PLIANT THERAPEUTICS INC

1. Organization and Description of Business

Pliant Therapeutics, Inc. (the “Company” or "Pliant" or “we” or “our” or “us”) is a late stage biopharmaceutical company focused on discovering and developing novel therapies for the treatment of fibrosis with an initial focus on treating fibrosis by inhibiting integrin-mediated activation of TGF-ß. Fibrosis refers to the abnormal thickening and scarring of connective tissue due to the production and deposition of excess collagen in the extra-cellular matrix. Fibrosis can occur in many different tissues including lung, liver, kidney, muscle, skin and the GI tract, and often causes severe and debilitating disease leading to organ failure. The Company is located in South San Francisco, California, and was incorporated in the state of Delaware in June 2015.

Public Offering

In January 2023, the Company completed a public offering of 9,583,334 shares of common stock, including the exercise in full of the underwriters' option to purchase 1,250,000 additional shares of common stock. The shares were offered at a price of $30.00 per share, resulting in aggregate proceeds of approximately $269.8 million, net of underwriting discounts, commissions and offering expenses payable by us.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”), for interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the unaudited interim condensed financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited interim condensed financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the Company's financial information. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or for any other future year.

The financial information included herein should be read in conjunction with the audited financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024 (the “2023 10-K”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses as well as the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, stock-based compensation expense, operating lease right-of-use (“ROU”) assets and liabilities, accruals and prepayments for research and development costs, income taxes and uncertain tax positions. The Company assesses estimates on an ongoing basis, however, actual results could materially differ from those estimates.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the three and six months ended June 30, 2024, as compared to the significant accounting policies described in Note 2 of the "Notes to the Financial Statements" in the Company's audited financial statements included in its 2023 10-K.

Recently Announced Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Entities must adopt the changes to the segment reporting guidance on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this standard on its disclosures and will adopt the ASU for its 2024 10-K.

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The Company is currently evaluating the impact of this standard on its disclosures and will adopt the ASU for its 2025 10-K.

3. Financial Instruments

The Company’s short-term investments consist of U.S. Treasury securities, U.S. government agency securities and highly rated, investment-grade corporate debt securities with original maturities beyond three months at the date of purchase. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time even prior to maturity and such investments represent cash available for current operations. As a result, short-term investments may include securities with maturities beyond twelve months that are classified within current assets in the Balance Sheets. The Company’s short-term investments classified as available-for-sale are carried at fair market value with unrealized gains or losses recognized in the statements of operations and comprehensive loss.

The Company’s cash equivalent Money Market Funds are classified as Level 1 in the fair value hierarchy because they are valued using quoted active market prices. The fair value of the Company’s U.S. Treasury securities, U.S. government agency securities and corporate debt securities are classified as Level 2 because they are valued using observable inputs to quoted market prices other than Level 1 prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency and include U.S. government agency securities, U.S. Treasury securities and corporate debt securities.

There wereno assets or liabilities recorded at fair value to the condensed balance sheets using Level 3 inputs as of June 30, 2024 and as of December 31, 2023.

The following tables show the Company’s Money Market Funds, U.S. Treasury securities, U.S. government agency securities and corporate debt securities by significant investment category as of June 30, 2024 and December 31, 2023 (in thousands):

The Company may sell certain of its short-term securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.

There wereno liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023. The Company evaluates transfers between levels at the end of each reporting period and there have been no transfers between fair value measurement levels during the six months ended June 30, 2024. In addition, there wereno assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2024 and December 31, 2023.

The Company records interest income, accretion income and amortization expense on Money Market Funds and U.S. Treasury, U.S. government agency and corporate debt securities to interest and other income (expense), net in its condensed statement of operations and comprehensive loss.

4. Property and Equipment, net

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

Depreciation expense was $0.6 million and $1.1 million for the three and six months ended June 30, 2024, and $0.4 million and $0.9 million for the three and six months ended June 30, 2023, respectively.

5. Prepaid Expenses and Other Current Assets

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

6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

Accrued compensation and benefits consist primarily of accrued bonuses and accrued vacation.

7. Long-term Debt

In May 2022, as amended in October 2022, we entered into a term loan facility (the “Oxford Loan Agreement”) with Oxford Finance LLC (the "Lender") for up to $100.0 million. In connection with the Oxford Loan Agreement, we granted a security interest in substantially all of our current and future assets. There are no warrants or financial covenants associated with the Oxford Loan Agreement. At closing, we entered into a term loan for $10.0 million and we decided not to draw upon the additional $65.0 million that became available to us over the course of 2023 as certain conditions related to the development of bexotegrast and one of our preclinical product candidates were satisfied. As of December 31, 2023, the time period to draw upon the additional $65.0 million had lapsed.

On March 11, 2024, we entered into an Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with the Lender to borrow a series of term loans up to an aggregate principal amount of $150.0 million (the “Term Loans”), of which $50.0 million is subject to the Lender’s sole discretion.

Pursuant to the Amended Loan Agreement, we drew an initial Term Loan of $30.0 million, inclusive of $10.0 million in principal amount previously outstanding under the Oxford Loan Agreement. We may borrow up to an additional $70.0 million of Term Loans at our option upon the satisfaction of certain conditions related to the development of bexotegrast. In connection with the Amended Loan Agreement, the Company granted the Lender a security interest in substantially all of the Company’s assets now owned or hereafter acquired, excluding intellectual property to the extent the aggregate amount of Term Loans advanced and outstanding does not exceed $50.0 million (but including the right to payments and proceeds of intellectual property) and certain customary exceptions.

The principal amount outstanding under the Term Loans will accrue interest at a floating per annum rate equal to (i) the greater of (a) 1-month term Chicago Mercantile Exchange (“CME”) Term Secured Overnight Financing Rate (“SOFR”) on the last business day of the month that immediately precedes the month in which the interest will accrue and (b) three and one-half percent (3.50%) plus (ii) five and one-quarter percent (5.25%), subject to an agreed upon floor of 8.75%. Beginning on July 1, 2028, which may be extended to July 1, 2029 (subject to certain conditions set forth in the Amended Loan Agreement), the Company is required to repay the Term Loans in consecutive equal monthly payments of principal, together with applicable interest, in arrears. All unpaid principal and accrued and unpaid interest with respect to each Term Loan will be due and payable in full on March 1, 2029, which may be extended to March 1, 2030 (subject to certain conditions set forth in the Amended Loan Agreement).

The Company will be required to make a final payment of 5.50% (or 7.25% if the amortization date of the Term Loans has been extended to July 1, 2029 (as discussed above)) of the original principal amount of the Term Loans that were drawn, payable at maturity or upon any earlier acceleration or prepayment of the Term Loans. The Company may prepay the Term Loans in whole or in part, subject to a prepayment fee equal to (i) if prepaid on or before the first anniversary date of the funding date of such Term Loan,3.00% of the principal amount of the applicable Term Loan prepaid, (ii) if prepaid after the first anniversary and on or before the second anniversary of the funding date of such Term Loan,2.00% of the principal amount of the applicable Term Loan prepaid, and (iii) if prepaid after the second anniversary and on or before the third anniversary of the funding date of such Term Loan prepaid,1.00% of the principal amount of the applicable Term Loan prepaid.

The Agreement contains representations and warranties, affirmative, and negative covenants, and events of default that are customary for loans of this type. The occurrence of an event of default could result in the acceleration of the obligations under the Amended Loan Agreement, termination of the Term Loan commitments and the right by the Lender to foreclose on the collateral securing the obligations. During the existence of an event of default, the Term Loans would accrue interest at a rate per annum equal to 5.00% above the otherwise applicable interest rate.

The estimated fair value of the term loan as of June 30, 2024 was measured using Level 3 inputs and approximates the carrying value recorded to the balance sheet. The effective interest rate for the term loan is 11.60% and 11.79% for the three and six months ended June 30, 2024 and 12.69% for the three and six months ended June 30, 2023. Interest expense during the three and six months ended June 30, 2024 was $0.9 million and $1.3 million, respectively and during the three and six months ended June 30, 2023 was $0.3 million and $0.6 million, respectively.

Future maturities of debt as of June 30, 2024 are as follows (in thousands):

8. Novartis Collaboration and License Agreement (the "Novartis Agreement")

In 2019, we entered into the Novartis Agreement with Novartis Institutes for BioMedical Research, Inc. (“Novartis”) for the development and commercialization of our preclinical product candidate, PLN-1474, and up tothree additional integrin research targets. We assessed the Novartis Agreement in accordance with ASC 606 and determined that Novartis was a customer and identified the following performance obligations: (1) to provide worldwide license rights to PLN-1474, (2) to provide research and development services for PLN-1474, (3) to provide non-exclusive license rights to integrin research targets, and (4) to provide research and development services on integrin research targets.

On February 17, 2023, Novartis exercised their right to terminate the Novartis Agreement. The termination took effect on April 18, 2023, and effective upon the termination, all rights and licenses granted to Novartis under the Novartis Agreement, including PLN-1474, the related investigational new drug (“IND”), and the validated research target, reverted back to us. The payment obligations of Novartis with respect to future milestones, royalties and research and development funding were also terminated.

Revenues associated with the Novartis Agreement for the three and six months ended June 30, 2024 werenil, and $0.2 million and $1.6 million for the three and six months ended June 30, 2023, respectively, which consisted of revenue generated from research and development services.

9. Preferred Stock

Under the Company’s Amended and Restated Certificate of Incorporation, the Company is authorized to issuetwo classes of shares: preferred stock and common stock. The preferred stock may be issued in series, and the Company’s board of directors is authorized to determine the rights, preferences, and terms of each series. These rights, preferences and terms could include dividend rights, conversion rights, voting rights, terms of redemptions, liquidation preferences and sinking fund terms. As of June 30, 2024 and December 31, 2023, the Company was authorized to issue 10,000,000 shares of preferred stock and there wasno outstanding preferred stock as of June 30, 2024 and December 31, 2023.

10. Common Stock

As of June 30, 2024 and December 31, 2023, the Company was authorized to issue 300,000,000 shares of common stock at a par value of $0.0001 per share. The common stock has the following rights and privileges:

Voting

The holders of shares of common stock are entitled toone vote for each share of common stock held at any meeting of stockholders and at the time of any written action in lieu of a meeting.

Dividends

The holders of shares of common stock are entitled to receive dividends, when declared by the Company’s board of directors. Cash dividends may not be declared or paid to holders of shares of common stock until all unpaid dividends on preferred stock have been paid in accordance with their terms. No dividends have been declared or paid by the Company since its inception. The terms of the Oxford Loan Agreement restrict our ability to declare and pay dividends.

Liquidation

Subject to the preferential rights of holders of preferred stock then outstanding, the holders of shares of common stock are entitled to share ratably in the Company’s remaining assets available for distribution to its stockholders in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company.

Shares reserved for future issuance

*PSUs outstanding based on level of achievement of 55% as measured on June 30, 2024.

11. Equity Incentive Plans and Stock-Based Compensation

In 2015, the Company's board of directors adopted the 2015 Equity Incentive Plan, as amended in 2018, 2019 and 2020 (the “2015 Plan”), which provided for the grant of incentive stock options, nonqualified stock options or other awards including stock appreciation rights and restricted stock awards to the Company’s employees, officers, directors, advisors, and consultants. In May 2020, the board of directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”) and suspended the 2015 Plan. Awards outstanding under either the 2015 Plan or 2020 Plan that are cancelled, expire or otherwise terminated subsequent to May 2020 will become available for issuance as common stock under the 2020 Plan. Additionally, the 2020 Plan is subject to automatic increases on January 1 of each year beginning January 1, 2021. The number of shares added each January 1 will be equal to the lesser of: (i)5% of the outstanding shares on the immediately preceding December 31 or (ii) such amount as determined by the compensation committee of the board of directors.

The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options or other awards including stock appreciation rights, restricted stock awards and restricted stock units to the Company’s employees, officers, directors, advisors and consultants.

In 2022, the board of directors adopted the 2022 Inducement Plan ( “Inducement Plan”), under which the Company may grant nonqualified stock options or other awards including stock appreciation rights and restricted stock awards.

Options under the 2020 Plan and Inducement Plan may be granted for periods of up to 10 years and at prices no less than the market price of the Company’s common stock on the date of grant, provided, however, that the exercise price of an incentive stock option granted to a 10% shareholder shall not be less than 110% of the fair value of the shares on the date of grant and the option is not exercisable after the expiration offive years from the date of grant.

Incentive Stock Options and Nonqualified Stock Options

Stock options issued under either the 2015 Plan, the 2020 Plan or the Inducement Plan generally vest over four years and expireten years from the date of grant. Certain options provide for accelerated vesting if there is a change in control, as defined in the respective plans.

The Company used Black-Scholes option pricing model to estimate stock-based compensation expense for stock option awards with the following assumptions:

A summary of option activity under the 2015 Plan and the 2020 Plan is as follows:

As of June 30, 2024, there were $53.8 million of unrecognized compensation costs that are expected to be recognized over the weighted-average period of 2.7 years related to stock options. Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price as of June 30, 2024.

Restricted Stock Units

The service-based condition for restricted stock units (“RSUs”) is generally satisfied overtwo years orthree years. The following table sets forth the outstanding RSUs and related activity for the three and six months ended June 30, 2024.

As of June 30, 2024, the Company had $19.1 million of unrecognized stock-based compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of 1.8 years.

Performance-Based Restricted Stock Units

Performance-based restricted stock units (“PSUs”) vest upon the achievement of market and performance conditions. Market conditions include the Company's total shareholder return (“TSR”) relative to the NASDAQ Biotechnology Index over the term of the award ending on June 30, 2024. Additionally, the number of shares of common stock issued upon vesting will range from 0% to 200% of the PSUs based on achievement of certain targets.

The fair value of the TSR PSUs were derived from a Monte Carlo simulation model that used the following key assumptions:

The measurement period for the PSUs associated with TSR concluded on the last trading day of the second quarter 2024 and in July 2024, upon certification of the TSR results by the compensation committee of the board of directors, the award recipients vested in a total of 155,292 shares of common stock, representing 55% achievement. The 155,292 PSUs were outstanding as of June 30, 2024 with a weighted average grant date fair value of $29.15 per share. There were no additional grants, forfeitures or vesting of the PSUs associated with market conditions during the six months ended June 30, 2024.

As of June 30, 2024, the Company had $0.2 million of unrecognized stock-based compensation expense related to outstanding PSUs expected to be recognized over a weighted-average period of 0.1 years.

2020 Employee Stock Purchase Plan

In June 2020, the Company adopted the Company's 2020 Employee Stock Purchase Plan (the “2020 ESPP”). The 2020 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1 of each calendar year, beginning January 1, 2021, by the least of (1)1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (2)700,000 shares or (3) such lesser amount as determined by the administrator of the 2020 ESPP, which is the compensation committee of the board of directors of the Company.

Under the 2020 ESPP, eligible employees may purchase shares of our common stock through payroll deductions that cannot exceed 15% of each employee’s salary. The 2020 ESPP provides for asix-month offering period. At the end of the purchase period, eligible employees are permitted to purchase shares of common stock at the lower of 85% of the fair market value at the beginning of the offering period or 85% of the fair market value at the end of the purchase period, subject to tax limitations on the total value of the purchase. The 2020 ESPP is considered a compensatory plan, and the Company recorded $0.1 million and $0.3 million in stock-based compensation expense for the three and six months ended June 30, 2024 and $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2024,68,882 shares of common stock were issued under the 2020 ESPP with 1,336,085 shares remaining available for issuance under the 2020 ESPP. The Company used Black-Scholes option pricing model to estimate stock-based compensation expense for the 2020 ESPP with the following assumptions:

Stock-Based Compensation Expense

The following table presents the components and classification of stock-based compensation expense for the Company’s stock-based awards for the three and six months ended June 30, 2024 and 2023 (in thousands):

12. Income Taxes

For the three and six months ended June 30, 2024 and 2023, the Company didnot record an income tax provision. The Company will continue to maintain a 100% valuation allowance on total deferred tax assets. The Company believes it is more likely than not that the related deferred tax asset will not be realized. As a result, the Company’s effective tax rate will remain at 0% because there are no estimated or discrete items that would impact the tax provision.

13. Commitments and Contingencies

Purchase Commitments

The Company has contractual arrangements with research and development organizations and suppliers; however, these contracts are generally cancellable on 30 days’ notice and the obligations under these contracts are largely based on services performed.

14. Leases

New Operating Lease

On September 28, 2023, the Company entered into a lease agreement with HCP BTC, LLC, a Delaware limited liability company (“the Landlord”) for a premise consisting of approximately 100,904 square feet of office and laboratory space located at Oyster Point Blvd, South San Francisco, California (the “Oyster Point Lease”), which the Company intends to use as single unified Company headquarters. The lease term of approximately seven years will start upon the Landlord’s substantial completion of tenant improvements, and may be extended for a period ofeight years at then prevailing market rates for a comparable property. Future lease payments are approximately $43.4 million which represent the non-cancellable periods of the lease. We excluded extension options that are not reasonably certain to be exercised from our lease terms. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease term. Additionally, the Company provided a letter of credit to the Landlord in the amount of $1.4 million in connection with the Oyster Point Lease, which has been recognized as restricted cash as of June 30, 2024.

Though the Oyster Point Lease will be accounted for as a single contract, the office space was occupied in March 2024 while the laboratory space was occupied in June 2024. Accordingly, the Company measured and allocated consideration to each lease component. The Company has recognized a right-of-use asset ("ROU") or aggregate lease liability of $29.8 million as of June 30, 2024, weighted average discount of 9.30%, the Company's estimated incremental borrowing rate during the three and six months ended June 30, 2024.

The undiscounted future non-cancellable lease payments of the Company's operating lease liability as of June 30, 2024 were as follows (in thousands):

The weighted-average remaining lease terms and discount rates related to the Company's operating leases were as follows:

Variable lease costs comprise primarily of the Company's proportionate share of operating expenses, property taxes, and insurance. Short-term lease expense and variable lease payments recorded in operating expenses were immaterial for the three and six months ended June 30, 2024 and 2023. Lease expenses for each of the three and six months ended June 30, 2024 and 2023 are as follows (in thousands):

15. Defined Contribution Plan

The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all full-time U.S. employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. The Company made contributions to the plan of $0.5 million and $0.8 million for the three and six months ended June 30, 2024 and $0.3 million and $0.6 million for the three and six months ended 2023, respectively.

16. Net Loss Per Share Attributable to Common Stockholders

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been antidilutive: