Maze Therapeutics, Inc.

Organization and principal activities

Description of business

Maze Therapeutics, Inc., or the Company, is a clinical stage biopharmaceutical company harnessing the power of human genetics and variant functionalization with its Maze Compass platform to develop small molecule precision medicines for the treatment of renal, cardiovascular and related metabolic diseases, including obesity. The Company was incorporated in Delaware in August 2017 and is located in South San Francisco, California.

Reverse stock split

On January 22, 2025, the Company’s board of directors approved a 1-for-9.641 reverse stock split of its issued and outstanding shares of common stock, which was effected on January 24, 2025. 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 share numbers (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 in the financial statements 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.

Initial Public Offering

In February 2025, the Company completed its initial public offering, pursuant to which it issued and sold an aggregate of 8,750,000 shares of its common stock at an initial public offering price of $16.00 per share, resulting in net proceeds of approximately $127.8 million, after deducting underwriting discounts, commissions and other offering expenses payable by the Company of approximately $12.2 million. Immediately prior to the closing of the initial public offering, the Company’s outstanding convertible preferred stock automatically converted into 32,586,823 shares of common stock.

Following the closing of the initial public offering, no shares of convertible preferred stock were authorized or outstanding. In connection with the completion of the initial public offering on February 3, 2025, the Company’s certificate of incorporation was amended and restated to (i) authorize 500,000,000 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 10,000,000 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.

The Company’s financial statements as of December 31, 2024, including share and per share amounts, do not give effect to the initial public offering and related actions as they closed subsequent to December 31, 2024.

Liquidity and capital resources

Other than the net income of $52.2 million generated and the $76.0 million of cash provided by operations during the year ended December 31, 2024, the Company has incurred significant losses and negative cash flows from operations since its inception and expects to incur significant and increasing losses as a result of its continued research and development activities. As of December 31, 2024, the Company had an accumulated deficit of $358.4 million. Historically, the Company has financed its operations primarily through issuances of its equity, issuances of convertible promissory notes and license agreements. The Company may seek to raise capital through debt financings, equity financings, license agreements, or other sources of financing. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

As of December 31, 2024, the Company had cash and cash equivalents of $196.8 million. The Company believes that its cash and cash equivalents as of December 31, 2024, together with the net proceeds of approximately $127.8 million from its initial public offering, will be sufficient to fund the Company’s operations for at least one year from the issuance date of these financial statements.

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, or GAAP, and include all adjustments considered necessary for the fair presentation of the Company’s financial position and operating results for the periods presented.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes are reasonable under the circumstances. Assets and liabilities reported in the Company’s balance sheet and expenses reported are affected by estimates and assumptions, which are used for, but are not limited to, measuring and recognizing revenue, and determining the fair value of assets and liabilities, including the convertible promissory notes, common stock valuation, income tax uncertainties, measurement of stock-based compensation expense, and certain accruals. Actual results could differ from such estimates or assumptions.

Concentration of credit risk and other risks and uncertainties

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains bank deposits in accounts at two separate federally insured financial institutions and these deposits may exceed federally insured limits. The Company is exposed to credit risk in the event of default by the financial institution holding its cash to the extent recorded in the balance sheet. The Company has not experienced any losses on its deposits of cash. The Company is also subject to a number of risks similar to other early-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical testing or clinical trials, its reliance on third parties to conduct its preclinical testing or clinical trials, the need to obtain regulatory and marketing approvals for therapeutic candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of therapeutic candidates, the success of efforts to protect its proprietary technology, and the need to secure and maintain adequate manufacturing arrangements with third parties. If the Company does not successfully commercialize or partner any therapeutic candidates, it will be unable to generate product revenue or achieve profitability.

Segment reporting

The Company operates and manages its business as one reportable and operating segment, which is the business of harnessing its understanding of human genetics and variant functionalization to develop small molecule precision medicines. The Company’s chief executive officer, who is the chief operating decision maker, or CODM, reviews financial information on an aggregate basis for allocating resources and evaluating financial performance.

The CODM, in alignment with the Company's overall corporate strategy and goals, analyzes a variety of data to guide segment resource allocation, including program and portfolio scientific data, probability of regulatory and commercial success, and the competitive environment. The CODM also reviews certain financial results included in the segment income (loss) from operations which is reported on the statements of operations and comprehensive income (loss) as total income (loss) from operations. The measure of segment assets is reported on the balance sheets as total assets.

As of December 31, 2024 and 2023, all of the Company’s property and equipment was maintained in the United States. For the year ended December 31, 2024, all of the Company’s license revenue was generated in the United States. No revenue was generated in the year ended December 31, 2023. The following table presents selected financial information with respect to the Company’s single operating segment for the years ended December 31, 2024 and 2023 (amounts in thousands):

Fair value measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date, and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

The Company determined the fair value of financial assets and liabilities using the fair value hierarchy that describes three levels of inputs that may be used to measure fair value, as follows:

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Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

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Level 2—Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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Level 3—Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

For certain financial instruments, including cash and accounts payable, as well as certain accrued liabilities, the recorded amount approximates estimated fair value due to their relatively short maturity period.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid financial instruments with original maturities of 90 days or less at the date of purchase to be cash equivalents. As of December 31, 2024 and 2023, cash equivalents consisted of money market funds.

Restricted cash is comprised of cash that is restricted as to withdrawal or use under the terms of certain contractual agreements. Restricted cash as of December 31, 2024 and 2023 included $1.1 million as collateral for a letter of credit related to the Company’s headquarters building lease in South San Francisco, California. Restricted cash is classified as a noncurrent asset on the balance sheet. As of December 31, 2024 and 2023, restricted cash consisted of money market funds.

Property and equipment, net

Property and equipment are presented at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful life. Depreciation begins at the time the asset is placed in service. Maintenance and repairs that do not improve or extend the life of the assets are charged to expense as incurred and costs of major replacements or improvements are capitalized. The Company’s estimated useful lives of its property and equipment are as follows:

Impairment of long-lived assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset or asset group may not be recoverable. The recoverability of assets to be held and used is measured by comparing the carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount exceeds the estimated undiscounted future cash flows, an impairment loss is recognized. There have been no such impairments of long-lived assets for the years ended December 31, 2024 and 2023.

Deferred offering costs

The Company defers offering costs consisting of legal, accounting and other fees and costs directly associated with in-process equity financings until such financings are consummated. After consummation of the equity financing, these costs are classified in stockholders’ deficit as a reduction of the additional paid-in capital recorded as a result of the financing. If the in-process financing is abandoned, the deferred offering costs are expensed immediately as a charge to operating expenses in the statements of operations and comprehensive income (loss). As of December 31, 2024, approximately $4.3 million of deferred offering costs related to the initial public offering completed in February 2025 were recorded within other assets in the accompanying balance sheets. As of December 31, 2023, no such costs were deferred.

Revenue recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, or ASC 606. To determine the appropriate amount and timing of revenue to be recognized under this guidance, the Company performs the following steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price, including variable consideration, if any; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation.

The Company has entered into arrangements involving the license of intellectual property. Analyzing the license arrangements to identify performance obligations requires the use of judgment. In arrangements that include the license of intellectual property and other promised services, the Company first identifies if the licenses are distinct from the other promises in the arrangement. For the license of intellectual property that is distinct, the Company recognizes revenue from consideration allocated to the license when the license is transferred and the customer is able to benefit from the license. If the license is not distinct, the license is combined with other services into a single performance obligation and the Company recognizes revenue when (or as) the performance obligation is satisfied. Factors that are considered in evaluating whether a license is distinct from other promised services include, for example, whether the counterparty can benefit from the license without the promised service on its own or with other readily available resources and whether the promised service is expected to significantly modify or customize the intellectual property. Promised goods and services that are not material in the context of the contract are not considered performance obligations.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Non-refundable upfront payments are considered fixed consideration and included in the transaction price. If an arrangement includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. The Company includes the amount of estimated variable consideration, including milestones, in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of the milestones and any related constraint, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which will affect revenue in the period of adjustment.

For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and if the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as contract assets in the Company’s balance sheets. If the Company expects to have an unconditional right to receive consideration in the next twelve months, this will be classified in current assets.

Leases

The Company determines if an arrangement is a lease at the inception of the arrangement. Operating leases are included in right-of-use assets, operating lease liabilities, current, and operating lease liabilities, net of current portion in its balance sheets. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected not to separate lease and non-lease components, such as common area maintenance charges, and instead it accounts for these as a single lease component. Leases with an initial term of 12 months or less are not recorded on the balance sheet, unless they include an option to purchase the underlying asset or to extend the lease that the Company is reasonably certain to exercise.

During the years ended December 31, 2024 and 2023, the Company entered into convertible note purchase agreements with various existing investors to issue up to $75.0 million in convertible promissory notes, or the Convertible Promissory Notes. As permitted under Accounting Standards Codification 825, Financial Instruments, or ASC 825, the Company elected the fair value option for recognition of the Convertible Promissory Notes. In accordance with ASC 825, the Company records these Convertible Promissory Notes at fair value and remeasures the Convertible Promissory Notes at fair value each reporting period with changes in fair value recorded in the statements of operations and comprehensive income (loss). As a result of applying the fair value option, direct costs and fees related to the Convertible Promissory Notes were recognized in earnings as incurred and not deferred.

Redeemable convertible preferred stock

The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Company’s control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. Therefore, redeemable convertible preferred stock is classified outside of stockholders’ deficit on the balance sheet as events triggering the redemption are not solely within the Company’s control. The carrying values of the redeemable convertible preferred stock are adjusted to their redemption value if and when it becomes probable that the preferred stock will become redeemable.

Research and development, or R&D, expenses are recorded in the period that services are rendered or goods are received. R&D expenses consist of personnel related costs, including salaries, benefits and stock-based compensation, related to R&D activities, laboratory supplies and facility costs, as well as fees paid to third parties that conduct certain R&D activities on behalf of the Company. Nonrefundable advance payments for goods or services that will be used or rendered for future R&D activities are capitalized and expensed as the goods are delivered or the related services are performed.

As part of the process of preparing its financial statements, the Company is required to estimate and accrue certain R&D expenses. This process involves the following:

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identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual cost;

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estimating and accruing expenses in the Company’s financial statements as of each balance sheet date based on facts and circumstances known to it at the time; and

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periodically confirming the accuracy of the Company’s estimates with selected service providers and making adjustments, if necessary.

Examples of estimated R&D expenses that the Company may accrue include costs for:

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clinical research organizations, or CROs, in connection with clinical trials as well as preclinical and toxicology studies;

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investigative sites in connection with clinical trials;

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contract manufacturing organizations, or CMOs, in connection with the production of product and clinical trial materials; and

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professional service fees for consulting and related services.

The Company bases its expense accruals related to clinical studies on its estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on the Company’s behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period.

To date, the Company has not experienced significant changes in its estimates of accrued R&D expenses after a reporting period. However, due to the nature of estimates, there is no assurance that the Company will not make changes to its estimates in the future as it becomes aware of additional information about the status or conduct of its clinical studies and other R&D activities. Such changes in estimates will be recognized as R&D expenses in the period that the change in estimate occurs.

The Company recognizes stock-based compensation expense for service-based stock options and restricted stock awards on a straight-line basis over the requisite service period. The Company recognizes compensation cost for performance-based awards over the requisite service period when it is determined that the performance condition is probable of being achieved. The Company measures the fair value of service-based stock options at the grant date using the Black-Scholes option-pricing model. Inputs to the Black-Scholes option-pricing model include the fair value of its common stock, the expected term of the awards, the expected common stock price volatility over the term of the awards, risk-free interest rates, and the expected dividend yield.

The fair value of restricted stock awards is determined on the date of grant based on the estimated fair value of the Company’s common stock on that date. Stock-based compensation expense is adjusted for actual forfeitures of unvested awards in the same period as the forfeitures occur.

The fair value of awards that contain market-based conditions is measured using a Monte-Carlo option pricing model at the date of grant using similar input assumptions as the Black-Scholes model while incorporating Level 3 inputs related to probability estimates of the market conditions being satisfied. Compensation expense related to awards with a market-based condition is recognized regardless of whether the market condition is ultimately satisfied, and compensation expense is not reversed if the achievement of the market condition does not occur.

Income taxes

The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns subject to a determinable valuation allowance.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, 2024 and 2023, the Company recorded a full valuation allowance on its deferred tax assets.

The Company recognizes uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Changes in recognition or measurement are reflected in the period in which judgment occurs. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of the provision for income tax.

Foreign currency transaction gain (loss)

Gains and losses arising from transactions and remeasurement of balances denominated in currencies other than U.S. dollars are recorded in interest and other income, net on the statement of operations and comprehensive income (loss). The Company recorded immaterial losses and gains on foreign currency transactions for the years ended December 31, 2024 and 2023, respectively.

Comprehensive income (loss)

Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. During the years ended December 31, 2024 and 2023, the Company did not have any transactions that would be reported separately to derive comprehensive income (loss). Thus, comprehensive income (loss) is the same as net income (loss) for the periods presented.

Net income (loss) per share

Net income (loss) per share attributable to common stockholders is calculated using the two-class method required for companies with participating securities. The Company considers its convertible preferred stock to be participating securities as the holders are entitled to receive noncumulative dividends in the event that a dividend is paid on common stock.

Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period less common shares subject to vesting or forfeiture, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares and the number of common shares that would be issued assuming exercise and conversion of all potentially dilutive instruments. In calculating diluted net income (loss) per share, the Company applies the more dilutive of the two-class method or the if-converted method to the redeemable convertible preferred stock, applies the treasury stock method to equity awards, and applies the if-converted method to the Convertible Promissory Notes, if dilutive.

Distributed and undistributed earnings are allocated to participating securities based on their participation rights and are subtracted from net income in determining net income attributable to common stockholders for basic and diluted net income per share, only in periods of net income.

Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded if and when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Emerging growth company status

The Company is an emerging growth company, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards.

Recently adopted accounting pronouncements

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis for all public entities. The amendments do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The Company adopted ASU 2023-07 for annual reporting for the year ended December 31, 2024, retrospectively. The newly required disclosures are included above within this footnote under the subsection “Segment reporting.”

New accounting pronouncements—Not yet adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which will require incremental income tax disclosures on an annual basis for all public entities. The amendments require that public business entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items meeting a quantitative threshold. The amendments also require disclosure of income taxes paid to be disaggregated by jurisdiction, and disclosure of income tax expense disaggregated by federal, state, and foreign. ASU 2023-09 is effective for annual reporting beginning with the fiscal year ending December 31, 2025. The Company is currently evaluating the incremental disclosures that will be required in its financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which will require additional expense disclosures for all public entities. The amendments require that at each interim and annual reporting period, an entity will disclose certain disaggregated expenses included in each relevant expense caption, as well as the total amount of selling expenses and, in annual periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for annual reporting periods beginning with the fiscal year ending December 31, 2027, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the incremental disclosures that will be required in its financial statements.

Fair value measurements

The following tables summarize the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. Refer to Note 10 on Convertible Promissory Notes and other debt agreements regarding the Company’s methodology of measuring the fair value of the Convertible Promissory Notes and the credit line success fee derivative.

There were no transfers between Level 1, 2, or 3 during the years ended December 31, 2024 and 2023.

Balance sheet components

Property and equipment, net

Property and equipment, net, consisted of the following:

Depreciation expense was $3.3 million and $4.1 million for the years ended December 31, 2024 and 2023, respectively.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

Capital structure

Common stock

As of December 31, 2024 and 2023, the Company was authorized to issue 410,000,000 and 261,000,000 shares, respectively, of $0.001 par value common stock. Of the total common shares issued and outstanding, 311,170 shares were purchased by Third Rock Ventures, LLC, or TRV, upon the founding of the Company. TRV also purchased 55,000,000 shares of Series A redeemable convertible preferred stock. The remaining common shares issued and outstanding as of December 31, 2024 are restricted stock awards granted and stock option awards exercised under the plans discussed in Note 6 on Equity incentive plan and stock-based compensation expense. Common stockholders are entitled to dividends if and when declared by the Board of Directors of the Company, or the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. The holder of each share of common stock is entitled to one vote. As of December 31, 2024 and 2023, no dividends were declared.

Common stock reserved for future issuance, on an as-converted basis, consisted of the following:

Redeemable convertible preferred stock

In November 2024, the Company issued 54,394,445 shares of its Series D redeemable convertible preferred stock, or Series D Preferred Stock, at $1.3792 per share for gross proceeds of $75.0 million, or Series D Financing. Simultaneously with the closing of this Series D Financing, the Convertible Promissory Notes, including accrued and unpaid interest, converted into 39,395,572 shares of the Company’s Series D-1 redeemable convertible preferred stock, or Series D-1 Preferred Stock, at a discount factor of 0.2 relative to the price paid by the Series D Preferred Stock investors. The Company incurred total offering costs of $4.2 million, resulting in net proceeds of $70.8 million. Of the total offering costs, $2.4 million and $1.8 million were allocated to the Series D and Series D-1 Preferred Stock, respectively. In connection with the Series D Financing, the Company adjusted the conversion ratios of the outstanding Series B redeemable convertible preferred stock and Series C redeemable convertible preferred stock to 1.00-for-0.1211 and to 1.00-for-0.1223, respectively, in connection with anti-dilution adjustments triggered by the Series D Financing. As a result of the adjustments to the conversion ratios, the Company reduced the amount of income available to existing stockholders by $15.0 million, in the form of a deemed dividend from its accumulated deficit, in accordance with ASC 260, Earnings Per Share.

Issued and outstanding redeemable convertible preferred stock as of December 31, 2024 and 2023 consisted of the following:

The holders of redeemable convertible preferred stock had various rights and preferences including the following:

Conversion and voting rights

Each holder of redeemable convertible preferred stock is entitled to the number of votes equal to the number of shares of common stock into which such shares of redeemable convertible preferred stock held by such holder could then be converted. Each share is convertible at the holder’s option at any time. The conversion ratios for Series A, Series B, Series C, Series D, and Series D-1 redeemable convertible preferred stock are 1-for-0.1037, 1-for-0.1211, 1-for-0.1223, 1-for-0.1037 and 1-for-0.1037, respectively, and is subject to adjustments for anti-dilution in certain circumstances. Conversion is automatic immediately prior to the closing of a qualifying initial public offering and upon the election of holders of a majority of the then outstanding shares of preferred stock, voting together as a single class. Immediately prior to the closing of the Company's initial public offering in February 2025, the Company’s outstanding convertible preferred stock automatically converted into 32,586,823 shares of common stock.

Dividends

The holders of redeemable convertible preferred stock are entitled to receive dividends out of any assets legally available only when, as, and if declared by the Board of Directors, prior to and in preference to any declaration or payment of any dividend on the common stock. Such dividends are noncumulative.

Liquidation preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, or Liquidation Events, or deemed Liquidation Event, the holders of shares of the redeemable convertible preferred stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock. The amount per share shall be equal to the greater of (i) $1.00 for Series A redeemable convertible preferred stock, $2.75 for Series B redeemable convertible preferred stock, $2.9515 for Series C redeemable convertible preferred stock, $1.3792 for Series D Preferred Stock, and $1.10336 for Series D-1 Preferred Stock, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable had all shares of the redeemable convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution or winding up of the Company or deemed Liquidation Event. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of redeemable convertible preferred stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of the shares of common stock, pro rata based on the number of shares held by each such holder.

Redemption

In the event a deemed Liquidation Event does not effect a dissolution of the Company under the Delaware General Corporation Law within 90 days, the holders of redeemable convertible preferred stock have the option (subject to the required vote) to redeem all outstanding shares of the redeemable convertible preferred stock from the net proceeds received for such deemed Liquidation Event at a price equal to the redeemable convertible preferred stock liquidation amount.

Classification

Upon the occurrence of certain change in control events that are outside the Company’s control, including liquidation, sale, or transfer of the Company, holders of the redeemable convertible preferred stock can effectively cause redemption for cash. As a result, the Company has classified the redeemable convertible preferred stock as mezzanine equity on the balance sheets as the stock is contingently redeemable. The redeemable convertible preferred stock classified in mezzanine equity is subject to subsequent measurement under the guidance provided under ASC 480-10-S99-3A, Accounting for Redeemable Equity Investments. The Company has elected to recognize changes in redemption value immediately as they occur through adjustments to the carrying amounts of the instruments at the end of the reporting period with the corresponding amount recorded to additional paid-in capital. No such changes were identified or recorded during the years ended December 31, 2024 and 2023.

Equity incentive plan and stock-based compensation expense

2018 Stock Option and Grant Plan

In November 2018, the Company adopted the 2018 Stock Option and Grant Plan, or the 2018 Plan, which allowed for the granting of up to 1,763,303 equity awards to the founders, employees, members of the Board of Directors and consultants of the Company. The unvested shares of restricted common stock issued under the 2018 Plan are subject to repurchase by the Company at the original issuance price in the event of the holder’s termination, either voluntarily or involuntarily. Consideration received for unvested stock-based awards is initially recorded as a liability and subsequently reclassified into stockholders’ deficit as the related awards vest. Restricted common stock granted under the 2018 Plan generally vests over four years. Certain of the restricted common stock granted under the 2018 Plan vests upon achievement of certain performance conditions. The awards expire no more than 10 years from the date of grant.

Restricted stock awards (2018 Plan)

The following table summarizes restricted common stock activity during the years ended December 31, 2024 and 2023:

The total number of shares under the 2018 Plan that were vested as of December 31, 2024 and 2023 was 1,114,614 and 1,109,487, respectively. As of December 31, 2024 and 2023, there were immaterial amounts recorded in accrued expenses and other current liabilities related to shares held by employees and non-employees that were unvested and subject to repurchase under this plan. During the years ended December 31, 2024 and 2023, any repurchased shares under the 2018 Plan were transferred to the 2019 Equity Incentive Plan. As of December 31, 2024 and 2023, no awards were available for issuance under the 2018 Plan.

Restricted stock awards (outside of the 2018 Plan)

In 2018, the Company issued 639,201 shares of restricted stock to founders and advisors outside of the 2018 Plan. The shares were issued under the terms of respective restricted common stock agreements, and 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 per share.

The following table summarizes the changes in the Company’s unvested restricted common stock awards granted to founders and advisors outside of the 2018 Plan during the years ended December 31, 2024 and 2023:

The total number of shares outside of the 2018 Plan that were vested as of December 31, 2024 and 2023 was 628,829 and 602,899, respectively. As of December 31, 2024 and 2023, there were immaterial amounts recorded in other liabilities related to shares held by employees and non-employees that were unvested and subject to repurchase outside of the 2018 Plan. The unvested awards as of December 31, 2024 and 2023 vest upon the achievement of future performance milestones.

2019 Equity Incentive Plan

In August 2019, the Company’s Board of Directors approved the establishment of the 2019 Equity Incentive Plan, or the 2019 Plan. The 2019 Plan allows for the granting of restricted common stock, incentive stock options, or ISOs, and non-qualified stock options, or NSOs, to the employees, members of the Board of Directors and consultants of the Company. Restricted common stock granted under the 2019 Plan is generally vested upon issuance. Unvested shares of restricted common stock are subject to repurchase by the Company at the original issuance price in the event of the employee’s termination, either voluntarily or involuntarily. ISOs are granted only to the Company’s employees, including officers and directors who are also employees. NSOs are granted to consultants, employees, and non-employee directors of the Company. Stock options granted under the 2019 Plan generally expire 10 years from the date of grant. The 2019 Plan allows the holder of the stock option to early exercise the stock option in whole or in part prior to the full vesting of the stock option. Unvested stock options are subject to repurchase by the Company at the original issuance price in the event of the employee’s termination, either voluntarily or involuntarily. Early exercises of stock options are not deemed to be substantive exercises for accounting purposes and accordingly, consideration received for unvested stock options is initially recorded as a liability and subsequently reclassified into stockholders’ deficit as the related stock options vest.

There were 831,177 and 60,550 equity incentive awards authorized and available for issuance under the 2019 Plan as of December 31, 2024 and 2023, respectively.

Stock options (2019 Plan)

The following table summarizes stock option activity under the 2019 Plan for the year ended December 31, 2024:

(1)

During the year ended December 31, 2024 none of the exercised options were exercised early and subject to repurchase at the time of exercise.

The total intrinsic value of options exercised was $0.1 million during both of the years ended December 31, 2024 and 2023. The intrinsic value is the difference between the estimated fair value of the Company’s common stock at the time of exercise and the exercise price of the stock option.

The total fair value of options that vested during the years ended December 31, 2024 and 2023 was $6.3 million and $8.0 million, respectively. The weighted average grant-date fair value of employee options granted during the years ended December 31, 2024 and 2023 was $9.51 and $13.21 per share, respectively.

As of December 31, 2024, there were no options subject to repurchase. As of December 31, 2023, there were 21,141 shares held by employees and non-employees from early exercised options subject to vesting and repurchase under the 2019 Plan and a corresponding immaterial amount recorded in other liabilities.

In December 2024, the Company completed a repricing of 3,415,997 outstanding stock options, which adjusted the exercise price of such stock options to $10.42 per share, including with respect to 1,969,902 outstanding stock options held by executive officers and members of its board of directors. Of those stock options, an option to purchase 51,861 shares held by the Company’s Chief Executive Officer was amended to change the performance vesting condition such that the option will fully vest if (i) the Company’s stock price is equal to or greater than $38.57 per share (as may be adjusted for stock splits) on average over a 20-day trading period or (ii) the Company is acquired at a stock price equal to or greater than $38.57 per share (as may be adjusted for stock splits), in each case subject to the grantee’s continued service relationship with the Company. The stock option repricing was treated as a modification in accordance with ASC 718, Compensation — Stock Compensation, and resulted in additional stock-based compensation expense of $0.7 million, of which $0.3 million was recognized for vested stock options in December 2024. The remaining $0.4 million of additional stock-based compensation expense will be recognized over the remainder of the vesting periods for unvested stock options.

Restricted stock awards (2019 Plan)

During the years ended December 31, 2024 and 2023, there were 14 shares and 20 shares, respectively, of restricted stock issued under the 2019 Plan. The weighted average grant-date fair value of restricted stock granted during the years ended December 31, 2024 and 2023 was $14.89 and $17.74 per share, respectively.

Fair value measurement

The Company estimated the fair value of service-based stock options using the Black-Scholes option-pricing model. The fair value of service-based stock options is being amortized on the straight-line basis over the requisite service period of the awards.

The fair value of the shares of common stock underlying stock options has historically been determined by the Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors has determined the fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including: (i) third-party valuations of the Company’s common stock; (ii) the Company’s stage of development; (iii) the status of research and development efforts; (iv) the rights, preferences, and privileges of the Company’s redeemable convertible preferred stock relative to those of the Company’s common stock; (v) the Company’s operating results and financial condition, including the Company’s levels of available capital resources; (vi) equity market conditions affecting comparable public companies; (vii) general U.S. market conditions; and (viii) the lack of marketability of the Company’s common stock.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

•

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 stock option.

•

Expected volatility—Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. The Company will continue to apply this process until enough historical information regarding the volatility of its own stock becomes available.

•

Expected term—The expected term represents the period that the stock option grants are expected to be outstanding. The Company used the simplified method to determine the expected term. The simplified method is based on the midpoint between the vesting date and the end of the contractual term. The Company utilizes this method due to lack of historical exercise data.

•

Expected dividend yield—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.

The fair value of service-based stock options granted to employees and non-employees during the years ended December 31, 2024 and 2023 was estimated using the following weighted-average assumptions:

The fair value of the awards subject to the repricing in December 2024 was measured using a Monte-Carlo simulation analysis. For each simulation path, the fair value of the instrument was calculated using the Black-Scholes call option formula using input assumptions that include a risk-free rate of 4.15%, volatility of 116%, and a term of 9.65 years.

The fair value of awards that contain market-based conditions issued during fiscal year 2023 was measured using a Monte-Carlo option pricing model at the date of grant using input assumptions that include a risk-free rate of 4.35%, volatility of 80%, and a discount rate of 25%. Upon the repricing of awards that contain market-based conditions in December 2024, the fair value was measured using a Monte-Carlo option pricing model using input assumptions that include a risk-free rate of 4.08%, volatility of 113%, and a discount rate of 30%.

The following table summarizes the components of stock-based compensation expense recognized in the Company’s statement of operations and comprehensive income (loss) during the years ended December 31, 2024 and 2023:

For the year ended December 31, 2024 and 2023, the Company recognized an immaterial amount and $0.2 million, respectively, in stock-based compensation expense related to restricted stock issued to founders, employees, and non-employees. For the years ended December 31, 2024 and 2023, the Company recognized $9.6 million and $8.5 million, respectively, in stock-based compensation related to stock option grants issued to employees and non-employees.

As of December 31, 2024 and 2023, there was $30.0 million and $16.4 million, respectively, of total unrecognized compensation cost related to unvested options and restricted stock awards for which the cost is expected to be recognized over a weighted-average period of 3.11 years and 2.52 years, respectively.

License agreements

The Company entered into exclusive license agreements with several biotechnology companies during the year ended December 31, 2024.

Trace License Agreement

In March 2024, the Company entered into an exclusive license agreement with Trace Neuroscience, Inc., or Trace, pursuant to which the Company granted an exclusive worldwide license to a discovery research program targeting UNC13A for the treatment of amyotrophic lateral sclerosis, or the Trace License Agreement. As consideration for the licensed rights and the transfer of know-how and materials, the Company received an upfront payment of $15.0 million in April 2024. Thereafter, the Company is entitled to potential subsequent payments of up to an aggregate of $80.0 million based on development and regulatory milestones and up to an aggregate of $250.0 million based on sales milestones. The Company is also entitled to tiered royalties ranging from percentages in the low single-digits to sub-teens on net sales of any licensed product if successfully commercialized.

The Company assessed the Trace License Agreement in accordance with ASC 606 and concluded that it was a contract with a customer. The Company determined that there is one performance obligation relating to the license to the UNC13A discovery program, including the underlying know-how and certain related materials, and that the transaction price consisted of the $15.0 million non-refundable upfront cash payment. The potential future development and regulatory milestones represent variable consideration and were constrained, as it was concluded that it was not probable that a significant reversal in cumulative revenue recognized will not occur and therefore not included in the transaction price as of December 31, 2024. Potential sales milestones and royalties on net product sales will be recognized in the same period that the underlying net product sales occur as they were determined to relate to the license. The $15.0 million transaction price was recorded as license revenue in the statements of operations and comprehensive income (loss) during the year ended December 31, 2024 at the point in time when control of the license and related know-how was transferred to Trace.

Shionogi License Agreement

In March 2024, the Company entered into an exclusive license agreement with Shionogi & Co., Ltd, or Shionogi, pursuant to which the Company granted Shionogi an exclusive, worldwide, sublicensable license to research, develop, manufacture and commercialize MZE001 and certain other small molecule compounds modulating glycogen synthase 1, or the Shionogi License Agreement. As consideration for the licensed rights and the transfer of know-how and materials, the Company received an upfront payment of $150.0 million in May 2024 upon the effectiveness of the Shionogi License Agreement. The Shionogi License Agreement also requires that Shionogi pay the Company up to $275.0 million in the aggregate in milestone payments upon the completion of certain clinical and regulatory milestones and up to $330.0 million in the aggregate in milestone payments if certain sales milestones are achieved. The Shionogi License Agreement also requires that Shionogi pay the Company tiered royalties ranging from percentages in the low double-digits to twenty on net sales of licensed products, subject to certain deductions.

The Company assessed the Shionogi License Agreement in accordance with ASC 606 and concluded that it was a contract with a customer. The Company determined that there is one performance obligation relating to the license to the MZE001 program, including the underlying know-how and certain related materials, and that the transaction price consisted of the $150.0 million non-refundable upfront cash payment. The potential clinical and regulatory milestones represent variable consideration and were constrained as it was concluded that it was not probable that a significant reversal in cumulative revenue recognized will not occur and therefore not included in the transaction price as of December 31, 2024. Potential sales milestones and royalties on net product sales will be recognized in the same period that the underlying net product sales occur as they were determined to relate to the license. The $150.0 million transaction price was recorded as license revenue in the statements of operations and comprehensive income (loss) during the year ended December 31, 2024 at the point in time when control of the license and related know-how and materials was transferred to Shionogi.

Neurocrine License Agreement

In May 2024, the Company entered into an exclusive license agreement with Neurocrine Biosciences, Inc., or Neurocrine, pursuant to which the Company granted Neurocrine an exclusive worldwide license to a discovery research program targeting ATXN2, or the Neurocrine License Agreement. As consideration for the licensed rights and the transfer of know-how and materials, the Company received an upfront payment of $2.5 million in June 2024. Thereafter, the Company is entitled to potential subsequent payments of up to an aggregate of $24.8 million based on research and development milestones and up to an aggregate of $175.0 million based on sales milestones. The Company is also entitled to tiered royalties ranging in the sub-single-digit to low single-digit percentages on net sales of any licensed product if successfully commercialized.

The Company assessed the Neurocrine License Agreement in accordance with ASC 606 and concluded that it was a contract with a customer. The Company determined that there is one performance obligation relating to the license to the ATXN2 discovery program, including the underlying know-how and certain related materials, and that the transaction price consisted of the $2.5 million upfront cash payment. The potential research and development milestones represent variable consideration and were constrained as it was concluded that it was not probable that a significant reversal in cumulative revenue recognized will not occur and therefore not included in the transaction price as of December 31, 2024. Potential sales milestones and royalties on net product sales will be recognized in the same period that the underlying net product sales occur as they were determined to relate to the license. The $2.5 million transaction price was recorded as license revenue in the statements of operations and comprehensive income (loss) during the year ended December 31, 2024 at the point in time when control of the license and the related know-how and materials was transferred to Neurocrine.

Commitments and contingencies

Legal proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. No contingent liabilities have been recorded as of December 31, 2024 and 2023.

Indemnification

In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving in such capacity. There have been no claims to date, and the Company has a directors and officers liability insurance policy that may enable it to recover a portion of any amounts paid for future claims.

Consortium agreements

Since November 2019, the Company entered into a Consortium Agreement and certain related amended agreements with the University of Helsinki and other parties for access to a collaborative pre-competitive research project. The project aims to collect genomic information from patient samples in biobanks across Finland to which the Company is granted access. Under the agreement, the Company is obligated to pay certain installments through the year 2027. The Company paid $0.8 million and $0.9 million during the year ended December 31, 2024 and 2023, respectively, under the related agreements. As of December 31, 2024, the Company is obligated to pay approximately $4.4 million under this agreement, of which $0.7 million, $1.0 million, and $2.7 million will be paid in each of the years ended December 31, 2025, 2026, and 2027, respectively.

In November 2021 the Company entered into a Genes and Health Industry Consortium Agreement with Queen Mary University to source genetic and paired clinical data from a long-term community-based study run jointly by government, academic and non-profit institutions. Under the agreement, the Company is obligated to pay certain installments through the year 2025. The Company paid $0.9 million and $1.2 million during the year ended December 31, 2024 and 2023, respectively, under the related agreement. As of December 31, 2024, the Company is obligated to pay approximately $0.5 million under this agreement, which will occur in the year ended December 31, 2025.

Operating Leases

In September 2019, the Company entered into a lease in South San Francisco, California for approximately 67,200 square feet of office and laboratory space, which serves as the Company’s corporate headquarters, or Headquarters. The lease commenced in May 2020 and terminates in November 2030 with an option to extend the lease term for an additional period of eight years. The Company determined that given the length of time between lease commencement and the renewal period for this lease agreement (more than 10 years from the commencement date) and the uncertainty of business and market conditions in the future, it is not reasonably certain that the renewal option will be exercised. The Company is obligated to make total fixed payments over the lease term of approximately $53.5 million. The Company has provided the landlord with a letter of credit in the amount of $1.1 million. The security for the letter of credit is classified as restricted cash under long term assets on the balance sheet. Under this lease, the Company received reimbursement of $4.4 million for the costs associated with the design, development and construction of certain improvements that are deemed to be the property of the landlord. Such expenditures for lessor assets are recorded as prepaid rent and then reduced upon reimbursement. Total rent expense for this lease was $5.1 million for each of the years ended December 31, 2024 and 2023.

The lease costs, which are included in operating expenses in the statements of operations and comprehensive income (loss), and supplemental cash flow information related to the lease were as follows:

As of December 31, 2024, the weighted-average remaining lease term was 5.9 years, and the weighted-average discount rate was 9.0%. As of December 31, 2024, the Company recorded current operating lease liabilities of $4.6 million, non-current operating lease liabilities of $22.0 million, and a corresponding right-of-use asset of $23.3 million on the balance sheet.

The following table reconciles the undiscounted future minimum lease payments required to the operating leases recorded on the Company’s balance sheet as of December 31, 2024:

Convertible promissory notes and other debt agreements

The Company issued $24.5 million and $16.2 million of the Convertible Promissory Notes during the years ended in December 31, 2024 and 2023, respectively, for a total of $40.7 million aggregate principal amount of the Convertible Promissory Notes. The Convertible Promissory Notes bore interest at a rate of 8% per annum and had a maturity date in December 2026.

The Convertible Promissory Notes contained automatic conversion features triggered upon a qualified preferred stock financing or a qualified public offering. Upon a qualified preferred stock financing or a qualified public offering, the total outstanding principal and accrued interest would automatically convert into preferred stock or common stock, respectively, at a conversion price equal to 80% of the price per share paid by other purchasers of the respective financing or offering. If the Convertible Promissory Notes had not been repaid or converted before their maturity date, the holders could have converted the outstanding principal and accrued interest into Series C Preferred Stock at $2.9515 per share.

The Company elected to apply the fair value option, as per ASC 825, to the outstanding Convertible Promissory Notes. As such, the Convertible Promissory Notes were recognized at fair value with changes in fair value recognized in the statements of operations and comprehensive income (loss). The impact of interest expense on the convertible promissory notes was included within the changes in fair value. The fair value of the Convertible Promissory Notes was based on significant inputs, including volatility, discount yield, variables for the timing of the related conversion events and other probability estimates, which are deemed to be Level 3 inputs in the fair value hierarchy.

The fair value of the Convertible Promissory Notes was $20.1 million as of December 31, 2023. The assumptions used to determine the fair value of the Convertible Promissory Notes as of December 31, 2023 included an estimated 90% probability of conversion of the promissory notes at a 20% discount, an assumed discount rate of 25%, the assumed value of the convertible preferred stock, and an estimated time to settlement of up to 1.3 years. The Company recorded a loss of $3.8 million for the year ended December 31, 2023 in the statements of operations and comprehensive income (loss) reflecting the change in fair value of the Convertible Promissory Notes.

In connection with the Series D Financing, which was a qualified preferred stock financing pursuant to the term of the notes, the Convertible Promissory Notes, including accrued and unpaid interest of $2.7 million, automatically converted into 39,395,572 shares of the Company’s Series D-1 Preferred Stock at a discount factor of 0.2 relative to the price paid by the Series D Financing investors, or $1.10336 per share. The Convertible Promissory Notes were remeasured to fair value immediately before they were converted, resulting in a fair value of $53.4 million, and the Company recorded a loss of $8.8 million for the year ended December 31, 2024 in the statements of operations and comprehensive income (loss) reflecting the change in fair value of the Convertible Promissory Notes. The assumptions used to determine the fair value of the Convertible Promissory Notes immediately before they were converted included an estimated 100% probability of conversion of the promissory notes at a 20% discount. No convertible promissory notes are outstanding as of December 31, 2024.

The following table presents the change in fair value of the Convertible Promissory Notes for the year ended December 31, 2024:

Loan and security agreement

In June 2022, the Company entered into a loan and security agreement with a bank that provides a three-year revolving line of credit of up to $50.0 million that is secured by substantially all of the Company’s assets, except for its intellectual property. The Company has not elected to draw down any funds from this debt facility during the years ended December 31, 2024 and 2023. Advances under the revolving line may be prepaid and reborrowed by the Company without penalty. The Company has the option to convert the aggregate principal amount of advances under the line of credit, if any, into a term loan upon maturity of the revolving line of credit. Advances under the line of credit accrue interest at a variable annum rate of the greater of (i) 0.75% above the Prime Rate (as defined below) and (ii) 4.50%. The Prime Rate is defined as the variable rate of interest, per annum, most recently announced by the bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from the bank.

Under the loan and security agreement, the Company is required to pay the bank a success fee of up to $2.0 million depending on if the Company closes a sale of substantially all of its assets, consummates a reorganization where the voting stockholders before such transaction hold less than 50% of the voting securities after such transaction, or the sale of the Company’s securities in connection with an initial public offering, reverse merger or other similar transaction wherein the Company’s securities may thereafter be traded in a public market. This success fee was deemed to be a freestanding derivative instrument that was bifurcated from the line-of-credit instrument and is initially and subsequently measured at fair value each reporting period. The fair value of this success fee derivative was estimated utilizing a probability-weighted cash flow approach, including variables for the timing of the related events and other probability estimates, which are deemed to be Level 3 inputs in the fair value hierarchy. The fair value of this success fee derivative was approximately $0.5 million and $0.1 million as of December 31, 2024 and 2023, respectively, and is recorded in accrued expenses and other current liabilities on the balance sheets. The change in fair value of the derivative of approximately $0.4 million for the year ended December 31, 2024 is recorded in interest and other income, net in the statements of operations and comprehensive income (loss). In February 2025, the Company paid a success fee of $0.5 million pursuant to the terms of the loan and security agreement, upon the completion of the Company’s initial public offering. Total issuance costs and the debt discount arising from the success fee amounted to $0.3 million and were recorded in other assets, which are amortized as interest expense over the commitment period. The unamortized debt discount balance as of December 31, 2024 amounted to less than $0.1 million and is recorded in other current assets as the commitment period ends within one year of the balance sheet date.

Related party transactions

The Company paid fees to its founders and certain board members in exchange for consulting services. During the year ended December 31, 2024, the Company recorded such fees of $0.1 million as research and development expenses and $0.2 million as general and administrative expenses. During year ended December 31, 2023, the Company recorded such fees of $0.3 million as research and development expenses and $0.2 million as general and administrative expenses.

Income taxes

The Company’s provision for income taxes is determined using the Company’s annual effective income tax rate, adjusted for discrete items, if any. For the year ended December 31, 2024, the Company recorded a federal income tax provision of $1.2 million and made an estimated income tax payment of $1.2 million. No income tax provision was recorded for the year ended December 31, 2023. The primary difference in income tax expense for the year ended December 31, 2024, as compared to the same period in the prior year, is the result of recognition of revenue from the Company’s license agreements as discussed in Note 7 on License agreements resulting in taxable income to the Company.

Based on available objective evidence during the year ended December 31, 2024, the Company believes it is more likely than not that its net deferred tax assets may not be realized. Accordingly, the Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. All losses to date have been incurred domestically.

The primary difference between the effective income tax rate and the statutory income tax rate relates to the Company’s change in valuation allowance against deferred taxes. The effective income tax rate of the Company’s provision for income taxes differed from the federal statutory rate as follows:

Deferred income taxes reflect the net tax effects: of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. The tax effects of significant items comprising the Company’s deferred tax as of December 31, 2024 and 2023 are as follows:

ASC 740, Income Taxes, requires that the tax benefit of net operating losses, or NOLs, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The realization of deferred tax assets is dependent upon future earnings, if any, of which the timing and amount are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. During the years ended December 31, 2024 and 2023, the valuation allowance decreased by $5.1 million and increased by $23.0 million, respectively.

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. The Company prepared a Section 382 study which covered the period from inception through December 2024 and concluded that several ownership changes occurred since the inception of the Company. However, it was determined that the annual available NOLs under Section 382 will be sufficient to utilize in their entirety prior to their respective expiration years.

Net operating losses and tax credit carryforwards as of December 31, 2024 are as follows:

ASC Topic 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. The Company had unrecognized tax benefits of $6.8 million as of December 31, 2024 and $4.6 million as of December 31, 2023. The amount of unrecognized tax benefits is not expected to significantly change over the next twelve months. No amounts, outside of valuation allowance, would impact the effective tax rate on continuing operations. The beginning and ending gross unrecognized tax benefits amounts are as follows:

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of income tax expense as necessary. Management determined that no accrual for interest and penalties was required as of December 31, 2024 and 2023. The Company’s tax jurisdictions are the United States (federal) and the states of California, Colorado, Georgia, Idaho, Maine, Massachusetts, New Hampshire, New York, and Utah. The Company’s tax years from inception in 2017 forward remain open for examination by the federal and state authorities due to the carryover of unused net operating losses and tax credits. The Company is not currently subject to income tax examinations by any authority.

Net income (loss) per share

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

The potential shares of common stock that were excluded from the computation of diluted net income (loss) per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows:

The potential shares of common stock associated with the Convertible Promissory Notes that converted to Series D-1 Preferred Stock would have been antidilutive, but are not included in the table above as the Convertible Promissory Notes are no longer outstanding as of December 31, 2024.

Employee 401(k) plan

In 2019, the Company implemented a defined contribution savings plan under Section 401(k) of the Code. Employees are eligible to participate in the plan on the first day of the month after their hire date and may contribute up to the current statutory limits under IRS regulations. The 401(k) plan permits the Company to make additional matching contributions on behalf of all employees. The Company incurred and accrued matching contributions of $0.4 million and $0.3 million for the year ended December 31, 2024 and 2023, respectively.

Subsequent events

The Company evaluated subsequent events for recognition and measurement purposes through March 31, 2025 (including the impact of the reverse stock split and the initial public offering as discussed in Note 1), the date the financial statements were available for issuance.

The Company’s board of directors and stockholders approved the 2025 Equity Incentive Plan, or 2025 Plan, which became effective on January 29, 2025. The 2025 Plan replaced the 2019 Plan, and upon its effectiveness, the Company ceased granting awards under the 2019 Plan. The 2025 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors and consultants. The Company initially reserved 5,300,000 shares of its common stock under the 2025 Plan plus those shares of common stock previously reserved but unissued under the 2019 Plan. Any outstanding awards granted under the 2019 Plan will remain subject to the terms of the 2019 Plan and applicable award agreements.

The Company’s board of directors and stockholders approved the 2025 Employee Stock Purchase Plan, or 2025 ESPP, which became effective on January 30, 2025. The number of shares initially available for issuance pursuant to the 2025 ESPP was 450,000 shares.

Upon the completion of the Company’s initial public offering in February 2025, the Company filed its amended and restated certificate of incorporation, which authorizes the Company to issue up to 500,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.001 par value per share.

In March 2025, the Company entered into an amendment to the loan and security agreement that provides for a one-year extension of the $50.0 million revolving line of credit maturity date to June 2026. The Company has the option to convert the aggregate principal amount of advances under the line of credit, if any, into a term loan upon maturity of the revolving line of credit. To date, the Company has not elected to draw down any funds from this debt facility.