring us to maintain a minimum $10.0 million balance in cash and cash equivalents on deposit in accounts, subject to certain exceptions. As of December 31, 2024, we were in compliance with the financial covenants and other terms of the arrangement.

Previous wording

The outstanding balances under the 2023 Notes bear interest at a floating annual rate equal to the greater of 5.5% above the Wall Street Journal prime rate or 13.25%. On and prior to September 30, 2024, 6.0% of the interest is payable in kind and added to the outstanding principal amount of the 2023 Notes. Beginning September 30, 2026, we are required to make principal payments in the amount of 1.5% of the aggregate principal amount outstanding, including accrued PIK interest, each month. The first principal payment date can be extended to September 30, 2027, at our election, if certain financing milestones as defined in the 2023 Notes are achieved on or prior to September 30, 2026. In addition, upon any principal payment, we are required to make an additional payment to the Lenders a 6.0% fee, or the Exit Fee, over the principal and accrued PIK interest paid. The aggregate Exit Fee of the 2023 Notes should equal to 6.0% of the total commitment of $45.0 million plus all accrued PIK interest. All remaining outstanding principal balance, accrued interest and Exit Fee on the 2023 Notes shall be due and payable on the maturity date of September 7, 2028.

Current wording

The outstanding balances under the 2023 Notes bear interest at a floating annual rate equal to the greater of 5.5% above the Wall Street Journal prime rate or 13.25%. On and prior to September 30, 2024, 6.0% of the interest is payable in kind and added to the outstanding principal amount of the 2023 Notes. Beginning September 30, 2026, we are required to make principal payments in the amount of 1.5% of the aggregate principal amount outstanding, including accrued PIK interest, each month. Under the terms of the credit agreement, the first principal payment date can be extended to September 30, 2027, at our election, if certain financing milestones as defined in the 2023 Notes are achieved on or prior to September 30, 2026. During 2024, we achieved the defined milestones and elected to extend the first principal payment date to September 30, 2027. In addition, upon any principal payment, we are required to make an additional payment to the Lenders of a 6.0% fee, or the Exit Fee, over the principal and accrued PIK interest paid. The aggregate Exit Fee of the 2023 Notes should equal to 6.0% of the total commitment of $45.0 million plus all accrued PIK interest. All remaining outstanding principal balance, accrued interest and Exit Fee on the 2023 Notes shall be due and payable on the maturity date of September 7, 2028.

Previous wording

As of December 31, 2023, the balance of the 2023 Notes was carried at its fair value of $28.0 million.

Current wording

As of December 31, 2024, the balance of the 2023 Notes was carried at its fair value of $30.2 million.

Previous wording

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance our product candidates. In the United States, we do not have any products approved for sale and have not generated any revenue from any sources, including product sales. Revita is approved in Europe under a CE Mark and has received reimbursement authorization through NUB in Germany for the treatment of T2D. We initiated a pilot commercial launch of Revita in Germany in the first quarter of 2023 and has since generated insignificant revenue due to the limited scope of the launch. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.

Current wording

We expect our expenses to increase in connection with our ongoing research and development activities, particularly as we advance our product candidates. Identifying potential product candidates and conducting preclinical testing and clinical studies is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In the United States, we do not have any products approved for sale and have not generated any revenue from any sources, including product sales. Our product candidates, if approved, may not achieve commercial success. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future, and we will need to obtain additional funds to achieve our business objectives.

Previous wording

Based on our current business plans, we believe that the aggregate net proceeds from our IPO, together with our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditures requirements through 2025.

Current wording

Based on our current business plans, we believe that our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditures requirements into 2026, through multiple key clinical milestones. As of December 31, 2024, we had available cash and cash equivalents of $67.5 million and net working capital of $52.0 million, which is not sufficient to fund our current operating plan for at least 12 months from the issuance date of this Annual Report on Form 10-K. In addition, we may not be able to comply with the minimum liquidity covenant related to our 2023 Notes without additional financing. We expect to seek additional funds through equity or debt financings or through collaboration or licensing transactions or other sources. We may be unable to obtain equity or debt financings or enter into collaboration or licensing transactions and, if necessary, we will be required to implement cost reduction strategies which could curtail or delay our current operating plans. As a result, substantial doubt exists about our ability to continue as a going concern. The accompanying consolidated financial statements in this Annual Report on Form 10-K have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Previous wording

Identifying potential product candidates and conducting preclinical testing and clinical studies is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales in the United States or elsewhere. Revita is approved in Europe under a CE Mark and has received reimbursement authorization through NUB in Germany for the treatment of T2D. We initiated a pilot commercial launch of Revita in Germany in the first quarter of 2023 and has since generated insignificant revenue due to the limited scope of the launch. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Current wording

Identifying potential product candidates and conducting preclinical testing and clinical studies is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales in the United States or elsewhere. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Previous wording

Cash used in operating activities of $46.2 million for the year ended December 31, 2022 was primarily driven by personnel related expenses, including salaries, bonuses, and other compensatory benefits, spending on our ongoing clinical studies and product engineering as well as professional services related to our corporate and general administrative activities. Our net loss of $46.5 million was partially offset by non-cash items totaling $1.5 million, including $0.5 million of depreciation expense, $0.3 million loss on debt extinguishment, $3.1 million of stock-based compensation, net by $0.1 million gain from change in fair value of convertible preferred stock warrant liability, and $2.3 million gain from change in fair value of convertible notes payable. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $1.2 million.

Current wording

Cash used in operating activities of $65.5 million for the year ended December 31, 2024 was primarily driven by spending on our ongoing Revita and Rejuva clinical and preclinical activities, professional services related to our corporate and general administrative activities, as well as personnel-related expenses, including salaries, bonuses, and other compensatory benefits. Cash used in operating activities resulted primarily from our net loss of $68.7 million adjusted for net non-cash income of $6.4 million, primarily consisting of a $17.9 million gain from change in fair value of warrant liabilities and $5.8 million gain from change in fair value of notes payable (non-cash portion), offset by $14.4 million in stock-based compensation, a $1.9 million non-cash operating lease expense, a $0.7 million depreciation and a $0.3 million non-cash interest expense. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $9.6 million.

Previous wording

Cash used in operating activities of $42.8 million for the year ended December 31, 2023 was primarily driven by personnel-related expenses, including salaries, bonuses, and other compensatory benefits, and spending on our ongoing Revitalize-1 study, Rejuva-related research activities, as well as professional services related to our corporate and general administrative activities. Our net loss of $77.1 million was partially offset by non-cash expenses of $31.3 million, including $19.9 million loss from change in fair value of notes payable, $6.8 million loss from change in fair value of warrant liabilities, $4.3 million of stock-based compensation, and $0.3 million of depreciation expense. In addition, $2.0 million of the net loss was related to debt issuance costs that were presented in cash used in financing activities. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $(1.0) million.

Current wording

Cash used in operating activities of $42.8 million for the year ended December 31, 2023 was primarily driven by spending on our ongoing clinical study, Rejuva-related research activities, professional services related to our corporate and general administrative activities, as well as personnel-related expenses, including salaries, bonuses, and other compensatory benefits. Our net loss of $77.1 million was partially offset by non-cash items totaling $31.3 million, primarily consisting of a $19.9 million loss from change in fair value of the 2022 Convertible Notes payable, $4.3 million in stock-based compensation, a $6.8 million loss from change in fair value of warrant liabilities and $0.3 million of depreciation. In addition, $2.0 million of the net loss was related to debt issuance costs that were presented in cash used in financing activities. Cash used in operating activities was also impacted by changes in working capital and other assets and liabilities of $1.0 million.

Previous wording

Cash used in investing activities remained relatively flat for the years ended December 31, 2023 and 2022 and were related to the purchase of property and equipment.

Current wording

Cash used in investing activities for the years ended December 31, 2024 and 2023 were related to the purchase of property and equipment. The increase in the year ended December 31, 2024 compared with the year ended December 31, 2023 was primarily due to our spending on leasehold improvements, office furniture and information technology equipment as we moved into our new office and laboratory space in Burlington, MA.

Previous wording

Cash provided by financing activities of $4.4 million for the year ended December 31, 2022 was primarily driven by $20.1 million capital raised from the issuance of the 2022 Convertible Notes, offset by $16.0 million repayment of the Term Loans. We also received proceeds of $0.3 million from stock option exercises.

Current wording

Cash provided by financing activities of $101.2 million for the year ended December 31, 2024 was primarily driven by the $103.7 million capital raised from the IPO, net of discounts and commissions, partially offset by $2.9 million payments of public offering costs made to third-party service providers. We also received proceeds of $0.6 million from stock option exercises.

Previous wording

Cash provided by financing activities of $27.4 million for the year ended December 31, 2023 was primarily driven by the $28.4 million capital raised from the issuance of the 2023 Notes, net of issuance costs, partially offset by an additional issuance costs of $0.4 million paid to third-party service providers. including legal fees, offering costs of $0.6 million related to the IPO effort in 2023 and a $0.1 million partial repayment of the 2022 Convertible Notes.

Current wording

Cash provided by financing activities of $27.4 million for the year ended December 31, 2023 was primarily driven by the $28.4 million capital raised from the issuance of the 2023 Notes, net of issuance costs, partially offset by additional issuance costs of $0.4 million paid to third party service providers such as legal fees, offering costs of $0.6 million related to the IPO effort in 2023.

Previous wording

Our lease commitments reflect payments due for two operating leases, including corporate office space in Lexington, MA that will expire in April 2024, and new corporate office and laboratory space in Burlington, MA that will expire in June 2034. As of December 31, 2023, our contractual commitments for our leases were $59.7 million, of which $3.4 million is expected to be paid within one year, and $56.3 million will be paid over the remaining term of such leases. For additional information on our leases and timing of future payments, please see Note 7, Leases, to the consolidated financial statements included in this Form 10-K.

Current wording

As of December 31, 2024, our lease commitments reflect payments due for our operating and finance leases. The operating leases include our corporate office and laboratory space in Burlington, MA that will expire in June 2034. The finance leases represent laboratory equipment used in our Rejuva preclinical activities. As of December 31, 2024, our future contractual commitments for our leases were $58.1 million, of which $56.7 were related to our operating leases. For additional information on our leases and timing of future payments, please see Note 7— "Commitments and Contingencies" to the consolidated financial statements included in this Annual Report on this Form 10-K.

Previous wording

We have also entered into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies, manufacturing, and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation.

Current wording

We have also entered into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies, manufacturing, and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. For example, on April 3, 2024, we entered into a Master Services Agreement and two Scopes of Work with Forge Biologics, Inc. (wholly owned subsidiary of Ajinomoto Co.) (“Forge”) to produce cGMP-grade RJVA-001 for Company’s first-in-human clinical studies. Forge performs process and analytical development, manufacturing scale-up, and cGMP manufacturing in its facility in Columbus, Ohio. The scope of the services between the Company and Forge are intended to support CTA-enabling non-clinical studies, as well as the manufacture of cGMP-grade RJVA-001 for a first-in-human clinical study. The Master Services Agreement terminates at the later of completion of services under all Statements of Work or April 2, 2030. The Master Services Agreement includes customary terms relating to, among others, indemnification, intellectual property protection, confidentiality, payments, remedies, terminations and warranties.

Previous wording

See Note 2 to our audited consolidated financial statements for the years ended December 31, 2023 and 2022 included elsewhere in this Annual Report on Form 10-K for more information.

Current wording

See Note 2— “Significant Accounting Policies” to our audited consolidated financial statements for the years ended December 31, 2024 and 2023 included elsewhere in this Annual Report on Form 10-K for more information.