Septerna, Inc.

1. Organization

Description of the Business

Septerna, Inc. (“Septerna” or the “Company”) is a biotechnology company pioneering a new era of G protein-coupled receptor (“GPCR”) oral small molecule drug discovery powered by its proprietary Native Complex Platform TM. The Company’s industrial-scale platform aims to unlock the full potential of GPCR therapies and has led to the discovery and development of its deep pipeline of product candidates focused on treating patients in three therapeutic areas: endocrinology, immunology and inflammation, and metabolic diseases.

The Company’s proprietary Native Complex Platform™ replicates the natural structure, function, and dynamics of GPCRs outside of cells at an industrial scale for, as the Company believes, the first time. The Company’s foundational technologies enable it to isolate, purify, and reconstitute full-length, properly folded GPCR proteins within ternary complexes with ligands and transducer proteins in a lipid bilayer that mimics the cell membrane. The Company then applies state-of-the-art discovery tools and technologies to these defined and tunable protein complexes to structurally design, screen for, and optimize potential product candidates. Leveraging its platform, the Company has transformed GPCR oral small molecule drug discovery to an industrialized and iterative structure-based drug design approach to expand the landscape of druggable GPCR targets with novel oral small molecule medicines for patients. The Company’s Native Complex Platform™ is designed to enable it to target certain GPCRs for the first time, uncover novel binding pockets for validated receptors, and pursue a wide spectrum of pharmacologies, including agonists, antagonists, and allosteric modulators, to affect GPCR signaling in different ways to achieve desired therapeutic effects.

The Company was incorporated in Delaware in December 2019, under the name GPCR NewCo, Inc. In June 2021, the Company changed its name to Septerna, Inc. The Company is headquartered in South San Francisco, California.

Reverse Stock Split

On October 18, 2024, the Company effected a 1-for-8.6103 reverse stock split of its issued and outstanding shares of common stock. Upon the effectiveness of the reverse stock split, (i) all shares of outstanding common stock were adjusted; (ii) the conversion ratio of the convertible preferred stock was adjusted; (iii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable were adjusted; and (iv) the exercise price of each outstanding option to purchase common stock was adjusted. All of the outstanding common stock (including shares of common stock subject to the Company’s options and as converted for the outstanding convertible preferred stock), share prices, exercise prices and per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted as a result of the reverse stock split. The number of authorized shares did not change.

Initial Public Offering

In October 2024, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold an aggregate of 18.4 million shares of its common stock at the IPO price of $18.00 per share, including 2.4 million shares that were issued to the underwriters pursuant to the full exercise of their option to purchase additional shares, resulting in net proceeds of $302.8 million, after deducting underwriting discounts and commissions of $23.2 million, and other offering expenses payable by the Company of $5.2 million. Immediately prior to the closing of the IPO, the Company’s then outstanding convertible preferred stock automatically converted into 22,839,774 shares of common stock.

Following the closing of the IPO, no shares of convertible preferred stock were authorized or outstanding. In connection with the completion of the IPO, on October 28, 2024, the Company’s certificate of incorporation was amended and restated to (i) authorize 500.0 million shares of common stock, par value $0.001 per share, which eliminates all references to the previously existing series of convertible preferred stock; and (ii) authorize 10.0 million shares of undesignated preferred stock, par value $0.001 per share, that may be issued from time to time by the Company’s board of directors in one or more series.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which assumes that the Company will realize its assets and satisfies its liabilities in the normal course of business. The Company is subject to risks inherent in operating an early-stage biotechnology business. These risks include, but are not limited to, dependence on the development of marketable products, the ability to attract, retain, and motivate qualified personnel, rapid technological changes and the rapidly evolving nature of the biotechnology industry.

The Company has incurred significant losses and negative cash flows from operations since its inception and expects to incur losses as a result of its continued research and development activities. To date, none of the Company’s product candidates have been approved by the U.S. Food and Drug Administration (the “FDA”) for commercial sale and, therefore, the Company has not generated any revenue from product sales.

The Company historically financed its operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through sale of its common stock in an IPO.

For the year ended December 31, 2024, the Company incurred net loss of $71.8 million. The Company had an accumulated deficit of $118.4 million as of December 31, 2024. The Company believes its cash, cash equivalents, marketable securities, and marketable securities, non-current of $420.8 million as of December 31, 2024 will be sufficient to fund its operations for, at least, 12 months from the date of issuance of the financial statements.

The Company expects to continue to generate operating losses for the foreseeable future. The Company will need additional financing to support its continuing operations and pursue its growth strategy. It expects to finance its operations through equity offerings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain funding on acceptable terms, or at all. Any failure to raise capital as and when needed would compromise the Company’s ability to execute on its business plan and may cause the Company to significantly delay, scale back or discontinue the research and development of some of its programs or curtail any efforts to expand its product pipelines and will materially harm its business, financial position and results of operations.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), stated in U.S. dollars and include all adjustments necessary for the fair presentation of the Company’s financial statements as of December 31, 2024 and 2023, and for the years then ended. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Updates(“ASUs”), of the Financial Accounting Standards Board(“FASB”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and reported amounts of expenses during the reporting periods. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates using historical experience, Company forecasts and future plans, current economic conditions, and information from third-party professionals that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources and adjusts those estimates and assumptions when facts and circumstances dictate. Estimates are used in determining the fair value of assets and liabilities, the useful lives of property and equipment, the rate used in determining the present value of lease payments, fair value of assets and liabilities, research and development accruals, the estimated fair value of common stock prior to the Company's IPO, and stock options, the allocation of a revenue contract’s transaction price to each distinct performance obligation on a relative standalone selling price basis, uncertain tax positions and the valuation allowance for deferred income tax assets. Actual results may differ from these estimates and assumptions.

The Company’s results can also be affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest, changes in regulatory laws and monetary exchange rates, and government fiscal policies, can have a significant effect on operations. While the Company maintains reserves for anticipated liabilities, the Company could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings.

Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision maker (“CODM”), in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its chief executive officer. Based on the information used by the CODM to allocate resources, the Company has determined it operates in one segment.

Risks and Uncertainties

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The Company limits its credit risk by placing its cash, cash equivalents, and marketable securities with banks and institutions that are highly creditworthy. Such cash may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits, and the Company's cash equivalents and marketable securities are not insured by the FDIC. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and marketable securities to the extent recorded in the balance sheet.

The primary focus of the Company’s investment strategy is to preserve capital and meet liquidity requirements. Management believes that the Company is not exposed to significant credit risk due to the high-credit-quality financial institutions in which those deposits are held. The Company has not experienced any losses on its cash, cash equivalents and marketable securities since inception. The Company has no significant off-balance sheet concentrations of credit risk.

The Company is subject to all of the risks inherent in an early-stage biotechnology company. These risks include, but are not limited to, limited management resources, efficacy of product candidates, intense competition, and dependence upon the availability of cash to sustain operations.

Cash Equivalents and Marketable Securities

The Company holds marketable securities that consist of highly liquid, investment grade debt securities. The Company's cash and marketable securities are held or issued by financial institutions that management believes are of high credit quality. Marketable securities are classified and accounted for as available-for-sale. Marketable securities with original maturities of 90 days or less are classified as cash equivalents. Marketable securities with original maturities over 90 days and remaining maturities of less than 12 months are classified as current. Marketable securities with remaining maturities of more than 12 months for which the Company has the intent and ability to hold the security for more than 12 months are classified as non-current. The Company’s marketable securities are carried at estimated fair value, which is derived from independent pricing sources based on quoted prices in active markets for similar securities. Unrealized gains and losses are reported in stockholders’ equity (deficit) as accumulated other comprehensive income. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income on the statements of operations and comprehensive loss.

The Company has the ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in the next 12 months. The Company does not generally intend to sell the investments and it is not more likely than not that it will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

The Company reviews its portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors. If the decline in fair value is due to credit-related factors, the Company recognizes a loss in its statement of operations, whereas if the decline in fair value is not due to credit-related factors, the Company recognizes the loss in other comprehensive loss.

The Company excludes the applicable accrued interest from both the fair value and amortized cost basis of marketable securities for purposes of identifying and measuring an impairment. Accrued interest receivable on marketable securities is recorded within prepaid expenses and other current assets on the balance sheets. The Company’s accounting policy is to not measure an allowance for credit loss for accrued interest receivable and to write-off any uncollectible accrued interest receivable as a reversal of interest income in a timely manner, which is considered to be in the period in which it is determined the accrued interest will not be collected.

Restricted Cash

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. In connection with the Company’s lease agreement (see Note 7), the Company is required to maintain a collateral account to secure a letter of credit issued to its landlord. The collateral account is classified as restricted cash on the Company’s balance sheets.

Accounts Receivable and Other Receivables

The Company recognizes a receivable when the Company has an unconditional right to payment, which is generally at the time of delivery of assets, or at the time services are rendered.

An allowance for expected credit losses over the life of the receivables is reserved for based on a combination of historical experience, aging analysis, current economic trends and information on specific accounts, with related amounts recorded as a reserve against revenue recognized. The reserve is re-evaluated on a regular basis and adjusted as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. No allowance for credit losses was recorded during the years ended December 31, 2024 and 2023.

As of December 31, 2024 and 2023, the Company’s accounts receivable was entirely attributed to Vertex Pharmaceuticals Incorporated (“Vertex”). As of December 31, 2023, the Company’s other receivable related to sale of non-financial asset balance was entirely attributed to Vertex (see Note 4 and Note 5).

Property and Equipment, Net

Property and equipment is recorded at cost, subject to adjustments for impairments, less accumulated depreciation. The Company depreciates property and equipment using the straight-line method over the estimated useful lives of the respective assets, as follows:

Depreciation or amortization begins at the time the asset is placed in service. Maintenance and repairs that do not improve or extend the life of the respective asset are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation is removed from the balance sheet and the resulting gain or loss is reflected in the statements of operations and comprehensive (loss) income within other income, net.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment, primarily its property and equipment, whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the undiscounted expected future cash flows the asset is expected to generate over its remaining life. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset or asset group and its eventual disposition are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value. There wereno impairments of the Company’s long-lived assets for the years ended December 31, 2024 and 2023.

Leases

The Company accounts for its leases in accordance with FASB Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). The Company adopted ASC 842 on January 1, 2021, prior to entering into the lease agreement for its office and research and development space. At inception of a contract, the Company determines whether an arrangement is or contains a lease. For each lease, the Company determines the classification as either an operating lease or a financing lease. Lease recognition occurs at the lease commencement date and lease liability amounts are determined based on the present value of lease payments over the lease term. The lease term may include options to extend or terminate the lease only when it is reasonably certain that the Company will exercise that option.

The Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments if the Company’s leases do not provide an implicit rate. The Company determines its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Right-of-use assets represent the Company’s right to use underlying assets for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments under the lease. Right-of-use assets also include any lease payments made prior to the commencement date and exclude lease incentives received.

The Company elected to apply the practical expedient of combining lease and non-lease components for the real estate lease asset class. Fixed lease payments on operating leases are recognized as lease expense over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed are recognized as incurred.

In addition, the Company elected the short-term lease practical expedient that allows the lessee to not record a lease liability and right-of-use asset for all leases with a term of 12 months or less. See Note 7 for additional information on the Company’s leases.

Convertible Preferred Stock

The Company records all shares of convertible preferred stock at their respective fair values on the dates of issuance, less issuance costs. In the event of a deemed liquidation event, such as a change of control of the Company, proceeds received from the sale of such shares will be distributed in accordance with the liquidation preferences set forth in the Company’s certificate of incorporation unless the holders of the convertible preferred stock have converted their shares of convertible preferred stock into shares of common stock. Convertible preferred stock is therefore classified outside of stockholders’ equity (deficit) as events triggering redemption are not solely within the Company’s control.

No shares of convertible preferred stock were authorized, issued or outstanding at December 31, 2024. As of December 31, 2023, the Company did not adjust the carrying values of its convertible preferred stock to the liquidation preferences because of the uncertainty of whether or when such an event would occur. As of December 31, 2023, it was not probable that such a redemption would occur.

Revenue Recognition

The Company generated revenue for the year ended December 31, 2024 and 2023 from service revenue for research activities performed related to an agreement with Vertex (see Note 5). The Company considers revenue to be earned when all of the following criteria are met: (i) the Company has a contract with a customer that creates enforceable rights and obligations; (ii) promised products or services are identified; (iii) the transaction price, or the amount the Company expects to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; (iv) and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods and services expected to be transferred. When a contract contains variable consideration and the variable consideration is constrained to the extent that it is not probable that it will be received, it is excluded from the transaction price. A contract’s transaction price is allocated to each distinct performance obligation on a relative standalone selling price basis and recognized as revenue when, or as, control of the distinct good or service is transferred.

During the years ended December 31, 2024 and 2023, the Company’s revenue was entirely attributable to Vertex.

Sale of Non-Financial Assets

Sales of non-financial assets that are outside the scope of the Company’s ordinary activities are accounted for under ASC 610-20, Other Income - Gains and Losses from the Derecognition of Non-financial Assets (“ASC 610-20”). Pursuant to ASC 610-20, the Company applies the guidance in ASC 606, Revenue from Contracts with Customers(“ASC 606”), to determine if a contract exists, identify the distinct non-financial assets, and determine when control transfers and, therefore, when to derecognize the non-financial asset. Additionally, the Company applies the measurement principles of ASC 606 to determine the amount of consideration, if any, to include in the calculation of the gain or loss for the non-financial asset.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of employee-related costs, including salaries, benefits and stock-based compensation for employees engaged in research and development activities, costs related to research activities, preclinical studies and clinical trials, production of clinical and preclinical materials, information technology-related costs, allocated overhead costs including facility-related expenses, contract manufacturing, consulting fees, costs related to laboratory operations and fees paid to other entities that conduct certain research and development activities on the Company’s behalf. Payments made prior to the receipt of goods and services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered.

The Company has entered into agreements with outsourced contract manufacturing and development and clinical research vendors. The Company estimates accrued research and development expenses as of each balance sheet date based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with internal management personnel and external service providers, and makes adjustments, if necessary. Research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development services provided, but not yet invoiced, are included in accrued expenses on the balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.

Patent Expenses

Costs to secure and maintain patents covering the Company’s technology and product candidates are expensed as incurred and are classified as general and administrative expenses in the statements of operations and comprehensive (loss) income.

Fair Value Measurements

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities 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 related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Fair Value of Financial Instruments

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which to transact and the market-based risk. The carrying values of the Company’s cash and cash equivalents, restricted cash, accounts receivable, other receivable related to sale of non-financial asset, accounts payable and accrued expenses, approximate their fair values due to their relatively short maturities.

Stock-Based Compensation

Stock-based compensation expense related to stock options and restricted stock awards granted to employees and non-employees is recognized based on the grant-date fair value of the awards. The fair value of stock options is determined using the Black Scholes option pricing model on the date of grant. The fair value of restricted stock awards is determined using the estimated fair value of the Company’s common stock on the date of grant.

Prior to the IPO, the Company utilized estimates and assumptions in determining the fair value of its common stock, including stock-based awards. The Company has granted stock options at exercise prices that represented the fair value of its common stock on the specific grant dates. The Company utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, the prices at which the Company sold shares of convertible preferred stock, the superior rights and preferences of the convertible preferred stock senior to the Company’s common stock at the time, and a probability analysis of various liquidity events, such as a public offering or sale of the Company, under differing scenarios.

For stock-based awards with service conditions only, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term of the award of four years. For stock-based awards with vesting criteria subject to the achievement of performance-based conditions, in addition to service conditions, the Company recognizes stock-based compensation expense on an accelerated basis over the vesting period when achievement of the performance criteria becomes probable.

Stock-based compensation expense is recorded within research and development and general and administrative expenses in the accompanying statements of operations and comprehensive (loss) income based on the function to which the related services are provided. The Company recognizes stock-based compensation expense for the portion of awards that have vested. Forfeitures are accounted for as they occur.

Income Taxes

The Company utilizes the asset and liability approach to account for income taxes. Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards, using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions recognized in the financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related interest and penalties.

Comprehensive (Loss) Income

Comprehensive (loss) income is defined as a change in equity of a business enterprise during a period resulting from transactions from non-owner sources. The Company’s other comprehensive (loss) income is comprised solely of unrealized gains (losses) on marketable securities. The Company has not recorded any reclassifications from other comprehensive (loss) income to net loss during the periods presented.

Net (Loss) Income Per Share

Basic net (loss) income per share is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding during the period, without consideration of potential dilutive securities. Vested restricted stock is treated as outstanding for accounting purposes. Unvested restricted stock is not considered to be outstanding for purposes of the calculation of basic net (loss) income per share. Diluted net (loss) income per share is computed by dividing the net (loss) income by the sum of the weighted-average number of common shares outstanding during the period plus the potential dilutive effects of potential dilutive shares outstanding during the period. Potential dilutive securities include stock options, unvested restricted stock and convertible preferred stock. The dilutive effect of stock options and unvested restricted stock is computed using the treasury stock method and the dilutive effect of convertible preferred stock is calculated using the “if-converted method.” For all periods presented in a net loss position, diluted net loss per share is the same as basic net loss per share since the effect of including potential common shares is anti-dilutive.

Basic and diluted net (loss) income per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers all series of its convertible preferred stock to be participating securities. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the holders of its convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Net (loss) income is attributed to common stockholders and participating securities based on their participation rights.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 will improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods after December 5, 2024, with early adoption permitted. The Company adopted Topic 280 on January 1, 2024.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available for sale debt securities. Topic 326 is effective for annual periods beginning after December 15, 2022, and early adoption is permitted. The Company adopted Topic 326 on January 1, 2023, and the adoption did not have a material impact on its financial statements.

Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB, under its ASC or other standard setting bodies, and adopted by the Company as of the specified date.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, an accounting standard update that requires the Company to disclose more detailed information about the types of expenses (including employee compensation, depreciation, and amortization) included in each relevant income statement expense caption. The ASU is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that this update will have on its disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The standard is intended to improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU is effective for fiscal years beginning after December 15, 2025, on a prospective basis. Early adoption and retrospective reporting are permitted. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements.

Emerging Growth Company Status and Smaller Reporting Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company is also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company may continue to be a smaller reporting company even after it is no longer an emerging growth company. The Company may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as its voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of its second fiscal quarter, or its annual revenue is less than $100.0 million duringthe most recently completed fiscal year and its voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of its second fiscal quarter.

3. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

Depreciation and amortization expense was $1.4 million and $0.8 million for the years ended December 31, 2024 and 2023, respectively.

Accrued Expenses and Other Current Liabilities

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

4. Gain on Sale of Non-Financial Asset

Vertex Asset Sale

In September 2023, the Company entered into an asset purchase agreement with Vertex under which Vertex acquired an IPR&D asset related to a GPCR program, including all intellectual property, materials, and compounds associated with the program (the “Vertex Purchase Agreement”). Additionally, as part of the agreement, Vertex assumed all claims, counterclaims and credits associated with the program, and the Company gave up all rights to the intellectual property. The transfer of the IPR&D asset to Vertex was completed in November 2023.

At the same time in September 2023, the Company entered into a research service agreement with Vertex under which the Company agreed to perform certain exploratory research activities for Vertex (the “Vertex Research Service Agreement”) (see Note 5).

The Company concluded that the IPR&D asset sale should be accounted for under the guidance at ASC 610-20, as this type of transaction did not meet the definition of “ordinary activities” of the Company and Vertex should not be considered a “customer” in this transaction. However, since both the Vertex Purchase Agreement and the Vertex Research Service Agreement were entered into at the same time with the same counterparty with a single commercial objective, the Company combined the contracts and applied the allocation principles under ASC 606. The Company identified the performance obligations in both contracts, determined the transaction price and allocated the transaction price to the performance obligations in the contracts based on the estimated standalone selling price for each performance obligation.

During the year ended December 31, 2023, the Company recorded a gain on sale of non-financial asset of $47.6 million for the sale of the IPR&D asset to Vertex on its statements of operations and comprehensive (loss) income. The Company received $25.0 million in cash at the closing of the agreement in September 2023 and recorded the remaining balance of $22.6 million in other receivable related to sale of non-financial asset on its balance sheet as of December 31, 2023. As of December 31, 2023, the sale of the IPR&D asset was complete and the Company had an unconditional right to the $22.6 million. The Company received the payment of $22.6 million of this balance in the first half of 2024. No gain on sale of non-financial asset was recognized during the year ended December 31, 2024.

The Vertex Purchase Agreement also provides for a potential milestone payment payable to the Company contingent upon achievement of a certain research milestone. The milestone payment amount is determined based on the timing of achievement of the research milestone. The variable consideration related to this milestone payment was determined to be improbable of receipt at this time. As a result, the milestone payment was excluded from the transaction price. After the potential milestone payment, the Company will not receive any other payments or future royalties related to this IPR&D asset.

5. Revenue

Vertex Research Service Agreement

As disclosed in Note 4, the Company entered into the Vertex Research Service Agreement in September 2023 under which the Company agreed to perform certain exploratory research activities for Vertex. Although the Company accounted for the IPR&D asset sale under the guidance at ASC 610-20, the research services portion of the transaction fell under the scope of the revenue from contracts with customers guidance, ASC 606.

The Vertex Research Service Agreement is for atwo-year term, however, Vertex has the ability to terminate the agreement with a 30-day notice at any time. As a result, the Company concluded that the contract duration is 30 days, representing a month-to-month service contract. The Company recognizes this service revenue over the performance period of the research services as the services are provided. The Vertex Research Service Agreement also includes a provision related to additional research services, which the Company concluded met the definition of a customer option under ASC 606. The Company will recognize revenue related to the customer option if and when it is exercised.

During the year ended December 31, 2024, the Company recorded revenue of $1.1 million related to research activities performed in connection with the Vertex Research Service Agreement and customer options exercised. During the year ended December 31, 2023, the Company recorded revenue of $0.2 million related to research activities performed in connection with the Vertex Research Service Agreement and no customer options were exercised.

6. Marketable Securities and Fair Value Measurements

The Company records marketable securities and cash equivalents at their estimated fair values, which are based on market prices from a variety of industry standard data providers and generally represent quoted prices for similar assets in active markets or have been derived from observable market data.

The fair value measurements of the Company’s cash equivalents and marketable securities are identified at the following levels within the fair value hierarchy (in thousands):

Marketable Securities

As of December 31, 2024, the Company’s marketable securities consist of debt securities, including U.S. treasury and agency securities, corporate debt securities and commercial paper. These marketable securities are carried at fair value and are included in the tables above. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. At each reporting date, the Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. The Company evaluates, among others, whether the Company has the intention to sell any of these marketable securities and whether it is not more likely than not that the Company will be required to sell any of them before recovery of the amortized cost basis. Neither of these criteria were met at December 31, 2024. The credit ratings of the securities held remain of the highest quality. Moreover, the Company continues to receive payments of interest and principal as they become due, and the Company's expectation is that those payments will continue to be received timely. Based on this evaluation, as of December 31, 2024, the Company determined that unrealized losses of its marketable securities were primarily attributable to changes in interest rates and non-credit related factors. As such, no allowances for credit losses were recorded at December 31, 2024. The Company did not hold marketable securities at December 31, 2023.

Interest receivable as of December 31, 2024 was $1.0 million and is recorded as a component of prepaid expenses and other current assets on the Company’s balance sheets. The Company didnot have interest receivable at December 31, 2023.

As of December 31, 2024, all marketable securities in an unrealized loss position had been in an unrealized loss position for less than 12 months. As of December 31, 2024, the Company held 36 marketable securities which have been in an unrealized loss position for a period of less than 12 months.

As of December 31, 2024, the following table summarizes the amortized cost and the unrealized gains (losses) of the marketable securities presented within marketable securities, marketable securities, non-current and cash equivalents (in thousands):

As of December 31, 2024, the following table summarizes marketable securities in an unrealized loss position (in thousands):

7. Leases

Operating Leases

The Company leases office and research and development space at the Company’s headquarters in South San Francisco, California under an operating lease. In April 2021, the Company entered into a lease for 12,560 square feet, set to expire in February 2023. In September 2022, the lease was amended to add 9,348 square feet, totaling 21,908 square feet (the “Original Leased Space”), also expiring in February 2023. In December 2022, the Company entered into another lease amendment to extend the term of the Original Leased Space and add 22,911 square feet (the “Additional Leased Space”). The Company took control of the Additional Leased Space in November 2023, at which point the Company vacated the Original Leased Space to allow the landlord to renovate it.

Renovation of the Original Leased Space was completed in July 2024. Upon completion of the renovation of the Original Leased Space, the lease of the Original Leased Space commenced, resulting in the total leased premises increasing to 44,819 square feet (the “Leased Space”).

The lease term for the Leased Space expires in July 2032, with anoption to extend the lease for eight additional years (the “Extension Option”). As of December 31, 2024 and 2023, it was not probable that the Company would exercise the Extension Option, therefore, it was excluded from the right-of-use asset and lease liability calculations.

During the year ended December 31, 2024, the Company recorded a $12.5 million operating lease right-of-use asset and operating lease liability upon completion of the renovations of the 21,908 square foot office and research and development space (the "Original Leased Space") as the Company occupied the property.

During the year ended December 31, 2023, the Company recorded a $12.6 million operating lease right-of-use asset and operating lease liability for the Additional Leased Space as the lease commenced in November 2023, when the Company took control of the property. These amounts are disclosed in the supplemental information of noncash activities on the statements of cash flows. As of December 31, 2023, the entire balance of the operating lease liability associated with the Additional Leased Space was classified as non-current as the Company received a rent abatement for four months in the first year of the lease and, therefore, the operating lease liability increased over the 12 month-period starting from December 31, 2023.

As of December 31, 2024, the weighted average remaining lease term of the Leased Space was 7.6 years. The weighted average incremental borrowing rate used for the calculation of the present value of lease payments over the lease term was 11.34%.

As of December 31, 2023, the remaining lease term of the Additional Leased Space was 8.5 years. The incremental borrowing rate used for the calculation of the present value of lease payments over the lease term at the lease commencement date was 12.3%.

The following table summarizes the expenses recognized and cash paid for the Leased Space (in thousands):

As of December 31, 2024, future minimum rental payments for operating leases were as follows (in thousands):

As of December 31, 2024 and 2023, the Company did not have any finance leases.

8. Commitments and Contingencies

Legal Proceedings

In the ordinary course of business, the Company may be subject to legal proceedings, claims and litigation, as the Company operates in an industry susceptible to patent or other legal claims. The Company accounts for estimated losses with respect to legal proceedings and claims when such losses are probable and estimable. Legal costs associated with these matters are expensed when incurred. The Company was not subject to any material legal proceedings as of December 31, 2024 and 2023, and the Company is not currently a party to any legal proceeding that, if determined adversely to the Company, in management’s opinion, is currently expected to individually or in the aggregate have a material adverse effect on the Company’s business, financial condition or results of operations taken as a whole.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. As permitted under Delaware law and in accordance with its bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its officers and directors.

The maximum potential amount of future payments that the Company could be required to make under these provisions is not determinable; however, the Company currently holds director and officer liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. In addition, the Company is not currently aware of any indemnification claims. Accordingly, the Company didnot record any liabilities associated with these indemnification rights and agreements as of December 31, 2024 and 2023.

9. Convertible Preferred Stock

Immediately prior to the closing of the Company's IPO in October 2024, the Company’s outstanding convertible preferred stock automatically converted into 22,839,774 shares of common stock. Converted preferred stock outstanding as of the date of the IPO consisted of 196,657,452 shares. Each share of outstanding convertible preferred stock was converted into common stock at a ratio of 8.6103 convertible preferred shares to 1 common share. No shares of convertible preferred stock were authorized, issued or outstanding at December 31, 2024.

As of December 31, 2023, convertible preferred stock consisted of the following (in thousands, except for share and per share amounts):

In November 2021, the Company executed a Series A Convertible Preferred Stock financing arrangement that would provide financing of up to $100.0 million over an initial tranche and subsequent callable tranches through the issuance of up to 100.0 million shares of Series A Convertible Preferred Stock at an issuance price of $1.00 per share. In the initial tranche, the Company issued 45.0 million shares of Series A Convertible Preferred Stock for net proceeds of $44.7 million, of which $30.0 million was received in cash, net of issuance costs, and $14.7 million was for the conversion of the then outstanding convertible promissory notes plus accrued interest. The Series A Convertible Preferred Stock financing arrangement represented an equity financing, per the terms of the outstanding convertible promissory notes, and as such the unpaid principal and accrued interest outstanding of $14.7 million was converted into 14.7 million shares of Series A Convertible Preferred Stock. Additionally, in November 2022, the Company executed the second tranche and issued 30.0 million shares of Series A Convertible Preferred Stock and received net cash proceeds of $30.0 million.

The Series A Convertible Preferred Stock Purchase Agreement provided that, upon the fulfillment of certain conditions, each investor would purchase its pro rata portion of the shares to be issued in additional Series A Convertible Preferred Stock closings. Further, the Company agreed to sell, and issue said shares of Series A Convertible Preferred Stock on the same terms as the first tranche in the Purchase Agreement. The Company did not separately account for tranche purchase rights described above as they were not freestanding from the associated shares of convertible preferred stock.

In June 2023, the Company amended and restated its certificate of incorporation to, among other things, increase the authorized number of shares of the Company’s convertible preferred stock to 196.7 million shares, of which 121.7 million shares are designated as Series B Convertible Preferred Stock, and to establish the rights, preferences, privileges and restrictions of the Series B Convertible Preferred Stock.

In June 2023, the Company entered into a Series B Convertible Preferred Stock financing arrangement in which 121,657,452 shares of Series B Convertible Preferred Stock were authorized to be issued at an issuance price of $1.23297 per share over two tranches, for total proceeds of up to $150.0 million. In June 2023 and July 2023, the Company issued an aggregate of 60.8 million shares of Series B Convertible Preferred Stock at an issuance price of $1.23297 per share for net proceeds of $74.5 million related to the first tranche, with a potential second tranche of additional funding for up to $75.0 million based on approval of the Board of Directors and consent of the majority of the holders of the then-outstanding Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock Purchase Agreement provides that, upon the fulfillment of certain conditions, each investor will purchase its pro rata portion of the shares to be issued in additional Series B Convertible Preferred Stock closings. Further, the Company agreed to sell, and issue said shares of Series B Convertible Preferred Stock on the same terms as the first tranche in the Purchase Agreement. The Company did not separately account for tranche purchase rights described above as they were not freestanding from the associated shares of convertible preferred stock.

Upon issuance of the Series B Convertible Preferred Stock, the Company also amended the Series A Convertible Preferred Stock agreement to cancel the remaining 25.0 million unissued shares of Series A Convertible Preferred Stock originally authorized under the agreement.

In May 2024, the Company executed the second tranche of the Series B Convertible Preferred Stock financing arrangement and issued the remaining 60.8 million shares of Series B Convertible Preferred Stock for net proceeds of $74.9 million.

The rights, privileges, and preferences of the Series A and Series B Convertible Preferred Stock (together, the “Convertible Preferred Stock”) are as follows:

Redemption

The Convertible Preferred Stock does not have redemption rights, except for the contingent redemption upon the occurrence of a Deemed Liquidation Event.

Conversion

Each share of the Convertible Preferred Stock is initially convertible, at the option of the holder at any time after all authorized shares of the Convertible Preferred Stock have been issued or if otherwise approved by the holders representing at least a majority of the then outstanding shares of the Convertible Preferred Stock, including at least one holder that, together with its affiliates, holds only shares of Series B Convertible Preferred Stock and is a major investor, as defined in the Company’s amended and restated investors’ rights agreement (the “Required Vote”), into shares of common stock as determined by dividing the original issue price by the conversion price in effect at the time of conversion. The Series A Convertible Preferred Stock conversion price is initially $1.00, and the Series B Convertible Preferred Stock conversion price is initially $1.23297. The conversion prices are subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Convertible Preferred Stock. The conversion prices are subject to adjustment in the event the Company issues additional shares of common stock without consideration or for a consideration per share less than the conversion price in effect prior to such issuance, unless the Required Vote determines that no such adjustment shall be made to the conversion price.

Special mandatory conversion will occur if a convertible preferred stockholder fails to purchase their agreed upon share, as originally allocated to such holder in the purchase agreement, in additional closings of the Convertible Preferred Stock as defined in the purchase agreement, and such failure is not cured as specified in the purchase agreement following receipt of the subsequent closing notification. Holders of Series B Convertible Preferred Stock have the option to waive the special mandatory conversion as specified in the purchase agreement. Upon such event, each share of the Convertible Preferred Stock held by such holder will be automatically converted into that number of shares of common stock equal to 10% of the original issue price divided by the conversion price in effect.

Mandatory conversion of all outstanding shares of the Convertible Preferred Stock at the then effective conversion rate will also occur automatically upon (i) consent of holders representing the Required Vote or (ii) the closing of the sale of shares of common stock to the public at a price of at least $1.849455 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock), in a firm commitment underwritten public offering resulting in at least $50.0 million in gross proceeds to the Company, after deducting underwriting discounts and commissions, and in connection with such offering the common stock is listed for trading on the Nasdaq, the New York Stock Exchange or another exchange approved by the board of directors, including the approval of at least a majority of the Convertible Preferred Stock directors.

Dividends

The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company, other than dividends on shares of common stock payable in shares of common stock, unless the holders of the Convertible Preferred Stock first receive, or simultaneously receive, a dividend on outstanding shares of the Convertible Preferred Stock in an amount at least equal to the dividend payable based on the number of shares of common stock at the then conversion rate, such that the calculation should result in the highest preferred stock dividend. The board of directors has not declared any dividends to-date.

Voting and Board Representation

Each holder of outstanding shares of the Convertible Preferred Stock is entitled to one vote for each share of common stock into which such shares of preferred stock are convertible and shall vote together with the holders of common stock as a single class and on an as-converted to common stock basis, except as provided by law or by the other provisions of the Company’s certificate of incorporation.

The holders of shares of Series A Convertible Preferred Stock, exclusively and as a separate class, are entitled to elect three directors of the Company. The holders of shares of Series B Convertible Preferred Stock, exclusively and as a separate class, are entitled to elect one director of the Company. The holders of record of the shares of common stock and any other class or series of voting stock (including the Convertible Preferred Stock), as a single class, are entitled to elect the remaining directors. The size of the board shall be set and remain at seven directors.

Protective Provisions

At any time when shares of the Convertible Preferred Stock are outstanding, the Company shall first obtain the approval of the Required Vote, voting separately as a class, with respect to the following actions: (i) consummation of a liquidation, dissolution or winding up of the Company, or effect any merger, acquisition or consolidation or any other deemed liquidation event, (ii) amend, alter or repeal any provision of the Company’s certificate of incorporation or bylaws, (iii) create, authorize, issue or obligate the Company to issue shares of any equity security or increase the authorized number of shares of the Convertible Preferred Stock or of any additional class or series of stock unless it ranks junior to the Convertible Preferred Stock, (iv) reclassify, alter or amend any existing security of the Company that is pari passu with the Convertible Preferred Stock, or is junior with the Convertible Preferred Stock , in respect of the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends or rights of redemption, if such reclassification alteration or amendment would render such other security senior to the Convertible Preferred Stock, or in the case of a previously junior security would render such security senior to or pari passu with the Convertible Preferred Stock, (v) pay or declare any dividend, other than dividends on the Convertible Preferred Stock, or make any distribution on any shares of capital stock prior to the Convertible Preferred Stock, other than common stock or options to acquire common stock repurchased from former employees or consultants in connection with the cessation of their employment/services, pursuant to the provisions of existing plans or agreements, (vi) create, adopt, amend, terminate or repeal any equity or equity-linked compensation plan, (vii) increase or decrease the authorized number of directors constituting the Board of Directors, change the number of votes entitled to be cast by any director or directors on any matter, or adopt any provision inconsistent with Article Sixth; (viii) create or hold (or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue) any shares of capital stock in any subsidiary that is not a wholly-owned subsidiary of the Corporation, or sell, lease, transfer, exclusively license or otherwise dispose of any direct or indirect subsidiary capital stock or all or substantially all of any direct or indirect subsidiary assets; or (ix) sell, assign, license, pledge or encumber material technology or intellectual property, or enter into or grant any royalty streams related thereto, other than licenses granted in the ordinary course of business.

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up, or in the event of a deemed liquidation event of the Company, the holders of shares of the Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, or out of the consideration payable to stockholders, as applicable, before any payment shall be made to the holders of common stock, an amount per share equal to the greater of (i) the original issue price, plus any dividends declared but unpaid, or (ii) such amount per share as would have been payable had all shares of the Convertible Preferred Stock been converted into common stock immediately prior to such event. If, upon the occurrence of such event, the assets of the Company available for distribution to its stockholders are insufficient to pay the holders of the Convertible Preferred Stock the full amount to which they are entitled, the holders of the Convertible Preferred Stock shall share ratably in any distribution of the assets available for distribution.

Classification

The Company has classified the Convertible Preferred Stock outside of permanent equity on the balance sheet as these shares can be redeemed upon the occurrence of certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of the Company. The Company has not adjusted the carrying values of the convertible preferred stock to the liquidation preferences of such shares because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of shares of convertible preferred stock, and at the balance sheet dates these circumstances were not probable. Subsequent adjustments to the carrying values of the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur. As of December 31, 2023, it was not probable that such a redemption would occur.

10. Common Stock

As of December 31, 2024, the Company was authorized to issue 500.0 million shares of common stock, par value $0.001 per share. As of December 31, 2023, the Company was authorized to issue 260.6 million shares of common stock, par value $0.001 per share.

In June 2023, the Company amended and restated its certificate of incorporation to, among other things, increase the authorized number of shares of common stock of the Company to 260.6 million shares.

In October 2024, the Company amended and restated its certificate of incorporation, which was filed immediately prior to the closing of its IPO and among other things, increased the number of shares of common stock authorized for issuance to 500.0 million shares of common stock.

In October 2024, the Company completed its IPO of its common stock. In connection with the Company's IPO, the Company issued and sold 18.4 million shares of its common stock, which included an additional 2.4 million shares of common stock that were issued to the underwriters pursuant to the full exercise of their option to purchase additional shares of common stock, at the public offering price of $18.00 per share. As a result, the Company received $302.8 million in net proceeds, after deducting underwriting discounts and commissions and other offering costs payable by the Company of $28.4 million.

The holders of common stock are entitled to dividends when and if declared by the board of directors, subject to the preferences applicable to outstanding shares of the Preferred Stock. The board of directors has not declared any dividends and the Company has not paid any dividends. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.

The Company reserved the following shares of common stock, on an as-converted basis, for future issuance:

11. Stock-Based Compensation

2024 Plan

In October 2024, the Company's board of directors adopted, and its stockholders approved the 2024 Option and Incentive Plan (the “2024 Plan”) which became effective on October 25, 2024. The 2024 Plan allows for the issuance of equity-based and cash-based incentive awards to the Company's officers, employees, directors and consultants. The 2024 Plan is administered by the Company's compensation committee. The exercise prices, vesting and other restrictions are determined at the discretion of the compensation committee, subject to the provisions of the 2024 Plan.

The Company initially reserved for issuance under the 2024 Plan 3.7 million shares of its common stock. The 2024 Plan provides that the number of shares reserved and available for issuance under the 2024 Plan will automatically increase on January 1, 2025 and each January 1 thereafter through January 1, 2034, by 5% of the outstanding number of shares of the Company's common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company's compensation committee.3.7 million shares remained available for future issuance under the 2024 Plan as of December 31, 2024.

The number of shares reserved under the 2024 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization. The 2024 Plan replaced the 2021 Plan as the Company’s board of directors determined not to make additional awards under the 2021 Plan following the completion of the IPO. However, the 2021 Plan will continue to govern outstanding equity awards granted thereunder. The shares of common stock underlying any awards under the 2024 Plan and the 2021 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to the shares of the Company's common stock available for issuance under the 2024 Plan.

2021 Stock Option and Grant Plan

In 2021, the Company adopted the Septerna, Inc. 2021 Stock Option and Grant Plan (the “2021 Plan”), which authorizes the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards and restricted stock units, to officers, employees, directors, consultants, or other key persons of the Company. The terms of the stock option and restricted stock agreements, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the 2021 Plan. Stock option awards expire 10 years from the grant date, or as otherwise determined by the Board of Directors, or in the case of incentive stock options granted to 10% stockholders, the term is no more than 5 years fromthe grant date.

Additionally, the Company granted and issued restricted stock awards and allowed the recipients to purchase the unvested restricted stock awards at par value per share. The shares issued for unvested restricted stock awards under the 2021 Plan are subject to repurchase by the Company at the original issuance price in the event of the holder’s termination of its relationship with the Company. Consideration received for shares associated with the unvested restricted stock awards is initially recorded as a liability and subsequently reclassified into stockholders’ equity (deficit) as the related awards vest over the requisite service period.

The 2021 Plan initially authorized a total of 2.4 million shares reserved for future issuance. In June 2023, the Company amended the 2021 Stock Option and Grant Plan to, among other things, increase the shares reserved for issuance under the 2021 Plan to 4.2 million shares. In September 2024, the Company amended the 2021 Stock Option and Grant Plan, as amended to, among other things, increase the shares reserved for issuance under the 2021 Plan to 5.4 million shares.

1.6 million shares remained available for future issuance under the 2021 Plan as of December 31, 2023. No shares remained available for future issuance under the 2021 Plan as of December 31, 2024 as the 2021 plan was replaced by the 2024 Option and Incentive Plan (the “2024 Plan”), which is further discussed above.

2024 ESPP

In October 2024, the Company's board of directors adopted, and its stockholders approved, the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective upon the date immediately preceding the date on which the IPO registration statement was declared effective by the SEC. The 2024 ESPP initially reserved and authorized the issuance of up to a total of 0.4 million shares of the Company’s common stock to participating employees. The 2024 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2026 and each January 1 thereafter through January 1, 2034, by the lesser of (i)0.4 million shares of common stock, (ii)1% of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such lesser number of shares of common stock as determined by the administrator of the 2024 ESPP. The number of shares reserved under the 2024 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization.

As of December 31, 2024, the Company has issuedno shares under the ESPP as the first offering period has not begun. As of December 31, 2024, there were 0.4 million shares available for issuance under the ESPP.

Executive Officer and Director Equity Awards Modification

In May 2024, the Company’s board of directors modified the terms of stock option awards for 1.3 million shares of the Company’s common stock and restricted stock awards for 0.9 million shares of the Company's common stock to certain executive officers and members of the Company’s board of directors. Under the modified terms, accelerated vesting provisions were added associated with certain change of control events. No incremental stock-based compensation expense was recognized as a result of the modification.

Restricted Stock Awards

The Company has granted restricted stock awards from the 2021 Plan and from outside of its stock plans, under the terms of restricted stock purchase agreements and subscription agreements. Unvested shares are subject to repurchase by the Company upon the holder’s termination of its relationship with the Company at the original purchase price. Consideration received for shares associated with the unvested restricted stock awards is initially recorded as a liability and subsequently reclassified into stockholders’ equity (deficit) as the related awards vest.

The following summarizes restricted stock award activity:

The restricted stock awards generally include a service condition for vesting and vest over four years with a one-year cliff vesting and pro-rata monthly vesting thereafter, but some awards vest over different time periods. In addition, some restricted stock awards include vesting criteria subject to the achievement of performance-based conditions in addition to service conditions, for which the Company periodically assesses the probability that the performance criteria will be met and only recognizes stock-based compensation expense related to these awards when achievement of the performance criteria becomes probable. The aggregate grant date fair value of shares vested during the year ended December 31, 2024 was $1.1 million.

Stock Options

The following summarizes stock option activity under the 2024 and 2021 Plans:

Stock options include a service condition for vesting and most stock options vest over four years with a one-year cliff vesting and pro-rata monthly vesting thereafter. The aggregate intrinsic values of options outstanding and exercisable were calculated as the difference between the exercise price of the options and the closing market price of the Company’s common stock as of December 31, 2024.

The aggregate grant date fair value of options that vested for the year ended December 31, 2024 was $1.5 million. The options granted in the year ended December 31, 2024 had a weighted-average per share grant-date fair value of $6.65 and a total grant date fair value of $13.1 million. The total intrinsic value of stock options exercised during 2024 was $0.4 million.

During the year ended December 31, 2024, the Company granted a total of 2.0 million shares of stock options to its employees. A total of 0.6 million of the stock options granted in the year ended December 31, 2024 include vesting criteria subject to both service conditions and the achievement of performance-based conditions, related to the consummation of the Company’s IPO or a Sale Event, while the remainder include vesting criteria subject to service conditions only. As a result of the consummation of the Company's IPO in October 2024, the performance-based condition related to these stock options was met, triggering commencement of vesting of the options, and the Company began recognizing expense related to these grants.

A total of 0.7 million of the stock options granted in the year ended December 31, 2024 also include accelerated vesting provisions associated with certain change of control events.

Stock Option Valuation

The weighted-average assumptions used to value employee and non-employee stock option awards granted during the years ended December 31, 2024 and 2023, using the Black Scholes option pricing model, were as follows:

In determining the fair value of the options granted, the Company uses the Black Scholes option pricing model and assumptions discussed below. This model utilizes inputs that are highly subjective including the fair value of the Company's common stock prior to the IPO, and expected volatility.

Fair Value of Common Stock —Prior to the IPO in October 2024, because there had been no public market for the Company’s common stock, the Board of Directors, with input from management, determined the fair value of common stock by considering a number of objective and subjective factors including (i) valuations performed by independent third parties, (ii) important developments in the Company’s operations, (iii) the rights, preferences, and privileges of the Company’s preferred stock relative to those of the Company’s common stock, (iv) actual operating results and financial performance, including the Company’s levels of available capital resources, (v) the conditions in the capital markets, biotechnology industry and the U.S. economy in general, (vi) the stock price performance and volatility of comparable public companies and (vii) the lack of marketability of the Company’s common stock, among other factors. After completion of the IPO, the fair value of common stock is based on the closing market price on the date of grant.

Expected Term —The expected term represents the period that the Company’s stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company has very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The Company will continue to apply this process until a sufficient amount of historical information regarding employee exercise patterns and post-vesting employment termination behavior becomes available.

Expected Volatility —Due to the Company’s limited operating history and lack of company-specific historical volatility as a public company, due to the Company's IPO in October 2024, or implied volatility as a private company, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period, where available, equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage and area of specialty.

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

Expected Dividend —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Stock-based Compensation Expense

Stock-based compensation expense for restricted stock awards and stock options recognized in the Company’s statements of operations and comprehensive (loss) income is presented as follows (in thousands):

As of December 31, 2024, total unrecognized stock-based compensation expense related to unvested restricted stock awards and unvested stock options was $15.0 million, which is expected to be recognized over a weighted-average period of 2.8 years.

12. Income Taxes

The components of the (benefit) provision for income taxes were as follows for the years ended December 31, 2024 and 2023 (in thousands):

For the year ended December 31, 2024, the Company recorded an income tax benefit of $0.5 million. For the year ended December 31, 2023, the Company recorded income tax expense of $0.7 million.

A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows:

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The types of temporary differences that give rise to significant portions of the Company’s deferred income tax assets and liabilities are set out below (in thousands):

The Company has established a valuation allowance for the amount of deferred tax assets that are not more likely than not be realized. Management considered all available evidence, both positive and negative, including but not limited to the Company’s historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings, future taxable income, and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized. The net change in the total valuation allowance for the years ended December 31, 2024 and 2023 was an increase of $20.9 million and $1.9 million, respectively.

As of December 31, 2024, the Company had $13.2 million of federal net operating loss carryforwards and $75.0 million of state net operating loss carryforwards, available to reduce future taxable income. Of the federal net operating loss carryforwards, $13.2 million will carryforward indefinitely. The state net operating loss carryforwards will begin to expire in 2041, if not utilized.

As of December 31, 2024, the Company had federal research and development tax credits carryforward of $4.0 million and state research and development tax credits carryforward of $2.9 million, available to reduce future income taxes. The federal research and development tax credits will begin to expire in 2040 if not utilized. The state research and development tax credits have no expiration date.

Internal Revenue Code section 382 (“IRC Section 382”) places a limitation (the “Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules. When an ownership change occurs, IRC Section 382 limits the use of NOLs and credits in subsequent periods based on the annual 382 limitations. The annual 382 limitations may limit the full use of available tax attributes in one year but the identified ownership changes may not result in expiration of tax attributes for use prior to expiration of their respective carryforward periods. The Company performed a Section 382 analysis through the year ended December 31, 2024 and determined there were ownership changes in 2021 and 2023 that resulted in 382 limitations limiting the full use of carryover attributes in 2024. The ownership changes did not result in a reduction of its net operating loss or in its research and development credit carryforwards expiring unused. Accordingly, none of the tax attributes have been reduced but limited the full use in 2024. If additional ownership change occurs, the utilization of net operating loss and credit carryforwards could be significantly reduced.

A reconciliation of the beginning and ending unrecognized tax benefit amount is as follows (in thousands):

The reversal of the uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2024 and 2023, the Company didnot recognize accrued interest and penalties related to unrecognized tax benefits.

The Company files income taxes in the U.S. federal jurisdiction, the state of California and various other U.S. states. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. All income tax returns will remain open for examination by the federal, state and foreign authorities for three or four years, from the date of utilization of any NOLs or credits.

13. Related Parties

Third Rock Ventures

During the year ended December 31, 2024, the Company issued a total of 12.4 million shares of its Series B Convertible Preferred Stock to Third Rock Ventures VI, L.P., a holder of more than 5% of the Company’s outstanding capital stock, during the second tranche closing in May 2024, for cash proceeds of $15.3 million.

During the year ended December 31, 2023, the Company issued a total of 12.4 million shares of its Series B Convertible Preferred Stock to Third Rock Ventures VI, L.P., a holder of more than 5% of the Company’s outstanding capital stock, during the first tranche closing, for cash proceeds of $15.2 million.

In August 2021, the Company entered into a service agreement with Third Rock Ventures, LLC (“TRV”), a holder of more than 5% of the Company’s outstanding capital stock, (the “TRV service agreement”) under which TRV provides consulting services to the Company. For the years ended December 31, 2024 and 2023, the Company recorded expense of $0.3 million and $0.3 million, respectively, for such services as general and administrative expenses in the Company’s statements of operations and comprehensive (loss) income. As of December 31, 2024, $0.1 million of expense related to TRV was recorded in accrued expenses and other current liabilities. There wereno expenses related to TRV in accrued expenses and other current liabilities on the Company’s balance sheets. at December 31, 2023. As of December 31, 2023, outstanding accounts payable to TRV was $0.1 million. There wasno outstanding accounts payable to TRV at December 31, 2024.

The Company's former interim Chief Medical Officer, and also a member of the Company's board of directors, was designated to the Company's board of directors by TRV and is affiliated with TRV. He did not receive any cash compensation from the Company for his service as its interim Chief Medical Officer, as his services were provided to the Company through the TRV service agreement. The board member ceased serving as interim Chief Medical Officer in September 2024.

In December 2024, the Company entered into a separate consulting agreement with the board member, under which he may provide up to $9,500 of consulting services per month, which are also provided to the Company through the TRV service agreement.

Of the total fees the Company incurred under the TRV service agreement for the years ended December 31, 2024 and 2023, $0.2 million and $0.2 million, respectively, were attributed to consulting services provided by the board member. Additionally, as compensation for his services as the Company's interim Chief Medical Officer, the Company granted him options to purchase 23,227 and 26,712 shares during the year ended December 31, 2024 and 2023, at exercise prices of $2.76 per share.

RA Capital

During the year ended December 31, 2024, the Company issued a total of 12.2 million shares of its Series B Convertible Preferred Stock to entities affiliated with RA Capital Management, L.P. (collectively, “RA Capital”), which held more than 5% of the Company’s outstanding capital stock, during the second tranche closing in May 2024, for total cash proceeds of $15.0 million.

During the year ended December 31, 2023, the Company issued a total of 12.2 million shares of its Series B Convertible Preferred Stock to entities affiliated with RA Capital Management, L.P., which collectively hold more than 5% of the Company’s outstanding capital stock, during the first tranche closing, for cash proceeds of $15.0 million.

Samsara BioCapital

During the year ended December 31, 2024, the Company issued a total of 4.3 million shares of its Series B Convertible Preferred Stock to Samsara BioCapital, L.P. (“Samsara BioCapital”), a holder of more than 5% of the Company’s outstanding capital stock, during the second tranche closing in May 2024, for cash proceeds of $5.2 million.

During the year ended December 31, 2023, the Company issued a total of 4.3 million shares of its Series B Convertible Preferred Stock to Samsara BioCapital, L.P., a holder of more than 5% of the Company’s outstanding capital stock, during the first tranche closing, for cash proceeds of $5.2 million.

14. Net (Loss) Income Per Share

The following table sets forth the computation of the basic and diluted net (loss) income per share (in thousands, except for share and per share data):

Potentially dilutive securities not included in the calculation of diluted net (loss) income per share because to do so would be anti-dilutive were as follows (in common stock equivalent shares):

15. Employee Retirement Benefit Plan

The Company maintains a 401(k) retirement savings plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows eligible employees to make contributions up to the maximum allowable by the Internal Revenue Service (“IRS”). For the years ended December 31, 2024 and 2023, the Company made matching contributions of and recorded contribution expenses of $0.2 million and $0.1 million, respectively.

16. Segment Information

The CODM assesses performance for the Company’s operating segment and decides how to allocate resources based on the Company’s available cash resources. Total operating expenses and net (loss) income of the Company’s operating segment are used to monitor budget versus actual results. The measure of segment assets is reported as total assets on the Company’s balance sheet.

The CODM is regularly provided with the following significant segment expenses:

(*) Other segment expenses include facility related and office costs, information technology costs, general laboratory costs, and other operating expenses.

As of December 31, 2024 and 2023, all of the Company’s property and equipment was maintained in the U.S. For the year ended December 31, 2024 and 2023, the Company’s revenue was generated from providing research services and was earned in the U.S.

17. Subsequent Events

The Company appointed Gil M. Labrucherie, CFA, J.D. as the Chief Financial Officer (“CFO”), principal financial officer and principal accounting officer of the Company, effective January 6, 2025. On February 7, 2025, the Compensation Committee of the Board granted 0.2 million shares of stock options to the CFO.

In February 2025, the Company announced its decision to discontinue the clinical study of SEP-786. There was no impact to the assets and liabilities reported on the Company's balance sheets as a result of the discontinuation.