Upstream Bio, Inc.

1. Nature of the business and basis of presentation

Upstream Bio, Inc. was incorporated in April 2021, under the laws of the State of Delaware, and along with its consolidated subsidiary (collectively, the “Company” or “Upstream”), is focused on developing treatments for severe inflammatory respiratory diseases. Since its inception, the Company has devoted substantially all of its efforts to raising capital and incurring research and development expenses related to advancing verekitug, a clinical-stage monoclonal antibody that targets and inhibits the Thymic Stromal Lymphopoietin receptor.

Risks and uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, the successful development of verekitug, the development of new technological innovations by competitors, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations and commercial success of verekitug. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be maintained, that any therapeutic products developed will obtain required regulatory approval or that any approved or consumer products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales.

Liquidity

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance of these condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. To date, the Company has financed its operations primarily through equity financings, proceeds from its initial public offering (“IPO”) and sales of common stock pursuant to its ATM Program (as defined below). As of June 30, 2026, the Company has received an aggregate of $670.9 million from such transactions, including gross proceeds of $400.0 million from the issuance and sale of its redeemable convertible preferred stock, $268.8 million in net proceeds from the closing of its IPO and $2.1 million in net proceeds from sales of common stock under its ATM program. The Company incurred net losses of $80.3 million and $67.2 million for thesix months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, the Company had an accumulated deficit of $414.5 million.

On November 5, 2025, the Company filed an automatic shelf registration statement on Form S-3ASR (the “2025 Shelf”), including the base prospectus included therein (File No. 333-291267), with the SEC, pursuant to which the Company may issue shares of its common stock, preferred stock, debt securities, warrants and/or units, which became automatically effective upon filing pursuant to Rule 462(e) of the Securities Act of 1933, as amended (the “Securities Act”). On March 26, 2026, the Company entered into a Sales Agreement (the “Sales Agreement”) with Leerink Partners LLC, acting as its sales agent and/or principal (the “Sales Agent”), with respect to an “at-the-market offering” program under which the Company may, from time to time, at its sole discretion, offer and sell shares of its common stock having an aggregate offering price of up to $150.0 million through the Sales Agent (the “ATM Program”). In connection with the ATM Program, the Company filed a prospectus supplement with the SEC on March 26, 2026 (the “ATM Prospectus”) for the offer and sale of up to $150.0 million of shares of its common stock from time to time through the Sales Agent (the “ATM Shares”). The Sales Agent will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of the ATM Shares effectuated through or to the Sales Agent selling the ATM Shares. The Company is not obligated to make any sales of the ATM Shares under the Sales Agreement. As of June 30, 2026, the Company has sold 239,797 shares under the ATM Program, resulting in net proceeds to the Company of approximately $2.1 million after deducting approximately $0.1 million of commissions paid to the Sales Agent.

The Company has incurred recurring losses and negative cash flows from operations since its inception and expects to continue to incur losses and negative cash flows for the foreseeable future as it continues the research and development of verekitug. The Company expects its cash, cash equivalents and short-term investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant product revenue, if ever, the Company expects to fund its operations through equity offerings or debt financings, credit or loan facilities, potentially other capital resources, or a combination of one or more of these funding sources. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the Company, the Company may be required to delay, reduce or eliminate clinical programs, obtain funds through arrangements with collaborators on terms unfavorable to the Company or pursue merger or acquisition strategies. There can be no assurances the Company will be able to obtain additional funding. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements reflect the operations of the Company. Intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The condensed consolidated interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of June 30, 2026 and the results of operations for the three and six months ended June 30, 2026 and 2025. The condensed balance sheet as of December 31, 2025 was derived from audited annual financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the interim periods are not necessarily indicative of results to be expected for the year ending December 31, 2026, any other interim periods, or any future year or period.

2. Summary of Significant Accounting Policies

The Company's significant accounting policies are disclosed in Note 2 of the “Notes to Consolidated Financial Statements” in the audited annual financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Since the date of those financial statements, there have been no material changes to its significant accounting policies.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates. Significant estimates and assumptions reflected within these condensed consolidated financial statements include, but are not limited to, prepaid and accrued research and development expenses, including those related to contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”) and other third-party vendors and the valuation of the Company’s stock-based awards. Changes in estimates are recorded in the period in which they become known.

Recently issued accounting pronouncements not yet adopted

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, which requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the income statement. This ASU is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and related disclosures.

3. Fair value measurements

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):

For the six months ended June 30, 2026 and for the year ended December 31, 2025, there wereno transfers between Level 1, Level 2 and Level 3.

The Company classifies its U.S. treasury securities, corporate debt securities and government agency bonds as short-term based on each instrument’s availability for use in current operations. The fair value of the Company’s U.S. treasury securities, corporate debt securities and government agency bonds are classified as Level 2 because they are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency.

Short-term investments consisted of the following (in thousands):

The contractual maturities of the Company’s short-term investments in available-for-sale securities held were as follows (in thousands):

4. Prepaid expenses and other current assets

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

5. Property and equipment, net

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

Depreciation and amortization expense related to property and equipment, net was less than $0.1 million for each of thethree months ended June 30, 2026 and 2025, and $0.1 million for each of thesix months ended June 30, 2026 and 2025, respectively.

6. Accrued expenses and other current liabilities

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

7. Leases

As of June 30, 2026, the Company was a party to a lease related to commercial real estate under a non-cancelable lease term.

In July 2024, the Company entered into an operating lease agreement for office space located at 890 Winter Street in Waltham, Massachusetts. The lease commenced in September 2024 and the Company began paying monthly rent starting one month thereafter. The Company occupies approximately 16,801 square feet of space under athree-year agreement expiring in October 2027. Initial base rent was approximately $0.7 million for the first year and approximately $0.8 million for the second and third year.

8. Common stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the Preferred Stock. When dividends are declared on shares of common stock, the Company must declare at the same time a dividend payable to the holders of Preferred Stock equivalent to the dividend amount they would receive if each share of Preferred Stock were converted into common stock. The Company may not pay dividends to common stockholders until all dividends accrued or declared but unpaid on the Preferred Stock have been paid in full. To date, no dividends have been declared.

As of June 30, 2026 and December 31, 2025, the Company’s amended and restated certificate of incorporation authorized the issuance of 500,000,000 shares of common stock, par value $0.001 per share. As of June 30, 2026 and December 31, 2025, there were 54,771,041 shares and 54,237,750 shares of common stock issued and outstanding, respectively.

9. Stock-based compensation

2021 Stock option and grant plan

The Company’s 2021 Stock Option and Grant Plan (the “2021 Plan”) provided for the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards and restricted stock units (collectively, the “Awards”) to among others, members of the board of directors, employees, consultants and other key persons to the Company and its affiliates. The 2021 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board.

Upon effectiveness of the 2024 Stock Option and Incentive Plan (the “2024 Plan”) in October 2024, the board of directors determined that no further awards would be granted under the 2021 Plan and any remaining options available for grant would cease to be available. Awards outstanding under the 2021 Plan will continue to be governed by their existing terms.

2024 Stock option and incentive plan

On August 19, 2024, the Company’s board of directors adopted, and on October 4, 2024 its stockholders approved, the 2024 Plan, which became effective in October 2024. The 2024 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2024 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted shares of common stock and other stock-based awards. The number of shares initially reserved for issuance under the 2024 Plan is 3,180,000 shares. The number of shares reserved under the 2024 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. In addition, the number of shares reserved and available for issuance under the 2024 Plan will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2025 and continuing each January 1 thereafter, byfive percentof the outstanding number of shares of its common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. On January 1, 2026, the number of shares of common stock that may be issued under the 2024 Plan increased by 2,711,887 shares of common stock.

The shares of common stock underlying any awards under the 2024 Plan and the 2021 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2024 Plan.

As of June 30, 2026, the Company had a total of 13,929,455 shares of common stock reserved under the 2024 Plan and the 2021 Plan and 4,312,836 shares available for future issuance under the 2024 Plan.

2024 Employee stock purchase plan

On August 19, 2024, the Company’s board of directors adopted, and on October 4, 2024 its stockholders approved, the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective in October 2024. A total of 488,467 shares of common stock were initially reserved for issuance to participating employees under this plan. The 2024 ESPP provides that the number of shares reserved and available for issuance will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2025 and continuing each January 1 thereafter through January 1, 2034, by the least of (i)976,934 shares of common stock, (ii)one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such lesser number of shares of common stock as determined by the administrator of the 2024 ESPP. The number of shares reserved under the 2024 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. On January 1, 2026, there wasno increase to the number of shares of common stock that may be issued under the 2024 ESPP Plan.

As of June 30, 2026,54,068 shares have been issued under the 2024 ESPP.

Restricted Stock Units

The following table summarizes the RSU activity during thesix months ended June 30, 2026:

The total fair value of RSUs vested during the six months ended June 30, 2026 was $0.3 million. The Company didnot issue any RSUs prior to January 2026.

As of June 30, 2026, total unrecognized compensation expense related to RSUs was $8.4 million, which the Company expects to recognize over a remaining weighted-average period of 3.5 years.

Fair value inputs

The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted:

Stock options

The following table summarizes the activity of stock options with service-based and performance-based vesting conditions during thesix months ended June 30, 2026:

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2026 and 2025 was $3.3 million and $0.8 million, respectively.

The weighted-average grant-date fair value of options granted during the six months ended June 30, 2026 and 2025 was $16.25 and $6.84, respectively.

As of June 30, 2026, there was $39.7 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.5 years.

Stock-Based Compensation

The following table illustrates the classification of stock-based compensation in the condensed consolidated statements of operations and comprehensive loss (in thousands):

10. Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate and, if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. No such adjustment was made as of June 30, 2026 or June 30, 2025. The Company’s effective federal and state tax rate for each of the six months ended June 30, 2026 and 2025 was 0%, and the Company didnot record any income tax expense or benefit during each of thesix months ended June 30, 2026 and 2025, primarily as a result of estimated net operating losses for the fiscal year to date offset by the increase in the valuation allowance against its deferred tax asset. All losses before income taxes arose in the United States.

11. Net loss per share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (dollar amounts in thousands):

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

12. Commitments and contingencies

Legal matters

The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the condensed consolidated balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. As of June 30, 2026 and December 31, 2025, the Company was not a party to any material legal proceedings or claims andno liabilities were recorded for loss contingencies.

Contracts

The Company enters into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing, manufacturing, and other services. These contracts generally provide for termination upon notice and are cancellable without significant penalty or payment, and do not contain any minimum purchase commitments.

Guarantees and indemnifications

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with all board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements that could have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2026 and December 31, 2025.

13. License agreements

In October 2021, in connection with an asset purchase agreement entered into with Astellas Pharma, Inc. (“Astellas”), the Company and Lonza Sales AG (“Lonza”) entered into a license agreement (as amended, the “Lonza License Agreement”). Pursuant to the Lonza License Agreement, the Company obtained a worldwide, non-exclusive, sublicensable (subject to Lonza’s right of pre-approval with respect to any sublicense of manufacturing activities) license to certain intellectual property rights owned by Lonza. Lonza was the originator of the master cell bank for verekitug (formerly referred to as ASP7266 and UPB-101, collectively referred to as “the Compound”) developed by Astellas.

As consideration for the rights and licenses granted to the Company under the Lonza License Agreement, the Company agreed to pay Lonza certain royalties and annual payments, both payable in Swiss francs, in respect of the manufacturing and sale of the Compound, such amounts to be determined by the party manufacturing the Compound, and range from no annual payment to up to a mid-six-figure annual payment, and a less-than-one percent to a low-single-digit percentage royalty on net sales of the Compound. In accordance with the Lonza License Agreement, the Company entered into a sublicense with WuXi Biologics (Hong Kong) Limited to manufacture the Compound, requiring the Company to pay a mid-six-figure annual fee to Lonza pursuant to this provision.

Any royalties due under the Lonza License Agreement are payable on a country-by-country basis untilten years from the first commercial sale of the Compound in that particular country.

During each of the six months ended June 30, 2026 and 2025, the Company didnot make any royalty payments to Lonza under the Lonza License Agreement. The Lonza agreement continues for an indefinite period of time unless otherwise terminated. The Company has the right to terminate the Lonza License Agreement at any time by providing prior written notice to Lonza.

During each of the six months ended June 30, 2026 and 2025, the Company made an annual payment to Lonza in the amount of$0.5 million pursuant to the Lonza License Agreement. These payments are recognized as research and development expense in the condensed consolidated statements of operations and comprehensive loss.

14. Revenue

Maruho agreement

In October 2021, in connection with an asset purchase agreement entered into with Astellas, the Company entered into an agreement (as amended, the “Maruho Agreement”), under which it granted Maruho Co., Ltd (“Maruho”) an exclusive, irrevocable, perpetual, royalty-free, sublicensable (subject to its right of first negotiation) license. Pursuant to the Maruho Agreement, the Company maintains its responsibility for and controls the global research and development of the Maruho license product, including in Japan. The Company will conduct specified clinical trial activities for Japan as part of its global research and development plan. Maruho will reimburse the Company for the costs of these research and development activities, including the cost of drug supply. Maruho has the right to terminate the Maruho Agreement at any time by providing 60 days prior written notice to the Company with no substantial penalty.

The Company concluded that Maruho is a customer under the Maruho Agreement, and as such, the Maruho Agreement falls within the scope of ASC 606. The Company identified one performance obligation under the Maruho Agreement related to the performance of research and development services, which are an output of the Company’s ordinary activities, in Japan. The Company determined that the transaction price of the Maruho Agreement as of June 30, 2026 consisted solely of variable consideration. The variable consideration was estimated using the expected value method based on the Company’s experience and best judgment of the total reimbursable costs expected to be incurred through the period of performance.

The transaction price is being recognized as revenue over time using the cost-to-cost input method, which the Company believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred in Japan to the total estimated costs expected to satisfy the performance obligation. The calculation of the total estimated costs to fulfill the performance obligation includes costs associated with employees, clinical and development, manufacturing, and out-of-pocket costs expected to be paid to third parties. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting period as a change in estimate. The Company excludes disclosures related to the aggregate amount of the transaction price allocated to the performance obligation that are unsatisfied as of the end of the reporting period because the contract has an initial expected term of one year or less. The Company currently expects to continue providing research and development services to Maruho under the Maruho Agreement through the completion of its Phase 2 clinical trials, and if successful, through any Phase 3 clinical trials.

During the six months ended June 30, 2026 and 2025, the Company received payments of $1.7 million and $1.2 million, respectively, in cost reimbursements from Maruho. The Company recorded collaboration revenue of $0.8 million and $0.9 million during thethree months ended June 30, 2026 and 2025, respectively and $1.8 million and $1.5 million during thesix months ended June 30, 2026 and 2025, respectively. As of June 30, 2026 and December 31, 2025, there was $0.8 million and $0.7 million, respectively, in accounts receivable representing amounts due for qualifying reimbursable expenses related to the Maruho Agreement.

15. Segment reporting

The Company currently has asingle reportable operating segment and revenue generated exclusively from the Maruho License Agreement. The Company’schief executive officer, who is the Chief Operating Decision Maker (the “CODM”), manages the Company on a consolidated basis and utilizes consolidated net loss as a basis for resource allocation and decision making. The CODM considers budget-to-actual variances for each of the disaggregated components of operating expenses when making decisions about allocating resources and evaluating performance. The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. In addition, the CODM is regularly provided information on total cash, which is inclusive of cash, cash equivalents and short-term investments, as a measure of segment assets. As of June 30, 2026, the Company’s cash, cash equivalents and short-term investments were $261.3 million.

The Company's consolidated and segment net loss, including disaggregated components of operating expenses is as follows (in thousands):