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 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.

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 and initiated monotherapy dose expansion arms, and reported initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial. We continue to enroll patients in the monotherapy and combination expansion arms of the Phase 1/1b clinical trial and expect to report initial efficacy data from the monotherapy expansion arms in the first half of 2025.

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 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.

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 nine months ended September 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. We intend to present updated interim safety and efficacy data from the Phase 1 clinical trial at the Society for Immunotherapy of Cancer Annual Meeting to be held from November 6-10, 2024, in Houston, Texas.

Previous wording

We continue to further the development of our preclinical product candidates, WTX-518, a systemically delivered, conditionally activated Interleukin-18 INDUKINE molecule in development for the treatment of cancer designed to promote activation of immune cells in the tumor microenvironment, resulting in antitumor immunity, and WTX-712, a systemically delivered, conditionally activated Interleukin-21, or IL-21, INDUKINE molecule that is being developed to minimize the severe toxicities that have been observed with recombinant IL-21 therapy and maximize clinical benefit when administered as monotherapy or in combination with checkpoint inhibitors in refractory and/or immunologically unresponsive tumors. In April 2024, we presented preclinical data for both WTX-518 and WTX-712 at the American Association for Cancer Research Annual Meeting. Our preclinical models demonstrate that WTX-518 exhibits remarkable tumor-selective activation, resistance to IL-18BP and robust immune activation, while WTX-712 acts through a unique mechanism that robustly activates tumor-specific T lymphocytes with an expanded therapeutic window through its selective release of wild-type IL-21 in the tumor microenvironment.

Current wording

We continue to further the development of our preclinical product candidates, WTX-518, a systemically delivered, conditionally activated Interleukin-18 INDUKINE molecule in development for the treatment of cancer designed to promote activation of immune cells in the tumor microenvironment, resulting in antitumor immunity, and WTX-712, a systemically delivered, conditionally activated Interleukin-21, or IL-21, INDUKINE molecule that is being developed to minimize the severe toxicities that have been observed with recombinant IL-21 therapy and maximize clinical benefit when administered as monotherapy or in combination with checkpoint inhibitors in refractory and/or immunologically unresponsive tumors. In April 2024, we presented preclinical data for both WTX-518 and WTX-712 at the American Association for Cancer Research Annual Meeting. Our preclinical models demonstrate that WTX-518 exhibits remarkable tumor-selective activation, resistance to IL-18BP and robust immune activation, while WTX-712 acts through a unique mechanism that robustly activates tumor-specific T lymphocytes with an expanded therapeutic window through its selective release of wild-type IL-21 in the tumor microenvironment. In October 2024, we announced a new development candidate, WTX-921, a novel Interleukin-10

Previous 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.

Current wording

All of our revenue has been generated from the Collaboration Agreement with Jazz. For the nine months ended September 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 nine months ended September 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. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all deferred revenue related to the Collaboration Agreement has been recognized as of September 30, 2024.

Previous wording

In the future, our ability to generate revenue from the Collaboration Agreement will depend on successfully achieving the various development and regulatory and sales-based milestones, as well as incurring costs for research activities that are reimbursable by Jazz. We may also generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that potential future revenue, if any, will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Current wording

In the future, our ability to generate revenue from the Collaboration Agreement will depend on successfully achieving the various development and regulatory and sales-based milestones. We may also generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that potential future revenue, if any, will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Previous wording

Other income, net primarily consists of remeasurement of the embedded derivative associated with the debt covenant in the K2HV Loan Agreement during the current period, as it is marked-to-market on a quarterly basis and reflected as a change in the fair value of the derivative liability and of remeasurement gains or losses attributable to changes in the fair value of the success payment liability that was associated with our debt agreement with Pacific Western Bank, or PWB.

Current wording

Other income (expense), net primarily consists of the gain or loss recognized on the change in the fair value of the conversion option derivative liability associated with the K2HV Loan Agreement and the gain or loss recognized on the change in the fair value of the success payment liability that was associated with our debt agreement with Pacific Western Bank, or PWB.

Previous wording

•$7.1 million combined increase in manufacturing costs of $4.1 million and increased clinical trial costs of $3.0 million are driven by an increase of 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

Current wording

Research and development expenses for the three months ended September 30, 2024 were $12.5 million, compared to $10.8 million for the three months ended September 30, 2023. The increase of $1.7 million was primarily due to $1.5 million of combined increases in clinical trial costs of $1.3 million and manufacturing costs of $0.2 million. The increases in both our clinical trial and manufacturing costs are driven by an increase of $2.2 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 is partially offset by a decrease of $0.9 million in manufacturing costs associated with JZP898 following the execution of the Transfer Agreement with Jazz.

Previous wording

Interest income was $1.8 million for the three months ended June 30, 2024, compared to $1.9 million for the three months ended June 30, 2023. This decrease in interest income was primarily a result of less cash equivalents being held in money market accounts, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Current wording

Interest income was $1.6 million for the three months ended September 30, 2024, compared to $2.0 million for the three months ended September 30, 2023. This decrease in interest income was primarily a result of less cash equivalents being held in money market accounts during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Previous wording

Interest expense was $1.1 million for the three months ended June 30, 2024, compared to $1.0 million for the three months ended June 30, 2023. This increase in interest expense was primarily the result of higher effective interest rates under the K2HV Loan Agreement, which was executed in May 2024 after the extinguishment of the PWB term loan.

Current wording

Interest expense was $1.2 million for the three months ended September 30, 2024, compared to $1.0 million for the three months ended September 30, 2023. This increase in interest expense was primarily the result of higher effective interest rates under the K2HV Loan Agreement, which was executed in May 2024 after the extinguishment of the PWB term loan.

Previous wording

Revenue was $1.9 million for the six 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 a transfer agreement 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 $12.5 million in collaboration revenue during the six months ended June 30, 2023. This $10.7 million decrease in collaboration revenue is driven by elevated research and development activities related to and in preparation for the IND submission of JZP898 in prior year.

Current wording

Revenue was $1.9 million for the nine months ended September 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. As a result of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all deferred revenue related to the Collaboration Agreement has been recognized as of September 30, 2024. Comparatively, we recognized $18.4 million in collaboration revenue during the nine months ended September 30, 2023 driven by elevated research and development activities related to and in preparation for the IND submission of JZP898 during the nine months ended September 30, 2023.

Previous 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

Current wording

•$8.6 million of combined increases in manufacturing costs of $4.3 million and clinical trial costs of $4.3 million. The increases in both our clinical trial and manufacturing costs are driven by an increase of $14.1 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 $5.8 million in manufacturing costs associated with JZP898 leading up to and following the execution of the Transfer Agreement with Jazz;

Previous wording

•$1.0 million of increased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees;

Current wording

•$1.0 million of increased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees, as well as the increased use of external consultants to help further the development of our product candidates; and

Previous 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.

Current wording

These increases were partially offset by:

Previous wording

•$0.8 million of decreased lab consumables costs and $0.6 million of decreased contract research costs, primarily related to reduced discovery efforts in comparison to the first half of 2023.

Current wording

•$0.9 million of decreased lab consumables costs and $0.4 million of decreased contract research costs, primarily due to a shift in focus from discovery efforts to furthering the development of existing product candidates in comparison to the prior period.

Previous wording

•$0.4 million of increased professional services costs, driven by costs incurred to facilitate new debt agreements and corresponding legal and consulting needs.

Current wording

•$0.6 million of increased professional services costs, driven by a combination of higher costs to protect our intellectual property, as well as costs incurred to facilitate our new debt agreement and corresponding legal and consulting needs; and

Previous wording

•$0.5 million of increased personnel costs due to the timing and valuation of stock-based awards granted to employees, combined with annual cost of living adjustments.

Current wording

•$0.3 million of increased personnel costs driven primarily by the timing and valuation of stock-based awards granted to employees, as well as an increase in headcount throughout both periods in order to support general and administrative needs of our business and annual cost of living adjustments.

Previous wording

•$0.5 million of decreased corporate insurance costs, driven by a reduction in associated premiums in the current period compared to the six months ended June 30, 2023.

Current wording

•$0.6 million of decreased corporate insurance costs, driven by a reduction in associated premiums in the current period compared to the prior period.

Previous 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.

Current wording

Interest income was $5.4 million for both the nine months ended September 30, 2024 and 2023, but decreased marginally during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The slight decrease in interest income was primarily a result of less cash equivalents being held in money market accounts during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

The extinguishment of the PWB term loan resulted in a one-time loss of $0.6 million for the six months ended June 30, 2024. As no corresponding finance activity occurred for the six months ended June 30, 2023, we did not incur any related gain or loss on a debt extinguishment in the prior year comparable period.

Current wording

The extinguishment of the PWB term loan resulted in a one-time loss of $0.6 million for the nine months ended September 30, 2024. As no corresponding finance activity occurred for the nine months ended September 30, 2023, we did not incur any gain or loss on a debt extinguishment during the prior period.

Previous 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.

Current wording

Other income (expense), net for the nine months ended September 30, 2024 primarily consisted of $1.7 million of gains recognized for the change in fair value of the conversion option derivative liability associated with the K2HV Loan Agreement. Other income (expense), net for the nine months ended September 30, 2023 consisted of $1.1 million in losses recognized for the change in the fair value of the 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 success liability in the PWB Loan Agreement during the nine months ended September 30, 2024. The remaining portion of other income (expense), net for both periods 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

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.

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 $16.7 million and $8.3 million for the three months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $394.2 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

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.

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 $1.3 million during the nine months ended September 30, 2024. We did not recognize interest expense related to the PWB Loan Agreement during the three months ended September 30, 2024.

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 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.

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, or the K2HV Loan Agreement, with K2 HealthVentures LLC, or K2HV, as described below, together with $10.5 million in existing cash. We recognized a total loss on extinguishment of debt in the amount of $0.6 million during the second quarter of 2024 primarily due to the write off of unamortized debt issuance costs.

Previous 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.

Current wording

In May 2024, we, as borrower, entered into the K2HV Loan Agreement with K2HV (which we refer to, together with any other lender from time to time, as 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

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.

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, or the Fixed Price Conversion, and the lowest effective price per share of our first equity financing following the closing of the K2HV Loan Agreement, or 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.

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 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.

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 nine months ended September 30, 2024, we sold 4,350,820 shares of our common stock at an average price of $5.10 per share for net proceeds of $21.1 million after deducting sales commissions and offering expenses.

Previous 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.

Current wording

As of September 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. As a result of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all deferred revenue related to the Collaboration Agreement has been recognized as of September 30, 2024.

Previous 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.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $122.8 million. We also had restricted cash and cash equivalents of $1.2 million as of September 30, 2024. We believe that our existing cash and cash equivalents at September 30, 2024, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the second 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 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.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $41.9 million, compared to $28.0 million for the nine months ended September 30, 2023. This increase of $13.9 million was primarily attributable to a decrease in revenue from our Collaboration Agreement of $16.6 million, combined with an increase in research and development expenses of $8.6 million, primarily driven by our continued development efforts of our product candidates. The change in net loss outlined above is partially offset by an increase of $10.8 million in non-cash charges and changes in operating assets and liabilities.

Previous 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.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $0.1 million, compared to $0.6 million for the nine months ended September 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 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.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $10.5 million, compared to $49.4 million for the nine months ended September 30, 2023. Cash provided by financing activities for the nine months ended September 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 nine months ended September 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

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.

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 $13.9 million.

Previous wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which include, but are not limited to those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation expense and income taxes. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions and conditions.

Current wording

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which include, but are not limited to those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation expense and the fair value of the derivative liability, and income taxes. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions and conditions.

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 and six months ended June 30, 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 nine months ended September 30, 2024, there were no material changes to our critical accounting policies from those previously disclosed.