Spyglass Pharma Inc.
03/26/2026 | Press release | Distributed by Public on 03/26/2026 15:24
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements and other financial information included elsewhere in this Annual Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed in the "Risk Factors" section and elsewhere in this Annual Report. Please also see the section titled "Special Note Regarding Forward-Looking Statements."
Overview
We are a late-stage biopharmaceutical company dedicated to transforming the treatment paradigm for patients living with chronic eye conditions through long-acting, sustained drug delivery of approved medicines. Our mission is to significantly improve the lives of patients with chronic eye conditions by developing durable drug delivery solutions that can empower patients and surgeons with confidence in long-term disease control and vision preservation.
Our lead product candidate, the Bimatoprost Drug Pad-IOL System (BIM-IOL System), comprising novel, proprietary drug pads attached to our intraocular lens (IOL), is designed to be implanted during routine cataract surgery to reduce elevated intraocular pressure (IOP) in patients who have either open-angle glaucoma (OAG) or ocular hypertension (OHT). The BIM-IOL System is designed to consistently deliver three years of bimatoprost, a prostaglandin analog (PGA) approved for topical use by the U.S. Food & Drug Administration (FDA) in 2001 for the reduction of elevated IOP in patients with OAG or OHT. We are also developing a non-IOL-based, ring-shaped, sustained-release implant with bimatoprost, which we believe could be implanted in a standalone procedure, enable retreatment of patients who have received the BIM-IOL System, and offer extended care to patients with OAG or OHT who already received a prior cataract surgery (these patients who have had their IOLs replaced with artificial IOLs are referred to as pseudophakes or pseudophakic patients).
In our first-in-human (FIH) feasibility clinical trial, evaluable patients who received the BIM-IOL System achieved a mean IOP reduction of 37% at 36 months with no product-related adverse events (AEs). 95% of evaluable patients were off all topical IOP-lowering drops at 36 months, which we believe highlights the potential for long-term independence from such medications. In our Phase 1/2 multicenter, randomized, controlled trial, which is evaluating the safety and efficacy of the BIM-IOL System, patients who received the BIM-IOL System in the 78 mcg and 39 mcg dose groups achieved mean IOP reductions of 37% and 36%, respectively, at three months and sustained similar rates of mean IOP reduction at twelve months. 97% of treated patients were off topical IOP-lowering drops at three and twelve months, and the BIM-IOL System was observed to be well tolerated at both three and twelve months. In July 2025, we initiated two registrational Phase 3 trials, each expected to enroll approximately 400 patients across 45 sites. We expect to complete enrollment in 2027 and, pending successful Phase 3 results, we plan to submit a 505(b)(2) New Drug Application (NDA) to the FDA in 2028. There is no guarantee that our trials will produce positive results or be consistent with past trial results, and FDA approval is not guaranteed and the regulatory process may take longer than anticipated.
The BIM-IOL System is designed to address key limitations of current glaucoma care by enabling all cataract surgeons, not just those trained in MIGS, to treat elevated IOP when performing their routine cataract procedures, thereby reducing the reliance on patient adherence to topical medications in managing IOP. The BIM-IOL System is designed for long-acting, sustained delivery of bimatoprost over three years, which we believe can reduce or eliminate the need for daily topical medications. In addition, we believe our BIM-IOL System has the potential to triple the number of cataract surgeons who treat OAG or OHT routinely at the time of cataract surgery by providing a solution that seamlessly integrates into the existing procedural workflow. This integration of therapy at the time of cataract surgery-one of the most frequently performed outpatient procedures in ambulatory surgery centers (ASCs) in the United States-20-can also save patients from having to make additional appointments with glaucoma specialists.
Since our inception, we have devoted substantially all of our resources to the research and development of our product candidates by conducting clinical trials and preclinical studies, building our novel drug delivery technology (the SpyGlass Platform), and recruiting management and technical staff to support these operations.
In February 2026, we completed our initial public offering (IPO), in which we issued and sold 10,781,250 shares of our common stock, which includes the exercise in full of the underwriters' option to purchase 1,406,250 additional shares of our common stock, at a price to the public of $16.00 per share. The aggregate gross proceeds from the offering were $172.5 million, before deducting underwriting discounts and commissions and other offering costs.
Prior to our IPO, we funded our operations primarily through private placements of our common stock and redeemable convertible preferred stock, including the following financings during the periods presented:
nIn May 2025 and June 2025, we issued and sold an aggregate of 5,799,465 shares of our Series D redeemable convertible preferred stock at a purchase price of $13.34 per share for an aggregate purchase price of approximately $77.3 million.
nIn March 2025, we issued and sold an aggregate of 4,933,589 shares of our Series C-2 redeemable convertible preferred stock at a purchase price of $10.14 per share for an aggregate purchase price of approximately $50.0 million.
We have not generated any revenue from product sales and we have incurred recurring losses since our inception. Our net losses were $39.9 million and $29.2 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $104.7 million. We anticipate that our operating expenses and capital expenditures will increase substantially with our ongoing activities.
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution. As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval, and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our 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.
As of December 31, 2025, we had cash and cash equivalents and short-term investments of $107.4 million. We believe that the net proceeds from our IPO, together with our existing cash and cash equivalents and short-term investments at December 31, 2025, will be sufficient to fund our operating expenses and capital expenditure requirements through 2028. See "-Liquidity and Capital Resources."
Key Trends and Factors Affecting Comparability Between Periods
nWe have built out, and are continuing to build out, our research and development team, and our research and development costs increased in 2025, relative to 2024, and we expect our research and development costs to continue to increase in 2026, relative to 2025, as a result of significant expenses related to the Phase 1/2 and Phase 3 trials. See Part I, Item I (Business) of this Annual Report for more information about the Phase 1/2 and Phase 3 trials.
20 Based on 2025 data taken from DefinitiveHealthcare.com
nWe expect that general and administrative costs will increase in the future as we expand our operating activities.
nAs a public company, our expenses will increase from prior years as a privately held company, including (i) costs to comply with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and those of The Nasdaq Stock Market (Nasdaq), (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.
University of Colorado License Agreement
In 2020, we entered into a license agreement (as amended, the License Agreement) with the Regents of the University of Colorado (CU), pursuant to which we obtained an exclusive, royalty-bearing, sublicensable, worldwide license under a patent application co-owned by CU and us relating to an intraocular drug dispenser and all patents claiming priority to such patent to develop, manufacture, and commercialize products for use in the treatment of various ophthalmic diseases. We have the right to grant sublicenses to third parties.
In consideration for the rights granted by the License Agreement, we paid a one-time, non-refundable $0.1 million license fee in conjunction with the second amendment to the License Agreement on March 22, 2023, which was recorded as a research and development expense. We are also required to reimburse CU for costs incurred in applying and maintaining patents, which are recorded as research and development expense as incurred.
Under the License Agreement, we are required to pay to CU an annual fee of $0.1 million, which is expensed to research and development. We are also required to pay to CU certain contingent milestone payments of up to $1.1 million for each of the first two licensed products under the License Agreement that achieve certain development and commercialization milestones. The future contingent payments required to be made prior to FDA approval (or equivalent) are considered contingent upon future research and development outcomes and will be expensed to research and development when issuable. If milestones are achieved, the milestone related to FDA approval and any subsequent milestone payments will be capitalized. In addition, upon commercialization of a licensed product as contemplated by the License Agreement, we will be required to pay low single digit royalty payments to CU (as provided in the License Agreement), subject to customary restrictions, which payments are considered contingent consideration and should be recorded when probable or estimable; we will also be required to pay to CU a percentage in the mid-twenties of any sublicense income.
For a more detailed description of the License Agreement, see the section titled "Exclusive License Agreement with the Regents of the University of Colorado" in Part I, Item 1 (Business) of this Annual Report.
Basis of Presentation
The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the balance sheets and statements of operations and comprehensive loss presented herein. The following discussion and analysis are based on our financial statements contained in this Annual Report, which we have prepared in accordance with U.S. generally accepted accounting principles (GAAP). You should read the discussion and analysis together with such financial statements and the related notes thereto.
Components of Statements of Operations and Comprehensive Loss
Operating Expenses
Research and Development Expenses
Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of: (i) employee related costs, including salaries, benefits and stock-based compensation expense for employees engaged in research and development activities; (ii) third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clinical trial activities; (iii) external costs of outside consultants who assist with technology development, regulatory affairs, clinical development and quality assurance; and (iv) allocated facility-related costs.
Costs for certain activities, such as manufacturing, nonclinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators. Research and development activities are central to our business.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development, sales and marketing, and other corporate functions. Other general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, insurance costs, intellectual property and patent costs, facility costs and travel costs. We expect that general and administrative expenses will increase in the future as we expand our operating activities. Additionally, we expect to incur significant additional expenses associated with being a public company that we did not incur as a privately-held company, including (i) costs to comply with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.
Redeemable Convertible Preferred Stock Tranche Liability
We determined the right of investors to purchase shares of Series C-2 redeemable convertible preferred stock at a future date met the definition of a freestanding instrument as the instrument is legally detachable and separately exercisable (the "Redeemable Convertible Preferred Stock Tranche Liability") from the concurrently issued shares of Series C-1 redeemable convertible preferred stock. The Redeemable Convertible Preferred Stock Tranche Liability was subject to remeasurement at each balance sheet date, with changes in fair value recognized in other income (expenses) in the statement of operations and comprehensive loss. Upon the closing of the Series C-2 redeemable convertible preferred stock tranche financing in March 2025, the Redeemable Convertible Preferred Stock Tranche Liability was settled.
Other Income (Expense)
Other income (expense) consists of interest income earned on cash and cash equivalents and short-term investments income and changes in fair value to the Redeemable Convertible Preferred Stock Tranche Liability.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table presents the results of operations for the periods indicated:
| For the Year Ended December 31, | |||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | % Change | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | $ | 29,183 | $ | 19,984 | $ | 9,199 | 46 | % | |||||||||||||||
| General and administrative | 12,266 | 7,080 | 5,186 | 73 | % | ||||||||||||||||||
| Total operating expenses | 41,449 | 27,064 | 14,385 | 53 | % | ||||||||||||||||||
| Loss from operations | (41,449) | (27,064) | (14,385) | 53 | % | ||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest income | 3,106 | 1,317 | 1,789 | 136 | % | ||||||||||||||||||
| Change in fair value of redeemable convertible preferred stock tranche liability | (1,526) | (3,417) | 1,891 | (55) | % | ||||||||||||||||||
| Total other income (expense) | 1,580 | (2,100) | 3,680 | (175) | % | ||||||||||||||||||
| Loss before income tax | (39,869) | (29,164) | (10,705) | 37 | % | ||||||||||||||||||
| Income tax provision | - | - | - | N/M | |||||||||||||||||||
| Net loss and comprehensive loss | $ | (39,869) | $ | (29,164) | $ | (10,705) | 37 | % | |||||||||||||||
Research and Development Expenses
Research and development expenses were $29.2 million for the year ended December 31, 2025, an increase of $9.2 million, or 46%, from $20.0 million for the year ended December 31, 2024. As it relates to the BIM-IOL system, there was an increase of $1.4 million in contract research expenses for system development and related FIH, Phase 1/2, and Phase 3 clinical trials as well as a $1.1 million increase in IOL and drug supply. An additional $6.7 million increase was due to headcount and related expenses. Expenditures related to our BIM-IOL program represented substantially all of our research and development expenses during the periods presented.
General and Administrative Expenses
General and administrative expenses were $12.3 million for the year ended December 31, 2025, an increase of $5.2 million, or 73%, from $7.1 million for the year ended December 31, 2024. The increase was primarily driven by a $1.3 million increase in headcount and related headcount expenses inclusive of facility and travel expenses, and a $3.9 million increase in legal and other professional services.
Other Income (Expense)
Other income, net was $1.6 million for the year ended December 31, 2025, an increase of $3.7 million, or (175)%, from $2.1 million in other expenses, net for the year ended December 31, 2024. The increase was primarily driven by a $1.8 million increase in interest from our cash and cash equivalents and short-term investments and a $1.9 million decrease in loss in the change in fair value of Redeemable Convertible Preferred Stock Tranche Liability.
Liquidity and Capital Resources
We have incurred net losses in each year since inception and, as of December 31, 2025, we had an accumulated deficit of $104.7 million. Our net losses were $39.9 million and $29.2 million for the years ended December 31, 2025 and 2024, respectively. These losses have resulted principally from costs incurred in connection with research and development of our product candidates by conducting preclinical studies and clinical trials, building the SpyGlass Platform, and recruiting management and technical staff to support these operations.
In February 2026, we completed our initial public offering (IPO), in which we issued and sold 10,781,250 shares of our common stock, which includes the exercise in full of the underwriters' option to purchase 1,406,250 additional shares of our common stock, at a price to the public of $16.00 per share. The aggregate gross proceeds from the offering were $172.5 million, before deducting underwriting discounts and commissions and other offering costs.
Prior to our IPO, we funded our operations primarily through private placements of our common stock and redeemable convertible preferred stock, including the following financings during the periods presented:
nIn May 2025 and June 2025, we issued and sold an aggregate of 5,799,465 shares of our Series D redeemable convertible preferred stock at a purchase price of $13.34 per share for an aggregate purchase price of approximately $77.3 million.
nIn March 2025, we issued and sold an aggregate of 4,933,589 shares of our Series C-2 redeemable convertible preferred stock at a purchase price of $10.14 per share for an aggregate purchase price of approximately $50.0 million.
We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future due to the cost of research and development, regulatory prosecution for our product candidates, and building our commercial infrastructure, if products are approved.
From inception through the date of this Annual Report, we have received funding gross proceeds of $0.7 million from our initial seed financing, $6.0 million from the sale of Series A redeemable convertible preferred stock, $27.5 million from the sale of Series B redeemable convertible preferred stock, $40.0 million from the sale of Series C-1 redeemable convertible preferred stock, $50.0 million from the sale of Series C-2 redeemable convertible preferred stock, $77.3 million from the sale of Series D redeemable convertible preferred stock, and $172.5 million from the sale of common stock in our IPO.
Cash Flows
The following table summarizes our cash flows for the periods presented:
| For the Year Ended December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Net cash (used in) provided by: | |||||||||||
| Operating activities | (32,701) | (22,027) | |||||||||
| Investing activities | (11,794) | 22,261 | |||||||||
| Financing activities | 124,585 | 185 | |||||||||
| Net increase in cash and cash equivalents | $ | 80,090 | $ | 419 | |||||||
Net Cash Used in Operating Activities
Our net cash used in operating activities primarily results from our net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs, manufacturing of drug product and employee-related expenditures for research and development and general and administrative activities. Our cash flows from operating activities will continue to be affected by spending to develop and pursue regulatory approval for our product candidates and commercialization activities, if approval is obtained. Our cash flows will also be affected by other operating and general administrative activities, including operating as a public company.
For the year ended December 31, 2025, cash used in operating activities was $32.7 million and resulted from our net loss of $39.9 million, offset by adjustments to reconcile net loss to cash and changes in short term assets and liabilities of $7.2 million.
For the year ended December 31, 2024, cash used in operating activities was $22.0 million and resulted from our net loss of $29.2 million, offset by adjustments to reconcile net loss to cash and changes in short term assets and liabilities of $7.2 million.
Net Cash Used in Investing Activities
Cash used in investing activities for the year ended December 31, 2025 was $11.8 million and primarily related to the purchase of $17.0 million of short-term investments and $0.8 million of property and equipment, offset by the redemption of $6.0 million of short-term investments.
Cash provided by investing activities for the year ended December 31, 2024 was $22.3 million and primarily related to the redemption of $44.9 million of short-term investments, offset by the purchase of $20.6 million of short-term investments, as well as the purchase of $2.0 million of property and equipment.
Net Cash Provided by Financing Activities
Cash provided by financing activities for the year ended December 31, 2025 was $124.6 million and primarily related to $50.0 million in net cash proceeds from the sale of Series C-2 redeemable convertible preferred stock, $77.1 million in net cash proceeds from the sale of Series D redeemable convertible preferred stock, and proceeds of $0.2 million from the exercise of stock options, offset by repurchase of common stock of $1.5 million and payments for deferred financing costs of $1.2 million.
Cash provided by financing activities for the year ended December 31, 2024 includes $0.2 million from the exercise of stock options.
Future Funding Requirements
We believe that the net proceeds from our IPO, together with our existing cash and cash equivalents and short-term investments at December 31, 2025, will be sufficient to fund our operating expenses and capital expenditure requirements through 2028. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we currently expect.
We will need substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Our future capital requirements will depend on many factors, including:
nthe scope, timing, rate of progress, and costs of our clinical trials for our current and any future product candidates;
nthe number and scope of clinical programs we decide to pursue;
nthe cost, timing, and outcome of preparing for and undergoing regulatory review of our current and any future product candidates;
nthe cost and timing of manufacturing our product candidates;
nthe costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
nthe terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements;
nthe timing of any milestone and royalty payments to our existing or future suppliers, collaborators, or licensors;
nour efforts to enhance operational systems and our ability to attract, hire, and retain qualified personnel, including personnel to support the development of our product candidates;
nthe costs associated with operating as a public company;
nthe extent to which we acquire or in-license other product candidates and technologies;
nthe extent to which we enter into licensing or collaboration arrangements for any of our programs; and
nthe costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution of our product candidates, if they receive marketing approval.
Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. Debt financing and 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 capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute the ownership interests of our stockholders. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our 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.
Material Cash Requirements from Contractual Obligations
We have entered into two leases for 22,592 square feet of office and lab space in Aliso Viejo, California pursuant to a lease that expires not later than July 31, 2026. We have entered into a lease for a new headquarters in Irvine, California consisting of approximately 32,621 rentable square feet of office and laboratory space for a term of approximately 84 months commencing on July 1, 2026. Payments under such leases, net of tenant improvement incentive reimbursements were $0.2 million and $0.7 million for the years ended December 31, 2025 and 2024, respectively. See "Note 7 - Commitments and Contingencies" to our audited financial statements included elsewhere in this Annual Report for details related to future lease payments.
See "Overview - University of Colorado License Agreement" above for a description of the License Agreement and our obligations thereunder.
Additionally, we have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage clinical trial activities and manufacturing companies to manufacture the drug product used in the clinical trials. We can modify the scope of the services under these research and development contracts and cancel these upon written notice. In the event of a cancellation, we would be liable for the cost and expenses incurred to date as well as any close out costs of the service arrangement.
Critical Accounting Estimates
Our financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements.
While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See "Note 6 - Equity Based Compensation" to our audited financial statements included elsewhere in this Annual Report for information concerning specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted, if any, during 2025 and 2024.
Common Stock Valuations
We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. Prior to the completion of our IPO, the fair value of the common stock underlying our equity awards was determined on the grant date by our board of directors. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date we developed an estimate of the fair value of our common stock in order to determine an exercise price for the option grants.
Prior to the completion of our IPO, determinations of the fair value of our common stock included the consideration of valuations prepared by independent third-party valuation specialists using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation (the Practice Aid). The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock.
In accordance with the Practice Aid, during the period of time leading up to our IPO, we used a hybrid method, which is a combination of the Option Pricing Method (OPM) and the Probability-Weighted Expected Return Method (PWERM) for purposes of allocating the value of the enterprise to our common stock. Under the OPM, shares are valued by creating a series of call options, representing the present value of the expected future returns to the stockholders, with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options. The PWERM employs additional information not used in the OPM, including various market approach calculations depending upon the likelihood of various discrete future liquidity scenarios, such as an IPO or sale of our company, as well as the probability of remaining a private company. In a hybrid method, various exit scenarios are analyzed.
Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including:
nvaluations of our common stock performed by management who relied upon independent third-party valuation specialists;
nour stage of development and business strategy, including the status of research and development efforts of our programs and product candidates, and the material risks related to our business and industry;
nour results of operations and financial position, including our levels of available capital resources;
nthe valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;
nthe lack of marketability of our common stock as a private company;
nthe prices of our redeemable convertible preferred stock sold to investors in arm's length transactions and the rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;
nthe likelihood of achieving a liquidity event for the holders of our common stock, such as an IPO or a sale of our company, given prevailing market conditions;
ntrends and developments in our industry; and
nexternal market conditions affecting the life sciences and biotechnology industry sectors.
We have generally estimated the equity value of our business using a market approach. For each of the valuations conducted as of May 24, 2019, November 30, 2020, November 30, 2021, June 30, 2022, July 7, 2023, June 30, 2024, December 31, 2024, March 31, 2025, May 30, 2025 and September 30, 2025, we estimated our equity value under a going concern scenario, in which our clinical trial results would be sufficiently satisfactory to allow us to continue as a going concern as a private company, as follows: (a) for each of the valuations conducted as of June 30, 2024, December 31, 2024 and March 31, 2025, we used the precedent transaction method to determine equity value; (b) for each of the valuations conducted as of November 30, 2021 and June 30, 2022, we used two approaches under the guideline public company method to determine equity value; (c) for each of the valuations conducted as of May 24, 2019, November 30, 2020 and July 7, 2023, we determined equity value by back-solving using an option pricing method, based on the price of shares to be offered in our Series A redeemable convertible preferred stock financing, Series B redeemable convertible preferred stock financing and Series C redeemable convertible preferred stock financing, respectively; and (d) for each of the valuations conducted as of May 30, 2025 and September 30, 2025, we determined equity value by utilizing the hybrid method by (1) back-solving using an option pricing method based on the price of shares to be offered in our Series D redeemable convertible preferred stock financing and (2) assuming an IPO under the probability-weighted expected return method and weighting the likelihood of each method. The precedent transaction method considers the sale price of shares in a recent financing and then back-solves using an option pricing model that gives consideration to our capitalization structure and rights of the preferred and common stockholders. The guideline public company method compares the subject company with guideline-publicly traded companies to determine equity value. The two approaches we used under the guideline public company method were: (i) extrapolating valuation multiples based on the cash free market value of invested capital of guideline companies to arrive at an equity value for our company (after adding back cash and subtracting interest bearing debt); and (ii) "rolling forward" our equity value from the time of the last valuation, based on changes in the share values of the guideline companies. In each instance above, we applied a discount for lack of marketability, and then allocated equity value to common stock based on the OPM. We believed the option pricing method was most appropriate for allocating equity value in light of the uncertainty associated with both the timing and type of any future exit scenario, based on our stage of development and other relevant factors.
The assumptions underlying these valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. Our estimate of fair value is reviewed and approved by our board of directors.
For valuations after the completion of our IPO, the fair value of each share of underlying common stock is based on the closing price of our common stock as reported on the date of grant on Nasdaq.
Valuation of Redeemable Convertible Preferred Stock Tranche Liability
The July 2023 stock purchase agreement for our Series C-1 redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock obligated the investors thereunder to participate in a subsequent offering of Series C-2 redeemable convertible preferred stock upon certain conditions being met, which we refer to as the Redeemable Convertible Preferred Stock Tranche Rights. We determined that the Redeemable Convertible Preferred Stock Tranche Rights were required to be recorded as liabilities because they are freestanding financial instruments that would require us to transfer assets upon exercises of the right. The Redeemable Convertible Preferred Stock Tranche Rights met the definition of a freestanding financial instrument because they are legally detachable and separately exercisable from the Series C-2 redeemable convertible preferred stock. The Redeemable Convertible Preferred Stock Tranche Rights were classified as a liability and initially recorded at fair value upon the issuance date of the right. The liabilities are remeasured to fair value at each reporting date until settled, and changes in the fair
value of the Redeemable Convertible Preferred Stock Tranche Right Liability is recognized as a component of other income (expenses) in our statements of operations and comprehensive loss.
The fair value of the Redeemable Convertible Preferred Stock Tranche Right Liability was determined based on significant inputs not observable in the market, which represented a level 3 measurement within the fair value hierarchy. The fair value of the tranche right liabilities was determined using an option pricing model in addition to the Monte Carlo Simulation model, which considered the estimated fair value of the Series C-1 redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock as of each valuation date, the risk-free interest rate, volatility, expected dividends, estimated time to exit, and estimated time to the tranche closing. The most significant assumption in the valuation model impacting the fair value of the Series C-2 Redeemable Convertible Preferred Stock Tranche Liability is the fair value of our company equity as of each measurement date, which provides the most significant output of the valuation model, which is our Series C-1 and Series C-2 redeemable convertible preferred stock as of each measurement date. We utilized individual term-specific risk-free interest rates for each of the option pricing model and the Monte Carlo Simulation model. The risk-free interest rates were determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the estimated time to exit and the remaining estimated time period of achievement of the specified milestones underlying the Redeemable Convertible Preferred Stock Tranche Rights, respectively. The volatility was based on the historical volatility of publicly traded peer companies. The expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future. Changes in these inputs could have a significant impact on the fair value of the Series C-2 Redeemable Convertible Preferred Stock Tranche Liability.
We determined the fair value per share of the underlying Series C-2 redeemable convertible preferred stock by taking into consideration the most recent sales of our Redeemable Convertible Preferred Stock, results obtained from third-party valuations and additional factors we deemed relevant.
As of the settlement date in March 2025, the fair value of our Series C-2 Preferred Stock was $11.12 per share.
As of December 31, 2024, the fair value of each Series C-2 Preferred Stock was $10.26 per share. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining estimated time period of achievement of the specified milestones underlying the Redeemable Convertible Preferred Stock Tranche Right.
As of December 31, 2023, the fair value of each Series C-2 Preferred Stock was $6.42 per share. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining estimated time period of achievement of the specified milestones underlying the Redeemable Convertible Preferred Stock Tranche Right.
Internal Controls and Procedures
In connection with the preparation of our financial statements for the years ended December 31, 2025 and 2024, we concluded that there was a material weakness in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. If one or more material weaknesses persist or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.
The material weakness that we identified was attributable to control deficiencies related to an insufficient complement of personnel with an appropriate level of technical knowledge for oversight of specialists and to create the proper environment for effective internal control over financial reporting, the lack of an effective risk assessment process, the lack of formalized processes and control activities to support the appropriate segregation of duties over the review of account reconciliations and journal entries, and the lack of monitoring and communication of control processes and relevant accounting policies and procedures. Management is taking steps to remediate the material weakness in our internal control over financial reporting, including hiring additional accounting personnel to assume transaction level responsibilities to appropriately segregate duties between preparers and reviewers.
We will be required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the year following our first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by management over our internal control over financial reporting. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over
financial reporting pursuant to Section 404(b) until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an "emerging growth company" if we take advantage of the exemptions contained in the JOBS Act.
We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing or any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are designed and operating effectively, which could result in a loss of investor confidence in the accuracy and completeness of our financial reports. This could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.
Recent Accounting Pronouncements
See "Note 2 - Summary of Significant Accounting Policies" to our audited financial statements included elsewhere in this Annual Report for a discussion of recent accounting pronouncements.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the JOBS Act, and we may remain an emerging growth company for up to five years following the closing of our IPO. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company disclosure and reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this Annual Report, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We may take advantage of these provisions so long as we remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We are also a "smaller reporting company." We may continue to be a smaller reporting company in any given year if either (i) the market value of our stock held by non-affiliates is less than $250 million as of June 30 in the most recently completed fiscal year or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of June 30 in the most recently completed fiscal year. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to 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, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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