Werewolf Therapeutics Inc

Previous wording

We are currently evaluating WTX-124 in a Phase 1/1b clinical trial as a monotherapy and in combination with Merck & Co., Inc.’s anti-PD-1 therapy KEYTRUDA (pembrolizumab) in patients with immunotherapy sensitive advanced or metastatic solid tumors who have failed standard of care treatment, including checkpoint inhibitor therapy. In November 2023, we announced preliminary first-in-human clinical data from the initial monotherapy dose-escalation cohorts in the Phase 1/1b clinical trial. The preliminary data established proof of mechanism for WTX-124 and proof of concept for our INDUKINE design, and included assessments of safety and tolerability, pharmacokinetics, relevant biomarkers and preliminary antitumor activity. The preliminary data included data collected as of October 18, 2023, from 16 heavily pretreated patients from the first four monotherapy dose escalation cohorts (1, 3, 6, and 12 mg) supportive of continued dose escalation. Dose escalation is ongoing in the monotherapy and combination therapy arms of the trial. In the first half of 2024, we expect to report updated interim data from the monotherapy dose-escalation arms of the Phase 1/1b clinical trial, select a recommended dose for expansion and initiate monotherapy dose expansion arms, and report initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial.

Current wording

We are currently evaluating WTX-124 in a Phase 1/1b clinical trial as a monotherapy and in combination with Merck & Co., Inc.’s anti-PD-1 therapy KEYTRUDA (pembrolizumab) in patients with immunotherapy sensitive advanced or metastatic solid tumors who have failed standard of care treatment, including checkpoint inhibitor therapy. In November 2023, we announced preliminary first-in-human clinical data from the initial monotherapy dose-escalation cohorts in the Phase 1/1b clinical trial. The preliminary data established proof of mechanism for WTX-124 and proof of concept for our INDUKINE design, and included assessments of safety and tolerability, pharmacokinetics, relevant biomarkers and preliminary antitumor activity. The preliminary data included data collected as of October 18, 2023, from 16 heavily pretreated patients from the first four monotherapy dose escalation cohorts (1, 3, 6, and 12 mg) supportive of continued dose escalation. Dose escalation is ongoing in the monotherapy and combination therapy arms of the trial. In June 2024, we reported updated interim data from the monotherapy dose-escalation arms of the Phase 1/1b clinical trial, selected a recommended dose for expansion andinitiated monotherapy dose expansion arms, and reported initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial.

Previous wording

We are also currently evaluating WTX-330 in a Phase 1 clinical trial for the treatment of immunotherapy resistant advanced or metastatic solid tumors or lymphoma, to be followed by expansion arms in relapsed/refractory tumors following treatment with checkpoint inhibitors or tumors for which checkpoint inhibitors are not approved. We announced the initiation of patient dosing in February 2023. The trial is currently open for enrollment. We plan to report initial data from the Phase 1 clinical trial in the second quarter of 2024. During the three months ended March 31, 2024, we received alignment from the U.S. Food and Drug Administration, or the FDA, on the comparability path for WTX-330 for an improved manufacturing process, which we expect to integrate into our clinical development program.

Current wording

We are also currently evaluating WTX-330 in a Phase 1 clinical trial for the treatment of immunotherapy resistant advanced or metastatic solid tumors or lymphoma, to be followed by expansion arms in relapsed/refractory tumors following treatment with checkpoint inhibitors or tumors for which checkpoint inhibitors are not approved. We announced the initiation of patient dosing in February 2023. The trial is currently open for enrollment. We reported initial data from the Phase 1 clinical trial in June 2024. During the six months ended June 30, 2024, we received alignment from the U.S. Food and Drug Administration, or the FDA, on the comparability path for WTX-330 for an improved manufacturing process, which we expect to integrate into our clinical development program.

Previous wording

In April 2022, we entered into a global collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, under which Jazz acquired exclusive global development and commercialization rights related to Interferon alpha, or IFNα, INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a Licensed Product). Pursuant to the terms of the Collaboration Agreement, we are responsible for certain preclinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans. Jazz will generally reimburse us for the cost of such activities. Jazz will be responsible for all other development and commercialization activities conducted to exploit the Licensed Products. Jazz received IND application clearance from the FDA for JZP898 in July 2023 and initiated a Phase 1 clinical trial of JZP898 in the fourth quarter of 2023.

Current wording

In April 2022, we entered into a global collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, under which Jazz acquired exclusive global development and commercialization rights related to Interferon alpha, or IFNα, INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a Licensed Product). Pursuant to the terms of the Collaboration Agreement, we were responsible for certain preclinical development activities with respect to JZP898 and in the future could be responsible for other development activities if specified in mutually agreed upon development plans. Jazz generally agreed to reimburse us for the cost of such activities. Jazz is responsible for all other development and commercialization activities conducted to exploit the Licensed Products. Jazz received investigational new drug, or IND, application clearance from the FDA for JZP898 in July 2023 and initiated a Phase 1 clinical trial of JZP898 in the fourth quarter of 2023. In June 2024, we executed a transfer agreement, or the Transfer Agreement, to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz. The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement.

Previous wording

All of our revenue has been generated from the Collaboration Agreement with Jazz. For the three months ended March 31, 2024, we recognized $0.7 million of revenue. Revenue from the transaction price for the Collaboration Agreement is recognized based on a cost-to-cost input method and includes upfront, milestone, and cost reimbursement payments. The Collaboration Agreement includes multiple development and regulatory and sales-based milestones, which were excluded from the transaction price at inception of the Collaboration Agreement based on our assessment that there was a high level of uncertainty of achieving the milestones. During the three months ended March 31, 2024, we re-evaluated this assessment for any milestones that continue to be excluded from the transaction price, and concluded not to recognize any adjustment to the transaction price associated with variable consideration previously excluded from the transaction price.

Current wording

All of our revenue has been generated from the Collaboration Agreement with Jazz. For the six months ended June 30, 2024, we recognized $1.9 million of revenue. Revenue from the transaction price for the Collaboration Agreement is recognized based on a cost-to-cost input method and includes upfront, milestone, and cost reimbursement payments. The Collaboration Agreement includes multiple development and regulatory and sales-based milestones, which were excluded from the transaction price at inception of the Collaboration Agreement based on our assessment that there was a high level of uncertainty of achieving the milestones. During the six months ended June 30, 2024, we re-evaluated this assessment for any milestones that continue to be excluded from the transaction price, and concluded not to recognize any adjustment to the transaction price associated with variable consideration previously excluded from the transaction price. In June 2024, we executed the Transfer Agreement to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz. The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement. As a result, during the three months ended June 30, 2024, all remaining deferred revenue related to the Collaboration Agreement has been recognized.

Previous wording

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, continue preclinical development of WTX-712 and WTX-518, and continue to discover and develop additional product candidates. As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 will generally be reimbursed by Jazz.

Current wording

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, continue preclinical development of WTX-712 and WTX-518, and continue to discover and develop additional product candidates. As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 were generally reimbursed by Jazz until we completed all material performance obligations in June 2024.

Previous wording

Interest expense represents interest incurred from our loan agreement with Pacific Western Bank, or PWB, and non-cash interest expense related the amortization of debt issuance costs.

Current wording

Interest expense represents interest incurred from our loan agreement, or the PWB Loan Agreement, with Pacific Western Bank, or PWB, until the extinguishment of the PWB term loan in May 2024, interest incurred from our loan and security agreement, or the K2HV Loan Agreement, with K2 HealthVentures LLC, or K2HV, and non-cash interest expense related the amortization of debt issuance costs.

Previous wording

Revenue was $0.7 million for the three months ended March 31, 2024, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz, costs incurred for research services to be reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components. Comparatively, we recognized $4.5 million in collaboration revenue during the three months ended March 31, 2023. This $3.7 million decrease in collaboration revenue is primarily driven by a higher volume of development activity during the three months ended March 31, 2023 in preparation of IND submission of JZP898.

Current wording

Revenue was $1.1 million for the three months ended June 30, 2024, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz, costs incurred for research services to be reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components. In June 2024, we executed the Transfer Agreement to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz. The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement. As a result, during the three months ended June 30, 2024, all remaining deferred revenue related to the Collaboration Agreement has been recognized. Comparatively, we recognized $8.1 million in collaboration revenue during the three months ended June 30, 2023. This $6.9 million decrease in collaboration revenue is primarily driven by a higher volume of development activity during the three months ended June 30, 2023 in preparation of IND submission of JZP898.

Previous wording

•$1.2 million of a combined increase in manufacturing costs of $0.9 million and clinical trial costs of $0.3 million. The increases in both our manufacturing and clinical trial costs are driven by an increase of $2.3 million in costs associated with our continued development efforts of WTX-124 and WTX-330, which continue to progress through their respective clinical trials, including manufacturing to support those clinical trials. This increase was partially offset by a decrease of $0.9 million in manufacturing costs associated with JZP898, which were higher during the three months ended March 31, 2023 as we prepared for IND submission of JZP898; and

Current wording

•$5.9 million of a combined increase in manufacturing costs of $3.1 million and clinical trial costs of $2.7 million. The increases in both our manufacturing and clinical trial costs are driven by an increase in costs associated with our continued development efforts of WTX-124 and WTX-330, which continue to progress through their respective clinical trials, including manufacturing to support those clinical trials; and

Previous wording

These increases were partially offset by a decrease of $0.4 million in lab consumables due to a shift in priorities from discovery efforts to a higher focus on furthering the research and development of our existing product candidates.

Current wording

These increases were partially offset by a decrease of $0.4 million in lab consumables and a decrease of $0.4 million in contract research spending, due to a shift in priorities from discovery efforts to a higher focus on furthering the research and development of our existing product candidates.

Previous wording

General and administrative expenses were $5.0 million for each of the three months ended March 31, 2024 and 2023. Significant fluctuations in general and administrative expenses include:

Current wording

General and administrative expenses were $4.8 million for the three months ended June 30, 2024, compared to $4.6 million for three months ended June 30, 2023. Significant fluctuations in general and administrative expenses include:

Previous wording

•$0.2 million of increased professional services costs, driven by costs incurred to protect our intellectual property and general corporate matters.

Current wording

•$0.2 million of increased professional services costs, driven by costs incurred to protect our intellectual property and general corporate matters; and

Previous wording

•$0.4 million of decreased corporate insurance costs, driven by a reduction in associated premiums; and

Current wording

•$0.2 million of decreased corporate insurance costs, driven by a reduction in associated premiums.

Previous wording

Other expense, net for the three months ended March 31, 2023 primarily consisted of $1.0 million in losses recognized for the change in the fair value of the success payment liability during the period. As the success payment liability was settled during the second quarter of 2023, we incurred no such losses during the three months ended March 31, 2024. Other expense, net for the three months ended March 31, 2024 and 2023 also consists of foreign currency gains and losses related to services performed by foreign vendors. No material foreign currency gains or losses were recognized during either period.

Current wording

Other income, net for the three months ended June 30, 2024 consisted of $1.6 million in unrealized gains recognized for the change in fair value of the embedded derivative liability associated with the K2HV Loan Agreement. Other income, net for the three months ended June 30, 2023 consisted of less than $0.1 million in losses recognized for the change in the fair value of the PWB success payment liability during the period and was settled during the second quarter of 2023, such that we incurred no such losses associated with the PWB success liability during the three months ended June 30, 2024. Other income, net for the three months ended June 30, 2024 and 2023 also consists of foreign currency gains and losses related to services performed by foreign vendors. No material foreign currency gains or losses were recognized during either period.

Previous wording

Interest income was $2.0 million for the three months ended March 31, 2024, compared to $1.5 million for the three months ended March 31, 2023. This increase in interest income was primarily a result of higher yields on our cash equivalents during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Interest income was $3.8 million for the six months ended June 30, 2024, compared to $3.5 million for the six months ended June 30, 2023. This increase in interest income was primarily the result of higher yields on our cash equivalents during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Previous wording

Since our inception in 2017, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company; business planning; raising capital; developing and optimizing our platform technology; identifying potential product candidates; enhancing our intellectual property portfolio; undertaking research, preclinical studies, and clinical trials; and enabling manufacturing for our development programs. Our net loss was $16.2 million and $12.0 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $360.3 million. As we have no products that are approved for sale, we have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all. Instead, we have financed our operations primarily through aggregate cash proceeds from convertible promissory notes, private placements of our convertible preferred stock, our initial public offering, payments from Jazz under the Collaboration Agreement, sales of common stock through our at-the-market program, and the drawdown of our term loans. Because our product candidates are in clinical development and the outcome of our efforts is uncertain, we cannot estimate the actual costs necessary to successfully complete the development and commercialization of our product candidates, or when we may achieve profitability, if at all.

Current wording

Since our inception in 2017, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company; business planning; raising capital; developing and optimizing our platform technology; identifying potential product candidates; enhancing our intellectual property portfolio; undertaking research, preclinical studies, and clinical trials; and enabling manufacturing for our development programs. Our net loss was $17.2 million and $5.1 million for the three months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $377.5 million. As we have no products that are approved for sale, we have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all. Instead, we have financed our operations primarily through aggregate cash proceeds from convertible promissory notes, private placements of our convertible preferred stock, our initial public offering, payments from Jazz under the Collaboration Agreement, sales of common stock through our at-the-market program, and the drawdown of our term loans. Because our product candidates are in clinical development and the outcome of our efforts is uncertain, we cannot estimate the actual costs necessary to successfully complete the development and commercialization of our product candidates, or when we may achieve profitability, if at all.

Previous wording

The Term Loans bore interest on the outstanding daily balance at a floating annual rate equal to greater of: (i) 0.5% above the prime rate then in effect or (ii) 4.50%. If the prime rate changed throughout the term, the interest rate would be adjusted effective on the date of the prime rate change. All interest chargeable under the PWB Loan Agreement was computed on a 360-day year for the actual number of days elapsed, with interest payable monthly. The PWB Loan Agreement provided for interest-only payments until the Amortization Date, at which time the aggregate outstanding principal balance of the Term Loans was required to be repaid in monthly installments on a 24-month repayment schedule. All unpaid principal and accrued and unpaid interest with respect to the Term Loans was due and payable in full on August 31, 2026. At our option, we were permitted to elect to prepay all, or any part, of the outstanding Term Loans at any time without premium or penalty.

Current wording

In April 2022, we entered into the PWB Loan Agreement with PWB and subsequently drew down an aggregate of $40.0 million in term loans. The term loans accrued interest on the outstanding daily balance at a floating annual rate equal to greater of: (i) 0.5% above the prime rate then in effect or (ii) 4.5%. If the prime rate changed throughout the term, the interest rate would be adjusted effective on the date of the prime rate change. All interest chargeable under the PWB Loan Agreement was computed on a 360-day year for the actual number of days elapsed, with interest payable monthly. We recognized interest expense related to the PWB Loan Agreement of $0.3 million and $0.9 million during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

In May 2024, we repaid all amounts outstanding under the PWB Loan Agreement, using $29.5 million in net loan proceeds received under our loan agreement with K2 HealthVentures LLC, or K2HV, as described below, together with $10.5 million in existing cash. Under the PWB Loan Agreement, we were required to maintain at least $20.0 million of restricted cash in PWB accounts. As a result of the repayment, we are no longer required to maintain $20.0 million of restricted cash.

Current wording

In May 2024, we repaid all amounts outstanding under the PWB Loan Agreement, using $29.5 million in net loan proceeds received under the loan and security agreement (the “K2HV Loan Agreement”) with K2 HealthVentures LLC (“K2HV”), as described below at Note 6, together with $10.5 million in existing cash. We recognized a total loss on extinguishment of debt in the amount of $0.6 million in the six months ended June 30, 2024 primarily due to the write off of unamortized debt issuance costs.

Previous wording

On May 2, 2024, we, as borrower, entered into a loan and security agreement, or the Loan Agreement with K2HV (we refer to K2HV, together with any other lender from time to time, as the Lenders); K2HV, as administrative agent for the Lenders; and Ankara Trust Company, LLC, as collateral trustee for the Lenders. The Loan Agreement provides up to $60.0 million principal in term loans. We received $30.0 million in gross loan proceeds at closing, $25.0 million from the first tranche commitment upon closing and $5.0 million from the second tranche commitment. A third tranche commitment of up to $10.0 million is available to be drawn at our option during certain availability periods, subject to the achievement, as determined by the administrative agent in its discretion, of certain time-based, clinical and regulatory milestones and receipt of not less than $60.0 million in net cash proceeds from certain financing activities, with at least $50.0 million from a single offering of common stock. A fourth tranche commitment of up to $20.0 million is available to be drawn down at our option through May 1, 2026 or if the third tranche is funded, May 1, 2027, subject to Lender’s review of our clinical, financial and operating plan and subject to Lender’s consent in its sole and absolute discretion.

Current wording

In May 2024, we, as borrower, entered into the K2HV Loan Agreement with K2HV (together with any other lender from time to time, the “Lenders”); K2HV, as administrative agent for the Lenders; and Ankura Trust Company, LLC, as collateral trustee for the Lenders. The K2HV Loan Agreement provides up to $60.0 million principal in term loans. We received $30.0 million in gross loan proceeds at closing, $25.0 million from the first tranche commitment upon closing and $5.0 million from the second tranche commitment. A third tranche commitment of up to $10.0 million is available to be drawn at our option between January 1, 2025 and June 30, 2025, subject to the achievement, as determined by the administrative agent in its discretion, of certain time-based, clinical and regulatory milestones and receipt of not less than $60.0 million in net cash proceeds from certain financing activities, with at least $50.0 million from a single offering of common stock. A fourth tranche commitment of up to $20.0 million is available to be drawn down at our option through May 1, 2026 or if the third tranche is funded, May 1, 2027, subject to Lender’s review of our clinical, financial and operating plan and subject to the Lender’s consent in its sole and absolute discretion.

Previous wording

The term loan matures on May 1, 2028, and we are obligated to make interest only payments for the first 24 months, or 36 months if the third tranche is funded, and then interest and equal principal payments for the next 24 or 12 months, as applicable. The term loan bears a variable interest rate equal to the greater of (i) 10.3%, and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 1.8%. We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements. We were required to pay the Lenders’ certain customary fees and expenses at closing and will be required to pay additional fees that may be due upon maturity or prepayment such as final payment fees and prepayment fees.

Current wording

The term loan matures on May 1, 2028, and we are obligated to make interest only payments for the first 24 months, or 36 months if the third tranche is funded, and then interest and equal principal payments each month thereafter through the maturity date. The term loan bears a variable interest rate equal to the greater of (i) 10.3%, and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 1.8%. We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements. We are obligated to pay a final fee equal to 6.95% of the aggregate amount of the term loans funded, or the Final Fee, to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Final Fee is being accreted to interest expense using the effective interest method over the life of the debt.

Previous wording

The Lenders may elect prior to the full repayment of the term loans to convert up to $5.0 million of outstanding principal of the term loans into shares of our common stock, at a conversion price of the lesser of $6.32 per share and the lowest effective price per share of our next equity financing, subject to customary adjustments and 9.99% and 19.99% beneficial ownership limitations. There will be no prepayment penalty for any principal amount converted into common stock. The Loan Agreement provides the Lenders with certain piggyback registration rights with respect to the shares of common stock issuable upon conversion of term loans under the Loan Agreement.

Current wording

Pursuant to the terms of the K2HV Loan Agreement, the lenders thereto may elect, prior to the full repayment of the term loans, to convert up to $5.0 million of the outstanding principal of the term loans into shares of our common stock at a conversion price of the lesser of $6.3182 per share (the “Fixed Price Conversion”) and the lowest effective price per share of our first equity financing following the closing of the K2HV Loan Agreement (the “Variable Price Conversion”), subject to customary adjustments and 9.99% and 19.99% beneficial ownership limitations. There will be no prepayment penalty for any principal amount converted into common stock. We determined that the Fixed Price Conversion and the Variable Price Conversion within the K2HV Loan Agreement are required to be bifurcated as an embedded derivative under ASC 815 at fair value, and recorded as a discount on the debt on the date of issuance, with subsequent changes in fair value recognized in the accompanying consolidated statements of operations. See Note 4 for further discussion on this derivative instrument.

Previous wording

The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, dispose of assets, make changes to our business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, incur additional liens, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for our obligations under the Loan Agreement, we granted the

Current wording

As security for our obligations under the K2HV Loan Agreement, we granted the Lenders a first priority security interest on substantially all of our assets (other than intellectual property), subject to certain exceptions. The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, dispose of assets, make changes to the our business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, incur additional liens, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% per annum may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Loan Agreement and under applicable law. As of June 30, 2024, we are in compliance with all covenants.

Previous wording

On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC, or Leerink Partners, pursuant to which, from time to time, we may offer and sell shares of our common stock, which we refer to as the ATM Offering. The Sales Agreement provides that Leerink Partners is entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. We were initially entitled to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million in the ATM Offering. On February 9, 2024, we filed a prospectus supplement, or the Prospectus Supplement, under our shelf registration statement for the offer and sale of shares of our common stock having an offering price of up to an additional $25.0 million in the ATM Offering. Following our filing of the Prospectus Supplement, we are entitled to offer and sell shares of our common stock with an aggregate offering price of up to $75.0 million pursuant to the Sales Agreement. During the three months ended March 31, 2024, we sold 4,169,324 shares of our common stock at an average price of $5.05 per share for net proceeds of $20.1 million after deducting sales commissions and offering expenses.

Current wording

On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC, or Leerink Partners, pursuant to which, from time to time, we may offer and sell shares of our common stock, which we refer to as the ATM Offering. The Sales Agreement provides that Leerink Partners is entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. We were initially entitled to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million in the ATM Offering. On February 9, 2024, we filed a prospectus supplement, or the Prospectus Supplement, under our shelf registration statement for the offer and sale of shares of our common stock having an offering price of up to an additional $25.0 million in the ATM Offering. Following our filing of the Prospectus Supplement, we are entitled to offer and sell shares of our common stock with an aggregate offering price of up to $75.0 million pursuant to the Sales Agreement. During the six months ended June 30, 2024, we sold 4,342,320 shares of our common stock at an average price of $5.11 per share for net proceeds of $21.1 million after deducting sales commissions and offering expenses.

Previous wording

As of March 31, 2024, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement. We are eligible to receive up to an additional $515.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. In addition, we are eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’, annual net sales of Licensed Products, subject to reduction in specified circumstances.

Current wording

As of June 30, 2024, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement. We are eligible to receive up to an additional $515.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. In June 2024, we executed the Transfer Agreement to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz. The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement. As a result, during the three months ended June 30, 2024, all remaining deferred revenue related to the Collaboration Agreement has been recognized.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $139.2 million. We also had restricted cash and cash equivalents of $21.2 million as of March 31, 2024, of which $20.0 million became unrestricted upon the repayment of the PWB Loan Agreement. We expect that our existing cash and cash equivalents will be sufficient to fund our operational expenses and capital expenditure requirements through at least twelve months from the date the condensed consolidated financial statements included elsewhere in this Quarterly Report are issued on May 3, 2024. We believe that our existing cash and cash equivalents at March 31, 2024, together with cash impacts of the loan refinancing, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the first quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect. Our need to raise additional funds may be accelerated if our research and development expenses exceed our current expectations, if we acquire a third party, or if we acquire or license rights to additional product candidates or new technologies from one or more third parties.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $135.3 million. We also had restricted cash and cash equivalents of $1.2 million as of June 30, 2024. We expect that our existing cash and cash equivalents will be sufficient to fund our operational expenses and capital expenditure requirements through at least twelve months from the date the condensed consolidated financial statements included elsewhere in this Quarterly Report are issued on August 8, 2024. We believe that our existing cash and cash equivalents at June 30, 2024, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the first quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect. Our need to raise additional funds may be accelerated if our research and development expenses exceed our current expectations, if we acquire a third party, or if we acquire or license rights to additional product candidates or new technologies from one or more third parties.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $15.3 million, compared to $9.9 million for the three months ended March 31, 2023. This increase of $5.4 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $3.7 million, primarily driven by a higher volume of development activity during the three months ended March 31, 2023 in preparation of IND submission of JZP898, combined with an increase in research and development expenses of $1.2 million, primarily driven by our continued development efforts of our other product candidates.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $29.5 million, compared to $20.8 million for the six months ended June 30, 2023. This increase of $8.7 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $6.9 million, combined with an increase in research and development expenses of $5.7 million, primarily driven by our continued development efforts of our product candidates. The change in net loss outlined above is partially offset by $5.7 million in non-cash charges and changes in operating assets and liabilities.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 was $0.1 million, compared to $0.2 million for the three months ended March 31, 2023. The activity for both periods represents capital expenditures of property and equipment used in our operations.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 was $0.1 million, compared to $0.4 million for the six months ended June 30, 2023. The activity for both periods represents capital expenditures of property and equipment used in our operations.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 was $20.3 million, compared to $48.6 million for the three months ended March 31, 2023. Cash provided by financing activities for the three months ended March 31, 2024 primarily consisted of net proceeds from our ATM Offering during the period. Comparatively, cash provided by financing activities for the three months ended March 31, 2023 consisted of proceeds from the $40.0 million drawdown of the Term Loans combined with $8.6 million in net proceeds from our ATM Offering during the period.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 was $10.5 million, compared to $49.3 million for the six months ended June 30, 2023. Cash provided by financing activities for the six months ended June 30, 2024 primarily consisted of net proceeds from our ATM Offering during the period of $21.1 million, as well as the drawdown of the new term loan under the K2HV Loan Agreement of $30.0 million offset by the repayment of the previous PWB term loan of $40.0 million. Comparatively, cash provided by financing activities for the six months ended June 30, 2023 consisted of proceeds from the $40.0 million drawdown of the PWB term loan combined with $9.3 million in net proceeds from our ATM Offering during the period.

Previous wording

See“Liquidity and Capital Resources – Sources of Liquidity – Term Loan Facilities” for descriptions of our PWB Loan Agreement and our Loan Agreement.

Current wording

See“Liquidity and Capital Resources – Sources of Liquidity – Term Loan Facilities” for descriptions of the PWB Loan Agreement and the K2HV Loan Agreement.

Previous wording

The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022 and expires in May 2030. Total estimated base rent payments over the remaining term of the lease are approximately $15.0 million.

Current wording

The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022 and expires in May 2030. Total estimated base rent payments over the remaining term of the lease are approximately $14.6 million.

Previous wording

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our 2023 Annual Report, which was filed with the SEC on March 7, 2024. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies from those previously disclosed.

Current wording

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our 2023 Annual Report, which was filed with the SEC on March 7, 2024. During the three and six months ended June 30, 2024, there were no material changes to our critical accounting policies from those previously disclosed.