Zenas BioPharma, Inc.(ZBIO) - 2025 Q2 - Quarterly Report

Preliminary Information This section provides essential introductory information, including forward-looking statements, key risk factors, and trademark notices Special Note Regarding Forward-Looking Statements This section clarifies that the report contains forward-looking statements, subject to risks and uncertainties, and should not be unduly relied upon as future guarantees - Forward-looking statements are identified by terms such as 'may,' 'will,' 'should,' 'expect,' 'plan,' 'anticipate,' 'could,' 'intend,' 'target,' 'project,' 'contemplate,' 'believe,' 'estimate,' 'predict,' 'potential' or 'continue' or their negatives[8] - Key forward-looking statements concern the commercial opportunities of obexelimab, ability to develop and commercialize products, obtaining orphan drug designation, timing and cost of clinical studies, ability to obtain additional funding, and regulatory approvals[8][10] - These statements are subject to risks and uncertainties described in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' and the company does not undertake to publicly update or revise them[9] Summary Risk Factors This section outlines key investment risks, including the company's clinical stage, substantial losses, financing needs, uncertain clinical development, and intense competition - The company is a clinical-stage biopharma company with no approved products and has incurred substantial losses since inception, anticipating increasing losses[12] - Substantial additional financing is required to achieve goals; failure to obtain it would delay, limit, reduce, or terminate product development[12] - Clinical development is lengthy, expensive, and uncertain, with earlier trial results often failing to predict future outcomes, potentially leading to delays or failures in commercialization[12] - The company faces significant competition from large pharmaceutical and biotechnology companies, many with approved therapies in its target indications[12] - Dependence on third parties for preclinical studies, clinical trials, and manufacturing poses risks if they fail to perform as required[15] - Inability to obtain and maintain insufficient intellectual property protection could allow competitors to commercialize similar products[15] Note Regarding Trademarks This section clarifies that 'Zenas BioPharma' and its associated designs are company trademarks, while other marks belong to their owners - The Zenas BioPharma word mark, logo mark, and 'lightning bolt' design are trademarks of Zenas BioPharma, Inc. or its affiliated companies[14] - The ® and ™ designations for these trademarks are sometimes omitted in the report, but all rights are owned by Zenas BioPharma, Inc.[14] Part I — Financial Information This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial performance Item 1. Financial Statements (Unaudited) This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $44,006 | $319,742 | | Short-term investments | $229,273 | $31,024 | | Total current assets | $278,603 | $355,923 | | Total assets | $293,085 | $369,968 | | Total current liabilities | $53,244 | $57,292 | | Total liabilities | $53,459 | $57,510 | | Total stockholders' equity | $239,626 | $312,458 | - Cash and cash equivalents significantly decreased from $319.7 million at December 31, 2024, to $44.0 million at June 30, 2025, while short-term investments increased from $31.0 million to $229.3 million[17] Condensed Consolidated Statements of Operations and Comprehensive Loss This statement details the company's revenues, expenses, and net loss over specific reporting periods, reflecting operational performance | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | License and collaboration revenue | $— | $— | $10,000 | $— | | Research and development | $43,027 | $33,807 | $77,942 | $56,452 | | General and administrative | $12,136 | $5,895 | $24,551 | $10,828 | | Total operating expenses | $55,163 | $39,702 | $102,493 | $67,280 | | Net loss to common stockholders | $(52,223) | $(37,977) | $(85,796) | $(65,777) | | Net loss per share - basic and diluted | $(1.25) | $(24.23) | $(2.05) | $(42.15) | - The company recognized $10.0 million in license and collaboration revenue for the six months ended June 30, 2025, compared to none in the prior year period[19] - Research and development expenses increased by $9.2 million (27.3%) for the three months and $21.5 million (38.1%) for the six months ended June 30, 2025, compared to 2024[19] - General and administrative expenses increased by $6.2 million (105.8%) for the three months and $13.7 million (126.7%) for the six months ended June 30, 2025, compared to 2024[19] - Net loss increased to $52.2 million for the three months and $85.8 million for the six months ended June 30, 2025, from $38.0 million and $65.8 million in the respective prior year periods[19] Condensed Consolidated Statements of Stockholders' Equity (Deficit) This statement tracks changes in the company's equity over time, reflecting net income/loss, stock issuances, and other comprehensive income | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :-------------------------------- | :------------------------------- | :--------------------------- | | Additional paid-in capital | $699,651 | $712,903 | | Accumulated deficit | $(387,391) | $(473,187) | | Total stockholders' equity | $312,458 | $239,626 | - Total stockholders' equity decreased from $312.5 million at December 31, 2024, to $239.6 million at June 30, 2025, primarily due to the net loss incurred[22] - Stock-based compensation expense contributed $11.4 million to additional paid-in capital for the six months ended June 30, 2025[22] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company across operating, investing, and financing activities | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(78,794) | $(50,061) | | Net cash used in investing activities | $(198,565) | $(57) | | Net cash provided by financing activities | $1,821 | $177,125 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(275,826) | $127,075 | - Net cash used in operating activities increased to $78.8 million for the six months ended June 30, 2025, from $50.1 million in the prior year, driven by increased net loss and changes in working capital[29][173][175] - Net cash used in investing activities significantly increased to $198.6 million for the six months ended June 30, 2025, primarily due to purchases of investments[29][176] - Net cash provided by financing activities decreased substantially to $1.8 million for the six months ended June 30, 2025, from $177.1 million in the prior year, as 2024 included proceeds from Series C preferred stock issuance[29][177][178] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Nature of Business This note describes the company's core operations, its financial performance history, and its capital funding status - Zenas BioPharma, Inc. is a clinical-stage global biopharmaceutical company focused on developing and commercializing transformative immunology-based therapies[31] - The company has incurred operating losses and negative cash flows since inception, with net losses of $52.2 million and $85.8 million for the three and six months ended June 30, 2025, respectively, and an accumulated deficit of $473.2 million as of June 30, 2025[36][37] - Existing cash, cash equivalents, and investments of $274.9 million as of June 30, 2025, are expected to fund operations into the fourth quarter of 2026[38] - The company completed its IPO on September 16, 2024, issuing 15,220,588 shares of common stock for aggregate net proceeds of $234.3 million[34] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimation methods used in preparing the condensed consolidated financial statements - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, consolidating wholly-owned subsidiaries[40] - Management's estimates and assumptions, particularly for accrued R&D expenses, stock-based compensation, and pre-IPO common stock valuations, are crucial[42][44] - The company is evaluating the impact of new accounting pronouncements ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures), effective fiscal years 2025 and 2026/2027 respectively[46][47] 3. Fair Value Measurements This note details the valuation methods and classifications of assets and liabilities measured at fair value | Asset Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :------------------------------- | | Cash | $31,318 | $19,070 | | Money market funds | $12,688 | $300,672 | | Short-term investments | $229,273 | $31,024 | | Long-term investments | $1,614 | $— | | Total assets at fair value | $274,893 | $350,766 | - The company's assets measured at fair value primarily consist of cash, money market funds, and short-term/long-term investments, with a shift from money market funds to short-term investments between December 2024 and June 2025[50] - Available-for-sale securities had gross unrealized gains of $21 thousand and gross unrealized losses of $94 thousand as of June 30, 2025[54] 4. Other Assets This note provides a breakdown of other non-current assets held by the company | Asset Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------- | :----------------------------- | :------------------------------- | | Clinical trial deposits | $11,707 | $12,639 | | Other | $90 | $217 | | Total other assets | $11,797 | $12,856 | - Clinical trial deposits represent the largest component of other assets, decreasing slightly from $12.6 million to $11.7 million[55] 5. Accrued Expenses This note details the various accrued liabilities, primarily related to research, development, and manufacturing activities | Expense Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------------------------- | :----------------------------- | :------------------------------- | | External research, development and manufacturing expenses | $36,938 | $29,338 | | Employee compensation and benefits | $6,048 | $8,308 | | Professional and consultant fees | $1,026 | $1,265 | | Income taxes payable | $— | $211 | | Other | $508 | $249 | | Total accrued expenses | $44,520 | $39,371 | - Accrued external research, development, and manufacturing expenses increased by $7.6 million, from $29.3 million to $36.9 million, as of June 30, 2025[56] 6. Leases This note describes the company's operating lease arrangements for office space and their financial impact - The company accounts for office space leases as operating leases, generally with terms less than two years, and recognizes monthly operating lease expense on a straight-line basis[58] | Fiscal Year | Amount (in thousands) | | :------------------------ | :-------------------- | | 2025 (remaining six months) | $467 | | 2026 | $455 | | 2027 | $137 | | Total operating lease liabilities | $1,008 | 7. License and Collaboration Revenue This note explains the revenue recognition from various collaboration and license agreements, including upfront payments and potential milestones - Under the BMS Agreement (August 2023), Zenas granted BMS exclusive rights to develop and commercialize obexelimab in Japan, South Korea, Taiwan, Singapore, Hong Kong, and Australia for an upfront payment of $50.0 million[60][61] - Zenas is eligible for up to $79.5 million in development/regulatory milestones and $70.0 million in sales milestones from BMS, plus tiered high single-digit to low double-digit royalties[61] - In October 2024, Zenas transferred rights for ZB005 to Tenacia for an upfront payment of $5.0 million and potential milestones up to $86.0 million[66][67] - In January 2025, Zenas granted Zai Lab an exclusive sublicense for ZB001 in greater China for an upfront payment of $10.0 million, recognized as revenue, and potential milestones up to $117.0 million (with $21.0 million passthrough to Viridian) plus tiered royalties[68][69][73] 8. License Agreements This note details the company's inbound license agreements with third parties for product candidates, outlining royalty and milestone obligations - Zenas has license agreements with Xencor (2020 and 2021) for product candidates including ZB002, ZB004, and obexelimab, involving tiered royalties and potential milestone payments (up to $75.0 million regulatory, $385.0 million sales for obexelimab)[76][77] - A license agreement with Viridian Therapeutics (October 2020) grants Zenas rights for certain antibody product candidates (e.g., ZB001) in non-oncology indications within greater China, with Zenas obligated to make development and sales milestone payments totaling $21.0 million to Viridian[79] - The Viridian Supply Agreement was assigned to Zai Lab in January 2025 in connection with the Zai License Agreement[80] 9. Common Stock This note provides information on the company's authorized common stock and shares reserved for equity compensation plans - Upon IPO completion in September 2024, the company authorized 175,000,000 shares of $0.0001 par value common stock[82] | Shares Reserved | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Options to purchase common stock | 10,615,469 | 8,706,197 | | Remaining shares reserved for future issuance | 495,412 | 359,399 | | RSUs | 511,100 | — | | Employee stock purchase plan | 815,890 | 397,956 | | Total | 12,437,871 | 9,463,552 | 10. Stock-Based Compensation This note details the company's equity incentive plans, stock option activity, and the associated compensation expense recognized - The 2024 Equity Incentive Plan (2024 Plan) was adopted on September 3, 2024, with shares reserved for issuance automatically increasing each January 1st[85][86] | Stock Option Activity | Number of Shares | Weighted-Average Exercise Price | | :-------------------------------- | :--------------- | :------------------------------ | | Outstanding - December 31, 2024 | 8,706,197 | $13.21 | | Granted | 2,593,600 | $10.66 | | Exercised | (295,285) | $6.17 | | Forfeited or cancelled | (389,043) | $12.28 | | Outstanding - June 30, 2025 | 10,615,469 | $12.81 | - As of June 30, 2025, there was $88.1 million of unrecognized stock-based compensation related to unvested stock options, RSUs, and ESPP, to be recognized over a weighted-average period of 3.19 years[92] | Stock-Based Compensation Expense | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $2,113 | $711 | $3,694 | $1,120 | | General and administrative | $3,932 | $825 | $7,737 | $1,363 | | Total stock-based compensation expense | $6,045 | $1,536 | $11,431 | $2,483 | 11. Net Loss Per Share This note explains the calculation of basic and diluted net loss per share, including the treatment of anti-dilutive securities - Potentially dilutive securities (convertible preferred stock, restricted stock, stock options) were excluded from diluted net loss per share calculation as their effect would be anti-dilutive[94] | Anti-Dilutive Securities | June 30, 2025 | June 30, 2024 | | :------------------------------- | :------------ | :------------ | | Convertible preferred stock | — | 24,978,715 | | Unvested restricted stock units | 511,100 | — | | Options to purchase common stock | 10,615,469 | 4,270,097 | 12. Commitments and Contingencies This note discloses the company's contractual obligations, indemnification agreements, and any material legal proceedings - The company has non-cancellable clinical manufacturing contract payment obligations totaling $20.6 million, all payable within 12 months as of June 30, 2025[98] - The company provides indemnification to vendors, lessors, business partners, and directors/officers, with maximum potential payments often unlimited, but no material costs incurred to date[99] - As of June 30, 2025, the company was not subject to any material legal proceedings expected to have an adverse effect on financial results[100] 13. Related Party Transactions This note identifies and describes transactions and relationships with entities considered related parties to the company - Xencor is a related party due to past convertible preferred stock issuance; as of June 30, 2025, Xencor held less than 10% of common stock[101] - Viridian Therapeutics is a related party because Fairmount Funds Management LLC, a 10% or greater stockholder of Viridian with two board seats, also has a seat on Zenas's Board[102] - Zai Lab (Hong Kong) Limited is a related party as Zenas's CEO and Chairman is a member of Zai's board of directors[103] 14. Segment Information This note clarifies that the company operates as a single reportable segment focused on immunology-based therapies - The company manages its operations as a single reportable segment focused on research and development of precision immunology-based therapies[106] - For the six months ended June 30, 2025, $10.0 million in revenue was recognized and attributed to Zenas HK[106] | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $— | $— | $10,000 | $— | | Direct R&D - Obexelimab | $29,894 | $22,788 | $53,254 | $35,082 | | Direct R&D - Partnered regional programs | $(137) | $2,435 | $(37) | $4,023 | | Unallocated R&D | $10,757 | $7,301 | $20,295 | $14,760 | | General and administrative | $8,204 | $5,070 | $16,814 | $9,466 | | Stock-based compensation | $6,045 | $1,536 | $11,431 | $2,483 | | Segment net loss | $(52,223) | $(37,977) | $(85,796) | $(65,777) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operational results, and future outlook, including liquidity, capital resources, and accounting policies Overview This section introduces Zenas BioPharma's focus, lead product candidates, recent IPO, and current financial status - Zenas BioPharma is a clinical-stage biopharmaceutical company focused on developing immunology and inflammation (I&I) therapies, with obexelimab as its lead product candidate[111][112] - Obexelimab is in Phase 3 for IgG4-RD (INDIGO trial, topline results expected year-end 2025) and Phase 2 for relapsing multiple sclerosis (MoonStone trial, results early Q4 2025) and systemic lupus erythematosus (SunStone trial, enrollment by year-end 2025, topline results mid-2026)[113] - The company completed its IPO on September 16, 2024, raising $234.3 million in net proceeds[115] - Zenas incurred net losses of $52.2 million and $85.8 million for the three and six months ended June 30, 2025, respectively, with an accumulated deficit of $473.2 million[119] - Existing cash, cash equivalents, and investments of $274.9 million as of June 30, 2025, are expected to fund operations into the fourth quarter of 2026[123] Significant Risks and Uncertainties This section highlights external factors like geopolitical, economic, and regulatory environments that pose risks to the company's operations - The company faces risks from the current geopolitical, trade, regulatory, and economic environment, including potential increases in operating costs due to tariffs, inflation, and supply chain constraints[124][125] - Economic conditions, such as recession risk and volatility in capital markets, could negatively affect operations and share prices[125] Components of Our Results of Operations This section breaks down the key revenue and expense categories that constitute the company's financial performance - Revenue is derived from collaboration arrangements and license fees, specifically from agreements with BMS, Tenacia, and Zai Lab[127][128] - Research and development expenses, a significant portion of operating expenses, include direct costs for clinical studies and manufacturing, and indirect costs like personnel and consultants[134][135][139] - General and administrative expenses primarily cover personnel, legal, professional fees, facilities, and other operating costs, expected to increase with growth and public company status[143][144] - Other income (expense), net, includes interest income and foreign currency gains/losses[145] - The company has not recorded income tax benefits for deferred tax assets due to expected future operating losses[146] Comparison of the Three Months Ended June 30, 2025 and 2024 This section analyzes the financial performance and key changes in revenue and expenses for the three-month periods - No license and collaboration revenue was recognized in either period[150] - Research and development expenses increased by $9.2 million to $43.0 million, primarily due to a $7.1 million increase in obexelimab development costs (manufacturing and clinical trials) and a $4.7 million increase in personnel costs, partially offset by a $2.6 million decrease in partnered regional programs due to transitions[151][155] - General and administrative expenses increased by $6.2 million to $12.1 million, driven by a $4.9 million increase in personnel costs (including stock-based compensation) for pre-commercialization activities, and increases in professional fees and other operating costs related to being a public company[152][156] - Net loss increased to $52.2 million from $38.0 million in the prior year period[149] Comparison of the Six Months Ended June 30, 2025 and 2024 This section analyzes the financial performance and key changes in revenue and expenses for the six-month periods - Revenue increased by $10.0 million due to an upfront cash payment from the Zai License Agreement[158] - Research and development expenses increased by $21.5 million to $78.0 million, mainly due to an $18.2 million increase in obexelimab development costs (manufacturing and clinical trials) and a $7.9 million increase in personnel costs, partially offset by a $4.1 million decrease in partnered regional programs[159][164] - General and administrative expenses increased by $13.7 million to $24.6 million, primarily due to a $10.4 million increase in personnel costs (including stock-based compensation) for pre-commercialization activities, and higher professional fees and other public company operating costs[160][165] - Net loss increased to $85.8 million from $65.8 million in the prior year period[157] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations and its funding strategy - As of June 30, 2025, the company had $274.9 million in cash, cash equivalents, and investments, and an accumulated deficit of $473.2 million[162] - Existing capital is estimated to fund operations into the fourth quarter of 2026, but additional financing will be required to support continuing operations and growth strategy[166][169] - Future funding requirements are uncertain and depend on clinical trial progress, regulatory approvals, commercialization costs, and intellectual property maintenance[167] - Failure to raise additional funds could lead to delays, reductions, or termination of product development efforts, or relinquishing rights to product candidates[171] Critical Accounting Policies and Significant Judgments and Estimates This section highlights the accounting policies that require management's most difficult, subjective, or complex judgments and estimates - No material changes to critical accounting policies since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[181] - Preparation of financial statements requires management to make judgments, assumptions, and estimates affecting reported amounts, which are evaluated on an ongoing basis[180] Recent Accounting Pronouncements This section refers to disclosures regarding recently issued accounting standards and their potential impact on the financial statements - Refers to Note 2 for a description of recently issued accounting pronouncements that may impact financial position and results of operations[183] Implications of Being an Emerging Growth Company and Smaller Reporting Company This section explains the reduced disclosure and compliance requirements applicable to the company under specific SEC designations - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing for reduced disclosure requirements until December 31, 2029, or earlier if certain thresholds are met[184][185] - The company has elected not to 'opt out' of the extended transition period for complying with new or revised accounting standards, adopting them at the same time as private companies[186] - The company is also a 'smaller reporting company,' which provides exemptions from certain disclosure requirements, such as presenting only two most recent fiscal years of audited financial statements[187] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, including interest rate and foreign currency exchange risks, and the effects of inflation - As of June 30, 2025, the company had $274.9 million in cash, cash equivalents, and investments, exposing it to interest rate risk[188] - The company is exposed to foreign currency exchange risk due to subsidiaries with functional currencies in Chinese Yuan and Swiss Franc, but realized foreign currency transaction gains/losses were immaterial for the periods presented[190] - The company does not currently hedge currency exposure but may in the future, and believes a hypothetical 10% exchange rate change would not materially impact financial statements[191] - Inflation has not had a material effect on the business or financial statements, though it generally increases labor and clinical trial costs[192] Item 4. Controls and Procedures This section confirms management's evaluation of disclosure controls and procedures as effective, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[194] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[195] Part II — Other Information This section provides additional disclosures not covered in the financial information, including legal proceedings, risk factors, and other corporate details Item 1. Legal Proceedings This section confirms no material legal proceedings are currently active, though litigation could negatively impact the company - The company is not currently a party to any material legal proceedings[198] - Litigation can adversely impact the company through defense and settlement costs, diversion of management resources, negative publicity, and reputational harm[198] Item 1A. Risk Factors This comprehensive section details various risks that could adversely impact the company's business, financial condition, and operations across multiple categories Risks Related to Our Financial Position and Need for Capital This section outlines financial risks, including substantial losses, the need for additional capital, and potential stockholder dilution - As a clinical-stage biopharma company with no approved products, Zenas has incurred substantial losses ($473.2 million accumulated deficit as of June 30, 2025) and anticipates increasing losses[200][202] - The company requires substantial additional financing to fund operations and capital expenditures, with current capital expected to last into Q4 2026; failure to obtain funding could delay or terminate product development[205][207] - Raising additional capital through equity or convertible debt would dilute stockholders' ownership, and debt financing may impose restrictive covenants[211] Risks Related to Product Candidate Development and Commercialization This section details risks associated with the lengthy, expensive, and uncertain process of developing and commercializing product candidates - Clinical development is lengthy, expensive, and uncertain; earlier trial results may not predict later-stage outcomes, and product candidates may fail to demonstrate adequate efficacy or safety[215][216] - Delays or difficulties in patient enrollment and dosing in clinical trials can prevent or delay regulatory approvals, especially for rare diseases like IgG4-RD[226] - Significant adverse events or undesirable side effects from product candidates could delay or prevent regulatory approval, limit market acceptance, or lead to negative consequences post-approval[232][237] - The company faces intense competition from large pharmaceutical and biotechnology companies, many with approved therapies in its target indications (e.g., IgG4-RD, MS, SLE)[241][245] - Even if clinical trials are successful, regulatory approval is uncertain and may be for narrower indications or with significant restrictions, impacting commercialization[258][259] - Failure to obtain broad coverage, adequate reimbursement, and favorable pricing from governmental authorities and third-party payors would limit market access and revenue generation for approved products[266] Risks Related to Our Business and Operations This section covers operational risks, including dependence on product candidates, key personnel, manufacturing, IT systems, and product liability - The business depends entirely on the successful development, regulatory approval, and commercialization of its product candidates, which is highly uncertain[277] - Success is dependent on retaining senior management and key clinical/scientific personnel, and the inability to attract or retain such individuals would harm the business[283][285] - The company expects to grow its organization, which may lead to difficulties in managing growth and expanding operations, potentially affecting business adversely[286] - Manufacturing of product candidates is complex and relies on third-party manufacturers; difficulties in production could delay clinical trials, regulatory approval, or commercial supply[287][290] - Compromised internal IT systems or those of third-party contractors could lead to operational interruptions, data loss, reputational harm, litigation, and financial penalties[304][306][314] - The business entails significant product liability risk, and insufficient insurance coverage could adversely affect financial condition and prospects[315] Risks Related to Our Intellectual Property This section addresses risks concerning the company's ability to obtain, maintain, and enforce intellectual property protection for its product candidates - Inability to obtain and maintain sufficient intellectual property protection (patents, know-how, confidentiality) for product candidates could allow competitors to commercialize similar products[318][319][320] - The company primarily in-licenses patent portfolios and does not solely own any issued patents related to its product candidates, creating dependence on licensors[330] - Patent rights may not issue, or issued patents could be challenged and rendered invalid/unenforceable, due to prior art, inventorship disputes, or legal challenges[325][326][335] - Enforcing patents globally is expensive and uncertain, as foreign laws may offer less protection, and compulsory licensing laws could diminish patent value[336][338] - Changes in patent law, such as the Leahy-Smith America Invents Act and recent Supreme Court rulings, increase uncertainties and costs for patent prosecution and enforcement[354][358] - If approved, biologics may face competition from biosimilars approved through abbreviated pathways, potentially shortening exclusivity periods and increasing competitive pressure[371][372] - Failure to protect trade secrets or trademarks could harm the business by eroding competitive position and hindering brand recognition[377][378][380] Risks Related to Government Regulation This section details regulatory risks, including the approval process, ongoing compliance, agency disruptions, healthcare reforms, and data privacy laws - The regulatory approval process is highly uncertain, costly, and time-consuming; the company may be unable to obtain or face delays in U.S. or foreign regulatory approval for its product candidates[384][385] - Even with regulatory approval, the company will be subject to ongoing regulatory obligations, post-marketing review, and potential labeling restrictions or market withdrawal, incurring significant additional expense[390][391][393] - Disruptions at the FDA or comparable foreign regulatory authorities (e.g., funding shortages, global health concerns, political changes) could hinder their ability to review and approve products, negatively impacting the business[396][398][399][400] - Recently enacted and future healthcare reform measures (e.g., ACA, IRA, executive orders on drug pricing) may increase the difficulty and cost of obtaining marketing approval and commercializing products, affecting pricing and reimbursement[401][403][404] - Failure to comply with extensive federal and state healthcare laws and regulations (e.g., anti-kickback, false claims, HIPAA, FDCA) could result in substantial penalties, exclusion from government programs, and adverse business impacts[409][412] - The company is subject to stringent and evolving U.S. and foreign data privacy and security laws (e.g., GDPR, CCPA, CPRA); non-compliance could lead to investigations, litigation, fines, and business disruptions[416][417][418][420][421][424] Risks Related to Our Reliance on Third Parties This section outlines risks stemming from the company's dependence on third-party manufacturers, clinical research organizations, and collaborators - The company currently relies on a single third-party manufacturer, WuXi Biologics (located in China), for drug substances and drug products; any supply interruption, quality issues, or failure to comply with regulations could delay development[433][434] - Establishing additional or replacement suppliers for manufacturing is time-consuming and costly, and changes in manufacturing processes may require additional studies or delays[434][292] - Reliance on third parties (clinical investigators, CROs, data management organizations) to conduct preclinical studies and clinical trials reduces control over timing and quality, and non-compliance could lead to delays or unreliability of data[442][444] - Conflicts with current or future licensors or collaborators could delay or prevent product development or commercialization due to disputes over intellectual property, milestones, or contractual obligations[449][454] - Operations of foreign suppliers, particularly WuXi Biologics in China, are subject to geopolitical tensions, trade restrictions (e.g., tariffs, BIOSECURE Act), and reduced intellectual property protection, which could harm the business[455][458][459] Risks Related to Ownership of Our Common Stock This section addresses risks pertinent to investors, including stock market volatility, dilution, insider influence, dividend policy, and anti-takeover provisions - An active and liquid trading market for the common stock may not be sustained, making it difficult for investors to sell shares at an attractive price[462] - The market price of common stock may be volatile due to operating results, competitive developments, clinical trial outcomes, regulatory changes, and general market conditions[463][464] - Sales of a substantial number of outstanding shares by insiders or other stockholders could cause the market price to decline significantly[466][468] - Directors, executive officers, and greater than 5% stockholders collectively own approximately 63% of outstanding common stock, giving them substantial influence over key transactions[469] - The company does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for investors[470] - Provisions in the Restated Charter, Restated Bylaws, and Delaware law (e.g., classified board, restrictions on stockholder actions) may have anti-takeover effects, discouraging acquisitions or changes in management[474][477] General Risk Factors This section covers broad risks such as economic instability, analyst coverage, public company costs, internal controls, insurance, litigation, and tax changes - Unstable economic and market conditions (e.g., volatility, inflation, geopolitical events) may seriously adversely affect the business, financial condition, and stock price[483] - Failure of securities or industry analysts to publish research or publishing inaccurate/unfavorable research could lead to a decline in stock price and trading volume[484] - Operating as a public company incurs increased costs and requires substantial management time for compliance initiatives and corporate governance practices[485] - Failure to establish and maintain effective internal control over financial reporting could adversely affect the business and investor confidence[486] - The company's insurance policies are expensive and may not protect against all business risks, leaving it exposed to significant uninsured liabilities[491] - Securities class action litigation, such as the one filed in April 2025, is expensive, time-consuming, and can divert management attention, damaging reputation and financial condition[492][493] - Changes in tax rates, new tax legislation, or other exposure to tax liabilities could significantly increase the effective tax rate and materially affect financial condition[494] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no material change in the planned use of proceeds from the company's initial public offering - No material change in the planned use of proceeds from the IPO has occurred[495] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities are to be reported - This item is not applicable, indicating no defaults upon senior securities[496] Item 4. Mine Safety Disclosures This section confirms no mine safety disclosures are to be reported - This item is not applicable, indicating no mine safety disclosures[498] Item 5. Other Information This section reports no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2025[499] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report, including corporate governance documents, agreements, and certifications - The exhibit index includes the Second Restated Certificate of Incorporation, Amended and Restated Bylaws, Non-Employee Director Compensation Policy, a Consulting Agreement, CEO/CFO certifications, and XBRL taxonomy documents[502] Signatures This section contains the duly authorized signatures of the Chief Executive Officer and Chief Business Officer and Chief Financial Officer - The report is signed by Leon O. Moulder, Jr., Chief Executive Officer, and Jennifer Fox, Chief Business Officer and Chief Financial Officer, on August 12, 2025[507]