Septerna, Inc.

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed financial statements and related notes included elsewhere in this Quarterly Report and with our audited financial statements and the notes thereto for the year ended December 31, 2023 included in our final prospectus (the "IPO Prospectus") filed with the SEC pursuant to Rule 424(b) under the Securities Act on October 25, 2024. This discussion and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors including, but not limited to, those set forth under the section titled “Risk Factors” and elsewhere in this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and you should carefully read the section titled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed financial statements and related notes included elsewhere in this Quarterly Report and audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2024 (“Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2025. This discussion and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements of our plans, objectives, expectations, intentions, forecasts and projections. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors including, but not limited to, those set forth under the section titled “Risk Factors” and elsewhere in this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and you should carefully read the section titled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”

Previous wording

We are a clinical-stage biotechnology company pioneering a new era of G protein-coupled receptor (“GPCR”) oral small molecule drug discovery powered by our proprietary Native Complex Platform™. Our industrial-scale platform aims to unlock the full potential of GPCR therapies and has led to the discovery and development of our deep pipeline of product candidates focused initially on treating patients in three therapeutic areas: endocrinology, immunology and inflammation, and metabolic diseases. We intend to evaluate opportunities in other major therapeutic areas, such as neurology, women’s health, cardiovascular, and respiratory disease.

Current wording

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

Previous wording

We are advancing a deep portfolio of oral small molecule GPCR-targeted programs with novel mechanistic approaches to treat diseases across multiple therapeutic areas for patients with significant unmet needs. Our wholly-owned pipeline is summarized in the figure below.

Current wording

We are advancing a deep portfolio of oral small molecule GPCR-targeted programs with novel mechanistic approaches to treat diseases across multiple therapeutic areas for patients with significant unmet needs. Our wholly-owned pipeline, summarized in the figure below, is focused initially on three therapeutic areas: endocrinology, immunology and inflammation, and metabolic diseases.

Previous wording

We have incurred significant operating losses since our inception, except for the year ended December 31, 2023, when we recorded net income of $4.2 million. Our revenue to date has been generated solely from research services. Since our founding, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our proprietary and structure-based drug discovery platform, identifying and discovering our product candidates, establishing our intellectual property portfolio, conducting research and preclinical studies, including IND-enabling studies, initiating and conducting clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We have not had any products approved for sale and have not generated any revenue from product sales. Further, we do not expect to generate revenue from commercial product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one or more of our product candidates. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates.

Current wording

We have incurred significant operating losses since our inception, except for the year ended December 31, 2023, when we recorded net income of $4.2 million, resulting from the gain on sale of non-financial asset of $47.6 million for the sale of an in-progress research and development (“IPR&D”) asset related to a GPCR program. Our revenue to date has been generated solely from research services. Since our founding, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our proprietary and structure-based drug discovery platform, identifying and discovering our product candidates, establishing our intellectual property portfolio, conducting research and preclinical studies, including investigational new drug (“IND”)-enabling studies, initiating and conducting clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We have not had any products approved for sale and have not generated any revenue from product sales. Further, we do not expect to generate revenue from commercial product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one or more of our product candidates. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates.

Previous wording

We have incurred net losses in each year since inception, except for the year ended December 31, 2023. During the year ended December 31, 2023, we recorded a gain on sale of non-financial asset of $47.6 million for the sale of an in-progress research and development (“IPR&D”) asset related to a GPCR program and $0.2 million in revenue related to research services resulting in net income of $4.2 million for the year then-ended. Of the $47.6 million gain on sale of non-financial asset, $25.0 million was received in cash in September 2023 and the remaining $22.6 million during the nine months ended September 30, 2024. Our net losses were $20.5 million and $51.1 million for the three and nine months ended September 30, 2024, respectively. Our net losses were $10.9 million and $30.7 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $97.7 million. We expect to continue to incur net losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing and expenditures of our operational activities.

Current wording

Our net loss was $21.5 million and $14.2 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had an accumulated deficit of $139.9 million. We have incurred net losses in each year since inception, except for the year ended December 31, 2023. We expect to continue to incur net losses for the foreseeable future. Our net losses may fluctuate significantly from period to period, depending on the timing and expenditures of our operational activities.

Previous wording

operate as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services;

Current wording

continue to operate as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services;

Previous wording

As a result, we will require substantial additional funding to further develop our product candidates and support our continuing operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Current wording

As a result, we will require substantial additional funding to further develop our product candidates and support our continuing operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. See the section titled “Liquidity and Capital Resources - Future Funding Requirements” below for additional information.

Previous wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and, most recently, through an initial public offering (“IPO”). In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of our common stock (inclusive of and additional 2.4 million shares of our common stock issued and sold pursuant to the underwriters' exercise of their option to purchase additional shares in full). The aggregate net proceeds received by us from the IPO was approximately $302.6 million, after deducting underwriting discounts and commissions, and other offering costs payable by us of approximately $28.6 million.

Current wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and, most recently, through an initial public offering (“IPO”). In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of our common stock (inclusive of an additional 2.4 million shares of our common stock issued and sold pursuant to the underwriters' exercise of their option to purchase additional shares in full). The aggregate net proceeds received by us from the IPO was $302.8 million, net of total offering costs of $28.4 million.

Previous wording

We use contract research and development organizations to conduct our preclinical works and clinical trials. Additionally, we utilize third-party CMOs, to manufacture and supply our preclinical and clinical materials during the development of our product candidates. We expect to use similar contract resources for the commercialization of our products, at least until our resources and operations are at a scale that justifies investment in internal manufacturing capabilities.

Current wording

We use contract research and development organizations to conduct our preclinical work and clinical trials. Additionally, we utilize third-party contract manufacturing organizations (“CMOs”), to manufacture and supply our preclinical and clinical materials during the development of our product candidates. We expect to use similar contract resources for the commercialization of our products, at least until our resources and operations are at a scale that justifies investment in internal manufacturing capabilities.

Previous wording

In September 2023, we entered into an asset purchase agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) for a total of $47.6 million under which Vertex acquired all of our IPR&D asset related to a GPCR program, including all intellectual property, materials, and compounds associated with the program (“Vertex purchase agreement”). Of the $47.6 million, $25.0 million was received in cash in September 2023 and $22.6 million was received during the nine months ended September 30, 2024. Additionally, as part of the agreement, Vertex assumed all claims, counterclaims and credits associated with the program, and we gave up all rights to the intellectual property. The transfer of the IPR&D asset to Vertex was completed in November 2023.

Current wording

In September 2023, we entered into an asset purchase agreement with Vertex Pharmaceuticals Incorporated (“Vertex”) under which Vertex acquired all of our IPR&D asset related to a GPCR program. The transfer of the IPR&D asset to Vertex was completed in November 2023.

Previous wording

external research and development costs related to (i) the production of preclinical materials, including fees and milestones paid to contract manufacturers and (ii) agreements with contract development organizations, consultants and other third-party contract organizations to conduct our preclinical studies and other research and development activities on our behalf;

Current wording

preclinical and research program costs, which include external research and development costs related to (i) the production of preclinical materials, including fees and milestones paid to contract manufacturers and (ii) agreements with contract development organizations, consultants and other third-party contract organizations to conduct our preclinical studies and other research and development activities on our behalf, costs incurred in connection with laboratory operations, materials and supplies, and other preclinical studies;

Previous wording

external costs to conduct clinical trials, including costs paid to CROs, the production of clinical materials and fees paid to contract manufacturers; and

Current wording

clinical program costs, which include external costs to conduct clinical trials, including costs paid to contract research organizations (“CROs”), the production of clinical materials and fees paid to contract manufacturers, costs incurred in connection with clinical laboratory operations, materials and supplies; and

Previous wording

employee-related costs, including salaries, benefits and stock-based compensation for employees engaged in research and development activities;

Current wording

payroll-related costs, including salaries, benefits and stock-based compensation for employees engaged in research and development activities;

Previous wording

the performance of any future collaborators;

Current wording

the performance of any current or future collaborators;

Previous wording

We expect that our general and administrative expenses will increase substantially in absolute dollars for the foreseeable future as we continue to increase our headcount to support our business growth. We also anticipate that we will incur increased expenses as a result of our operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and expenses related to audit, legal, regulatory services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Current wording

We expect that our general and administrative expenses will increase substantially in absolute dollars for the foreseeable future as we continue to increase our headcount to support our business growth and to advance our research and development programs.

Previous wording

Other expense, net consists primarily of changes in the fair value of our cash equivalents held in money market funds and loss on disposal of our fixed assets.

Current wording

Other expense, net consists primarily of changes in the fair value of our cash equivalents held in money market funds, loss on disposal of our fixed assets and foreign currency transaction gain or loss.

Previous wording

We are subject to corporate United States federal and state income taxation. Our provision (benefit) for income taxes are recorded in accordance with Accounting Standard Codification (“ASC”) 740, Accounting for Income Taxes, which provides for deferred taxes using an asset and liability approach. We establish a valuation allowance against all of our net deferred tax assets. We consider all available evidence, both positive and negative, including but not limited to our historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings (losses), future taxable income (loss), and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized.

Current wording

We are subject to corporate United States federal and state income taxation. Our benefit for income taxes is recorded in accordance with Accounting Standard Codification 740, Accounting for Income Taxes, which provides for deferred taxes using an asset and liability approach. We establish a valuation allowance against all of our net deferred tax assets. We consider all available evidence, both positive and negative, including but not limited to our historical operating results, income or loss in recent periods, cumulative losses in recent years, forecasted earnings (losses), future taxable income (loss), and significant risk and uncertainty related to forecasts, and concluded the deferred tax assets are not more likely than not to be realized.

Previous wording

Our service revenue of $0.2 million for the three months ended September 30, 2024 was generated from research activities performed for Vertex in connection with the Vertex service agreement. Our service revenue related to research activities for Vertex in connection with the Vertex service agreement for the three months ended September 30, 2023 was not material.

Current wording

Our service revenue of $0.2 million and $0.3 million for the three months ended March 31, 2025 and 2024, respectively, was generated from research activities performed for Vertex in connection with the Vertex service agreement.

Previous wording

Interest income was $1.9 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively. The increase was due to higher interest rates and higher balances of invested cash in cash equivalents and marketable securities.

Current wording

Interest income was $4.5 million and $1.3 million for the three months ended March 31, 2025 and 2024, respectively. The increase was due to higher interest rates and higher balances of invested cash in cash equivalents and marketable securities.

Previous wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. Additionally, during the year ended December 31, 2023, we recorded a gain on sale of non-financial asset of $47.6 million for the sale of an IPR&D asset related to a GPCR program and $0.2 million in revenue related to research services resulting in net income of $4.2 million. Of the $47.6 million gain on sale of non-financial asset, $25.0 million was received in cash at the closing of the Vertex purchase agreement in September 2023 and $22.6 million was received during the nine months ended September 30, 2024. In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of common stock (inclusive of 2.4 million shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares). The aggregate net proceeds received by us from the IPO was approximately $302.6 million, after deducting underwriting discounts and commissions, and other offering costs payable by us of approximately $28.6 million.

Current wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. In October 2024, we completed our IPO, pursuant to which we issued and sold an aggregate of 18.4 million shares of common stock (inclusive of 2.4 million shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares in full). The aggregate net proceeds received by us from the IPO was $302.8 million, net of total offering costs of $28.4 million. As of March 31, 2025, we had $398.2 million in cash, cash equivalents, and marketable securities.

Previous wording

Net cash used in operating activities was $46.5 million and $29.9 million for the nine months ended September 30, 2024 and 2023, respectively. The net cash used in operating activities for the nine months ended September 30, 2024 was due to our net loss of $51.1 million, partially offset by a $1.7 million of net change in operating assets and liabilities and $2.9 million of non-cash charges for depreciation and amortization, stock-based compensation, non-cash operating lease expense, deferred income tax and accretion of discounts on available-for-sale marketable securities. The net cash used in operating activities for the nine months ended September 30, 2023 was due to our net loss of $30.7 million, and $1.4 million of net change in operating assets and liabilities, partially offset by $2.2 million of non-cash charges for depreciation and amortization, stock-based compensation and non-cash operating lease expense.

Current wording

Net cash used in operating activities was $23.3 million and $16.7 million for the three months ended March 31, 2025 and 2024, respectively. The net cash used in operating activities for the three months ended March 31, 2025 was due to our net loss of $21.5 million and a $3.3 million of net change in operating assets and liabilities, partially offset by $1.4 million of non-cash charges for depreciation and amortization, stock-based compensation, non-cash operating lease expense, deferred income tax and accretion of discounts, net, on marketable securities.

Previous wording

Net cash used in investing activities of $27.4 million for the nine months ended September 30, 2024 was due to $65.8 million of purchases of available-for-sale marketable securities and $1.5 million of purchases of property and equipment, partially offset by the receipt of the remaining $22.6 million from the sale of non-financial asset in 2023 and the maturity of $17.3 million of available-for-sale marketable securities.

Current wording

Net cash used in investing activities of $4.9 million for the three months ended March 31, 2025 was due to $49.7 million of purchases of marketable securities and $0.4 million of purchases of property and equipment, partially offset by the maturity of $45.2 million of marketable securities.

Previous wording

Net cash provided by investing activities of $23.4 million for the nine months ended September 30, 2023 was due to $25.0 million proceeds from the sale of non-financial asset, partially offset by $1.6 million of purchases of property and equipment.

Current wording

Net cash provided by investing activities of $9.6 million for the three months ended March 31, 2024 was due to $22.6 million proceeds from the sale of non-financial asset, partially offset by the purchase of $12.3 million of marketable securities and $0.7 million of purchases of property and equipment.

Previous wording

Net cash provided by financing activities was $73.6 million and $74.5 million for the nine months ended September 30, 2024 and 2023, respectively. Net cash provided by financing activities for the nine months ended September 30, 2024 and 2023 was primarily due to net proceeds from the sale and issuance of our Series B Convertible Preferred Stock.

Current wording

Net cash provided by financing activities was $0.1 million for the three months ended March 31, 2025. Net cash provided by financing activities for the three months ended March 31, 2025 was due to proceeds from the exercise of stock options. Cash provided by financing activities during the three months ended March 31, 2024 was not material.

Previous wording

the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

Current wording

our ability to maintain collaborations or strategic relationships and the extent to which we identify and enter into future collaborations or other arrangements with additional third parties in order to further develop our product candidates;

Previous wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. In June 2023, we entered into a total of $150.0 million of Series B Convertible Preferred Stock financing, which was divided into two tranches of equal amounts. The first tranche, which was the issuance of $75.0 million of Series B Convertible Preferred Stock, was completed in June and July 2023 for total net proceeds of $74.5 million. The second tranche, which was the issuance of the remaining $75.0 million, was completed in May 2024 for net proceeds of $74.9 million. In October 2024, the we completed our IPO which resulted in net proceeds of approximately $302.6 million, after deducting underwriting discounts, commissions and offering expenses payable by us of approximately $28.6 million. Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our company, business and scientific planning, conducting discovery and research and development activities, establishing, maintaining, and protecting our intellectual property portfolio, developing and progressing our product candidates and preparing for clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and component materials, engaging in collaboration activities, and providing general and administrative support for these operations.

Current wording

We historically financed our operations primarily through the issuances of convertible promissory notes and convertible preferred stock, and most recently, through an IPO. In October 2024, we completed our IPO which resulted in net proceeds of $302.8 million, net of total offering costs of $28.4 million. Since our inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our company, business and scientific planning, conducting discovery and research and development activities, establishing, maintaining, and protecting our intellectual property portfolio, developing and progressing our product candidates and preparing for clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and component materials, engaging in collaboration activities, and providing general and administrative support for these operations.

Previous wording

Critical Accounting Estimates, Significant Judgments and Use of Estimates

Current wording

Critical Accounting Policies and Use of Estimates

Previous wording

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Current wording

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Previous wording

During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies and estimates described under “Management’s Discussion and Analysis of Critical Accounting Policies and Estimates” which are included in the IPO Prospectus.

Current wording

During the three months ended March 31, 2025, there have been no material changes to our critical accounting policies and estimates as described in our Annual Report.