howl-20230930
000178553012/312023Q3FALSE00017855302023-01-012023-09-3000017855302023-11-10xbrli:shares00017855302023-09-30iso4217:USD00017855302022-12-31iso4217:USDxbrli:shares00017855302023-07-012023-09-3000017855302022-07-012022-09-3000017855302022-01-012022-09-300001785530us-gaap:CommonStockMember2022-12-310001785530us-gaap:AdditionalPaidInCapitalMember2022-12-310001785530us-gaap:RetainedEarningsMember2022-12-3100017855302023-01-012023-03-310001785530us-gaap:CommonStockMember2023-01-012023-03-310001785530us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001785530us-gaap:RetainedEarningsMember2023-01-012023-03-310001785530us-gaap:CommonStockMember2023-03-310001785530us-gaap:AdditionalPaidInCapitalMember2023-03-310001785530us-gaap:RetainedEarningsMember2023-03-3100017855302023-03-3100017855302023-04-012023-06-300001785530us-gaap:CommonStockMember2023-04-012023-06-300001785530us-gaap:AdditionalPaidInCapitalMember2023-04-012023-06-300001785530us-gaap:RetainedEarningsMember2023-04-012023-06-300001785530us-gaap:CommonStockMember2023-06-300001785530us-gaap:AdditionalPaidInCapitalMember2023-06-300001785530us-gaap:RetainedEarningsMember2023-06-3000017855302023-06-300001785530us-gaap:CommonStockMember2023-07-012023-09-300001785530us-gaap:AdditionalPaidInCapitalMember2023-07-012023-09-300001785530us-gaap:RetainedEarningsMember2023-07-012023-09-300001785530us-gaap:CommonStockMember2023-09-300001785530us-gaap:AdditionalPaidInCapitalMember2023-09-300001785530us-gaap:RetainedEarningsMember2023-09-300001785530us-gaap:CommonStockMember2021-12-310001785530us-gaap:AdditionalPaidInCapitalMember2021-12-310001785530us-gaap:RetainedEarningsMember2021-12-3100017855302021-12-310001785530us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-3100017855302022-01-012022-03-310001785530us-gaap:CommonStockMember2022-01-012022-03-310001785530us-gaap:RetainedEarningsMember2022-01-012022-03-310001785530us-gaap:CommonStockMember2022-03-310001785530us-gaap:AdditionalPaidInCapitalMember2022-03-310001785530us-gaap:RetainedEarningsMember2022-03-3100017855302022-03-3100017855302022-04-012022-06-300001785530us-gaap:CommonStockMember2022-04-012022-06-300001785530us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-300001785530us-gaap:RetainedEarningsMember2022-04-012022-06-300001785530us-gaap:CommonStockMember2022-06-300001785530us-gaap:AdditionalPaidInCapitalMember2022-06-300001785530us-gaap:RetainedEarningsMember2022-06-3000017855302022-06-300001785530us-gaap:CommonStockMember2022-07-012022-09-300001785530us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-300001785530us-gaap:RetainedEarningsMember2022-07-012022-09-300001785530us-gaap:CommonStockMember2022-09-300001785530us-gaap:AdditionalPaidInCapitalMember2022-09-300001785530us-gaap:RetainedEarningsMember2022-09-3000017855302022-09-300001785530howl:JazzCollaborationAgreementMember2022-04-012022-04-300001785530howl:JazzCollaborationAgreementMember2023-07-012023-07-310001785530howl:JazzCollaborationAgreementMember2023-01-012023-09-300001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-09-300001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2023-09-300001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001785530us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2023-09-300001785530us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-09-300001785530us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2023-09-300001785530us-gaap:FairValueMeasurementsRecurringMember2023-09-300001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-12-310001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310001785530us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001785530us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-12-310001785530us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001785530us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-12-310001785530us-gaap:FairValueMeasurementsRecurringMember2022-12-310001785530us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2023-01-012023-09-300001785530us-gaap:LoansPayableMemberhowl:TermLoansMember2023-09-300001785530us-gaap:LoansPayableMemberhowl:TrancheILoanMember2022-04-300001785530us-gaap:LoansPayableMemberhowl:TrancheIILoanMember2022-04-300001785530us-gaap:LoansPayableMemberhowl:TermLoansMember2023-01-012023-09-300001785530us-gaap:PrimeRateMember2022-04-012022-04-30xbrli:pure00017855302022-04-012022-04-300001785530us-gaap:LoansPayableMember2023-07-012023-09-300001785530us-gaap:LoansPayableMember2023-01-012023-09-300001785530us-gaap:LoansPayableMember2022-07-012022-09-300001785530us-gaap:LoansPayableMember2022-01-012022-09-300001785530us-gaap:LoansPayableMemberhowl:DebtInstrumentCovenantPeriodOneMember2022-04-012022-04-300001785530us-gaap:LoansPayableMemberhowl:DebtInstrumentCovenantPeriodOneMember2022-04-300001785530us-gaap:LoansPayableMemberhowl:DebtInstrumentCovenantPeriodTwoMember2022-04-012022-04-300001785530us-gaap:LoansPayableMemberhowl:DebtInstrumentCovenantPeriodTwoMember2022-04-300001785530us-gaap:LoansPayableMemberhowl:TermLoansMember2022-04-300001785530us-gaap:LoansPayableMemberhowl:TermLoansMember2023-04-172023-04-1700017855302023-04-172023-04-170001785530howl:ATMOfferingMembersrt:MaximumMember2022-05-100001785530howl:ATMOfferingMember2022-05-100001785530howl:ATMOfferingMember2022-05-102023-09-300001785530howl:ATMOfferingMember2023-09-300001785530us-gaap:StockOptionMember2023-09-300001785530us-gaap:StockOptionMember2022-12-310001785530us-gaap:RestrictedStockUnitsRSUMember2023-09-300001785530us-gaap:RestrictedStockUnitsRSUMember2022-12-310001785530us-gaap:WarrantMember2023-09-300001785530us-gaap:WarrantMember2022-12-310001785530howl:A2021StockEmployeeStockPurchasePlanMember2023-09-300001785530howl:A2021StockEmployeeStockPurchasePlanMember2022-12-310001785530us-gaap:EmployeeStockOptionMember2023-09-300001785530us-gaap:EmployeeStockOptionMember2022-12-310001785530us-gaap:CommonStockMember2021-04-300001785530howl:A2021StockIncentivePlanMemberus-gaap:CommonStockMember2021-04-300001785530howl:A2017StockIncentivePlanMemberus-gaap:CommonStockMember2021-04-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockMember2021-04-300001785530howl:A2021StockIncentivePlanMember2021-04-012021-04-300001785530howl:A2021StockIncentivePlanMemberus-gaap:CommonStockMember2022-01-012022-01-010001785530howl:A2021StockIncentivePlanMemberus-gaap:CommonStockMember2023-01-012023-01-010001785530howl:A2021StockIncentivePlanMember2023-09-300001785530us-gaap:EmployeeStockMemberhowl:A2021StockEmployeeStockPurchasePlanMember2021-04-300001785530us-gaap:EmployeeStockMemberhowl:A2021StockEmployeeStockPurchasePlanMembersrt:MinimumMember2021-04-012021-04-300001785530us-gaap:EmployeeStockMemberhowl:A2021StockEmployeeStockPurchasePlanMember2021-04-012021-04-300001785530us-gaap:EmployeeStockMemberhowl:A2021StockEmployeeStockPurchasePlanMember2023-01-012023-01-010001785530howl:A2021StockEmployeeStockPurchasePlanMember2021-04-012021-04-300001785530howl:A2021StockEmployeeStockPurchasePlanMember2021-04-300001785530howl:A2021StockEmployeeStockPurchasePlanMember2023-07-012023-09-300001785530howl:A2021StockEmployeeStockPurchasePlanMember2023-01-012023-09-300001785530howl:A2021StockEmployeeStockPurchasePlanMember2023-09-300001785530us-gaap:ResearchAndDevelopmentExpenseMember2023-07-012023-09-300001785530us-gaap:ResearchAndDevelopmentExpenseMember2022-07-012022-09-300001785530us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-09-300001785530us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-09-300001785530us-gaap:GeneralAndAdministrativeExpenseMember2023-07-012023-09-300001785530us-gaap:GeneralAndAdministrativeExpenseMember2022-07-012022-09-300001785530us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-09-300001785530us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-09-300001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2022-12-310001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2023-01-012023-09-300001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2023-09-300001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2023-07-012023-09-300001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2022-07-012022-09-300001785530howl:A2017StockIncentivePlanMemberus-gaap:RestrictedStockMember2022-01-012022-09-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2022-12-310001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2023-01-012023-09-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2023-09-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-012022-09-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2022-07-012022-09-300001785530howl:A2021StockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2023-07-012023-09-300001785530us-gaap:PerformanceSharesMember2022-10-012022-12-310001785530us-gaap:PerformanceSharesMember2023-01-012023-09-300001785530us-gaap:PerformanceSharesMember2023-04-012023-06-300001785530us-gaap:PerformanceSharesMember2023-09-300001785530us-gaap:EmployeeStockOptionMember2023-07-012023-09-300001785530us-gaap:EmployeeStockOptionMember2022-07-012022-09-300001785530us-gaap:EmployeeStockOptionMember2023-01-012023-09-300001785530us-gaap:EmployeeStockOptionMember2022-01-012022-09-300001785530us-gaap:EmployeeStockOptionMember2022-12-310001785530us-gaap:EmployeeStockOptionMember2022-01-012022-12-310001785530us-gaap:EmployeeStockOptionMember2023-09-300001785530us-gaap:EmployeeStockOptionMember2023-01-012023-09-300001785530us-gaap:EmployeeStockOptionMember2022-01-012022-09-300001785530us-gaap:RestrictedStockMember2023-01-012023-09-300001785530us-gaap:RestrictedStockMember2022-01-012022-09-300001785530us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-09-300001785530us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-09-300001785530us-gaap:WarrantMember2023-01-012023-09-300001785530us-gaap:WarrantMember2022-01-012022-09-30
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 30, 2023
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 001-40366
______________________________________________________________________________________
WEREWOLF THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
______________________________________________________________________________________
Delaware82-3523180
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
200 Talcott Ave, 2nd Floor
Watertown, Massachusetts
(Address of principal executive offices)
02472
(Zip Code)
Registrant’s telephone number, including area code: (617) 952‑0555
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per share
HOWL
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, a 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 filerAccelerated 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 November 10, 2023, there were 36,192,248 shares of common stock, $0.0001 par value per share, outstanding.


Table of Contents

Table of Contents
 
Page
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022


Table of Contents
References to Werewolf
Throughout this Quarterly Report on Form 10-Q, or Quarterly Report, the “Company,” “Werewolf,” “Werewolf Therapeutics,” “we,” “us,” “our,” and similar references, except where the context requires otherwise, refer to Werewolf Therapeutics, Inc. and its consolidated subsidiary, and “board of directors” refers to the board of directors of Werewolf Therapeutics, Inc.
Cautionary Note Regarding Forward-Looking Statements and Industry Data
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements.
The words “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
the initiation, timing, progress and results of our research and development programs, preclinical studies and ongoing and planned clinical trials, including the anticipated timing of data announcements;
our estimates regarding expenses, capital requirements, need for additional financing and the period over which we believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
our plans to develop and, if approved, subsequently commercialize product candidates;
the timing of and our ability to submit applications and obtain and maintain regulatory approvals for product candidates;
the potential advantages of our PREDATOR platform and our ability to use our platform to identify and develop future product candidates;
our estimates regarding the potential market opportunities for our product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
the impact of government laws and regulations;
our competitive position and expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available; and
developments and expectations regarding developments and projections relating to our competitors and our industry.
There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II, Item 1A. “Risk Factors”, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.
You should read this Quarterly Report and the documents that we have filed or incorporated by reference as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and
1

Table of Contents
we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely on these statements.
Trademarks and Trade names
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. The service marks and trademarks that we own include the marks PREDATOR™ and INDUKINE™. Other trademarks, service marks and trade names appearing in this Quarterly Report are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Quarterly Report are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
Risk Factor Summary
Our business is subject to numerous risks that, if realized, could materially and adversely affect our business, financial condition, results of operations and future growth prospects. These risks are discussed more fully in Part II, Item 1A. “Risk Factors” in this Quarterly Report. These risks include, but are not limited to, the following:
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future.
We have no products approved for commercial sale and have not generated any revenue from product sales. We may never generate any revenue from product sales or become profitable or, if we achieve profitability, we may not be able to sustain it.
We will need to obtain substantial additional funding to finance our operations and complete the development and any commercialization of WTX-124, WTX-330 and any future product candidates.
We are early in our development efforts and our current product candidates will require successful completion of preclinical and clinical development before we can seek regulatory approval for any product candidates.
Our business is highly dependent on the success of our initial INDUKINE molecules, which are in the early stages of development and will require significant additional preclinical and clinical development before we can seek regulatory approval for and launch a product commercially.
Our approach to the discovery and development of product candidates based on our PREDATOR platform is unproven, and we do not know whether we will be able to develop any products of commercial value.
Manufacturing INDUKINE molecules is subject to risk since they are a novel class of multi-domain biologics that include protease cleavable linkers, and they have never been produced on a commercial scale. We may be unable to
2

Table of Contents
manufacture INDUKINE molecules at the scale needed for clinical development and commercial production on a timely basis or at all.
Preclinical studies and clinical trials are expensive, time-consuming and difficult to design and implement, and involve uncertain outcomes.
We may encounter substantial delays in the commencement or completion, or termination or suspension, of our clinical trials, which could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We are developing WTX-124, and could develop WTX-330 and potentially future product candidates, in combination with third-party drugs, some of which may still be in development, and we will have limited or no control over the safety, supply, regulatory status or regulatory approval of such drugs.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any product candidates.
The manufacturing of biologics is complex, and we do not have our own clinical manufacturing capabilities. We will rely on third parties to produce preclinical, clinical and commercial supplies of all current and any future product candidates.
We rely on our license agreement with Harpoon Therapeutics, Inc. for patent rights with respect to our product candidates and may in the future acquire additional third-party intellectual property rights on which we may similarly rely. We face risks with respect to such reliance, including the risk that we could lose these rights that are important to our business if we fail to comply with our obligations under these licenses.
Our proprietary position in part depends upon patents that are manufacturing, formulation or method-of-use patents, which may not prevent a competitor or other third party from using the same product candidate for another use.
In the second quarter of 2023, we identified a material weakness in our internal control over financial reporting, and that weakness has led to a conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective as of September 30, 2023. Our inability to remediate the material weakness, our discovery of additional weaknesses, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could adversely affect our results of operations, our stock price and investor confidence.
3

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Werewolf Therapeutics, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(amounts in thousands, except par value amounts)
September 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$130,058 $129,315 
Prepaid expenses and other current assets
3,289 3,957 
Other receivables5,911 6,928 
Total current assets
139,258 140,200 
Property and equipment, net
8,342 8,988 
Restricted cash and cash equivalents, net of current portion
21,019 1,214 
Operating lease right of use asset
7,251 8,463 
Other non-current assets
516 1,380 
Total assets
$176,386 $160,245 
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable
$1,386 $1,221 
Accrued expenses and other current liabilities
7,967 14,152 
Operating lease liability, current
1,605 2,084 
Deferred revenue, current
1,814 6,532 
Note payable, current
1,667  
Total current liabilities
14,439 23,989 
Operating lease liability, net of current portion
11,352 12,600 
Deferred revenue, net of current portion
588 1,128 
Notes payable, net of discount, issuance costs, and current portion
37,564  
Other liabilities 191 
Total liabilities
63,943 37,908 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value, 5,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued or outstanding as of September 30, 2023 and December 31, 2022, respectively
  
Common stock, $0.0001 par value, 200,000 shares authorized as of September 30, 2023 and December 31, 2022; 35,658 and 31,515 shares issued as of September 30, 2023 and December 31, 2022, respectively; 35,658 and 31,434 shares outstanding as of September 30, 2023 and December 31, 2022, respectively
3 3 
Additional paid-in capital
444,510 429,039 
Accumulated deficit
(332,070)(306,705)
Total stockholders’ equity
112,443 122,337 
Total liabilities and stockholders’ equity
$176,386 $160,245 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents

Werewolf Therapeutics, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(amounts in thousands, except per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenue:
Collaboration revenue$5,897 $4,970 $18,442 $9,118 
Operating expenses:
Research and development
10,838 13,070 32,127 37,902 
General and administrative
4,310 4,439 13,856 14,093 
Total operating expenses
15,148 17,509 45,983 51,995 
Operating loss
(9,251)(12,539)(27,541)(42,877)
Other income:
Other (expense) income, net
(5)3 (1,136)268 
Interest income, net
971 593 3,312 729 
Total other income
966 596 2,176 997 
Net loss
$(8,285)$(11,943)(25,365)(41,880)
Net loss per share, basic and diluted
$(0.23)$(0.40)$(0.72)$(1.48)
Weighted-average common shares outstanding, basic and diluted
35,654 29,764 35,335 28,233 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents
Werewolf Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
(amounts in thousands)
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Total Stockholders’ Equity
Shares
Amount
Balance at December 31, 202231,515 $3 $429,039 $(306,705)$122,337 
Issuance of common stock from at the market offering, net of issuance costs of $103
3,824 — 8,610 — 8,610 
Stock-based compensation expense— — 2,108 — 2,108 
Net loss
— — — (11,982)(11,982)
Balance at March 31, 202335,339 3 439,757 (318,687)121,073 
Issuance of common stock from at the market offering, net of issuance costs of $31
272 — 644 — 644 
Issuance of common stock under Employee Stock Purchase Plan29 — 45 — 45 
Stock-based compensation expense— — 1,930 — 1,930 
Stock option exercises2 — 5 — 5 
Net loss
— — — (5,098)(5,098)
Balance at June 30, 202335,642 3 442,381 (323,785)118,599 
Issuance of common stock from at the market offering, net of issuance costs of $29
15 — 30 — 30 
Stock-based compensation expense— — 2,097 — 2,097 
Stock option exercises1 — 2 — 2 
Net loss
— — — (8,285)(8,285)
Balance at September 30, 202335,658 $3 $444,510 $(332,070)$112,443 
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Total Stockholders’ Equity
Shares
Amount
Balance at December 31, 202127,608 $2 $405,680 $(252,895)$152,787 
Stock-based compensation expense— — 1,745 — 1,745 
Stock option exercises46 — 129 — 129 
Net loss
— — — (15,343)(15,343)
Balance at March 31, 202227,654 2 407,554 (268,238)139,318 
Issuance of common stock from at the market offering, net of issuance costs of $314
801 — 3,339 — 3,339 
Stock-based compensation expense— — 1,777 — 1,777 
Stock option exercises1 — 1 — 1 
Net loss
— — — (14,594)(14,594)
Balance at June 30, 202228,456 2 412,671 (282,832)129,841 
Issuance of common stock from at the market offering, net of issuance costs of $87
2,248 1 11,019 — 11,020 
Stock-based compensation expense— — 1,936 — 1,936 
Stock option exercises32 — 93 — 93 
Net loss
— — — (11,943)(11,943)
Balance at September 30, 202230,736 $3 $425,719 $(294,775)$130,947 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents
Werewolf Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(amounts in thousands)
Nine Months Ended
September 30,
20232022
Operating activities:
Net loss
$(25,365)$(41,880)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
6,135 5,458 
Depreciation expense
1,304 687 
Non-cash interest expense181  
Non-cash lease expense
1,212 1,265 
Change in fair value of success payment liability(1,030)253 
Amortization of debt issuance costs60  
Changes in operating assets and liabilities:
Prepaid expenses and other current assets    
596 (3,398)
Other receivables1,017 (4,300)
Other non-current assets136 (1,204)
Accounts payable
241 (778)
Accrued expenses and other current liabilities
(5,338)4,677 
Deferred revenue(5,258)10,801 
Operating lease liability
(1,727)(498)
Other liabilities
(191)191 
Net cash used in operating activities
(28,027)(28,726)
Investing activities:
Purchases of property and equipment
(571)(3,093)
Net cash used in investing activities
(571)(3,093)
Financing activities:
Proceeds from at the market offering of common stock9,447 14,761 
Proceeds from drawdown of term loans40,000  
Payment of equity issuance costs(143)(341)
Proceeds from issuances under Employee Stock Purchase Plan
45  
Proceeds from stock option exercises
7 230 
Net cash provided by financing activities
49,356 14,650 
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents
20,758 (17,169)
Cash, cash equivalents and restricted cash and cash equivalents—beginning of period
130,529 158,830 
Cash, cash equivalents and restricted cash and cash equivalents—end of period
$151,287 $141,661 
Supplemental disclosure of cash flow information:
Cash paid for interest$1,646 $ 
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued expenses$198 $307 
Issuance costs in accounts payable and accrued expenses
$24 $61 
Stock option exercise receivables in prepaid expenses and other current assets
$ $(7)
Leasehold improvements paid by landlord$ $5,444 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Table of Contents
Werewolf Therapeutics, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business
Werewolf Therapeutics, Inc. (“Werewolf” or the “Company”) was incorporated in the state of Delaware in October 2017. The Company is an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer. The Company’s headquarters are located in Watertown, Massachusetts.
Since inception, the Company has devoted substantially all of its time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support these operations. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The Company had cash and cash equivalents of $130.1 million at September 30, 2023. The Company expects that its cash and cash equivalents will enable it to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of the condensed consolidated financial statements in this Form 10-Q. However, additional funding will be necessary beyond this point to fund future preclinical and clinical activities. The Company expects to finance its future cash needs through a combination of equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements as of September 30, 2023 and December 31, 2022, and for the three and nine months ended September 30, 2023 and 2022, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”) for condensed consolidated financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments which are necessary for a fair presentation of the Company’s financial position and results of its operations, as of and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 23, 2023 (the “2022 Annual Report”).
The information presented in the condensed consolidated financial statements and related notes as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, is unaudited. The December 31, 2022 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
Interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or any future period.
The accompanying condensed consolidated financial statements include the accounts of Werewolf Therapeutics, Inc. and its wholly owned subsidiary, Werewolf Therapeutics Mass Securities, Inc. All intercompany transactions and balances have been eliminated in consolidation.
Summary of Significant Accounting Policies
The significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the 2022 Annual Report. There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2023.
8

Table of Contents
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates and judgments including, but not limited to, those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation and income taxes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.
Subsequent Events
The Company has evaluated subsequent events and transactions that occurred in the period from the balance sheet date to the date that the financial statements were issued. Other than as described in these condensed consolidated financial statements, the Company did not identify any subsequent events that require adjustment or disclosure in the condensed consolidated financial statements.
3. Jazz Collaboration and License Agreement
In April 2022, the Company entered into an exclusive global collaboration and license agreement (the “Collaboration Agreement”) with Jazz Pharmaceuticals Ireland Limited (“Jazz”) pursuant to which the Company granted Jazz certain licenses to develop and commercialize products containing the Company’s Interferon alpha (“IFNα”) INDUKINE™ molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a “Licensed Product”). Under the Collaboration Agreement, the Company is responsible for certain pre-clinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans. Jazz will generally reimburse the Company for the cost of such activities. Jazz will be responsible for all other development and commercialization activities conducted to exploit the Licensed Products, including submission of an investigational new drug application (“IND”) to the U.S. Food and Drug Administration (the “FDA”). Jazz received IND application clearance for JZP898 in July 2023.
Under the terms of the Collaboration Agreement, the Company received a non-refundable upfront cash payment of $15.0 million in April 2022 and a variable consideration payment of $5.0 million in July 2023, which is included in the overall transaction price as described below.
Milestones and Royalties
The Company is eligible to receive up to $520.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. In addition, the Company is eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’ annual net sales of Licensed Products, subject to reduction in specified circumstances.
As of September 30, 2023, the Company has not recognized any revenue related to sales-based milestones.
Accounting Analysis under ASC 606
Identification of the Contract(s)
The Company assessed the Collaboration Agreement and concluded that it represents a contract with a customer within the scope of ASC Topic 606, Revenue from Contracts with Customers.
Identification of Promises and Performance Obligations
The Company has concluded that the exclusive license to its intellectual property, JZP898, and the non-exclusive corresponding “know-how” are not capable of being distinct from the other promises within the contract, and as such, the Company has determined that the license and “know-how” combined with the other research and development services and supply represent a single combined performance obligation.
Determination of Transaction Price
The overall transaction price as of the inception of the contract was determined to be $32.3 million, which is comprised of the nonrefundable upfront payment of $15.0 million and the estimated costs for research services of $17.3 million. Outside of the estimated costs for research services, there is no other variable consideration included in the transaction price at inception. The Company used the most likely amount method to estimate variable consideration and estimated that the most likely amount for
9

Table of Contents
each potential development and regulatory milestone payment under this agreement was zero at the inception of the contract, as achievement of those milestones was uncertain and highly susceptible to factors outside the Company’s control. Accordingly, all such milestone payments were excluded from the transaction price at inception of contract. Management reevaluates the transaction price at the end of each reporting period, including developing a revised estimate for research services costs and the most likely amount for each potential development and regulatory milestone, and as uncertain events are resolved or other changes in circumstances occur, adjusts the transaction price as necessary. Sales based royalties, including milestones based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate. The Company will recognize such revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
The upfront payment of $15.0 million was recorded as deferred revenue and, along with payments related to the Company’s conduct of research services under the Collaboration Agreement or any development and regulatory milestones, will be recognized as revenue using an input-based measurement of actual costs incurred as a percentage of the estimated total costs expected to be incurred over the expected term of conduct of the research services. The Company believes this input-based method to recognize revenue best reflects the transfer of value to Jazz. The remaining deferred revenue is expected to be recognized as revenue over a term of approximately 2.5 years.
Recognition of Revenue
For the nine months ended September 30, 2023, using the cost-to-cost input method, which best depicts the research services performed for the customer, the Company recognized $18.4 million of revenue related to the Collaboration Agreement. During the three and nine months ended September 30, 2023, the Company determined that a variable consideration payment totaling $5.0 million was likely to be achieved and accordingly revised its estimate of the overall transaction price to include this amount. During the three and nine months ended September 30, 2023, the Company recognized a cumulative catch-up of revenue of $4.2 million related to the increase to the overall transaction price of $5.0 million, based on the cost-to-cost input method discussed above. As of September 30, 2023, there is $1.8 million and $0.6 million of current and non-current deferred revenue, respectively, related to the Collaboration Agreement. As of December 31, 2022, there was $6.5 million and $1.1 million of current and non-current deferred revenue, respectively, related to the Collaboration Agreement. All costs associated with the Collaboration Agreement are recorded in research and development expense in the condensed consolidated statements of operations.
Unbilled receivables related to the Collaboration Agreement of $0.9 million and $4.1 million is included within other receivables in the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively. Receivables related to the Collaboration Agreement of $5.0 million and $2.8 million are included within other receivables in the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.
The following table presents changes in the Company’s contract liabilities during the nine months ended September 30, 2023 (in thousands):
Balance as ofBalance as of
December 31, 2022AdditionsReductionsSeptember 30, 2023
Contract liabilities:
Deferred revenue$7,660 $5,000 $(10,258)$2,402 
Totals$7,660 $5,000 $(10,258)$2,402 
As of September 30, 2023, the Company has not received any royalty payments under the Collaboration Agreement.
4. Financial Instruments and Fair Value Measurements
Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. As a basis for considering such assumptions, GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used to develop the assumptions and for measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds, classified as cash, cash equivalents and restricted cash and cash equivalents on the Company’s condensed consolidated balance
10

Table of Contents
sheets, and a success payment liability pursuant to an amended and restated loan and security agreement (the “Loan Agreement”) with Pacific Western Bank (“PWB”) (see Note 7, Term Loan).
The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities.
The carrying amounts reflected in the condensed consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.
Assets measured at fair value on a recurring basis as of September 30, 2023 were as follows (in thousands):
Level 1
Level 2
Level 3
Total
Assets:
Money market funds
$144,740 $ $ $144,740 
Total assets
$144,740 $ $ $144,740 
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 were as follows (in thousands):
Level 1
Level 2
Level 3
Total
Assets:
Money market funds
$128,812 $ $ $128,812 
Total assets
$128,812 $ $ $128,812 
Liabilities
Success payment liability$ $ $570 $570 
Total liabilities$ $ $570 $570 
The success payment liability was included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets as of December 31, 2022.
There were no changes in valuation techniques during the three or nine months ended September 30, 2023. There were no liabilities measured at fair value on a recurring basis as of September 30, 2023.
Success Payment Liability
The Company was obligated to pay to PWB a one-time success payment of up to $1.6 million upon the occurrence of the Company achieving certain conditions defined in the Loan Agreement. The Success Fee Event (as defined in the Loan Agreement) occurred during the second quarter of 2023, resulting in the immediate payment in full of the required Success Fee (as defined in Note 7 below).
The following table reconciles the change in fair value of the success payment liability during the nine months ended September 30, 2023 based on Level 3 inputs (in thousands):
Nine Months Ended
September 30, 2023
Balance at December 31, 2022$570 
Additions 
Change in fair value1,030 
Payment at Success Event(1,600)
Balance at September 30, 2023$ 
The success payment liability is stated at fair value and was previously considered Level 3 because its fair value measurement was based, in part, on significant inputs not observed in the market. Upon completion of the Success Fee Event, the Company removed the corresponding financial instrument for the success payment liability and paid the total $1.6 million. Prior to repayment, the Company remeasured the liability at fair value with a corresponding increase of $1.0 million recorded to other expense, net for the nine months ended September 30, 2023.
5. Restricted Cash and Cash Equivalents
The Company maintained restricted cash and cash equivalents of $21.2 million and $1.2 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, $20.0 million of the restricted cash and cash equivalents balance represents an obligation under the term loan facility to maintain a minimum cash balance in the Company’s PWB accounts. This became effective upon imminent achievement of the funding goal as required by the terms of the Loan Agreement (see Note 7, Term Loan). The remaining restricted cash amounts are comprised solely of letters of credit required pursuant to the
11

Table of Contents
Company’s leased office spaces. The current portion of restricted cash and cash equivalents is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets for all periods presented below (in thousands):
Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Beginning of PeriodEnd of PeriodBeginning of PeriodEnd of Period
Cash and cash equivalents$129,315 $130,058 $157,531 $140,450 
Restricted cash and cash equivalents, current 210 91  
Restricted cash and cash equivalents, net of current portion1,214 21,019 1,208 1,211 
Cash, cash equivalents and restricted cash and cash equivalents$130,529 $151,287 $158,830 $141,661 
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of September 30, 2023 and December 31, 2022 were comprised as follows (in thousands):
September 30,
2023
December 31,
2022
Manufacturing
$1,928$6,674
Contract research
1,7452,990
Employee compensation and benefits
2,6663,135
Professional fees
678613
Success payment liability 570 
Other
950 170 
Total accrued expenses and other current liabilities
$7,967$14,152
7. Term Loan
In April 2022, the Company entered into the Loan Agreement with PWB. Under the terms of the Loan Agreement, PWB made available a term loan in an aggregate principal amount of up to $20.0 million (“Tranche I Loan”) available at any time after the closing date until February 28, 2024 as extended to August 31, 2024 upon the satisfaction of certain conditions set forth in the Loan Agreement (such date, the “Amortization Date”). Based on the satisfaction of certain conditions defined in the Loan Agreement, PWB was also obligated to make available an additional term loan in the aggregate principal amount of up to $20.0 million (“Tranche II Loan”, or collectively with the Tranche I Loan, the “Term Loans”) available at any time after the closing date until the Amortization Date upon the acceptance by the U.S. Food and Drug Administration (the “FDA”) of two investigational new drug (“IND”) submissions on or before March 31, 2023. As of September 30, 2023, the Company has drawn down $40.0 million of the Term Loans.
The outstanding notes payable balance under the Term Loans as of September 30, 2023 consists of the following (in thousands):
September 30, 2023
Note payable
$40,000 
Unamortized debt discount and issuance costs(769)
Net carrying amount of note payable
39,231 
Less: current portion of note payable
(1,667)
Note payable, net, less current portion
$37,564 
Subsequent to the interest-only period, which ends on August 31, 2024, the Company is required to make equal monthly principal payments plus interest until the Term Loans mature on August 31, 2026. The Term Loans will bear interest on the outstanding daily balance at a floating annual rate equal to greater of: (i) 0.5% above the prime rate then in effect or (ii) 4.5%. If the prime rate changes throughout the term, the interest rate will be adjusted effective on the date of the prime rate change. All interest chargeable under the Loan Agreement is computed on a 360-day year for the actual number of days elapsed, with interest payable monthly. The Company recognized interest expense related to the Loan Agreement of $0.9 million and $1.9 million during the three and nine months ended September 30, 2023, respectively. The Company did not incur interest expense during the three and nine months ended September 30, 2022.
The Company was obligated to pay PWB a one-time fee in the event of certain corporate transactions equal to either (i) the greater of (a) $0.2 million and (b) 2.0% of the amount drawn under the Term Loans, for a transaction occurring on or before
12

Table of Contents
March 31, 2023, or (ii) for any transaction occurring thereafter, the greater of (a) $0.4 million and (b) 4.0% of the amount drawn under the Term Loans (the “Success Fee”). The Success Fee Event occurred during the second quarter of 2023, resulting in the immediate payment in full of the $1.6 million required Success Fee.
All outstanding obligations under the Loan Agreement are secured by the Company’s personal property (exclusive of any intellectual property) and are subject to acceleration in the event of default. In the event of a late payment or default, the Company is obligated to pay a fee equal to 5.0% of such unpaid amounts. In connection with the Loan Agreement, the Company is required to comply with certain negative covenants, which among other things, restrict the Company from (i) incurring future debt or granting liens, (ii) effectuating a merger or consolidation with or into any other business organization, (iii) paying dividends or making certain other distributions, (iv) selling or otherwise transferring its assets, (v) making investments in any entities or instruments other than certain investments specified in the Loan Agreement and (vi) making capitalized expenditures in excess of 125% of the amount provided for in the annual budget approved by the board of directors. The Loan Agreement also contains standard affirmative covenants, including with respect to the issuance of audited consolidated financial statements, insurance, and maintenance of good standing and government compliance in the Company’s state of formation. On or before September 30, 2023, the Company was required to raise aggregate gross cash process of at least $50.0 million from the sale or issuance of the Company’s equity or from strategic partnerships or any similar transaction. From after receipt of those proceeds, the Company is required to maintain at all times at least $20.0 million of otherwise unrestricted cash in accounts with PWB, which is included within restricted cash and cash equivalents, net of current portion on the Company’s condensed consolidated balance sheet as of September 30, 2023. On April 17, 2023, the Company achieved the $50.0 million funding milestone, triggering the corresponding $20.0 million cash covenant, full payment of the Success Fee of $1.6 million, and the updated Amortization Date of August 31, 2024.
PWB has the right to accelerate all outstanding obligations of the Company under the Loan Agreement or terminate any remaining Term Loan commitments in the event of a material adverse effect on (i) the operations, business or financial condition of the Company, (ii) the Company’s ability to repay any portion of the Term Loans or perform any of its other obligations under the Loan Agreement, and (iii) the Company’s interest in, or the value, perfection or priority of PWB’s security interest in the collateral. As of September 30, 2023, the Company had drawn both Term Loans and had $40.0 million outstanding principal.
8. Common and Preferred Stock
Common Stock
The Company is authorized to issue 200.0 million shares of common stock. Common stockholders are entitled to dividends if and when declared by the Company’s board of directors. As of September 30, 2023, no dividends on common stock had been declared by the Company.
On May 10, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with Leerink Partners LLC (“Leerink”), formerly known as SVB Securities LLC, pursuant to which the Company may offer and sell shares of its common stock with an aggregate offering price of up to $50.0 million (the “ATM Offering”). The Sales Agreement provides that Leerink will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. As of September 30, 2023, the Company had sold an aggregate of 7,938,848 shares under the ATM Offering at an average price of $3.33 per share for net proceeds of $25.0 million after deducting sales commissions and offering expenses.
Preferred Stock
The Company is authorized to issue 5.0 million shares of undesignated preferred stock in one or more series. As of September 30, 2023, no shares of preferred stock were issued or outstanding.
Shares Reserved for Future Issuance
The Company had reserved shares of common stock for issuance as follows (in thousands):
As of September 30,As of December 31,
20232022
Shares reserved for exercises of outstanding stock options
6,4805,244
Shares reserved for vesting of restricted stock units
317323
Shares reserved for exercises of warrants
5959
Shares reserved for future issuance under the 2021 Employee Stock Purchase Plan
530244
Shares reserved for future issuance under the 2021 Stock Incentive Plan1,281939
Total shares reserved for future issuance
8,6676,809
13


9. Stock-based Compensation
2017 Stock Incentive Plan
In December 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”), as amended and restated, under which it could grant incentive stock options (“ISOs”), non-qualified stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), stock appreciation rights and other stock-based awards to eligible employees, officers, directors and consultants. The terms of stock options and RSAs, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2017 Plan.
2021 Stock Incentive Plan
In April 2021, the board of directors adopted and the Company’s stockholders approved the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the effectiveness of the Company’s initial public offering (“IPO”). As a result of the adoption of the 2021 Plan, no further awards will be made under the 2017 Plan.
The 2021 Plan provides for the grant of ISOs, non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan. The terms of awards, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2021 Plan.
The Company initially registered 3,352,725 shares of common stock under the 2021 Plan, pursuant to a Registration Statement on Form S-8 filed with the SEC on April 30, 2021, which was comprised of (i) 2,843,116 shares of common stock reserved for issuance under the 2021 Plan, (ii) 31,884 shares of common stock originally reserved for issuance under the 2017 Plan that became available for issuance under the 2021 Plan upon the completion of the IPO, and (iii) 477,725 shares of unvested restricted stock subject to repurchase by the Company that may become issuable under the 2021 Plan following such repurchase. The 2021 Plan also provides that an additional number of shares will be added annually to the shares authorized for issuance under the 2021 Plan on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2022 and continuing until, and including, the fiscal year ending December 31, 2031. The number of shares added each year will be equal to the lesser of (i) 5% of the number of outstanding common stock on such date and (ii) such amount as determined by the board of directors. Effective January 1, 2022 and 2023, 1,380,397 and 1,575,753 additional shares, respectively, were automatically added to the shares reserved for issuance under the 2021 Plan pursuant to this evergreen provision.
As of September 30, 2023, there were 1,281,089 shares available for future issuance under the 2021 Plan.
2021 Employee Stock Purchase Plan
In April 2021, the board of directors adopted and the Company’s stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the effectiveness of the IPO. The Company initially reserved 244,000 shares of common stock for future issuance under the 2021 ESPP. The 2021 ESPP provides that an additional number of shares will automatically be added to the shares reserved for issuance on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022 and continuing for each fiscal year until, and including, the fiscal year ending on December 31, 2032. The number of shares added each year will be equal to the lowest of (i) 488,000 shares of common stock, (ii) 1% of the number of shares of outstanding common stock on such date, and (iii) such amount as determined by the board of directors. Effective January 1, 2023, 315,150 additional shares were automatically added to the shares reserved for issuance under the 2021 ESPP pursuant to the evergreen provision. The Company initiated its first offering period under the 2021 ESPP in December 2022.
The 2021 ESPP provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual purchase of the Company’s common stock. The 2021 ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the last date of purchase (or, if not a trading day, on the immediately preceding trading day). The offering period under the 2021 ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date. The Company estimates the fair value of the common stock under the 2021 ESPP using a Black-Scholes valuation model. For the three and nine months ended September 30, 2023, the fair value of common stock awarded was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following assumptions: risk-free interest rate (3.8%); expected term (0.5 years); expected volatility (92.7%); and an expected dividend yield (0%). The Company recorded less than $0.1 million of stock-based compensation under the 2021 ESPP for the three and nine months ended September 30, 2023. As of September 30, 2023, there was unrecognized stock-based compensation expense of less than $0.1 million related to the most recent ESPP offering period, which ended May 31, 2023.
14

Table of Contents
Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Research and development
$1,008 $909 $3,047 $2,496 
General and administrative
1,089 1,027 3,088 2,962 
Total stock-based compensation
$2,097 $1,936 $6,135 $5,458 
RSA Activity
The Company may, at its discretion, repurchase unvested shares of restricted stock issued pursuant to the 2017 Plan at the initial purchase price if the employees or non-employees terminate their service relationship with the Company.
The following table summarizes RSA activity during the nine months ended September 30, 2023 (in thousands, except per share amounts):
Shares/UnitsWeighted-Average
Grant Date Fair
Value Per Share
Unvested at December 31, 202281 $1.38 
Granted
 $ 
Vested
(81)$1.38 
Forfeited
 $ 
Unvested at September 30, 2023 $ 
As of September 30, 2023, there was no unrecognized stock-based compensation expense related to unvested RSAs.
No RSAs vested during the three months ended September 30, 2023. The aggregate fair value of RSAs that vested during the three months ended September 30, 2022, based upon the fair values of the stock underlying the RSAs on the day of vesting, was $0.3 million. The aggregate fair value of RSAs that vested during the nine months ended September 30, 2023 and 2022, based upon the fair values of the stock underlying the RSAs on the day of vesting, was $0.2 million and $1.0 million, respectively.
RSU Activity
The Company has also granted RSUs to its employees under the 2021 Plan. The following table summarizes RSU activity during the nine months ended September 30, 2023 (in thousands, except per share amounts):
Shares/UnitsWeighted-Average
Grant Date Fair
Value Per Share
Unvested at December 31, 2022323 $4.32 
Granted
 $ 
Vested
 $ 
Forfeited
(6)$4.97 
Unvested at September 30, 2023317 $4.30 
As of September 30, 2023, there was unrecognized stock-based compensation expense related to unvested RSUs of $0.4 million, which the Company expects to recognize over a weighted-average period of approximately 0.5 year.
No RSUs vested during the three or nine months ended September 30, 2023 or 2022.
Stock Option Activity
During the three months ended September 30, 2022, the Company granted performance-based stock options to certain executive officers for the purchase of an aggregate of 883,352 shares of common stock with a grant date fair value of $3.36 per share. These stock options vest only upon achievement of specified performance targets related to certain business objectives on or before December 31, 2023. As of September 30, 2023, none of these options were vested because none of the specified performance targets had been achieved. Because achievement of the specified performance targets was not deemed probable as
15

Table of Contents
of September 30, 2023, the Company has not recorded any expense for these stock options from the date of issuance through September 30, 2023. During the second quarter of 2023, 101,447 of the performance-based stock options were forfeited by an executive who retired from the Company. The total unrecognized stock-based compensation expense for the remaining outstanding performance-based stock options is $2.6 million as of September 30, 2023.
The fair value of stock options granted during the three and nine months ended September 30, 2023 and 2022 was calculated on the date of grant using the following weighted-average assumptions:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Risk-free interest rate
4.3 %2.9 %3.9 %2.3 %
Expected term (in years)
6.09.86.07.6
Dividend yield
 % % % %
Expected volatility
84.8 %77.9 %82.7 %77.0 %
Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the three months ended September 30, 2023 and 2022 was $1.91 and $3.35 per share, respectively. Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was $1.56 and $5.00 per share, respectively.
The following table summarizes stock option activity during the nine months ended September 30, 2023: 
Options Outstanding
Number of Options
(in thousands)
Weighted-Average Exercise PriceWeighted-Average Remaining
Contractual Life
(in years)
Outstanding at December 31, 20225,244 $7.86 8.34
Granted
1,616 $2.16 
Exercised
(3)$1.98 
Cancelled
(377)$5.82 
Outstanding at September 30, 20236,480 $6.56 8.14
Exercisable at September 30, 20232,831 $7.67 7.64
The aggregate intrinsic fair value of stock options exercised during the three months ended September 30, 2023 and 2022 was less than $0.1 million in both periods. The aggregate intrinsic fair value of stock options exercised during the nine months ended September 30, 2023 and 2022 was less than $0.1 million and $0.4 million, respectively.
As of September 30, 2023, there was unrecognized stock-based compensation expense related to unvested stock options of $11.2 million, which the Company expects to recognize over a weighted-average period of approximately 1.7 years.
10. Related Parties
In May 2022, the Company entered into a sublease agreement with Crossbow Therapeutics, Inc. (“Crossbow”), for which entities affiliated with MPM Capital (“MPM Capital”) are also beneficial owners, to sublease the entirety of its office and laboratory space in Cambridge, Massachusetts. Luke Evnin, Ph.D., the chair of the Company’s board of directors, co-founded MPM Capital and serves as Managing Director of MPM Capital. Briggs Morrison, who serves on the Company’s board of directors, serves as Executive Partner of MPM Capital and Chief Executive Officer of Crossbow. The term of the sublease agreement commenced in June 2022 and ends in March 2024, with no option to extend. The Company received cash payments under its sublease of approximately $1.2 million during the nine months ended September 30, 2023. In addition, the Company received $0.2 million from Crossbow in June 2022 as a security deposit that is included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2023.
11. Net Loss Attributable to Common Stockholders per Share
For purposes of the diluted net loss attributable to common stockholders per share calculation, outstanding stock options, unvested RSAs, unvested RSUs and warrants to purchase common stock are considered to be potentially dilutive securities,
16

Table of Contents
however the following weighted-average amounts were excluded from the calculation of diluted net loss attributable to common stockholders per share because their effect would be anti-dilutive (in thousands):
September 30,
20232022
Outstanding stock options
6,480 5,279 
Unvested RSAs 126 
Unvested RSUs317 236 
Warrants to purchase common stock
59 59 
Total
6,856 5,700 
17

Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside resources, so as to allow investors to better view our company from management’s perspective. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 Annual Report on Form 10-K, that was filed with the United States Securities and Exchange Commission, or SEC, on March 23, 2023. In addition to historical information, the discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report, including those factors set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” and in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report. You should carefully read the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report.
Overview
We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer. We are leveraging our proprietary PREDATOR platform to design conditionally activated molecules that stimulate both adaptive and innate immunity with the goal of addressing the limitations of conventional proinflammatory immune therapies. Our molecules, which we refer to as INDUKINE molecules, are intended to activate selectively in the tumor microenvironment. Our most advanced product candidates, WTX-124 and WTX-330, are systemically delivered, conditionally activated Interleukin-2 and Interleukin-12, respectively, INDUKINE molecules for the treatment of multiple tumor types.
In the second quarter of 2022, we received clearance from the U.S. Food and Drug Administration, or the FDA, for our investigational new drug application, or IND, for WTX-124. In the third quarter of 2022, the first patient was dosed in a Phase 1/1b clinical trial to evaluate WTX-124 as a monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in patients with immunotherapy sensitive advanced or metastatic solid tumors who have failed standard of care treatment, including checkpoint inhibitor therapy. In November 2023, we announced preliminary first-in-human clinical data from the initial monotherapy dose-escalation cohorts in the Phase 1/1b clinical trial. The preliminary data established proof of mechanism for WTX-124 and proof of concept for our INDUKINE design, and included assessments of safety and tolerability, pharmacokinetics, relevant biomarkers and preliminary antitumor activity. The preliminary data included data collected as of October 18, 2023, from 16 heavily pretreated patients from the first four monotherapy dose escalation cohorts (1, 3, 6, and 12 mg), and supported continued dose escalation. Dose escalation is ongoing in the monotherapy and combination therapy arms of the trial. Additional data from monotherapy dose-escalation cohorts will inform declaration of recommended dose for expansion and opening of the monotherapy expansion arms. We expect additional interim data from the monotherapy dose escalation arm and the recommended dose for expansion arm in the first half of 2024.
In the fourth quarter of 2022, we received clearance from the FDA for our IND for WTX-330. In the first quarter of 2023, the first patient was dosed in a Phase 1 clinical trial to evaluate the safety and tolerability of WTX-330 in patients with advanced or metastatic solid tumors or lymphoma resistant to checkpoint inhibitors or for which checkpoint inhibitors are not approved.
In April 2022, we entered into a collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, pursuant to which we granted Jazz certain licenses to develop and commercialize products containing our Interferon alpha (IFNα) INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria which we refer to as the Licensed Products. Under the Collaboration Agreement, we are initially responsible for certain pre-clinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans. Jazz will generally reimburse us for the cost of such activities. Jazz is responsible for all other development and commercialization activities conducted to exploit the Licensed Products, including submission of an IND to the FDA. Jazz received IND application clearance for JZP898 in July 2023. Under the terms of the Collaboration Agreement, we received an upfront payment of $15.0 million in April 2022, and we are eligible to receive cost reimbursements for research services performed under the Collaboration Agreement. We are also eligible to receive up to $520.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. In addition, we are eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’, annual net sales of Licensed Products, subject to reduction in specified circumstances.
We were incorporated and commenced operations in 2017. Since inception, we have devoted substantially all of our time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support these operations. To date, we have financed our operations primarily with proceeds from the sales of our convertible
18

Table of Contents
promissory notes and equity securities and from the upfront payment that we received from Jazz pursuant to the terms of the Collaboration Agreement. From December 2017 to August 2018, we issued convertible promissory notes for aggregate gross cash proceeds of $11.0 million. From August 2019 to June 2020, we issued an aggregate of 80,246,565 shares of Series A preferred stock for aggregate gross cash proceeds of $44.2 million, together with conversion of all of our previously issued convertible promissory notes. In December 2020, we issued 78,222,173 shares of Series B preferred stock at a price of $0.92 per share, resulting in gross cash proceeds of $72.1 million. On May 4, 2021, we completed our initial public offering, or IPO, pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of $16.00 per share. We received net proceeds of approximately $109.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC, or Leerink (formerly known as SVB Securities LLC),pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $50.0 million, which we refer to as the ATM Offering. As of September 30, 2023, we had sold an aggregate of 7,938,848 shares under the ATM Offering at an average price of $3.33 per share for net proceeds of $25.0 million after deducting sales commissions and offering expenses.
Due to our significant research and development expenditures, we have accumulated substantial net losses since our inception. As of September 30, 2023, we had an accumulated deficit of $332.1 million. We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.
Financial Operations Overview
Revenue
We have not generated any revenue to date from product sales and do not expect to do so in the near future. For the nine months ended September 30, 2023, we recognized $18.4 million of revenue related to the Collaboration Agreement, of which $5.9 million related to the $15.0 million upfront payment received in April 2022, $8.1 million related to costs incurred for research services to be reimbursed by Jazz, and $4.4 million related to a variable consideration payment. We had $2.4 million of deferred revenue as of September 30, 2023, which is classified as either current or net of current portion in our condensed consolidated balance sheets based on the period over which the revenue is expected to be recognized. As of September 30, 2023, we had not received any royalty payments under the Collaboration Agreement.
In the future, we expect to continue to generate revenue from the Collaboration Agreement and may generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
19

Table of Contents
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
expenses incurred under agreements with third parties that conduct research, preclinical and clinical activities on our behalf;
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; and
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses.
We typically use our employee and infrastructure resources across our development programs. We track external development costs by product candidate or development program, but generally we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.
Our external development costs for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
WTX-124
$1,318 $1,644 $1,871 $6,913 
WTX-330
1,839 3,224 2,491 8,586 
JZP898 (formerly WTX-613)
791 2,224 6,960 4,406 
WTX-712347 — 965 — 
Pre-development candidates
760 435 2,189 1,907 
Total external development costs
$5,055 $7,527 $14,476 $21,812 
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, complete pre-clinical requirements for WTX-712, and continue to discover and develop additional product candidates. As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 will generally be reimbursed by Jazz.
The decrease in development costs during the three months ended September 30, 2023, is primarily due to a decrease in manufacturing costs incurred with contract manufacturing organizations to support the production of preclinical, current, and future clinical trial materials for WTX-124 and WTX-330 as more fully described below under “Results of Operations – Research and Development Expenses.”
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. The actual probability of success for our product candidates will depend on a variety of factors, including:
the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials, including our ongoing Phase 1/1b clinical trial for WTX-124 and Phase 1 clinical trial for WTX-330, and other research and development activities;
establishing an appropriate safety profile;
successful enrollment in and completion of clinical trials;
20

Table of Contents
whether our product candidates show safety and efficacy in our clinical trials;
receipt of marketing approvals from applicable regulatory authorities;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
continued acceptable safety profile of the products following any regulatory approval.
A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates and we may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel in our executive, finance, people operations, business development, legal, IT and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support the increasing size and complexity of our research, development and manufacturing activities.
Other Income
Other (Expense) Income, Net
Other (expense) income, net consists primarily of remeasurement gains or losses attributable to changes in the fair value of the success payment liability associated with our debt agreement with Pacific Western Bank, or PWB, and amortization of debt issuance costs related to our debt agreement with PWB. For more information see “Liquidity and Capital Resources” below.
Interest Income, Net
Interest income, net consists of interest income earned from our cash and cash equivalents, net of interest expense incurred from our Loan Agreement with PWB.
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):
 Three Months Ended
September 30,
$ Change
20232022
Revenue:
Collaboration revenue$5,897 $4,970 $927 
Operating expenses:
Research and development
10,838 13,070 (2,232)
General and administrative
4,310 4,439 (129)
Total operating expenses
15,148 17,509 (2,361)
Operating loss
(9,251)(12,539)3,288 
Other income:
Other (expense) income, net
(5)(8)
Interest income, net
971 593 378 
Total other income
966 596 370 
Net loss
$(8,285)$(11,943)$3,658 
 
21

Table of Contents
Revenue
Revenue was $5.9 million for the three months ended September 30, 2023, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz, costs incurred for research services to be reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components. Comparatively, we recognized $5.0 million in collaboration revenue during the three months ended September 30, 2022. This $0.9 million increase in collaboration revenue is primarily driven by a change in the transaction price of $5.0 million during the three months ended September 30, 2023, upon achieving a variable consideration component included in the Collaboration Agreement, which led to an additional recognition of $4.4 million during the period. This increase was partially offset by a decline in revenue recognized as a result of a decrease in research and development activities related to JZP898.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended September 30, 2023 and 2022 (in thousands):
 Three Months Ended
September 30,
$ Change
20232022
Personnel$3,635 $3,652 $(17)
Contract research1,188 863 325 
Lab consumables1,202 1,020 182 
Clinical trial costs1,715 665 1,050 
Manufacturing2,152 5,999 (3,847)
Facilities777 662 115 
Other169 209 (40)
Total research and development expenses$10,838 $13,070 $(2,232)
Research and development expenses for the three months ended September 30, 2023 were $10.8 million, compared to $13.1 million for the three months ended September 30, 2022. The decrease of $2.2 million was primarily due to:
$3.8 million of decreased manufacturing costs driven by a decrease of $2.9 million in contract manufacturing costs associated with candidates WTX-124 and WTX-330 as these costs were higher in the prior period as we prepared for initiation of our clinical trials; likewise, contract manufacturing costs associated with JZP898 decreased by $0.9 million as these costs were higher in the prior period as we prepared for IND submission of JZP898.
The decrease was partially offset by:
$1.1 million of increased clinical trial costs, primarily driven by continued expansion of sites and enrollment for both our WTX-124 and WTX-330 trials;
$0.3 million of increased contract research costs driven primarily by proof-of-concept (or “POC”) costs in the current period for WTX-712; and
$0.2 million of increased lab consumables costs primarily related to expanded discovery efforts and headcount.
22

Table of Contents
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2023 and 2022 (in thousands):
 Three Months Ended
September 30,
$ Change
20232022
Personnel$2,204 $2,214 $(10)
Professional services1,024 837 187 
Corporate insurance330 701 (371)
Facility costs358 324 34 
IT costs174142 32 
Other220 221 (1)
Total general and administrative expenses$4,310 $4,439 $(129)
General and administrative expenses were $4.3 million for the three months ended September 30, 2023, compared to $4.4 million for the three months ended September 30, 2022. The decrease of $0.1 million was primarily due a reduction in insurance premiums in the current period, which was offset in part by an increase in costs incurred to protect our intellectual property.
Other (Expense) Income, Net
Other (expense) income, net for the three months ended September 30, 2023 and 2022 consisted primarily of foreign currency gains and losses related to services performed by foreign vendors. No material foreign currency gains or losses were recognized in either period.
Interest Income, Net
Interest income was $1.0 million for the three months ended September 30, 2023, compared to $0.6 million for the three months ended September 30, 2022. This increase in interest income was primarily a result of higher interest rates during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Results of Operations
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):
 Nine Months Ended
September 30,
$ Change
20232022
Revenue:
Collaboration revenue$18,442 $9,118 $9,324 
Operating expenses:
Research and development
32,127 37,902 (5,775)
General and administrative
13,856 14,093 (237)
Total operating expenses
45,983 51,995 (6,012)
Operating loss
(27,541)(42,877)15,336 
Other income:
Other (expense) income, net
(1,136)268 (1,404)
Interest income, net
3,312 729 2,583 
Total other income
2,176 997 1,179 
Net loss
$(25,365)$(41,880)$16,515 
 
Revenue
Revenue was $18.4 million for the nine months ended September 30, 2023, which is comprised of partial recognition of the $15.0 million upfront payment received in April 2022 upon the execution of the Collaboration Agreement with Jazz, costs incurred for research services to be reimbursed by Jazz, and revenue related to the achievement of certain variable consideration components. Comparatively, we recognized $9.1 million in collaboration revenue during the nine months ended September 30, 2022. This $9.3 million increase in collaboration revenue is partially driven by a change in the transaction price of $5.0 million
23

Table of Contents
during the nine months ended September 30, 2023, upon achieving a variable consideration component included in the Collaboration Agreement, which led to an additional recognition of $4.4 million during the period. Additionally, we recognized an increase in revenue recognized as a result of an increase in research and development activities related to JZP898.

Research and Development Expenses
The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022 (in thousands):
 Nine Months Ended
September 30,
$ Change
20232022
Personnel
$11,402 $10,853 $549 
Manufacturing
5,803 14,892 (9,089)
Clinical trial costs5,049 3,364 1,685 
Contract research organization
3,624 3,556 68 
Lab consumables3,513 2,664 849 
Facilities
2,170 2,108 62 
Other566 465 101 
Total research and development expenses$32,127 $37,902 $(5,775)
Research and development expenses for the nine months ended September 30, 2023 were $32.1 million, compared to $37.9 million for the nine months ended September 30, 2022. The decrease of $5.8 million was primarily due to:
$9.1 million of decreased manufacturing costs driven by a decrease of $7.7 million in costs incurred with contract manufacturing organizations to support the production of preclinical, current, and future clinical trial materials associated with candidates WTX-124, WTX-330, WTX-712, and JZP898, and by $1.4 million of favorable adjustments recognized during the current period upon the closeout of completed purchase orders.
The decrease was partially offset by:
$1.7 million of increased clinical trial costs, primarily driven by continued expansion of sites and enrollment for both our WTX-124 and WTX-330 trials;
$0.8 million of increased lab consumables costs primarily related to expanded discovery efforts and headcount; and
$0.5 million of increased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2023 and 2022 (in thousands):
 Nine Months Ended
September 30,
$ Change
20232022
Personnel$6,979 $6,728 $251 
Professional services
3,230 2,983 247 
Corporate insurance
1,461 2,150 (689)
Facilities
954 1,049 (95)
IT costs486 444 42 
Other746 739 
Total general and administrative expenses$13,856 $14,093 $(237)
General and administrative expenses were $13.9 million for the nine months ended September 30, 2023, compared to $14.1 million for the nine months ended September 30, 2022. The decrease of $0.2 million was primarily due to:
$0.7 million of decreased corporate insurance costs, driven by a reduction in associated premiums.
24

Table of Contents
The decrease was partially offset by:
$0.3 million of increased personnel costs, including $0.1 million of increased stock-based compensation expense, due to increased headcount to support operating as a public company; and
$0.2 million of increased professional services costs, driven by costs incurred to protect our intellectual property.
Other (Expense) Income, Net
During the nine months ended September 30, 2023, other (expense) income, net primarily consisted of $1.0 million in losses recognized for the change in the fair value of the success payment liability during the period. Comparatively, we recognized a gain of $0.3 million related to the change in the fair value of the success payment liability during the nine months ended September 30, 2022.
Interest Income, Net
Interest income was $3.3 million for the nine months ended September 30, 2023, compared to $0.7 million for the nine months ended September 30, 2022. This increase in interest income was primarily a result of higher interest rates during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations through September 30, 2023 primarily through aggregate cash proceeds from convertible promissory notes of $11.0 million, gross proceeds from private placements of our convertible preferred stock of $116.3 million, net proceeds from our IPO of $109.2 million, a non-refundable upfront payment of $15.0 million received in connection with the Collaboration Agreement, $16.3 million of expense reimbursements and milestone receipts from Jazz pursuant to the Collaboration Agreement, net proceeds from our ATM Offering of $25.0 million and the drawdown of $40.0 million of Term Loans.
Jazz Collaboration
In April 2022, we entered into the Collaboration Agreement with Jazz. Under the terms of the Collaboration Agreement, we received an upfront payment of $15.0 million in April 2022, and we are eligible to receive cost reimbursements for research services performed under the Collaboration Agreement. In addition, we are eligible to receive up to $520.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. As of September 30, 2023, we have received $5.0 million in proceeds related to variable consideration components. In addition, we are eligible to receive tiered mid-single digit royalties based on Jazz’s, and any of its affiliates’ and sublicensees’, annual net sales of Licensed Products, subject to reduction in specified circumstances.
Term Loan Facility
In April 2022, we entered into an amended and restated loan and security agreement, or the Loan Agreement, with PWB, which amended and restated in its entirety our previous loan and security agreement with PWB. Under the terms of the Loan Agreement, PWB made available term loans in an aggregate principal amount of up to $40.0 million, or the Term Loans, consisting of (i) a term loan in the aggregate principal amount of up to $20.0 million available at any time until February 28, 2024 (which was extended to August 31, 2024 upon the satisfaction of certain conditions set forth in the Loan Agreement), or the Amortization Date, and (ii) a term loan in the aggregate principal amount of up to $20.0 million available at any time until the Amortization Date upon the acceptance by the FDA of two IND submissions on or before March 31, 2023. On March 15, 2023, we drew down $40.0 million of the Term Loans.
The Term Loans bear interest on the outstanding daily balance at a floating annual rate equal to greater of: (i) 0.5% above the prime rate then in effect or (ii) 4.50%. If the prime rate changes throughout the term, the interest rate is adjusted effective on the date of the prime rate change. All interest chargeable under the Loan Agreement is computed on a 360-day year for the actual number of days elapsed, with interest payable monthly. The Loan Agreement provides for interest-only payments until the Amortization Date, at which time the aggregate outstanding principal balance of the Term Loans is required to be repaid in monthly installments on a 24-month repayment schedule. All unpaid principal and accrued and unpaid interest with respect to the Term Loans is due and payable in full on August 31, 2026. At our option, we may elect to prepay all, or any part, of the outstanding Term Loans at any time without premium or penalty.
We were obligated to pay PWB a one-time fee in the event of certain corporate transactions equal to either (i) the greater of (a) $200,000 and (b) 2.00% of the amount drawn under the Term Loans for a transaction occurring on or prior to March 31, 2023, or (ii) for any transaction occurring thereafter, the greater of (a) $400,000 and (b) 4.00% of the amount drawn under the Term Loans, which fee is referred to as a Success Fee, upon the occurrence of a Success Fee Event (as defined in the Loan Agreement). In April 2023, the Success Fee Event occurred and, as such, we became obligated to pay the corresponding
25

Table of Contents
Success Fee to PWB, in accordance with the terms of the Loan Agreement. We removed the corresponding financial instrument for the Success Fee liability and paid the total $1.6 million upon occurrence of the Success Fee Event. Upon occurrence of the Success Fee Event, the Amortization Date was extended to August 31, 2024, thereby extending the due date for all unpaid principal and accrued and unpaid interest with respect to the Term Loans to August 31, 2026.
Under the Loan Agreement, we are required to comply with certain negative covenants, which among other things, restrict us from incurring future debt or granting liens, effectuating a merger or consolidation with or into any other business organization, paying dividends or making certain other distributions, selling or otherwise transferring our assets, and making investments in any entities or instruments, subject, in each case, to certain exceptions specified in the Loan Agreement. The Loan Agreement also contains standard affirmative covenants, including with respect to the issuance of audited consolidated financial statements, insurance, maintenance of good standing and government compliance in our state of formation. We maintain at least $20.0 million of cash in PWB accounts, included within restricted cash and cash equivalents, net of current portion on our condensed consolidated balance sheet as of September 30, 2023, which we are required to maintain at all times pursuant to the terms of the Loan Agreement. Our failure to comply with any of the foregoing covenants would result in an event of default under the Loan Agreement.
ATM Offering
On May 10, 2022, we entered the Sales Agreement with Leerink, pursuant to which we may offer and sell shares of our common stock with an aggregate offering price of up to $50.0 million, which we refer to as the ATM Offering. The Sales Agreement provides that Leerink will be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. As of September 30, 2023, we had sold an aggregate of 7,938,848 shares under the ATM Offering at an average price of $3.33 per share for net proceeds of $25.0 million after deducting sales commissions and offering expenses.
Plan of Operation and Future Funding Requirements
We use our capital resources primarily to fund operating expenses, primarily research and development expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical and clinical development of our product candidates. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Further, inflation generally affects us by increasing our cost of labor and certain services. We do not believe that inflation has had a material effect on our financial statements included elsewhere in this Quarterly Report; however, our operations may be adversely affected by inflation in the future.
Due to our significant research and development expenditures, we have accumulated substantial net losses in each period since inception. We have incurred an accumulated deficit of $332.1 million through September 30, 2023. We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.
As of September 30, 2023, we had cash and cash equivalents of $130.1 million. We expect that our existing cash and cash equivalents, will be sufficient to fund our operational expenses and capital expenditure requirements through at least the next twelve months from the date the condensed consolidated financial statements included elsewhere in this Quarterly Report are issued on November 14, 2023. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.
The timing and amount of our operating expenditures will depend largely on:
the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to our clinical trials of WTX-124 and WTX-330 and the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;
the cost of manufacturing our product candidates WTX-124, WTX-330, and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;
26

Table of Contents
the costs of any third-party products used in our combination clinical trials that are not covered by such third parties or other sources;
the success of our collaboration with Jazz;
the timing of, and the cost involved in, obtaining marketing approval for WTX-124 and WTX-330, or any future product candidates, and our ability to obtain marketing approval and generate revenue from any potential commercial sales of such product candidates;
the cost of building a sales force in anticipation of product commercialization and the cost of commercialization activities for WTX-124, WTX-330, or any future product candidates if we receive marketing approval, including marketing, sales and distribution costs;
the potential emergence of competing therapies and other adverse market developments;
the amount and timing of any payments we may be required to make pursuant to our license agreement with Harpoon Therapeutics, Inc., or Harpoon, or other future license agreements or collaboration agreements;
our ability to establish future collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
any product liability or other lawsuits related to our product candidates;
the extent to which we in-license or acquire other products and technologies; and
the costs of operating as a public company.
Our existing cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity may result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.
27

Table of Contents
Cash Flows
The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):
 Nine Months Ended
September 30,
20232022
Net cash (used in) provided by:
Operating activities
$(28,027)$(28,726)
Investing activities
(571)(3,093)
Financing activities
49,356 14,650 
Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents
$20,758 $(17,169)
Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023 was $28.0 million, compared to $28.7 million for the nine months ended September 30, 2022. This decrease of $0.7 million was primarily attributable to the $16.1 million difference in the change to deferred revenue during each period. For the nine months ended September 30, 2023, deferred revenue decreased $5.3 million due to the continued progress in Jazz collaboration research, compared to an increase of $10.8 million for the nine months ended September 30, 2022 related to the non-refundable upfront cash payment at the inception of the Collaboration Agreement. This was partially offset by a decrease in net loss for the comparable periods of $16.5 million, primarily driven by increased revenue recorded under the Collaboration Agreement for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
 Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023 was $0.6 million, compared to $3.1 million for the nine months ended September 30, 2022. This decrease was driven by high capital expenditures in the second quarter of 2022 related to leasehold improvements for our new headquarters, which was established in May 2022.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2023 was $49.4 million, compared to $14.7 million for the nine months ended September 30, 2022. Cash provided by financing activities for the nine months ended September 30, 2023 primarily consisted of proceeds from the $40.0 million drawdown of the Term Loans and proceeds of $9.4 million from our ATM Offering during the period. Comparatively, cash provided by financing activities for the nine months ended September 30, 2022 consisted primarily of $14.8 million in proceeds from our ATM Offering during the period.
Contractual Obligations
Overview
In the normal course of business, we enter into agreements with CROs, contact manufacturers, vendors and other third parties for preclinical studies and clinical trials, manufacturing services and other services and products for operating purposes. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.
Term Loan Facility
See “Liquidity and Capital Resources – Sources of Liquidity – Term Loan Facility” for a description of our Loan Agreement. As of September 30, 2023, we had drawn the Term Loans for a total principal of $40.0 million. Upon achievement of the Loan Agreement’s funding milestone, the maturity date of the Term Loans was extended to August 31, 2026. Interest-only payments are to be made until August 31, 2024, at which point the interest-only period lapses and consecutive equal payments of principal are due along with interest. The Term Loans bear interest at a floating annual rate equal to the greater of: (i) 0.5% above the prime rate then in effect or (ii) 4.5%. If the prime rate changes throughout the term, the interest rate will be adjusted effective on the date of the prime rate change. All interest chargeable under the Loan Agreement is computed on a 360-day year for the actual number of days elapsed, with interest payable monthly.
Lease Agreements
Total estimated base rent payments over the remaining term of the lease for office and laboratory space that we entered into in April 2019 as our prior headquarters are approximately $0.5 million. In May 2022, we entered into a sublease agreement with Crossbow Therapeutics, Inc., or Crossbow, a related party, to sublease the entirety of this space. The rent payments we expect
28

Table of Contents
to receive over the remaining term of the sublease is approximately $0.6 million, which is greater than the rent paid by us to the landlord for the leased premises. Crossbow is obligated to pay all real estate taxes and costs related to the subleased premises, including cost of operations, maintenance, repair, replacement, and property management.
The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022. Total estimated base rent payments over the remaining term of the lease are approximately $16.1 million.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments including, but not limited to, those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation and income taxes. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our 2022 Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 23, 2023. During the three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies from those previously disclosed.
JOBS Act Accounting Election and Smaller Reporting Company Implications
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of reduced disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act if we are a smaller reporting company with less than $100.0 million in annual revenue.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, or the Exchange Act, and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting as discussed below.
29

Table of Contents
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on our assessment as of September 30, 2023, management concluded that our internal control over financial reporting was not effective due to a material weakness relating to design and operating deficiencies in our purchasing process, specifically related to the application of invoices to purchase orders and processes to estimate progress on open purchase orders and to identify inaccurate expense estimates within purchase orders.
Notwithstanding this material weakness, our management, including our chief executive officer and chief financial officer, has concluded that our financial statements in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America. The material weakness did not result in any restatements of consolidated financial statements previously reported by us, nor were there any changes to previously released financial results.
Remediation Plan
We have implemented, and are continuing to implement, measures designed to improve internal control over financial reporting to remediate the control deficiencies that led to the material weakness by, among other things, expanding managerial oversight of, and adding process controls to, our purchasing process, including approval and ongoing management of purchase orders and related invoices, and assessment of progress and estimated expenses. We have utilized and will continue to utilize financial consultants to assist with the evaluation and documentation of process controls. As of September 30, 2023, we have initiated testing of our remediation efforts, including the adoption of incremental financial policies, procedures, and internal controls. We expect our remediation efforts to continue through at least the fourth quarter of 2023. We expect to complete the remediation of the material weakness after the conclusion of testing.

Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the most recent financial quarter covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Subsequent to the identification of the material weakness described above, management has taken actions to remediate the deficiency that resulted in that material weakness.


30

Table of Contents
PART II—OTHER INFORMATION
Item 1A. Risk Factors.
Our business is subject to numerous risks. You should carefully consider the risks described below, as well as the other information in this Quarterly Report, including our condensed consolidated financial statements and the related notes and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations and future growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below.
Risks Related to Our Limited Operating History, Financial Position and Capital Requirements
We have a limited operating history, have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future.
We are an early-stage biopharmaceutical company with a limited operating history upon which our business and prospects can be evaluated. We commenced operations in 2017. To date, we have focused primarily on organizing and staffing our company; business planning; raising capital; developing and optimizing our platform technology; identifying potential product candidates; enhancing our intellectual property portfolio; undertaking research, preclinical studies, and clinical trials; and enabling manufacturing for our development programs. Our approach to the discovery and development of product candidates based on our PREDATOR platform is unproven, and we do not know whether we will be able to develop any approved products of commercial value. In addition, we currently only have two product candidates that we are developing independently, WTX-124 and WTX-330, and all of our other development programs are in discovery or preclinical stages. We have not yet demonstrated an ability to successfully complete any Phase 1, Phase 2 or pivotal clinical trials, obtain regulatory approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct the sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing biopharmaceutical products.
We have incurred significant operating losses since our inception and have not yet generated any product revenue. If our product candidates are not successfully developed and approved, we may never generate any product revenue. Our net loss was $8.3 million for the three months ended September 30, 2023 . As of September 30, 2023, we had an accumulated deficit of $332.1 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase substantially as WTX-124 and WTX-330 advance through development, and any future product candidates advance through preclinical studies and into and through clinical trials, and as we expand our clinical, regulatory, quality and manufacturing capabilities and incur additional costs associated with operating as a public company. If we obtain marketing approval for any of our product candidates, we will incur significant commercialization expenses for marketing, sales, manufacturing and distribution. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to develop commercial capabilities, and we may not be successful in doing so. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.
We have no products approved for commercial sale and have not generated any revenue from product sales. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.
To date, we have not generated any revenue from our product candidates or product sales, we do not expect to generate any revenue from the sale of products for a number of years and we may never generate revenue from the sale of products. Our ability to generate product revenue depends on a number of factors, including, but not limited to, our ability to:
successfully complete our ongoing and planned preclinical studies;
successfully submit INDs to the FDA for any future product candidates;
successfully complete clinical trials for WTX-124 and WTX-330;
successfully enroll subjects in and complete future clinical trials;
initiate and successfully complete all safety and efficacy studies to obtain U.S. and foreign regulatory approval for our product candidates;
establish clinical and commercial manufacturing capabilities or make arrangements with third party manufacturers for clinical supply and commercial manufacturing;
obtain and maintain patent and trade secret protection or regulatory exclusivity for our product candidates;
31

Table of Contents
launch commercial sales of our products, if and when approved, whether alone or in collaboration with others;
obtain and maintain acceptance of the products, if and when approved, by patients, the medical community and third-party payors;
effectively compete with other therapies;
obtain and maintain healthcare coverage and adequate reimbursement;
enforce and defend intellectual property rights and claims; and
maintain a continued acceptable safety profile of our products following approval.
Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of expenses we may incur in connection with these activities prior to generating product revenue. In addition, we may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product candidates or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
We will need to obtain substantial additional funding to finance our operations and complete the development and any commercialization of WTX-124, WTX-330 and any future product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate one or more of our research and development programs or other operations.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We expect to incur increasing expenses and operating losses over the next several years as we pursue clinical development of our product candidates and implement the additional infrastructure necessary to support our operations as a public reporting company. Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all. If we obtain marketing approval for WTX-124, WTX-330 or any other product candidates that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Some of these expenses may be incurred in advance of marketing approval and could be substantial.
As of September 30, 2023, we had cash and cash equivalents of $130.1 million. We expect that our existing cash and cash equivalents will allow us to complete the development of WTX-124 through dose escalation and expansion as a monotherapy or in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) and the development of WTX-330 through dose escalation and expansion as a monotherapy.
Our cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidate. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed, on attractive terms or at all, would have a negative effect on our financial condition and our ability to develop and commercialize our current and any future product candidates, and otherwise pursue our business strategy and we may be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
In addition, our cash forecasts are based on assumptions that may prove to be wrong, and we could use our available capital resources earlier than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional financing sooner than planned. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Our future capital requirements, both short-term and long-term, will depend on many factors, including:
the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to WTX-124 and WTX-330;
the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;
the cost of manufacturing our lead product candidates, WTX-124 and WTX-330, and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;
32

Table of Contents
the costs of any third-party products used in our combination clinical trials that are not covered by such third parties or other sources;
the timing of, and the cost involved in, obtaining marketing approval for WTX-124, WTX-330 or any future product candidates, and our ability to obtain marketing approval and generate revenue from any potential commercial sales of such product candidates;
the cost of building a sales force in anticipation of product commercialization and the cost of commercialization activities for WTX-124, WTX-330 or any future product candidates if we receive marketing approval, including marketing, sales and distribution costs;
the potential emergence of competing therapies and other adverse market developments;
the amount and timing of any payments we may be required to make pursuant to our license agreement with Harpoon Therapeutics, Inc., or Harpoon, or other future license agreements or collaboration agreements;
our ability to establish future collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
any product liability or other lawsuits related to our product candidates;
the extent to which we in-license or acquire other products and technologies; and
the costs of operating as a public company.
We do not have any committed external source of funds, and adequate additional financing may not be available to us on acceptable terms, or at all. In addition, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions both inside and outside the U.S. Our failure to raise capital as and when needed or on acceptable terms would have a negative impact on our financial condition and our ability to pursue our business strategy, and we may have to delay, reduce the scope of, suspend or eliminate one or more of our research-stage programs, clinical trials or future commercialization efforts or other operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our platform technology or product candidates.
Unless and until we can generate a substantial amount of product revenue, we expect to seek additional capital through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Our issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common stock to decline, and our stockholders may not agree with our financing plans or the terms of such financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. The incurrence of indebtedness would result in payment obligations and could require us to comply with certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to declare dividends, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Further, our ability to obtain additional debt financing may be limited by covenants we have made under our Loan Agreement, including our pledge to PWB of substantially all of our assets, other than our intellectual property, as collateral. If we raise additional funds through collaborations and licensing arrangements with third parties, we may have to relinquish valuable rights to our platform technology or product candidates or grant licenses on terms unfavorable to us. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
We have a term loan facility that requires us to comply with certain operating covenants and places restrictions on our operating and financial flexibility.
All outstanding obligations under the Loan Agreement are secured by our personal property (exclusive of any intellectual property), and are subject to acceleration upon an event of default. Under the Loan Agreement, we are required to comply with certain negative covenants, which among other things, restrict us from incurring future debt or granting liens, effectuating a merger or consolidation with or into any other business organization, paying dividends or making certain other distributions, selling or otherwise transferring our assets, and making investments in any entities or instruments, subject, in each case, to certain exceptions specified in the Loan Agreement. The Loan Agreement also contains standard affirmative covenants,
33

Table of Contents
including with respect to the issuance of audited consolidated financial statements, insurance, and maintenance of good standing and government compliance in our state of formation. We are required to maintain at all times at least $20.0 million of otherwise unrestricted cash in accounts with PWB. Our failure to comply with any of the foregoing covenants would result in an event of default under the Loan Agreement.
Our financial obligations and contractual commitments under the Loan Agreement could have significant adverse consequences, including:
requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;
increasing our vulnerability to adverse changes in general economic, industry and market conditions;
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
Under our Loan Agreement, the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, assets or condition is an event of default. If an event of default occurs and the lenders accelerate the amounts due, we may not be able to make accelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all of our assets other than our intellectual property. In addition, the covenants under our Loan Agreement, the pledge of our assets as collateral and the negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing.
Changes in tax laws or in their implementation or interpretation could adversely affect our business and financial condition.
Changes in tax laws or in their implementation or interpretation may adversely affect our business or financial condition. The Tax Cuts and Jobs Act of 2017, or TCJA, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, significantly revises the Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted taxable income (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely and, as a result of amendments made by the CARES Act, such net operating losses arising in taxable years beginning before January 1, 2021 are generally eligible to be carried back up to five years), one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits.
In addition to the CARES Act, as part of Congress’s response to the COVID-19 pandemic, economic relief legislation was enacted in 2020 and 2021 containing tax provisions. Regulatory guidance under the TCJA and such additional legislation is and continues to be forthcoming, and such guidance could ultimately increase or lessen their impact on our business and financial condition. Also, as a result of the changes in the U.S. presidential administration and control of the U.S. Senate in 2021, additional tax legislation may be enacted; any such additional legislation could have an impact on us. In addition, it is uncertain if and to what extent various states will conform to the TCJA and additional tax legislation.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. As of December 31, 2022, we had federal and state net operating loss carryforwards of $92.1 million and $86.1 million, respectively. Under Section 382 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in the ownership of its equity by certain stockholders over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. As a result of our prior private placement financings or other transactions, we have experienced ownership changes on June 10, 2019, August 2, 2019 and August 31, 2022, and we may in the future experience ownership changes as a result of subsequent changes in our stock ownership for purposes of Section 382. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and other pre-change tax attributes to offset U.S. federal taxable income are subject to limitations,
34

Table of Contents
which could result in increased future tax liability to us and could have an adverse effect on our future results of operations. There is also a risk that due to regulatory changes, such as suspension of the use of net operating losses, or for other unforeseen reasons, our existing net operating losses could expire or otherwise become unavailable to offset future income tax liabilities. As described above in “Changes in tax laws or in their implementation or interpretation could adversely affect our business and financial condition,” the TCJA, as amended by the CARES Act, includes changes to U.S. federal tax rates and rules governing net operating loss carryforwards that may significantly impact our ability to utilize net operating losses to offset taxable income in the future. In addition, state net operating losses generated in one state cannot be used to offset income generated in another state. For these reasons, we may be unable to use a material portion of our net operating losses and other tax attributes.
Risks Related to the Discovery, Development, Regulatory Approval and Commercialization of Our Product Candidates
We are early in our development efforts and our current product candidates will require successful completion of preclinical and clinical development before we can seek regulatory approval for any product candidates.
We are early in our development efforts and have invested substantially all of our efforts and financial resources in building our PREDATOR platform and developing our initial INDUKINE molecules by leveraging our PREDATOR platform. Our lead product candidates are at or near the beginning of the clinical trial stage. Additionally, we have a portfolio of programs that are in even earlier stages of preclinical development and may never advance to clinical-stage development. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
Our business is highly dependent on the success of our initial INDUKINE molecules, which are in the early stages of development and will require significant additional preclinical and clinical development before we can seek regulatory approval for and launch a product commercially.
Our business and future success is highly dependent on our ability to obtain regulatory approval of and then successfully launch and commercialize our initial INDUKINE molecules, including our most advanced product candidates, WTX-124 and WTX-330.
Commencing clinical trials in the United States is subject to acceptance by the FDA of an IND and finalizing the trial design based on discussions with the FDA and other regulatory authorities. In the event that the FDA requires us to complete additional preclinical studies or we are required to satisfy other FDA requests prior to commencing clinical trials, the start of a clinical trial may be delayed. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence any clinical trial or change their position on the acceptability of our trial design or the clinical endpoints selected, which may require us to complete additional preclinical studies or clinical trials or impose stricter approval conditions than we currently expect. There are equivalent processes and risks applicable to clinical trial applications in other countries, including countries in the European Union.
We may experience issues surrounding preliminary trial execution, such as delays in FDA acceptance of our INDs, revisions in trial design and finalization of trial protocols, difficulties with patient recruitment and enrollment, quality and provision of clinical supplies, or early safety signals.
We are not permitted to market any biological product in the United States until we receive approval of a Biologics License Application, or BLA, from the FDA. We have not previously submitted a BLA to the FDA, or similar marketing application to comparable foreign regulatory authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish that the product candidate is safe, pure and potent for each desired indication. A BLA must also include significant information regarding the chemistry, manufacturing and controls for the product, and the manufacturing facilities must complete a successful pre-license inspection.
FDA approval of a BLA is not guaranteed, and the review and approval process is expensive and uncertain and may take several years. The FDA also has substantial discretion in the approval process. The number and types of preclinical studies and clinical trials that will be required for BLA approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to treat and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinical trials, failure can occur at any stage.
The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support approval. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any product candidate that we develop based on the completed clinical trials.
35

Table of Contents
Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on our ability to successfully develop and commercialize WTX-124, WTX-330 and any future product candidates. The success of our product candidates will depend on several factors, including the following:
completion of preclinical studies and clinical trials with favorable results;
acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory authorities for the conduct of clinical trials of our product candidates and our proposed design of future clinical trials;
receipt of marketing approvals from applicable regulatory authorities, including BLAs from the FDA and maintaining such approvals;
making arrangements with our third-party manufacturers for, or establishing, commercial manufacturing capabilities;
maintaining an acceptable safety profile of our products following approval; and
maintaining and growing an organization of scientists and business people who can develop our products and technology.
Generally, public concern regarding the safety of biopharmaceutical products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information in our labeling or require us to undertake other activities that may entail additional costs. We have not obtained FDA approval for any product. This lack of experience may impede our ability to obtain FDA approval in a timely manner, if at all, for WTX-124, WTX-330 or any future product candidates.
The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of WTX-124, WTX-330 and any future product candidates, which may never occur. Given our early stage of development, it will be years before we are able to demonstrate the safety and efficacy of a treatment sufficient to warrant approval for commercialization, and we may never be able to do so. If we are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize our current or any future product candidates, we may not be able to generate sufficient revenue to continue our business.
Our approach to the discovery and development of product candidates based on our PREDATOR platform is unproven, and we do not know whether we will be able to develop any products of commercial value.
The success of our business depends primarily upon our ability to discover, develop and commercialize products based on our novel PREDATOR platform. While we have had favorable preclinical study results related to WTX-124 and WTX-330, both of which we are developing by leveraging our PREDATOR platform, and have announced favorable early-stage clinical trial results related to WTX-124, we have not yet succeeded and may not succeed in demonstrating efficacy and safety for any product candidates in clinical trials or in obtaining marketing approval thereafter. We have no assurance that our PREDATOR platform will be able to produce product candidates that will successfully progress from preclinical studies into clinical development and ultimately marketing approval. We have invested substantially all of our efforts and financial resources in building our PREDATOR platform and developing our initial INDUKINE molecules by leveraging our PREDATOR platform, and our future success is highly dependent on the continued successful development of our platform and product candidates that we develop by leveraging our platform. Because all of our product candidates are based upon our PREDATOR platform, any development problems we may experience in the future related to any of our product candidates has the potential to impact the development of our other product candidates and any such development problems have the potential to cause significant delays or unanticipated costs and may ultimately not be able to be solved.
In addition, the clinical trial requirements of the FDA and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate may vary according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. As a result, we may face a greater regulatory burden to initiate clinical trials or to obtain regulatory approval of our product candidates as compared to product candidates based on more established technology. In addition, any product candidates for which we may be able to obtain marketing approval may be subject to extensive post-approval regulatory requirements, including requirements pertaining to manufacturing, distribution and promotion. We may need to devote significant time and resources to compliance with these requirements.
36

Table of Contents
Manufacturing INDUKINE molecules is subject to risk since they are a novel class of multi-domain biologics that include protease cleavable linkers, and they have never been produced on a clinical or commercial scale. We may be unable to manufacture INDUKINE molecules at the scale needed for clinical development and commercial production on a timely basis or at all, which would adversely affect our ability to conduct clinical trials and seek regulatory approvals or commercialize our programs, which would have an adverse effect on our business.
The manufacturing cell line currently in use to develop INDUKINE manufacturing processes has not been used to manufacture multi-domain proteins that include our protease cleavable linkers. The presence of these linkers presents a risk that unintended proteolysis may occur during the manufacture of INDUKINE molecules and that undesired fragments may not be able to be sufficiently removed by the purification process. The novel multi-domain composition of INDUKINE molecules may present a risk due to its complexity and challenges inherent to the manufacture of biologics. As a result, the risk of delays or failure in the manufacture of our INDUKINE molecules is high. Before we can commence clinical trials for a product candidate, the manufactured INDUKINE molecules must complete extensive analytical testing and be qualified for use in human studies. We cannot be certain of the timely completion or outcome of our analytical testing and suitability for human studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical material or if the outcome of our analytical testing will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our product candidates or any future preclinical programs on the timelines we expect, if at all, and we cannot be sure that the submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin. In addition, we cannot be certain that we will be able to produce product candidates at the scale required for our clinical trials and, for any approved products, commercial production on a timely basis or at all, which could also have an adverse effect on our business.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
We have chosen to initially develop our lead product candidates, WTX-124 and WTX-330, for the treatment of advanced solid tumors and the treatment of relapsed or refractory advanced or metastatic tumors or lymphoma, respectively. Nevertheless, our development efforts will be limited to a small number of cancer types and we may forego or delay pursuit of opportunities in other cancer types that may prove to have greater potential. Likewise, we may forego or delay the pursuit of opportunities with other potential product candidates that may prove to have greater commercial potential.
Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other similar arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to the product candidate.
Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
Risk of failure for preclinical product candidates is high. Before we can commence clinical trials for our preclinical product candidates, we must complete extensive preclinical testing and studies that support INDs in the United States, or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to successfully submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.
Preclinical studies and clinical trials are expensive, time-consuming and difficult to design and implement, and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials.
The risk of failure for our current and any future product candidates is high. It is impossible to predict when or if any of our future product candidates will successfully complete preclinical studies, or if any of our current or future product candidates will complete clinical trials evaluating their safety and effectiveness in humans or will ultimately receive regulatory approval. To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our product candidates are safe and effective in humans for use in each target indication. Preclinical and clinical testing is expensive and can take many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the preclinical or clinical trial process. The outcome of preclinical testing and
37

Table of Contents
early clinical trials may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In particular, while we have conducted certain preclinical studies of WTX-124 and WTX-330 and have entered early clinical stage development, we do not know whether either of these product candidates will perform in our clinical trials as it has performed in these prior preclinical studies. Similarly, there can be no assurance that interim or preliminary clinical data or results, including, without limitation, the preliminary Phase 1/1b clinical data reported for WTX-124, will be predictive of future clinical data or results, and there can be no assurance that success in early clinical trials will lead to success in later clinical trials. Many companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other clinical trial protocols, and the rate of dropout among clinical trial participants. If we fail to produce positive results in our planned preclinical studies or clinical trials of any of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be materially and adversely affected.
We may encounter substantial delays in the commencement or completion, or termination or suspension, of our clinical trials, which could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidate for its intended indications. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. We may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our current or future product candidates, including:
we may be unable to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to obtain regulatory authorizations to commence a clinical trial;
we may experience issues in reaching a consensus with regulatory authorities on trial design;
regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
clinical trial sites may deviate from a trial protocol or drop out of a trial or fail to conduct the trial in accordance with regulatory requirements;
the number of subjects required for clinical trials of our product candidates may be larger than we anticipate or subjects may fail to enroll or remain in clinical trials at the rate we expect;
subjects that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the subject from the trial, increase the needed enrollment size for the clinical trial or extend its duration;
subjects may choose an alternative treatment for the indication for which we are developing our product candidates, or participate in competing clinical trials;
subjects may experience severe or unexpected drug-related adverse effects;
clinical trials of our product candidates may produce unfavorable, inconclusive, or clinically insignificant results;
we may decide to, or regulators or IRBs or ethics committees may require us to, make changes to a clinical trial protocol or conduct additional preclinical studies or clinical trials, or we may decide to abandon product development programs;
we may need to add new or additional clinical trial sites;
38

Table of Contents
our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
we may experience manufacturing delays, and any changes to manufacturing processes or third party contractors that may be necessary or desired could result in other delays;
we or our third party contractors may experience delays due to complications associated with the COVID-19 pandemic or any future pandemic;
the cost of preclinical testing and studies and clinical trials of any product candidates may be greater than we anticipate or greater than our available financial resources;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or we may not be able to obtain sufficient quantities of combination therapies for use in clinical trials;
reports may arise from preclinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our product candidates; and
regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond the clinical trials and testing that we contemplate, if we are unable to successfully complete clinical trials or other testing of our product candidates, if the results of these clinical trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with any of product candidates, we may:
incur additional unplanned costs;
be required to suspend or terminate ongoing clinical trials;
be delayed in obtaining marketing approval, if at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
be subject to additional post-marketing testing or other requirements;
be required to perform additional clinical trials to support approval;
have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;
be subject to the addition of labeling statements, such as warnings or contraindications;
have the product removed from the market after obtaining marketing approval;
be subject to lawsuits; or
experience damage to our reputation.
Conducting clinical trials in foreign countries, as we may do for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authorities, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
39

Table of Contents
In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may be impacted. For example, in December 2022 with the passage of the Food and Drug Omnibus Reform Act of 2022, Congress required sponsors to develop and submit a diversity action plan for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, actions plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them. In addition to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans.
Similarly, the regulatory landscape related to clinical trials in the EU recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application to all member states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. If we are not able to adapt to these and other changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may be impacted.
In addition to the factors above, we may make formulation or manufacturing changes to our product candidates, in which case we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier versions, which may be costly, time consuming and may not be successful at all.
Our failure to successfully initiate and complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business. We cannot provide assurances that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our clinical trials. Significant preclinical study or clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials may ultimately lead to the denial of regulatory approval of our product candidates.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:
the severity of the disease under investigation;
the patient eligibility and the inclusion and exclusion criteria defined in the protocol;
the size and health of the patient population required for analysis of the trial’s primary endpoints;
the proximity of patients to trial sites;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
clinicians’ and patients’ perceptions as to the potential advantages of the drug candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;
our ability to obtain and maintain patient consents;
our ability to monitor patients adequately during and after treatment;
the risk that patients enrolled in clinical trials will drop out of the trials before completion; and
40

Table of Contents
factors we may not be able to control, including the impacts of the COVID-19 pandemic, that may limit the availability of patients, principal investigators or staff or clinical sites.
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial site.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt our product candidate development and approval process and jeopardize our ability to seek and obtain the marketing approval required to commence product sales and generate revenue, which would cause the value of our company to decline and limit our ability to obtain additional financing, if needed.
Our product candidates may cause undesirable or unexpectedly severe side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable or unexpectedly severe side effects caused by our product candidates could cause us to interrupt, delay or halt preclinical studies or could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. It is likely that, as is the case with many treatments for cancer, there may be side effects associated with the use of our product candidates. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Further, by design, clinical trials rely on a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered when a significantly larger number of patients is exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates after such approval, a number of potentially significant negative consequences could result, including:
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
regulatory authorities may require a REMS plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;
we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;
we may be subject to regulatory investigations and government enforcement actions;
regulatory authorities may withdraw or limit their approval of such product candidates;
we may decide to remove such product candidates from the marketplace;
we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
we may suffer reputational harm.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
41

Table of Contents
The COVID-19 pandemic or any future surges, including as a result of new variants and subvariants of the virus, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates.
Public health crises such as the COVID-19 pandemic or similar outbreaks could adversely impact our business. In response to the COVID-19 pandemic, governments throughout the world implemented a variety of quarantines, travel restrictions and other public health and safety measures that have impacted, and may continue to impact, our operations. The ultimate extent to which COVID-19 or any future surges, including as a result of new variants and subvariants of the virus, impacts our operations, including our preclinical studies and clinical trials, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and the actions taken to contain COVID-19 or treat its impact, among others. Any negative impact COVID-19 has on the execution of our product development plans could adversely affect our ability to timely submit INDs for product candidates, negatively affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.
Effects of the COVID-19 pandemic that may delay or otherwise adversely affect our ongoing and planned preclinical activities and clinical trials as well as our business generally, include:
delays related to COVID-19 disruptions at CROs and contract manufacturers, or in the supply chain;
delays in receiving approval from regulatory authorities to initiate our planned clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff who, as healthcare providers, may have heightened exposure to COVID-19;
delays or difficulties in enrolling and retaining patients in clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct clinical trials;
difficulties interpreting data from clinical trials due to the possible effects of COVID-19 on patients;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;
interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines; and
interruptions, difficulties or delays arising in our existing operations and company culture as a result of many of our employees working remotely, including those hired during the COVID-19 pandemic.
Any of these effects, and other effects of the COVID-19 pandemic, including future outbreaks, the emergence of new variants and subvariants of the virus, and any future pandemic, could have a material adverse effect on our business and our results of operations and financial condition. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the United States and other economies, which could impact our ability to raise the necessary capital needed to develop and commercialize our programs and product candidates.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim top-line or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
We are developing WTX-124, and could potentially develop WTX-330 and future product candidates, in combination with third-party drugs, some of which may still be in development, and we will have limited or no control over the safety, supply, regulatory status or regulatory approval of such drugs.
We are developing WTX-124, and could potentially develop WTX-330 and other future product candidates, in combination with third-party cancer drugs, which may be either approved or unapproved. For example, we are conducting a clinical trial of WTX-124 both as monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab). Our
42

Table of Contents
ability to develop and ultimately commercialize our current product candidates, and any future product candidates, used in combination with third-party drugs will depend on our ability to access such drugs on commercially reasonable terms for clinical trials and their availability for use with our commercialized product, if approved. We cannot be certain that current or potential future commercial relationships will provide us with a steady supply of such drugs on commercially reasonable terms or at all. Any failure to maintain or enter into new successful commercial relationships, or the expense of purchasing such third-party drugs in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our current product candidates and any future product candidates as commercially viable therapies. If any of these occur, our business, financial condition, operating results, or prospects may be materially harmed.
Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. For example, our clinical trial for WTX-124 in combination with KEYTRUDA may result in adverse events based on the combination therapy that may negatively impact the reported safety profile of the monotherapy in such clinical trials. Checkpoint inhibitors have been shown to have adverse events, including immune-related adverse events involving the lung, liver and other organ systems, which may limit the maximum dose in our clinical trials or otherwise negatively impact our combination clinical trials. In addition, the FDA or comparable foreign regulatory authorities may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of such trials could show that any positive previous trial results are attributable to the third-party drug and not our product candidate. Developments related to the third-party drug may also impact our clinical trials for the combination as well as our commercial prospects should we receive regulatory approval. Such developments may include changes to the third-party drug’s safety or efficacy profile, changes to the availability of the third-party drug, quality, and manufacturing and supply issues with respect to the third-party drug.
If we are able to obtain marketing approval, the FDA or comparable foreign regulatory authorities may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the third-party drug, this may require us to work with such third party to satisfy such a requirement. We would also continue to be subject to the risks that the FDA or comparable foreign regulatory authorities could revoke approval of the third-party drug used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with such drug. Similarly, if the third-party drugs we use in combination with our product candidates are replaced as the standard of care for the indications we choose for any of our product candidates, the FDA or comparable foreign regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially.
We may not be successful in our efforts to identify or discover additional product candidates.
Although we intend to explore other therapeutic opportunities in addition to the product candidates that we are currently developing, we may fail to identify or discover viable new product candidates for clinical development for a number of reasons. If we fail to identify additional potential product candidates, our business could be materially harmed.
Research programs to pursue the development of our existing and planned product candidates for additional indications and to identify new product candidates and disease targets require substantial technical, financial and human resources whether or not they are ultimately successful. Our research programs may initially show promise in identifying potential indications and/or product candidates, yet fail to yield results for clinical development for a number of reasons, including:
the research methodology used may not be successful in identifying potential indications and/or product candidates;
potential product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective drugs; or
it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our product portfolio.
Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our current product candidates or to develop suitable additional product candidates through internal research programs, which could materially adversely affect our future growth and prospects.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or following commercial sale, and any product liability insurance we may obtain may not cover all damages from such claims.
We are exposed to potential product liability risks that are inherent in the research, development, manufacturing, marketing and use of biopharmaceutical products. The use of product candidates by us in clinical trials, and any sale of approved products in the future, may expose us to liability claims. For example, we may be sued if our product candidates cause or are perceived to
43

Table of Contents
cause injury or are found to be otherwise unsuitable during clinical trials, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts.
Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval thereof, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease the development or commercialization of our product candidates or any products for which we may have received marketing approval. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
delay or termination of clinical trials;
decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants or difficulties in recruiting new trial participants;
initiation of investigations by regulators;
costs to defend or settle the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
significant negative financial impact; and
the inability to commercialize any of our product candidates, if approved.
Although we will seek to procure and maintain product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. As the expense of insurance coverage is increasing, we may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be materially harmed.
We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any products that receive regulatory approval, either on our own or together with collaborators.
We have never commercialized a product candidate. We currently have no sales force or marketing or distribution capabilities. To achieve commercial success of our product candidates, if any are approved, we will have to develop our own sales, marketing and supply capabilities or outsource these activities to one or more third parties.
Factors that may affect our ability to commercialize our product candidates on our own include our ability to recruit and retain adequate numbers of effective sales and marketing personnel and obtain access to or persuade adequate numbers of physicians to prescribe our product candidates, as well as any unforeseen costs we may incur in connection with creating an independent sales and marketing organization. Developing a sales and marketing organization requires significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization in the United States, the European Union or other key global markets. To the extent we need to rely upon one or more third parties, we may have little or no control over the marketing and sales efforts of those third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We will also face competition in any search for third parties to assist us with sales and marketing efforts for our product candidates. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may have difficulties generating revenue from them.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or
44

Table of Contents
commercialize in the future, from major pharmaceutical, specialty pharmaceutical and biotechnology companies among others. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immunotherapies for the treatment of cancer. There are other companies working to develop immunotherapies for the treatment of cancer including divisions of pharmaceutical and biotechnology companies of various sizes. Some of these competitive therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
We are developing our initial product candidates for the treatment of cancer and have not received marketing approval for any of our product candidates. There are already a variety of available therapies marketed for cancer and some of the currently approved therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved therapies are well-established and widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic products. This may make it difficult for us to achieve our business strategy of using our product candidates in combination with existing therapies or replacing existing therapies with our product candidates. Competition may further increase with advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.
We are aware of a number of companies that are developing cytokines as immunotherapies, as well as different modalities, including monoclonal antibodies, cell therapies, oncolytic viruses and vaccines.
Our lead product candidate, WTX-124, if approved, may face competition from other Interleukin-2, or IL-2, based cancer therapies. Proleukin (aldesleukin), a synthetic protein very similar to IL-2, is approved and marketed for the treatment of metastatic renal cell carcinoma and melanoma. In addition, we are aware that a number of other companies have modified IL-2 programs in development for the treatment of cancer, including Alkermes Plc, Anaveon AG, Anwita Biosciences, Inc., Ascendis Pharma A/S, Asher Biotherapeutics, Inc., Aulos Bioscience, Inc., BioNTech SE, Cue Biopharma, Inc., Merck & Co., Medicenna Therapeutics Corp., F. Hoffmann-La Roche AG, or Roche, Synthekine, Inc., and Xilio Therapeutics, Inc.
There are no approved IL-12 therapies currently on the market for the treatment of cancer. However, if approved, WTX-330 may face competition from other IL-12 cytokine programs in clinical and preclinical development for oncology indications, including programs from Sanofi S.A. (Amunix), DragonFly Therapeutics, Inc., Juno Therapeutics, Inc. (Bristol-Myers Squibb Company), Turnstone Biologics Corp. (partnered with Takeda Pharmaceutical Company Limited), Philogen S.p.A., OncoSec Medical Incorporated, Sonnet BioTherapeutics, Inc., Xilio Therapeutics, Inc., and Zymeworks Inc.
Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. We also compete with these organizations in establishing clinical trial sites and patient registration for clinical trials, as well as in recruiting and retaining qualified scientific and management personnel, which could negatively affect our level of expertise and our ability to execute our business plan.
Many of our competitors, either alone or with their collaborators, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement and marketing approved products than we do. Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel product candidates or to in-license novel product candidates that could make our product candidates less competitive or obsolete. Smaller or early-stage companies may also prove to be significant competitors, including through collaborative arrangements with large and established companies. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. The availability of competing products could limit the demand and the price we are able to charge for product candidates we commercialize, if any. The inability to compete with existing or subsequently introduced drugs would harm our business, financial condition and results of operations.
The sizes of the potential markets for our product candidates are difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for our product candidates may be smaller than our estimates.
The potential market opportunities for our product candidates are difficult to estimate and, if our product candidates are approved, will ultimately depend on, among other things, the indications for which our product candidates are approved for sale, any drugs with which our product candidates are co-administered, the success of competing therapies and therapeutic approaches, acceptance by the medical community, patient access, product pricing and reimbursement. Our estimates of the potential market opportunities for our product candidates are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports and other surveys. Although we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently
45

Table of Contents
uncertain, and their reasonableness has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.
The successful commercialization of our product candidates will depend in part on the extent to which we obtain and maintain favorable coverage, adequate reimbursement levels and pricing policies with third party payors.
The availability and adequacy of coverage and reimbursement by third-party payors, including governmental healthcare programs such as Medicare and Medicaid, managed care organizations, and private health insurers, are essential for most patients to be able to afford prescription medications such as our product candidates, if approved. Our ability to achieve acceptable levels of coverage and reimbursement for products by third-party payors will have an effect on our ability to successfully commercialize our product candidates. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for our product candidates, if approved, or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing third-party therapeutics may limit the amount we will be able to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in our product candidates, if approved. Even if our product candidates are approved and we obtain coverage for our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Net prices for medicines may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of medicines from countries where they may be sold at lower prices than in the United States. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, if approved, and may not be able to obtain a satisfactory financial return on our product candidates.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. The regulations that govern marketing approvals, pricing and reimbursement for new medicines vary widely from country to country. In the United States, third-party payors play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States for how third-party payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates, if approved.
No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor and coverage and reimbursement by one payor does not guarantee coverage and reimbursement by another payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice, and we believe that changes in these rules and regulations are likely.
Even if a product candidate we develop receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community necessary for commercial success.
If any product candidate we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors, and others in the medical community. For example, cancer treatments like chemotherapy, radiation therapy and certain existing immunotherapies are well established in the medical community, and doctors may continue to rely on these therapies. If the product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable.
46

Table of Contents
The degree of market acceptance of any product, if approved for commercial sale, will depend on a number of factors, including:
its efficacy, safety and potential advantages compared to alternative treatments;
the prevalence and severity of any side effects;
the product’s convenience and ease of administration compared to alternative treatments;
the clinical indications for which the product is approved;
the willingness of the target patient population to try a novel treatment and of physicians to prescribe such treatments;
the recommendations with respect to the product in guidelines published by scientific organizations;
the ability to obtain sufficient third-party insurance coverage and adequate reimbursement, including, if applicable, with respect to the use of the product as a combination therapy;
the strength of marketing, sales and distribution support;
the effectiveness of our sales and marketing efforts;
the approval of other new products for the same indications; and
our ability to offer the product for sale at competitive prices.
If we obtain marketing approval for a product but such product does not achieve an adequate level of market acceptance, we may not generate or derive significant revenue from that product and our business, financial condition and results of operations may be adversely affected.
We expect the product candidates we develop will be regulated as biological products, or biologics, and therefore they may be subject to competition sooner than anticipated.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biologic products that are biosimilar to or interchangeable with an FDA-licensed reference biologic product. Under the BPCIA, a reference biological product is granted 12 years of non-patent exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.
We believe that any of our product candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our investigational medicines to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once licensed, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
If competitors are able to obtain regulatory approval for biosimilars referencing our product candidates, our product candidates may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.
Risks Related to Our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any product candidates.
We depend, and expect to continue to depend, upon third parties, including independent investigators and CROs, to conduct preclinical studies and clinical trials. We expect to have to negotiate budgets and contracts with CROs and trial sites, and any of these third parties may terminate their engagements with us at any t