Tectonic Therapeutic, Inc.

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

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 subsibdiaries 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 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.

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 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.

Current wording

In September 2024, we announced favorable results from a Phase 1a clinical trial evaluating safety, tolerability and pharmacokinetic (“PK”) and pharmacodynamic (“PD”) properties for TX45. In this clinical 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 PD marker. This data was used to develop an exposure-response model which enabled the selection of doses for the APEX Phase 2 clinical trial.

Previous 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.

Current wording

The ongoing APEX Phase 2 clinical trial is a global, 24-week, placebo-controlled trial designed to evaluate the safety and efficacy of TX45 administered subcutaneously (“SC”) in subjects with PH-HFpEF, enriched for CpcPH. We dosed our first subject in the APEX Phase 2 clinical trial in October 2024. Subjects are being randomized to 300 mg SC (2 ml injection) once monthly of TX45, 300 mg SC once every other week of TX45, or placebo. Change from baseline in PVR in the PVR>3 population is the primary endpoint of the trial. The trial is designed to enrich patients with a PVR>3 aiming for 70% of patients enrolled. We expect topline results from the APEX clinical trial in 2026.

Previous wording

Research and development expenses consist of costs incurred for our research activities, including our discovery efforts and the development of our programs and platform. These expenses include:

Current wording

Research and development expenses consist of costs incurred in connection with our research activities, including discovery efforts and the preclinical and clinical development of our programs, product candidates, and platform. These expenses include:

Previous wording

employee-related expenses, including salaries and bonuses, related benefits and stock-based compensation expense, for employees engaged in research and development functions;

Current wording

employee-related expenses, including salaries, bonuses, benefits and stock-based compensation, for employees engaged in research and development functions;

Previous wording

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

Current wording

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

Previous wording

facilities, depreciation and other expenses related to research and development activities, which include direct or allocated expenses for rent and maintenance of facilities, and utilities;

Current wording

facilities, depreciation, and other expenses related to research and development activities, which include direct or allocated expenses for rent, utilities, and facility maintenance;

Previous wording

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on our evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license or collaboration agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.

Current wording

We expense all research and development costs as incurred. Costs for certain development activities are recognized based on our evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered.

Previous wording

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly as we commence clinical trials. Our future expenses may vary significantly each period based on factors such as:

Current wording

Research and development activities are central to our business. Later-stage clinical programs generally incur higher costs than early-stage programs due to the increased size and duration of trials. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We will continue to evaluate which product candidates to pursue and the allocation of funding based on preclinical and clinical results, regulatory developments, and commercial potential. We expect our research and development expenses to increase significantly as we advance our product candidates through clinical development and initiate additional clinical trials. Our future expenses may vary significantly each period based on factors such as:

Previous wording

per patient trial costs, including based on the number of doses that patients received;

Current wording

per patient trial costs, based on the number of doses that patients receive;

Previous 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.

Current wording

General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits and stock-based compensation, for our personnel in executive, finance and information technology, and other administrative functions. General and administrative expenses also include professional fees for legal, accounting, and consulting services, insurance costs, facilities and information technology expenses, investor relations and public company compliance costs, and other general corporate overhead. As a clinical-stage company, our general and administrative expenses are driven in part by the costs required to support our research and development activities and to operate as a public company.

Previous wording

Interest income primarily consists of interest earned on money market funds, which are included in cash and cash equivalents in the Consolidated Balance Sheets.

Current wording

Interest income primarily consists of interest earned on money market funds, which are included in cash and cash equivalents on the Consolidated Balance Sheet.

Previous wording

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

Current wording

The following tables summarize our results of operations for the years ended December 31, 2025 and 2024 (in thousands, except percentages):

Previous 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.

Current wording

We anticipate that our general and administrative expenses will continue to increase in the future as we continue to invest in infrastructure and personnel to support the advancement of our clinical programs and operation 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 increased by $3.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to an increase in cash and cash equivalents as a result of the Merger.

Current wording

Interest income increased by $7.0 million for the year ended December 31, 2025 compared to the year ended December 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 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.

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 CROs and 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 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 $185 million. As of December 31, 2024, we had $141.2 million in cash and cash equivalents and an accumulated deficit of $148.6 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 Annual Report on Form 10-K. 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

As of December 31, 2025, we had $253.8 million in cash and cash equivalents and an accumulated deficit of $222.7 million. Based on our current business plans, management believes that our cash, cash equivalents and marketable securities on hand at December 31, 2025 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 Annual Report on Form 10-K. However, our estimates are based on assumptions that may prove to be incorrect, and we could exhaust our capital resources sooner than expected. We may require additional funding to support our research programs, clinical development, and general operations. There can be no assurance that additional financing, whether through public or private equity, debt, collaborations, or licensing arrangements, will be available on acceptable terms, or at all.

Previous wording

During the year ended December 31, 2023, cash used in operating activities was $40.7 million. Cash used in operating activities was primarily used to fund our operations to development our product candidates, resulting in a net loss of $42.8 million and changes in our operating assets and liabilities of $0.6 million, partially offset by non-cash charges of $2.7 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, timing of vendor payments, and timing of lease repayments.

Current wording

Net cash used in operating activities was $60.1 million for the year ended December 31, 2025. Cash used in operations was primarily used to fund our operations in developing our product candidates, resulting in a net loss of $74.2 million, partially offset by non-cash charges of $14.1 million. Changes in operating assets and liabilities, including the timing of vendor payments and lease repayments, had a minimal net effect of $0.1 million on cash used in operating activities.

Previous wording

During the year ended December 31, 2024, cash used in operating activities was $59.1 million. Cash used in operating activities was primarily used to fund our operations to develop our product candidates, resulting in a net loss of $58.0 million and changes in our operating assets and liabilities of $10.3 million, partially offset by non-cash charges of $9.2 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

Net cash used in operating activities was $59.1 million for the year ended December 31, 2024. Cash used in operating activities was primarily used to fund our operations to develop our product candidates resulting in a net loss of $58.0 million and $10.3 million of changes in operating assets and liabilities related to accrued expenses, timing of vendor payments and lease repayments offset by non-cash charges of $9.2 million.

Previous wording

During the year ended December 31, 2024 and 2023, net cash used in investing activities was $0.2 million and $0.3 million, respectively, related to purchases of property and equipment.

Current wording

Net cash used in investing activities during the year ended December 31, 2025 and 2024 was nominal and related to the purchase and sale of property and equipment.

Previous wording

During the year ended December 31, 2024, net cash provided by financing activities was $171.7 million, primarily due to net proceeds of $94.6 million from the sale of shares pursuant to the Subscription Agreement, $76.0 million in net proceeds and $1.6 million in proceeds from the exercise of stock options. Net cash provided by financing activities during the year ended December 31, 2023 was primarily due to the receipt of $34.1 million of proceeds from the issuance of SAFEs.

Current wording

Net cash provided by financing activities was $171.7 million for the year ended December 31, 2024, primarily due to net proceeds of $94.6 million from the sale of shares pursuant to the Subscription Agreement, $76.0 million of net cash acquired in connection with the Merger, and $1.6 million in proceeds from the exercise of stock options.

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 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.

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 candidates 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

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our lease obligations.

Current wording

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years.

Previous wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities in our consolidated financial statements and the reported amounts of expenses during the reporting periods. We base our estimates on historical experience, known trends and events, and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates.

Current wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities in our consolidated financial statements and the reported amounts of expenses during the reporting periods. We base our estimates on historical experience, known trends and events, and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities and recorded expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates.

Previous wording

While our significant accounting policies are described in the notes to our financial statements included elsewhere in this Annual Report, we believe that the following accounting policies 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

While our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Basis of Presentation, to our financial statements included elsewhere in this Annual Report, we believe that the following accounting policies 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

As part of the process of preparing our consolidated financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make judgments and estimates of our prepaid and accrued research and development expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time, which includes corroboration of these estimates with the service providers. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses. To date, we have not experienced any material adjustments to our prior estimates of prepaid and accrued research and development expenses. Changes in these estimates that result in material changes to our accrued costs could materially affect our results of operations.

Current wording

As part of the process of preparing our consolidated financial statements, we are required to estimate our research and development expenses, primarily related to services performed by third parties such as CROs and CDMOs. This process involves estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make judgments and estimates of our research and development expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time, which includes corroboration of these estimates with the service providers. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses. Changes in these estimates that result in material changes to our accrued costs could materially affect our results of operations. To date, we have not experienced any material adjustments to our prior estimates of prepaid and accrued research and development expenses.