UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39926

Terns Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	98-1448275
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1065 East Hillsdale Blvd., Suite 100 Foster City, California	94404
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (650) 525-5535

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	TERN	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 26, 2024, the registrant had 70,371,911 shares of common stock, $0.0001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing and availability of data from such studies;

•the location, timing of commencement and data reporting of future nonclinical studies and clinical trials and research and development programs;

•our clinical and regulatory development plans;

•our expectations regarding the product profile, relative benefits and clinical utility of our product candidates;

•our expectations regarding the potential market size and size of the potential patient populations for our product candidates and any future product candidates if approved for commercial use;

•our ability to acquire, discover, develop and advance our product candidates into, and successfully complete, clinical trials;

•our intentions and our ability to establish collaborations and/or partnerships;

•the timing or likelihood of regulatory filings and approvals for our product candidates;

•our commercialization, marketing and manufacturing capabilities and expectations;

•our intentions with respect to the commercialization of our product candidates;

•the pricing and reimbursement of our product candidates, if approved;

•the implementation of our business model and strategic plans for our business and product candidates, including additional indications which we may pursue or elect not to pursue;

•the scope of protection we are able to establish, maintain, protect and enforce for intellectual property rights covering our product candidates including the projected terms of patent protection;

•estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital and the timing of the sufficiency of our capital resources;

•our future financial performance; and

•developments and projections relating to our competitors and our industry, including competing products.

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Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	Signatures	27

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Terns Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(Unaudited; in thousands, except share and per share data)

	June 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	91,496		$	79,926
Marketable securities		133,801			183,514
Prepaid expenses and other current assets		4,941			3,992
Total current assets		230,238			267,432
Property and equipment, net		370			506
Operating lease assets		217			523
Other assets		55			56
Total assets	$	230,880		$	268,517
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,873		$	2,515
Accrued expenses and other current liabilities		8,833			8,826
Current portion of operating lease liabilities		249			603
Total current liabilities		10,955			11,944
Taxes payable, non-current		1,244			1,206
Total liabilities		12,199			13,150
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 150,000,000 shares    authorized at June 30, 2024 and December 31, 2023;    70,335,636 and 64,576,719 shares issued and outstanding at    June 30, 2024 and December 31, 2023, respectively		7			6
Additional paid-in capital		596,854			588,008
Accumulated other comprehensive loss		(443	)		(19	)
Accumulated deficit		(377,737	)		(332,628	)
Total stockholders’ equity		218,681			255,367
Total liabilities and stockholders’ equity	$	230,880		$	268,517

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited; in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Operating expenses:
Research and development	$	18,352		$	14,151		$	36,939		$	31,207
General and administrative		7,185			7,008			14,044			14,109
Total operating expenses		25,537			21,159			50,983			45,316
Loss from operations		(25,537	)		(21,159	)		(50,983	)		(45,316	)
Other income:
Interest income		2,876			3,395			6,058			6,088
Other expense, net		(14	)		(60	)		(26	)		(64	)
Total other income, net		2,862			3,335			6,032			6,024
Loss before income taxes		(22,675	)		(17,824	)		(44,951	)		(39,292	)
Income tax expense		(61	)		(72	)		(158	)		(132	)
Net loss	$	(22,736	)	$	(17,896	)	$	(45,109	)	$	(39,424	)
Net loss per share, basic and diluted	$	(0.31	)	$	(0.25	)	$	(0.61	)	$	(0.56	)
Weighted average common stock outstanding, basic and diluted		74,459,774			71,364,110			74,429,576			70,575,645
Other comprehensive loss:
Net loss	$	(22,736	)	$	(17,896	)	$	(45,109	)	$	(39,424	)
Unrealized (loss) gain on available-for-sale securities, net of tax		(115	)		(298	)		(408	)		120
Foreign exchange translation adjustment, net of tax		(7	)		(61	)		(16	)		(73	)
Comprehensive loss	$	(22,858	)	$	(18,255	)	$	(45,533	)	$	(39,377	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited; in thousands, except share data)

Six Months Ended June 30, 2024
	Common Stock				Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Loss			Deficit			Equity
Balances at December 31, 2023		64,576,719	$	6	$	588,008		$	(19	)	$	(332,628	)	$	255,367
Vesting of restricted stock units with service conditions		74,974		—		—			—			—			—
Stock-based compensation expense		—		—		4,028			—			—			4,028
Unrealized loss on available-for-sale securities		—		—		—			(293	)		—			(293	)
Foreign exchange translation adjustment		—		—		—			(9	)		—			(9	)
Net loss		—		—		—			—			(22,373	)		(22,373	)
Balances at March 31, 2024		64,651,693	$	6	$	592,036		$	(321	)	$	(355,001	)	$	236,720
Exercise of stock options		4,000		—		12			—			—			12
Issuance of common stock under employee stock purchase plan		87,083		—		387			—			—			387
Issuance of common stock in connection with exercise of pre-funded warrants		5,564,904		1		(1	)		—			—			—
Vesting of restricted stock units with service conditions		27,956		—		—			—			—			—
Stock-based compensation expense		—		—		4,420			—			—			4,420
Unrealized loss on available-for-sale securities		—		—		—			(115	)		—			(115	)
Foreign exchange translation adjustment		—		—		—			(7	)		—			(7	)
Net loss		—		—		—			—			(22,736	)		(22,736	)
Balances at June 30, 2024		70,335,636	$	7	$	596,854		$	(443	)	$	(377,737	)	$	218,681
Six Months Ended June 30, 2023
	Common Stock				Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Loss			Deficit			Equity
Balances at December 31, 2022		53,723,171	$	5	$	520,178		$	(822	)	$	(242,418	)	$	276,943
Issuance of common stock in at-the-market offering		2,929,922		—		27,924			—			—			27,924
Vesting of restricted stock units with service conditions		16,503		—		—			—			—			—
Stock-based compensation expense		—		—		3,938			—			—			3,938
Unrealized gain on available-for-sale securities		—		—		—			418			—			418
Foreign exchange translation adjustment		—		—		—			(12	)		—			(12	)
Net loss		—		—		—			—			(21,528	)		(21,528	)
Balances at March 31, 2023		56,669,596	$	5	$	552,040		$	(416	)	$	(263,946	)	$	287,683
Exercise of stock options		95,176		—		248			—			—			248
Issuance of common stock under employee stock purchase plan		114,739		—		241			—			—			241
Issuance of common stock in connection with exercise of pre-funded warrants		4,174,960		1		(1	)		—			—			—
Vesting of restricted stock units with service conditions		10,552		—		—			—			—			—
Stock-based compensation expense		—		—		4,233			—			—			4,233
Unrealized loss on available-for-sale securities		—		—		—			(298	)		—			(298	)
Foreign exchange translation adjustment		—		—		—			(61	)		—			(61	)
Net loss		—		—		—			—			(17,896	)		(17,896	)
Balances at June 30, 2023		61,065,023	$	6	$	556,761		$	(775	)	$	(281,842	)	$	274,150

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Terns Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited; in thousands)

	Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(45,109	)	$	(39,424	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		8,448			8,171
Depreciation expense		170			148
Accretion on marketable securities		(925	)		(1,781	)
Change in deferred taxes and uncertain tax positions		68			64
Amortization of operating lease assets		306			291
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(949	)		(641	)
Accounts payable		(642	)		4,171
Accrued expenses and other current liabilities		8			1,951
Operating lease liabilities		(352	)		(325	)
Net cash used in operating activities		(38,977	)		(27,375	)
Cash flows from investing activities:
Purchase of property and equipment		(42	)		—
Purchase of investments		(50,594	)		(206,693	)
Proceeds from sales and maturities of investments		100,824			143,787
Net cash provided by (used in) investing activities		50,188			(62,906	)
Cash flows from financing activities:
Net proceeds from issuance of common stock in at-the-market offering		—			27,924
Proceeds from stock option exercises		12			248
Payment of deferred offering costs		—			(344	)
Proceeds from issuance of common stock under employee stock purchase plan		387			241
Net cash provided by financing activities		399			28,069
Effect of exchange rate changes on cash and cash equivalents		(40	)		(104	)
Net increase (decrease) in cash and cash equivalents		11,570			(62,316	)
Cash and cash equivalents at beginning of period		79,926			143,235
Cash and cash equivalents at end of period	$	91,496		$	80,919
Supplemental disclosure of cash flow information:
Cash paid for amounts included in the measurement of lease liabilities	$	366		$	357

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Terns Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies

Nature of the Business

Terns Pharmaceuticals, Inc. (Terns or the Company) is a clinical-stage biopharmaceutical company developing a portfolio of small-molecule product candidates to address serious diseases including oncology and obesity.

Terns was incorporated as an exempted company in the Cayman Islands in December 2016. In December 2020, the Company effected a de-registration of the Company in the Cayman Islands and a domestication in the State of Delaware, pursuant to which it became a Delaware corporation. Terns owns all of the share capital of Terns Pharmaceutical HongKong Limited (Terns Hong Kong) and Terns, Inc., a Delaware corporation (Terns U.S. Opco). Terns Hong Kong holds all of the share capital of Terns China Biotechnology Co., Ltd. (organized in Shanghai, People’s Republic of China (PRC)) (Terns China) and Terns (Suzhou) Biotechnology Co., Ltd. (organized in Suzhou, PRC) (Terns Suzhou).

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Terns and its wholly owned subsidiaries Terns U.S. Opco and Terns Hong Kong and its wholly owned subsidiaries Terns China and Terns Suzhou, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet as of December 31, 2023 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future periods.

Unaudited Interim Financial Information

These unaudited condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim periods. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K (the Annual Report) for the fiscal year ended December 31, 2023, as filed with the SEC on March 14, 2024. There have been no significant changes to the Company's significant accounting policies described in Note 1, Nature of the Business, Basis of Presentation and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K for the fiscal year ended December 31, 2023.

Any reference to these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASUs) of the Financial Accounting Standards Board (FASB).

At-the-Market Offering

In March 2022, the Company entered into a Sales Agreement with Cowen and Company, LLC (Cowen) as sales agent, pursuant to which the Company has the ability to offer and sell, from time to time, through Cowen, shares of its common stock having an aggregate offering price of up to $75.0 million in an at-the-market offering. The shares are offered pursuant to the Company's shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (SEC), which became effective in March 2022. As of June 30, 2024, there were 9,781,673 shares of our common stock sold for aggregate net proceeds of $66.6 million after deducting commissions and offering expenses pursuant to this agreement. There were no sales of the Company's common stock pursuant to this agreement during the six months ended June 30, 2024.

5

In May 2023, the Company entered into a Sales Agreement with Cowen as sales agent, pursuant to which the Company has the ability to offer and sell, from time to time, through Cowen, shares of its common stock having an aggregate offering price of up to $150.0 million in an at-the-market offering. The shares are offered pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC, which became effective in February 2023. There were no sales of the Company's common stock pursuant to this agreement through June 30, 2024.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the estimates for accruals of research and development expenses, accrual of research contract costs, unrecognized tax benefits, fair value of common stock and stock option valuations. On an ongoing basis, the Company evaluates its estimates and judgments, using historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could materially differ from those estimates.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of standard checking accounts and money market funds. The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents.

The Company classifies as available-for-sale marketable securities with a remaining maturity when purchased of greater than three months. The Company’s marketable securities are maintained by investment managers and may consist of U.S. government and non-U.S. government securities, corporate debt securities and commercial paper. Debt securities are carried at fair value with the unrealized gains and losses included in the condensed consolidated statements of operations and comprehensive loss and as a component of stockholders’ equity until realized. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded in interest income and/or expense. Gains and losses on securities sold are recorded based on the specific identification method and are included in Interest income, net in the condensed consolidated statements of operations and comprehensive loss. The Company has not incurred any material realized gains or losses from sales of securities to date.

The Company assesses its available-for-sale debt securities for impairment as of each reporting date in order to determine if a portion of any decline in fair value below carrying value is the result of a credit loss. The Company records credit losses in the condensed consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.

Interest receivable related to the Company's available-for-sale debt securities is presented as marketable securities on the Company's condensed consolidated balance sheets. The Company writes off interest receivable once it has determined that the asset is not realizable. To date, the Company has not written off any interest receivables associated with its marketable securities.

Operating Leases and Rent Expense

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, upon lease commencement, the Company records a lease liability which represents the Company’s obligation to make lease payments arising from the lease, and a corresponding right-of-use (ROU) asset which represents the Company’s right to use an underlying asset during the lease term.

Operating lease ROU assets and liabilities are recognized on the balance sheet at the lease commencement date based on the present value of the future minimum lease payments over the lease term. In determining the net present value of the lease payments, the Company uses its incremental borrowing rate applicable to the underlying asset unless the implicit rate is readily determinable. Any lease incentives received are deferred and recorded as a reduction of the ROU asset and amortized over the term of the lease. The Company does not separate lease and non-lease components and instead treats them as a single component. Rent expense, comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term. The Company determines the lease term as the noncancellable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

6

The Company elected to not apply the recognition requirements of the new leasing standard to short-term leases with terms of 12 months or less. As a result, leases with a term of 12 months or less are not recognized on the balance sheet.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs, including fees paid to consultants and contract research organizations (CROs) in connection with nonclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered. Costs incurred in obtaining technology licenses are charged immediately to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future uses.

The Company has from time to time entered into various research and development and other agreements with commercial firms, researchers, universities and others for provisions of goods and services. These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates. Since inception, the Company’s historical accrual estimates have not been materially different from the actual costs.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities included the following:

(in thousands)	June 30, 2024		December 31, 2023
Research and development costs	$	3,229	$	2,010
Compensation and benefit costs		3,108		5,683
Accrued professional fees		2,176		855
Other		320		278
Total accrued expenses and other current liabilities	$	8,833	$	8,826

Executive Leadership Transition

In August 2023, the Company and Senthil Sundaram, former chief executive officer, entered into a separation agreement. Pursuant to the separation agreement, Mr. Sundaram was entitled to receive severance in the amount of $0.6 million and 100% of his annual target discretionary bonus for 2023 in the amount of $0.3 million. During the year ended December 31, 2023, the Company recorded an accrued liability and recognized expense of $0.9 million related to the departure of the former chief executive officer. As of June 30, 2024, the ending accrued liability was $0.3 million and is presented within the Condensed Consolidated Balance Sheets under Accrued expenses and other current liabilities. The vesting of each equity award held by Mr. Sundaram was fully accelerated as of December 31, 2023. As a result of the change in service period for all outstanding unvested option grants to the Company’s former chief executive officer in August 2023, the Company recognized $10.5 million in stock-based compensation expense during the year ended December 31, 2023. The expense was recognized as operating expenses within the Condensed Consolidated Statements of Operations and Comprehensive Loss under General and administrative.

In August 2023, Bryan Yoon, chief operating officer and general counsel, and Mark Vignola, Ph.D., chief financial officer, received retention awards payable in cash in the aggregate amount of $0.5 million for Mr. Yoon and $0.7 million for Dr. Vignola. Each retention award is payable in two installments of 33% of the award on February 1, 2024 and 67% of the award on August 1, 2024, subject to the applicable officer’s continued employment with the Company through such date. Expense is recognized on a straight-line basis over the requisite service period. During the six months ended June 30, 2024, the Company recorded an accrued liability and recognized expense of $0.5 million related to the retention awards. These accruals are presented within the Condensed Consolidated Balance Sheets under Accrued expenses and other current liabilities. The expenses were recognized as operating expenses within the Condensed Consolidated Statements of Operations and Comprehensive Loss under General and administrative.

7

In July 2024, Dr. Vignola entered into a transition agreement with the Company. The transition agreement provides for Dr. Vignola’s continued service as chief financial officer for a transition period until the date of his separation from employment, anticipated to be February 1, 2025. Pursuant to the transition agreement, Dr. Vignola is entitled to receive severance in the amount of $0.5 million, equivalent to 12 months of his annual base salary, the remaining unpaid portion of his retention award of $0.5 million, his target annual bonus for 2024 of $0.2 million and, as applicable based on the separation date, a pro rata portion of his target annual bonus for 2025, and the time to exercise any outstanding equity award that is vested as of the separation date shall continue to the end of the 12th month following the separation date. In addition, the Company has agreed to pay Dr. Vignola an additional retention bonus in the amount of $0.5 million, provided Dr. Vignola remains employed until February 1, 2025, with such additional retention bonus being payable in a pro rata amount under certain conditions per the transition agreement.

In July 2024, Mr. Yoon entered into a separation agreement with the Company. The separation agreement provides for Mr. Yoon’s continued service as chief operating officer and special counsel for a transition period until September 3, 2024. Pursuant to the separation agreement, Mr. Yoon is entitled to receive severance in the amount of $0.5 million, equivalent to 12 months of his annual base salary, the remaining unpaid portion of his retention award of $0.3 million, a pro rata portion of his target annual bonus for 2024 of $0.1 million, and the time for Mr. Yoon to exercise any outstanding equity award that is vested as of the separation date shall continue to April 30, 2025.

In November 2023, Erin Quirk, M.D., former president and head of research & development, received a retention award payable in cash in the aggregate amount of $0.6 million and a recognition bonus in the aggregate amount of $0.1 million. The retention award is payable in two installments of 33% of the award on February 1, 2024, and 67% of the award on August 1, 2024, and the recognition bonus was payable on January 1, 2024, subject to Dr. Quirk's continued employment with the Company through such date. Expense is recognized on a straight-line basis over the requisite service period. On May 7, 2024, Dr. Quirk entered into a separation agreement with the Company. Pursuant to the separation agreement, Dr. Quirk was entitled to receive severance in the amount of $0.2 million and the remaining unpaid portion of her recognition bonus of $0.4 million. As of June 30, 2024, there was no ending accrued liability as all balances have been paid. As of June 30, 2024, the vesting of each equity award held by Dr. Quirk was accelerated with respect to the number of shares of common stock that would have become vested had Dr. Quirk remained employed at the Company through August 31, 2024, and the time for Dr. Quirk to exercise any vested stock options shall continue up to November 30, 2024. As a result of the change in terms for these option grants to Dr. Quirk, in May 2024, the Company recognized $0.4 million in stock-based compensation expense during the six months ended June 30, 2024. The expenses were recognized as operating expenses within the Condensed Consolidated Statements of Operations and Comprehensive Loss under Research and development.

Income Taxes

The provision for income taxes primarily relates to projected federal, state and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

Income taxes are computed using the asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements. In estimating future tax consequences, the Company considers all expected future events including the enactment of changes in tax laws or rates. A valuation allowance is recorded, if necessary, to reduce net deferred tax assets to their realizable values if management does not believe it is more likely than not that the net deferred tax assets will be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

The Company assesses accounting for uncertainty in income taxes by modeling for the recognition, measurement and disclosure in financial statements any uncertain income tax positions that the Company has taken or expects to take on a tax return. The Company accrues interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes.

The Company recorded income tax expense for the three months ended June 30, 2024 and 2023 of less than $0.1 million. The Company recorded income tax expense for the six months ended June 30, 2024 and 2023 of $0.2 million and $0.1 million, respectively. The expenses are primarily related to foreign income tax expenses from China.

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Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Stock-Based Compensation

Stock-based compensation expense relates to stock options, restricted stock units (RSUs) with service conditions, and RSUs with market conditions issued under the Company’s equity incentive plan and rights to acquire stock granted under the Company’s employee stock purchase plan (ESPP). Grants are measured at the grant date based on the fair value of the awards and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are recognized as they occur.

The Black-Scholes option pricing model estimates the fair value of stock options with time-based vesting and rights to acquire stock under the ESPP. The Company lacks sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The Company estimates risk-free rates using the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term and dividend yield using the Company’s expectations and historical data. The Company uses the simplified method to calculate the expected term of stock option grants as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. Under the simplified method, the expected term is estimated to be the mid-point between the vesting date and the contractual term of the option. The fair value is calculated based upon the Company’s common stock valuation on the date of the grant.

The fair value of RSUs with service conditions is based upon the Company’s common stock valuation on the date of the grant.

The Monte Carlo simulation model estimates the fair value of the RSUs with market conditions, using inputs for the common stock valuation on the date of the grant, volatility, the risk-free interest rate, and the dividend yield. Compensation expense is recognized on a straight-line basis over the derived service period commencing on the grant date. The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense is accelerated, and a cumulative catch-up expense is recorded during the period in which the market condition is met.

Pre-funded Warrants

Pre-funded warrants are classified as a component of permanent stockholders’ equity within additional paid-in capital and are recorded at the issuance date using a relative fair value allocation method. The pre-funded warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company’s common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The value of the pre-funded warrants is known at issuance, as their sales price approximates their fair value, and net proceeds from the sale are recorded as a component of additional paid-in capital.

Net Loss Per Share of Common Stock

Basic net income (loss) per share of common stock is computed by dividing the net income (loss) per share of common stock by the weighted average number of shares of common stock outstanding for the period. The weighted-average shares of common stock outstanding as of June 30, 2024 included pre-funded warrants, as the warrants were issued for minimal consideration and were immediately exercisable.

Diluted net income (loss) per share of common stock is computed by adjusting net income (loss) to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share of common stock is computed by dividing the diluted net loss by the weighted average number of shares of common stock outstanding for the period, including potentially dilutive shares.

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The Company reported a net loss for the three and six months ended June 30, 2024 and 2023. In periods in which the Company reported a net loss, diluted net loss per share of common stock was the same as basic net loss per share of common stock, since dilutive shares were not assumed to have been issued if their effect is anti-dilutive. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss attributable to common stockholders per share of common stock for the periods indicated because including them would have had an anti-dilutive effect:

	June 30,
	2024		2023
Options to purchase common stock		11,366,749		8,450,168
Unvested restricted stock units with service conditions		782,737		372,301
Unvested restricted stock units with market conditions		150,000		—
Shares issuable under employee stock purchase plan		13,589		9,193
Total		12,313,075		8,831,662

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of stockholders’ equity as a reduction of additional paid-in capital or equity generated as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss.

Commitments and Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. For all periods presented, the Company was not a party to any pending material litigation or other material legal proceedings.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). Under the JOBS Act, emerging growth companies have extended transition periods available for complying with new or revised accounting standards. The Company has elected to use this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. Where allowable, the Company has early adopted certain standards as described below.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires additional income tax disclosures in the annual consolidated financial statements. The amendments in ASU 2023-09 are intended to enhance the transparency and decision usefulness of income tax disclosures. For public entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. For non-public entities, ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2025. Under the JOBS Act, emerging growth companies have extended transition periods available for complying with new or revised accounting standards. The Company is currently evaluating the impact of ASU 2023-09 on its financial statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which expands segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The disclosures required under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for the Company’s first fiscal year beginning after December 15, 2023 and for interim periods within the Company’s first fiscal year beginning after December 15, 2024, with early adoption permitted. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its financial statements and related disclosures.

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2. Cash Equivalents and Marketable Securities

The amortized cost and fair value of cash equivalents and marketable securities by major security type is as follows:

	June 30, 2024
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	77,491	$	—	$	—		$	77,491
U.S. government securities		134,052		3		(254	)		133,801
Total	$	211,543	$	3	$	(254	)	$	211,292
Classified as:
Cash equivalents								$	77,491
Marketable securities									133,801
Total								$	211,292
	December 31, 2023
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Money market funds	$	33,788	$	—	$	—		$	33,788
U.S. government securities		183,357		219		(62	)		183,514
Total	$	217,145	$	219	$	(62	)	$	217,302
Classified as:
Cash equivalents								$	33,788
Marketable securities									183,514
Total								$	217,302

The aggregate fair value of the Company’s available-for-sale marketable securities that have been in a continuous unrealized loss position for less than twelve months or twelve months or longer is as follows:

	June 30, 2024
	Less than 12 months					12 months or longer					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government securities	$	115,214	$	(211	)	$	14,073	$	(43	)	$	129,287	$	(254	)
Total	$	115,214	$	(211	)	$	14,073	$	(43	)	$	129,287	$	(254	)
	December 31, 2023
	Less than 12 months					12 months or longer					Total
(in thousands)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government securities	$	80,461	$	(62	)	$	—	$	—		$	80,461	$	(62	)
Total	$	80,461	$	(62	)	$	—	$	—		$	80,461	$	(62	)

At June 30, 2024, the Company had 30 available-for-sale marketable securities in an unrealized loss position without an allowance for credit losses. The Company does not intend to sell these securities and the Company believes it is more likely than not that marketable securities in an unrealized loss position will be held until maturity and that the Company will not be required to sell these securities before recovery of their amortized cost basis. The Company believes that an allowance for credit losses is unnecessary as the securities are of high credit quality and the decline in fair value is due to market conditions and/or changes in interest rates.

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3. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value are defined below:

•Level 1—Quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s other assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

	Fair Value at June 30, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents
Cash in bank balances	$	14,005	$	—	$	—	$	14,005
Money market funds		77,491		—		—		77,491
Total cash and cash equivalents	$	91,496	$	—	$	—	$	91,496
Marketable securities
U.S. government securities	$	—	$	133,801	$	—	$	133,801
Total marketable securities	$	—	$	133,801	$	—	$	133,801
	Fair Value at December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents
Cash in bank balances	$	46,138	$	—	$	—	$	46,138
Money market funds		33,788		—		—		33,788
Total cash and equivalents	$	79,926	$	—	$	—	$	79,926
Marketable securities
U.S. government securities	$	—	$	183,514	$	—	$	183,514
Total marketable securities	$	—	$