Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below.

Overview

Prelude is a precision oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. By leveraging our core competencies in cancer biology and medicinal chemistry, combined with our clinical development capabilities, we have built an efficient, drug discovery engine and the development expertise necessary to identify compelling biological targets and create new chemical entities, or NCEs, that we advance into clinical trials. We believe our approach could result in better targeted cancer therapies. Our discovery excellence has been supported by our steady progress in advancing a pipeline of novel precision oncology development candidates, alone and with partners. We are working with our partner AbCellera Biologics, Inc. ("AbCellera") on an early-stage discovery program involving potent degraders as payloads for novel antibodies targeting tumor specific antigens. Since our inception in 2016, we have received clearance from the U.S. Food and Drug Administration, or the FDA, for multiple investigational new drug applications, or INDs, and successfully advanced several programs into clinical trials. In addition, we have other differentiated proprietary programs in various stages of preclinical development.

By focusing on developing molecules using broad mechanisms that have multiple links to oncogenic driver pathways in select patients, we have developed a diverse pipeline consisting of multiple distinct programs including kinases, targeted protein degraders, and degrader antibody conjugates ("DAC"). Our pipeline is designed to serve patients with high unmet medical need, where there are limited or no treatment options. We believe we can best address these diseases by harnessing advances in new therapeutic modalities such as targeted protein degradation to develop highly potent and specific agents against clinically validated targets in areas of high unmet need.

Myeloproliferative neoplasms ("MPN") are hematopoietic disorders arising from clonal expansion of hematopoietic stem cells ("HSC") in the bone marrow. Current treatment options for MPN patients offer symptomatic benefit but fail to eliminate disease-initiating clones leading to treatment resistance and progression to secondary acute myeloid leukemia. Therapeutic approaches that can selectively eliminate disease-initiating HSCs and induce molecular remission are an unmet medical need.

Mutations in JAK2, calreticulin ("CALR") and MPL are phenotypic drivers of disease in over 90% of MPN cases. CALR mutations are the second most common driver alteration in MPN, accounting for 20-30% of all cases. Selective expression of mutant CALR on diseased cells but not on normal cells makes CALR a high value target for antibody-directed therapies in MPN.

JAK2V617F is the primary driver mutation responsible for disease progression in the majority of patients living with MPNs. We have discovered novel allosteric inhibitors that bind into the JAK2 JH2 "deep pocket" where the V617F mutation resides. These candidates demonstrate mutant specific inhibition in multiple preclinical models of MPNs. We believe this approach may have the potential to reduce mutant allele burden, slow or even reverse disease progression, and transform treatment outcomes for MPN patients.

PRT12396 our lead, mutant-selective JAK2V617F inhibitor received IND clearance from the U.S. FDA, as announced in February 2026 and we anticipate initiating a Phase 1 study in the second quarter of 2026. The Phase 1 study of PRT12396 is an open-label, multi-center, safety and efficacy study in patients with high-risk polycythemia vera (PV) and intermediate and high-risk myelofibrosis (MF). The primary endpoints of the study include safety, efficacy and PK profile.

As previously announced on November 4, 2025, we entered into an exclusive option agreement (the "Option Agreement") with Incyte Corporation ("Incyte") to acquire our mutative selective JAK2V617F inhibitor program (the "Program") for patients with myeloproliferative neoplasms. Under the Option Agreement, Incyte received an exclusive option to acquire our entire right, title, and interest in and to certain assets, properties, and rights related to the JAK2V617F inhibitor program, including our library of preclinical candidates (collectively, the "Transferred Assets"). We expect to advance the JAK2V617F program to pre-defined milestones. Incyte may elect to exercise its exclusive option during the option period to acquire the program and associated assets from us for $100 million. As the JAK2V617F program candidates

advance in the clinic, we would be eligible to receive up to $775 million in additional clinical and regulatory milestones, and single digit royalties on global net sales. Combined, total potential cash payments from the transaction, excluding royalties, could reach up to $910 million.

We have discovered and are developing a series of selective and orally bioavailable KAT6A selective degraders. We have selected a development candidate and remain on track to file an IND in mid-2026. We believe that selectively degrading KAT6A has the potential for improved efficacy, tolerability and combinability with other agents relative to non-selective inhibitors of KAT6A/B. We recently presented preclinical data supporting this hypothesis at the American Association for Cancer Research Annual Meeting 2025.

Drawing on our expertise in targeted protein degradation, we have discovered and optimized a series of proprietary degrader payloads for use in discovering and developing DACs. We disclosed first data at the 36th EORTC-NCI-AACR Symposium describing preclinical proof-of-concept using a novel, potent SMARCA2/4 dual degrader as a degrader payload conjugated to multiple antibodies. Prelude's SMARCA2/4 dual degraders have shown picomolar potency with potential for increased efficacy, selectivity and improved therapeutic index. DACs have potential to expand the reach of SMARCA degrader technology to cancers without SMARCA4 mutations.

During the second half of 2025, we restructured aspects of our collaboration agreement with AbCellera to allow AbCellera to independently discover, develop and commercialize select undisclosed DACs by providing a non-exclusive license to the Company's degrader payloads among other changes to overall resource allocation, governance, and operational aspects of the collaboration.

In June 2025, at the European Hematology Association, we delivered an oral presentation about our mutated calreticulin ("mCALR") discovery efforts, including the first-in-class CALR-targeted DACs that selectively target mutant CALR expressing cells, with the potential to achieve responses by eliminating MPN clones. These data demonstrate that a CALRxSMARCA2/4 degrader antibody conjugate can selectively degrade SMARCA2/4 in CALR mutant cells and robustly inhibit CALR-mutant cell growth in vitro and in vivo.

On November 4, 2025 we announced that we decided to pause the clinical development of our SMARCA2 degrader program which is comprised of PRT3789 and PRT7732. We then reduced the number of employees to 79 employees as of December 31, 2025.

Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have funded our operations primarily through the sale of convertible preferred stock and common stock. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. Our net loss was $99.5 million and $127.2 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $683.1 million. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

As of December 31, 2025, we had $106.4 million in cash, cash equivalents, restricted cash and marketable securities. We expect our existing cash, cash equivalents, restricted cash and marketable securities will enable us to fund our operating expense and capital expenditures into the second quarter of 2027.

Regained Nasdaq Compliance

On March 27, 2025, we received a letter (the "Bid Price Notice") from the Listing Qualifications staff (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based upon the closing bid price of the Company's common stock for the prior 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). On September 18, 2025, we received a letter from Nasdaq notifying the Company that we had regained compliance with the Minimum Bid Price Requirement and that the matter is now closed.

Components of Results of Operations

Revenue

To date, we have not recognized any revenue from product sales and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all.

On November 3, 2025, we entered into an Exclusive Option Agreement (the "Option Agreement") with Incyte to acquire our mutative selective JAK2V617F JH2 inhibitor program (the "Program") for patients with myeloproliferative neoplasms.

Under the Option Agreement, Incyte received an exclusive option to acquire our entire right, title, and interest in and to certain assets, properties, and rights related to the Program, including the Company's library of preclinical candidates (collectively, the "Transferred Assets") by way of an Asset Purchase Agreement (the "APA"). We are continuing to advance the Program. At any time commencing on the effective date of the Option Agreement until the later of (a) 30 days after the Company's delivery of the investigational new drug ("IND") ready data package or (b) 15 months after the effective date of the Option Agreement (which 15 month period shall automatically toll for the Company to deliver the IND-ready package but such tolling will not exceed 3 months unless otherwise agreed by the parties) (the "Option Period"), Incyte may elect to exercise its exclusive option to acquire the Program and associated assets from us pursuant to the APA for $100 million. We received an initial upfront payment of $35 million in cash from the Option Agreement. Under the APA, we would be eligible to receive up to $775 million in additional clinical and regulatory milestones, and single digit royalties on global net sales. Combined, total potential cash payments from the transaction could reach up to $910 million.

Concurrently with the Option Agreement, we entered into a securities purchase agreement with Incyte (the "Securities Purchase Agreement"), pursuant to which Incyte purchased 6,250,000 shares (the "Shares") of our non-voting common stock at a price of $4.00 per share for gross proceeds of $25.0 million. Pursuant to the Company's amended and restated certificate of incorporation and subject to the non-voting common stock beneficial ownership limitation, Incyte may elect to convert the Shares into voting shares and in December 2025, Incyte converted 4,372,124 of the Shares into voting shares. Because the Option Agreement and Securities Purchase Agreement were entered into at the same time and negotiated as single commercial package, we accounted for the agreements as a single contract under ASC 606. Based on this exercise, the consideration in the Option Agreement plus any excess consideration paid over the fair value of the equity issued to Incyte is a component of transaction price. In determining the fair value of the common stock issued to Incyte, we considered the closing price of the common stock on the date of the transaction, which was $3.98 per share, which resulted in a premium paid by Incyte of $0.02 per share, or $0.1 million ("Equity Premium"). The remaining $24.9 million was recorded as an issuance of common stock in stockholders' equity.

We first evaluated whether the arrangement meets the definition of a derivative or contains any embedded derivatives under ASC 815, Derivatives and Hedging. Although the arrangement includes underlying IP-related value, it qualifies for the scope exception as prescribed by ASC 815-10-15-59(b). We next evaluated whether the arrangement represents a funded research and development arrangement under ASC 730, Research and Development. The payments received by Prelude are non-refundable, and there is no contractual requirement, guarantee, or other provision that would require us to repay any of the funds received from Incyte. We also concluded that any presumption that there is an obligation to repay the funds received due to the subsequent related party relationship with Incyte is overcome, and therefore the agreements are not within the scope of ASC 730-20. We also concluded that the agreements are not within the scope of ASC 808, Collaborative Arrangements. We assessed the Option Agreement in accordance with ASC 606, Revenue from Contracts with Customer, and concluded that Incyte is a customer in the context of the Option Agreement. The Option Agreement includes the transfer of the following goods or services: (i) to conduct research and development activities related to the Program and (ii) Incyte's exclusive option to acquire the Company's entire right, title, and interest in and to certain assets, properties, and rights related to the Program. We determined that the exclusive option granted was not a material right and, thus, not a performance obligation.

We determined that the transaction price totaled $35.1 million, which includes the $35 million upfront cash payment

received and the equity premium. We allocated $35.1 million to our performance obligations to conduct research and development activities related to the Program. We will recognize revenue related to the Option Agreement over time as the performance obligations are satisfied using an inputs approach, by applying actual expenses against total budgeted costs. As of December 31, 2025, $32.4 million of the upfront payment was included in deferred revenue within the balance sheets which we estimate will be recognized within thirteen months from year-end. We recognized $2.6 million in revenue related to the Option Agreement during the year ended December 31, 2025.

During the third quarter of 2025, we amended our collaboration with AbCellera (the "Amended Agreement") and subsequently in October 2025, further expanded the collaboration (the "Expanded License Agreement"). The Amended Agreement and Expanded License Agreement provided AbCellera a non-exclusive license to use certain of our degrader payloads to independently discover, develop and commercialize a select number of novel DACs against undisclosed antibody targets. The agreements also entailed other changes to overall resource allocation and collaboration governance. For the newly licensed DAC programs, AbCellera received world-wide rights to lead and fully control the licensed programs at its sole cost and expense and we are not responsible for any additional financial responsibilities or go forward development costs associated with those programs. We received an upfront non-refundable payment from AbCellera of $6.5 million upon signing the Amended Agreement and an upfront non-refundable payment of $6 million upon signing of the Expanded License Agreement. For the additional licensed DACs, we are also eligible to receive customary downstream milestones and single digit royalties on future product sales. The original collaboration agreement with AbCellera, whereunder the companies can jointly discover, develop, and commercialize novel DACs for up to five programs remains in effect.

We assessed the Amended Agreement signed in accordance with ASC 606, Revenue from Contracts with Customer, and concluded that AbCellera is a customer in the context of the Amended Agreement. The Amended Agreement required us to transfer certain intellectual property and related know-how to AbCellera which represented the only performance obligation in the Amended Agreement and was satisfied at a point in time, when the intellectual property and related know-how were transferred to AbCellera during the third quarter of 2025.

We assessed the Expanded Agreement signed in accordance with ASC 606 and concluded that AbCellera is a customer in the context of the Expanded Agreement. We determined the promised goods and services included discovering degrader payloads and granting the licenses to the payloads to AbCellera for them to use to research, develop, and commercialize products related to each of the initial targets mutually agreed upon. Each of these licenses is distinct, as AbCellera can derive benefit from each license independent of any other payload. Each performance obligation will be fully satisfied at the point in time when the license is transferred to AbCellera. For the year ended December 31, 2025, we recognized revenue $3.0 million in the statement of operations related to the Expanded Agreement. We estimate the remaining performance obligations will be completed in the second half of 2026.

In May 2024, the Company and Pathos AI, Inc. ("Pathos") entered into a license agreement under which we granted to Pathos an exclusive, sublicensable, world-wide license to its selective, brain-penetrant PRMT5 inhibitor, PRT811. Under the terms of the license agreement, we received a $3.0 million upfront, non-refundable payment. The agreement also included a near term $4.0 million payment upon the earlier of 180 days following the effective date of the license agreement or the execution of a quality agreement between the parties pursuant to which we transferred title to certain quantities of Active Pharmaceutical Ingredient ("API"). In addition, we may receive potential developmental milestone payments up to $37.0 million, potential sales milestone payments up to $100 million and a range of high single-digit to low double-digit royalties on PRT811 global net sales.

We assessed the license agreement with Pathos in accordance with ASC Topic 606, Revenue from Contracts with Customers, and concluded that Pathos is a customer. We evaluated all of the promised goods or services within the contract and determined which goods and services were separate performance obligations. We determined that the exclusive license and transfer of related know-how and materials represent one combined performance obligation. The execution of a quality agreement pursuant to which we transferred title to certain API was identified as a separate performance obligation. Both performance obligations were satisfied in 2024.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred, including:

We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect to continue to incur research and development expenses over the next several years related to personnel costs, including stock-based compensation, clinical trials, including later-stage clinical trials, for current and future product candidates and preparing regulatory filings for our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expense also includes corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation and maintenance, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.

We expect to continue to incur general and administrative expense in the future to support our continued research and development activities and potential commercialization efforts. These expenses will likely include costs related to personnel and fees to outside consultants and legal support, among other expenses. The costs associated with being a public company include expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the Securities and Exchange Commission ("SEC") insurance and investor relations costs. If any of our current or future product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.

Other Income, Net

Other income, net consists primarily of interest earned on our cash equivalents and marketable securities, research and development tax credits, and grant income received from the State of Delaware.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net operating losses ("NOLs") we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized.

Results of Operations

Comparison of the Years Ended December 31, 2025 and 2024

The following table sets forth our results of operations for the years ended December 31, 2025 and 2024.

Revenue

Revenue increased by $5.1 million to $12.1 million for the year ended December 31, 2025 from $7.0 million for the year ended December 31, 2024. Revenue for the year ended December 31, 2025 included $2.6 million related to our Option Agreement and $9.5 million from our Amended Agreement and Expanded Agreement. Revenue for the year ended December 31, 2024, was solely related to our license agreement with Pathos.

Research and Development Expenses

Research and development expenses decreased by $23.7 million to $94.3 million for the year ended December 31, 2025 from $118.0 million for the year ended December 31, 2024. Included in research and development expenses for the year ended December 31, 2025, was $6.9 million of non-cash expense related to stock-based compensation expense, including employee stock options, compared to $12.1 million for the year ended December 31, 2024. Along with the decrease in stock-based compensation expense, research and development expenses decreased due to a decrease in expense related to our discontinued clinical trials, primarily PRT3789 and PRT2527. Research and development expenses may fluctuate from period to period depending upon the stage of certain projects and the level of preclinical and clinical trial-related activities.

Research and development expenses by program are summarized in the table below. Included in Other are programs such as PRT2527, PRT1419, and PRT3645.

General and Administrative Expenses

General and administrative expenses decreased by $6.3 million to $22.4 million for the year ended December 31, 2025 from $28.7 million for the year ended December 31, 2024. Included in the general and administrative expenses for the year ended December 31, 2025 was $5.0 million of non-cash expense related to stock-based compensation expense, including employee stock options, as compared to $9.2 million for the same period in 2024. The decrease in general and administrative expense was primarily due to a decrease in stock-based compensation along with a decrease in employee related expenses.

Other Income, net

Other income, net decreased by $7.5 million to $5.1 million for the year ended December 31, 2025 from $12.5 million for the year ended December 31, 2024, primarily due to lower income earned on our investments due to lower balances and lower research and development tax credits received in 2025.

Liquidity and Capital Resources

Overview

Since our inception, we have not recognized any product revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. Since our inception, we have funded our operations through the sale of convertible preferred stock, common stock, and pre-funded warrants. As of December 31, 2025, we had $106.4 million in cash, cash equivalents, restricted cash and marketable securities and had an accumulated deficit of $683.1 million. We expect our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expense and capital expenditures into the second quarter of 2027.

As described in Note 8, in November 2025 the Company received $60 million in capital, comprised of an initial payment of $35 million in cash plus a $25 million equity investment, from Incyte Corporation. We also received an upfront non-refundable payment from AbCellera of $6.5 million upon signing the Amended Agreement and an upfront non-refundable payment of $6.0 million upon signing of the Expanded License Agreement.

Funding Requirements

Our primary use of cash is to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

In May 2024, the Company filed a shelf registration statement (the "2024 Shelf Registration Statement") with the SEC for the issuance of common stock, preferred stock, debt securities, warrants, subscription rights and units up to an aggregate amount of $400.0 million. The 2024 Shelf Registration statement was declared effective on June 10, 2024. As of December 31, 2025, there was $400.0 million remaining under the 2024 Shelf Registration Statement.

In March 2023, in connection with filing a prospectus supplement to our 2021 Shelf Registration Statement, we entered into an Open Market Sales Agreement (the "Sales Agreement") with Jefferies LLC, as the sales agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering amount of up to $75.0 million. We will pay Jefferies LLC a commission rate of up to 3.0% of the aggregate gross proceeds from the sale of any shares of common stock pursuant to the Sales Agreement. In November 2024, the 2021 Shelf Registration Statement expired with respect to the shares to be sold under the Sales Agreement. Accordingly, we expect to file a prospectus supplement to the 2024 Shelf Registration Statement in order to continue to allow us to access the Sales Agreement. We have $75.0 million remaining under the Sales Agreement as of December 31, 2025.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic 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 unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

Operating Activities

During the year ended December 31, 2025, we used $56.3 million of cash in operating activities. Cash used in operating activities reflected our net loss of $99.5 million, partially offset by noncash charges of $14.8 million, which consisted primarily of $11.9 million in stock-based compensation, along with a $28.4 million net increase in our operating assets and liabilities, which related primarily to an increase in deferred revenue. The primary use of cash was to fund our operations related to the development of our product candidates.

During the year ended December 31, 2024, we used $102.9 million of cash in operating activities. Cash used in operating activities reflected our net loss of $127.2 million, partially offset by noncash charges of $20.1 million, which consisted primarily of $21.3 million in stock-based compensation, along with a $4.2 million net decrease in our operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates.

Investing Activities

During the year ended December 31, 2025, net cash provided by investing activities of $53.5 million consisted primarily of $154.4 million in proceeds from maturities of marketable securities, partially offset by $100.9 million in purchases of marketable securities. During the year ended December 31, 2024, net cash provided by investing activities of $90.2 million consisted primarily of $143.6 million in proceeds from maturities of marketable securities, partially offset by $52.7 million in purchases of marketable securities.

Financing Activities

During the year ended December 31, 2025, net cash provided by financing activities was primarily attributable to the gross proceeds of $25.0 million received from the sale of our common stock under the securities purchase agreement with Incyte, partially offset by payments of offering costs related to the securities purchase agreement and principal payments on our finance lease. During the year ended December 31, 2024, net cash used by financing activities was primarily for principal payments on our finance lease and the payment of offering costs related to the shelf registration statement, partially offset by proceeds received from the issuance of common stock under the employee stock purchase plan.

Contractual obligations and other commitments

We have one operating lease for office and lab space (the Chestnut Run Lease). Our leased facility includes approximately 81,000 rentable square feet and has approximately 11 years remaining along with three five-year extension options and certain expansion rights. The gross obligation for our operating lease over the next twelve months is $3.0 million, and we expect to make total lease payments of $38.7 million from January 2026 through May 2037.

During 2025, we entered a sublease agreement which began in December 2025 for approximately 20,000 square feet of office space and has a duration of two years. The sublease agreement does not relieve us from our primary obligations under the Chestnut Run Lease, however, we do expect cash inflows from the agreements to partially offset our future obligations for the duration of the sublease agreement. The aggregate estimated rent payments due over the initial term of the sublease is approximately $1.2 million.

See Note 8 to our financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

Critical Accounting Estimates

This management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed 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 may differ from these estimates under different assumptions or conditions.

We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" if:

While our significant accounting policies are described in more detail in Note 3 (Summary of Significant Accounting Policies) to our audited financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

The Company has no product revenue to date and recognizes revenue from our option, collaboration, and license agreements. The Company recognizes revenue under Accounting Standard Codification 606 - Revenue from Contracts with Customers. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. Our revenue recognition analysis consists of the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations; and (v) recognition of revenue as we satisfy each performance obligation.

We apply significant judgment when we determine which goods and services are separate performance obligations, allocate the transaction price, and determine when a performance obligation has been satisfied. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations are satisfied. We recognize a liability when we have received payment but have not yet satisfied the related performance obligations.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.

We accrue an expense for preclinical studies and clinical trial activities performed by our CROs and vendors based upon estimates of the proportion of work completed. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for clinical trial expenses, process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Share-Based Compensation

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and vesting restricted stock, based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value of stock options, and the resulting stock-based compensation, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires assumptions, including volatility, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, and our expected dividend yield. Certain assumptions used in our Black-Scholes option-pricing model represent management's best estimates and involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.

These subjective assumptions are estimated as follows:

Expected volatility- As a public company we have computed the historical volatility of our own stock price and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have ample trading history of our own stock commensurate with the estimated expected term of our options. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

Expected Term- The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards.

Smaller Reporting Company Status

We are a "smaller reporting company," meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. We may rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recent Accounting Pronouncements

See Note 3 to our financial statements included elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.