Tectonic Therapeutic, Inc.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report. In addition to historical information, the following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this Quarterly Report.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that are based upon current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Quarterly Report. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Previous wording

Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the Company, “we,” “us,” and “our” refer to the business and operations of Tectonic Operating Company, Inc. (previously Tectonic Therapeutic, Inc., referred to as “Legacy Tectonic”) and its consolidated subsidiaries prior to the Merger, and the business and operations of Tectonic Therapeutic, Inc. (previously AVROBIO, Inc., referred to as “AVROBIO”) and its consolidated subsidiaries following the Merger.

Current wording

All brand names or trademarks appearing in this report are the property of their respective holders. Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the Company, “we,” “us,” and “our” refer to the business and operations of Tectonic Operating Company, Inc. (previously Tectonic Therapeutic, Inc., referred to as “Legacy Tectonic”) and its consolidated subsidiaries prior to the Merger, and the business and operations of Tectonic Therapeutic, Inc. (previously AVROBIO, Inc., referred to as “AVROBIO”) and its consolidated subsidiaries following the Merger.

Previous wording

We are a clinical-stage biotechnology company focused on the discovery and development of therapeutic proteins and antibodies that modulate the activity of G-protein coupled receptors (“GPCRs”). The discovery of biologics that can modulate GPCRs has historically been quite challenging. We have developed a proprietary technology platform called GEODe™, with the aim of addressing these challenges to enable the discovery and development of GPCR-targeted biologic medicines that can modify the course of disease. We focus on areas of significant unmet medical need, often where therapeutic options are poor or nonexistent, as these are areas where new medicines have the potential to improve patient quality or extend duration of life.

Current wording

We are a clinical-stage biotechnology company focused on the discovery and development of therapeutic proteins and antibodies that modulate the activity of GPCRs. The discovery of biologics that can modulate GPCRs has historically been quite challenging. We have developed a proprietary technology platform called GEODe™, with the aim of addressing these challenges to enable the discovery and development of GPCR-targeted biologic medicines that can modify the course of disease. We focus on areas of significant unmet medical need, often where therapeutic options are poor or nonexistent, as these are areas where new medicines have the potential to improve patient quality of life or extend duration of life.

Previous wording

Our lead asset, TX45, is an Fc-relaxin fusion molecule that activates the RXFP1 receptor, the GPCR target of the hormone, relaxin. In September 2024, we announced favorable results from a Phase 1a trial evaluating safety, tolerability and pharmacokinetic (“PK”) and pharmacodynamic (“PD”) properties for TX45. In the Phase 1a trial, TX45 was well-tolerated with no drug-related severe adverse events, no observed immunogenicity and demonstrated a favorable PK/PD relationship. Renal plasma flow was measured in each patient at several time points as a pharmacodynamic marker. This data was used to develop an exposure-response model which enabled the selection of doses for the APEX Phase 2 trial.

Current wording

Our lead asset, TX45, is an Fc-relaxin fusion molecule that activates the RXFP1 receptor, the GPCR target of the hormone, relaxin. In September 2024, we announced favorable results from a Phase 1a trial evaluating safety, tolerability and pharmacokinetic (“PK”) and pharmacodynamic (“PD”) properties for TX45. In this trial, TX45 was well-tolerated with no drug-related severe adverse events, no observed immunogenicity and demonstrated a favorable PK/PD relationship. Renal plasma flow was measured in each patient at several time points as a pharmacodynamic marker. This data was used to develop an exposure-response model which enabled the selection of doses for the APEX Phase 2 trial.

Previous wording

We are currently evaluating TX45 in a Phase 1b hemodynamic clinical trial and in a Phase 2 clinical trial. The TX45 Phase 1b hemodynamic clinical trial is a single dose IV, open-label clinical trial evaluating the safety, tolerability and acute hemodynamic effects of TX45 in patients with Group 2 Pulmonary Hypertension in Heart Failure with Preserved Ejection Fraction (“PH-HFpEF”). The Phase 1b trial is enrolling ahead of plan, and we expect topline results from the Phase 1b trial in late first quarter of 2025 or early second quarter of 2025. We dosed our first subject in the APEX Phase 2 clinical trial in October 2024. The APEX Phase 2 clinical trial is a global, 24-week, placebo-controlled trial designed to evaluate the safety and efficacy TX45 administered subcutaneously (“SC”) in subjects with PH-HFpEF. Subjects will be randomized to 300 mg SC (2ml injection) once monthly of TX45, 300 mg SC once every other week of TX45, or placebo. We expect topline trial results from the APEX trial in 2026.

Current wording

We are currently evaluating TX45 in a Phase 1b hemodynamic clinical trial and in a Phase 2 clinical trial. Part A of the TX45 Phase 1b hemodynamic clinical trial is a single dose IV, open-label clinical trial evaluating the safety, tolerability and acute hemodynamic effects of TX45 in patients with Group 2 PH in Heart Failure with Preserved Ejection Fraction (“PH-HFpEF”). We have completed dosing of all 19 patients in the Part A of the Phase 1b trial. A preliminary analysis of hemodynamic data from 16 out of 19 patients demonstrated improvements which met and or exceeded our prespecified goals and demonstrated that TX45 both improved left heart function and pulmonary hemodynamics over the 8 hour period post dosing which was evaluated. Part B of the Phase 1b trial which is assessing acute hemodynamics effects of TX45 in patients with Group 2 PH-HFrEF is expected to enroll the first patient in the first half of 2025 with data expected to be announced in the second half of 2025. We dosed our first subject in the APEX Phase 2 clinical trial in October 2024. The APEX Phase 2 clinical trial is a global, 24-week, placebo-controlled trial designed to evaluate the safety and efficacy TX45 administered subcutaneously (“SC”) in subjects with PH-HFpEF. Subjects will be randomized to 300 mg SC (2ml injection) once monthly of TX45, 300 mg SC once every other week of TX45, or placebo. We expect topline trial results from the APEX trial in 2026.

Previous wording

We have also identified TX002100 (“TX2100”) as a development candidate for the treatment of Hereditary Hemorrhagic Telangiectasia (“HHT”), the second most common genetic bleeding disorder with no approved therapy. TX2100 is a VHH-Fc fusion antagonist antibody that binds to an undisclosed GPCR target (“GPCR3”) which plays a key role in pathogenic angiogenesis. A rodent surrogate of TX2100 demonstrated reduced arteriovenous malformation development and bleeding in an animal model of HHT. A 4-week non-human primate dose-range study with a functionally equivalent precursor to TX2100 showed no treatment-related toxicity observed at doses up to 100 mg/kg. We expect to initiate a Phase 1 clinical trial for TX2100 in the fourth quarter of 2025 or the first quarter of 2026, subject to the results of IND enabling studies.

Current wording

We are also evaluating TX002100 (“TX2100”) as our second development candidate for the treatment of Hereditary Hemorrhagic Telangiectasia (“HHT”), the second most common genetic bleeding disorder with no approved therapy. TX2100 is a VHH-Fc fusion antagonist antibody that binds to an undisclosed GPCR target (“GPCR3”) which plays a key role in pathogenic angiogenesis. A rodent surrogate of TX2100 demonstrated reduced arteriovenous malformation development and bleeding in an animal model of HHT. A 4-week non-human primate dose-range study with a functionally equivalent precursor to TX2100 showed no treatment-related toxicity observed at doses up to 100 mg/kg. A formulation supporting TX2100 SC dosing has been identified. Both IND enabling NHP GLP toxicology studies and technical development activities to generate GMP drug supply and drug product for TX2100 started in the second quarter of 2025. We expect to initiate a Phase 1 clinical trial for TX2100 in the fourth quarter of 2025 or the first quarter of 2026, subject to the results of IND enabling studies.

Previous wording

expenses incurred in connection with research and the preclinical and clinical development of our programs and our product candidates, including under agreements with third parties;

Current wording

expenses incurred in connection with research and the preclinical and clinical development of our programs and our product candidates, including fees paid to contract research organizations (“CROs”);

Previous wording

costs related to manufacturing material for our preclinical studies and clinical trials, including fees paid to contract manufacturing organizations (“CMOs”);

Current wording

costs related to manufacturing material for our preclinical studies and clinical trials, including fees paid to contract development and manufacturing organizations (“CDMOs”);

Previous wording

Our direct research and development expenses relate to the development of TX45, as well as the nonclinical safety pharmacology and toxicology testing of our product candidates. Our external services expenses consist of the external costs and fees paid to consultants and other research laboratories in connection with our preclinical development and clinical development activities.

Current wording

Our direct research and development expenses relate to the development of TX45 and TX2100, as well as the nonclinical safety pharmacology and toxicology testing of our product candidates. Our external services expenses consist of the external costs and fees paid to consultants and other research laboratories in connection with our preclinical development and clinical development activities.

Previous wording

Costs that are deployed across multiple internal programs, including the HHT program and programs aimed at the discovery and development of potential therapies for fibrotic disease, and our platform technology and are not directly attributable to any single program are not allocated to any single program and, as such, are not separately classified. These costs include multi-program personnel-related costs, cross-program payments made under third-party licensing agreements, costs of laboratory supplies and facilities expenses, including rent, depreciation and other indirect costs, the costs of our discovery efforts and projects, and other expenses.

Current wording

Costs that are deployed across multiple internal programs, including programs aimed at the discovery and development of potential therapies for fibrotic disease, and our platform technology and are not directly attributable to any single program are not allocated to any single program and, as such, are not separately classified. These costs include multi-program employee-related costs, cross-program payments made under third-party licensing agreements, costs of laboratory supplies and facilities expenses, including rent, depreciation and other indirect costs, the costs of our discovery efforts and projects, and other expenses.

Previous wording

General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters, professional fees paid for accounting, auditing, consulting and tax services, insurance, travel expenses, office and information technology costs and facilities and utilities, depreciation and other expenses related to general and administrative activities.

Current wording

General and administrative expenses consist primarily of employee-related costs, including salaries and bonuses, related benefits and stock-based compensation expense, for our personnel in executive, legal, accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters, professional fees paid for accounting, auditing, consulting and tax services, insurance, travel expenses, office and information technology costs and facilities and utilities, depreciation and other expenses related to general and administrative activities.

Previous wording

We anticipate that our general and administrative expenses will increase in the future as we expect to incur significantly increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Current wording

We anticipate that our general and administrative expenses will increase in the future as we expect to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Previous wording

Interest income primarily consists of interest earned on money market funds, which are included in cash and cash equivalents in the condensed consolidated balance sheet.

Current wording

Interest income primarily consists of interest earned on money market funds, which are included in cash and cash equivalents in the condensed consolidated balance sheets.

Previous wording

Total research and development expenses increased $6.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase in research and development expense was primarily the result of increased external contract research organization (“CRO”) costs related to the progression of the TX45 Phase 1b clinical trial and the initiation of the TX45 Phase 2 clinical trial, along with increase in consulting and professional services to support the ongoing development activities of our early-stage product candidates.

Current wording

Total research and development expenses increased $2.2 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in research and development expense was primarily the result of increased CRO and CDMO costs related to the discovery and development of TX2100.

Previous wording

Total general and administrative expenses increased $3.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Personnel-related expenses increased $2.1 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in personnel-related expenses was primarily due to an increase in stock-based compensation for newly granted stock-based awards and the modification of certain stock options. Professional and consulting fees increased $0.8 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to an increase in fees to support merger-related activities.

Current wording

General and administrative expenses increased $3.1 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Personnel-related expenses increased $1.3 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase in personnel-related expenses was primarily due to an increase in stock-based compensation for newly granted stock-based awards. Professional and consulting fees increased $1.5 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due to an increase in audit, legal and administrative services to support our operations as a public company.

Previous wording

Interest income increased by $1.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in cash and cash equivalents as a result of the Merger.

Current wording

Interest income increased by $2.2 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily due to an increase in cash and cash equivalents as a result of the Merger and Private Placement.

Previous wording

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our research programs and product candidates. We expect that our research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future research programs and product candidates, contracting with CMOs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.

Current wording

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our research programs and product candidates. We expect that our research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future research programs and product candidates, contracting with CDMOs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.

Previous wording

We do not currently have any approved products and have never generated any revenue from product sales. We have funded our operations with an aggregate of $288.6 million in proceeds from the sale of convertible preferred stock, the issuance of convertible promissory notes, the Merger, and sale of common stock. As of September 30, 2024, we had $159.1 million in cash and cash equivalents and an accumulated deficit of $136.2 million. We believe that our cash and cash equivalents will be sufficient to fund our anticipated operating and capital expenditure requirements into mid-2027. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Current wording

We do not currently have any approved products and have never generated any revenue from product sales. We have funded our operations with proceeds from the sale of convertible preferred stock, the issuance of convertible promissory notes, the Merger, and sale of common stock. In February 2025, we sold shares of our common stock under a securities purchase agreement in exchange for gross proceeds of approximately $185.0 million. As of March 31, 2025, we had $306.2 million in cash and cash equivalents and an accumulated deficit of $164.5 million. Based on our current business plans, management believes that our cash, cash equivalents and marketable securities on hand at December 31, 2024 are sufficient to meet our operating requirements for at least the next 12 months from the issuance of the consolidated financial statements included in this Quarterly Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Previous wording

The following table shows a summary of our cash flows for the nine months ended September 30, 2024 and 2023:

Current wording

The following table shows a summary of our cash flows for the three months ended March 31, 2025 and 2024:

Previous wording

During the nine months ended September 30, 2024, cash used in operating activities was $42.3 million. Cash used in operating activities was primarily used to fund our operations to develop our product candidates resulting in a net loss of $45.6 million and changes in our operating assets and liabilities of $4.7 million, partially offset by non-cash charges of $8.0 million related to the change in the fair value of the SAFE liabilities, stock-based compensation expense, depreciation and amortization expense and lease expense. The increase in operating assets and liabilities relates to accrued expenses for the Merger and prepayments to the CRO.

Current wording

During the three months ended March 31, 2025, cash used in operating activities was $13.1 million. Cash used in operating activities was primarily used to fund our operations to develop our product candidates resulting in a net loss of $15.9 million partially offset by non-cash charges of $3.0 million related to stock-based compensation expense, depreciation and amortization expense and lease expense.

Previous wording

During the nine months ended September 30, 2023, cash used in operating activities was $29.0 million. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $35.0 million, and changes in our operating assets and liabilities of $3.2 million, partially offset by non-cash charges of $2.8 million related to depreciation and amortization expense, stock-based compensation expense, and lease expense. The increase in operating assets and liabilities relates to accrued expenses, timing of vendor payments, and timing of lease repayments.

Current wording

During the three months ended March 31, 2024, cash used in operating activities was $9.3 million. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $15.2 million, and changes in our operating assets and liabilities of $2.9 million, partially offset by non-cash charges of $3.1 million related to the change in the fair value of the SAFE liabilities, depreciation and amortization expense, stock-based compensation expense, and lease expense. The increase in operating assets and liabilities relates to accrued expenses, timing of vendor payments, and timing of lease repayments.

Previous wording

During each of the nine month periods ended September 30, 2024 and 2023, net cash used in investing activities was $0.2 million related to purchases of property, equipment, and improvements.

Current wording

During the three months ended March 31, 2025 and 2024, net cash used in investing activities was nominal and related to purchases of property and equipment.

Previous wording

During the nine months ended September 30, 2024, net cash provided by financing activities was $172.8 million, primarily due to net proceeds of $94.6 million from the sale of shares pursuant to the Subscription Agreement, $85.2 million in gross proceeds from the Merger and $0.7 million in proceeds from the exercise of stock options, partially offset by cash paid for transaction costs related to the Merger of $7.4 million. Net cash used in financing activities during the nine months ended September 30, 2023 was primarily due to $0.4 million of repayment of finance lease obligations.

Current wording

During the three months ended March 31, 2025, net cash provided by financing activities was $178.1 million, primarily due to net proceeds of $177.3 million from the sale of shares pursuant to the Private Placement and $1.0 million in proceeds from the exercise of stock options. Net cash used in financing activities during the three months ended March 31, 2024 was primarily due to the payment of $0.6 million of deferred offering costs related to the Merger.

Previous wording

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates including our lead product candidate TX45. In addition, if we obtain marketing approval for TX45 or any of our other product candidates, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Current wording

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates including our lead product candidate TX45 and TX2100. In addition, if we obtain marketing approval for TX45, TX2100 or any of our other product candidates, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Previous wording

We expect our existing cash and cash equivalents, together with the net proceeds from the Merger and the sale of securities pursuant to the Subscription Agreement, will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including:

Current wording

We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including:

Previous wording

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.

Current wording

We have lease obligations including amounts due on leases of certain laboratory equipment and office and laboratory space under the terms of non-cancelable operating and finance leases. The leases expire at various times through 2027. Minimum lease payments as of March 31, 2025 are $2.2 million in 2025, $0.5 million in 2026, and $0.1 million in 2027. The commitment amounts are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Such amounts do not include obligations under agreements that we can cancel without a significant penalty.