Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

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

Unless otherwise stated or the context otherwise indicates, references to the "Company", "we", "our", "us" or similar terms refer to Compass Therapeutics, Inc. together with its wholly-owned subsidiaries, which we refer to as Compass Therapeutics.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" elsewhere in this Form 10-K. You should review the disclosure under the heading "Risk Factors" in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage, oncology-focused biopharmaceutical company developing proprietary antibody-based therapeutics to treat multiple human diseases. Our scientific focus is on the relationship between angiogenesis, the immune system, and tumor growth. Our pipeline of novel product candidates is designed to target multiple critical biological pathways required for an effective anti-tumor response. These include modulation of the microvasculature via angiogenesis-targeted agents, induction of a potent immune response via activators on effector cells in the tumor microenvironment, and alleviation of immunosuppressive mechanisms used by tumors to evade immune surveillance. We plan to advance our product candidates through clinical development and commercialization as both standalone therapies and in combination with proprietary pipeline antibodies based on supportive clinical and nonclinical data.

Financial Overview

Since our inception, we have devoted substantially all of our efforts to organizing and staffing our Company, business planning, raising capital, research and development activities, building our intellectual property portfolio and providing general and administrative support for these operations. We have funded our operations primarily with proceeds from the sale of equity securities of $568 million through December 31, 2025.

We have incurred significant operating losses since inception. We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our therapies and any future product candidates. Our net losses were $66 million and $49 million for the years ended December 31, 2025 and 2024, respectively, and as of December 31, 2025, we had an accumulated deficit of $431 million. We expect to continue to incur significant expenses for at least the next several years as we advance through clinical development, develop additional product candidates and seek regulatory approval of any product candidates that complete clinical development. In addition, if we obtain marketing approval for any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

As a result, we will need substantial additional funding 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 expect to finance our operations through equity and debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. As of December 31, 2025, we had $209 million in cash, cash equivalents and marketable securities. Based on our research and development plans, we expect that these cash resources will enable us to fund our operating expenses and capital expenditures requirements into 2028. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Listing on the Nasdaq Capital Market

On November 2, 2021, shares of our common stock were approved for trading on the Nasdaq Capital Market under the symbol "CMPX".

Private Investment in Public Entity ("PIPE") Offering

On November 2, 2023, we entered into a securities purchase agreement ("the "Securities Purchase Agreement") with certain accredited investors (the "Investors") pursuant to which we agreed to sell and issue to the Investors in a PIPE financing an aggregate of 25,000,000 shares of our common stock at a purchase price of $3.21 per share. The 25,000,000 shares were issued on November 4, 2023. The gross proceeds to us from the PIPE are $80.3 million (before deducting placement agent fees and other expenses in connection with the offering).

In connection with the PIPE offering, we paid $4.5 million to the underwriters and for other legal and accounting costs, for net proceeds of $75.8 million.

The PIPE offering was made pursuant to our registration statement on Form S-3 (File No. 333-268652), filed with the SEC on December 2, 2023, and declared effective by the SEC on January 20, 2024, including a prospectus thereto that was filed with the SEC on January 24, 2024.

The PIPE offering was exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated by the SEC thereunder. The common stock in the PIPE offering was sold to "accredited investors", as defined in Regulation D.

At-The-Market ("ATM") Offering

In 2025, there were no issuances of common stock through our Open Market Sale Agreement^SM with Jefferies LLC ("Jefferies ATM Agreement"). In December 2025, we entered into a Sales Agreement for our ATM offering with Leerink Partners LLC and Cantor Fitzgerald & Co and the prior Jefferies ATM Agreement was terminated.

In the first quarter of 2024, we sold, through our Jefferies ATM Agreement, 9,790,577 shares of common stock at an average price of $1.85 for total proceeds of $18.1 million and net proceeds of $17.6 million.

Underwritten Offering

On August 12, 2025, we entered into an underwriting agreement (the "Underwriting Agreement") with Jefferies LLC, Piper Sandler & Co., and Guggenheim Securities, LLC, as representatives (the "Representatives") of the underwriters named therein (the "Underwriters"), pursuant to which the Company agreed to issue and sell an aggregate of (a) 33,290,000 shares (the "Firm Shares") of its common stock, par value $0.0001 per share (the "Common Stock"), at a price to the public of $3.00 per share, and (b) pre-funded warrants to purchase up to 6,710,000 shares of the Company's Common Stock (the "Pre-Funded Warrants"), at a price to the public of $2.9999 per warrant with an exercise price of $0.0001 per share (the "Offering"). Pursuant to the Underwriting Agreement, the Company granted the underwriters a 30-day option, which the underwriters exercised, to purchase up to an additional 6,000,000 shares of its Common Stock (the "Optional Shares", and together with the Firm Shares, the "Shares") at the public offering price, less underwriting discounts and commissions. The Company received aggregate net proceeds of $129.3 million, after deducting underwriting discounts and commissions of $8.3 million and other offering costs of $0.4 million.

The 2025 Pre-Funded Warrants were determined to be equity classified. Accordingly, proceeds from the offering were allocated to common stock, the 2025 Pre-Funded Warrants on a relative fair value basis and were recorded in stockholders' equity. As of December 31, 2025, all of the 2025 Pre-Funded Warrants remain outstanding.

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 ("IRA") was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax on adjusted financial statement income. To date, the IRA has not had a material impact on our consolidated financial statements.

Components of Results of Operations

Research and development

Research and development expenses consist primarily of costs incurred in connection with the development of our clinical product candidates, tovecimig, CTX-471, CTX-8371 and CTX-10726, as well as unrelated preclinical and discovery program expenses. We expense research and development costs as incurred. These expenses include:

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development milestone payments due in connection with our product candidates;

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employee-related expenses, including salaries, related benefits and equity-based compensation expense, for employees engaged in research and development functions;

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Contract Research Organizations ("CROs") that are primarily engaged to support the clinical development of our product candidates;

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Contract Development Manufacturing Organizations ("CDMOs") that are primarily engaged to provide drug substance and drug product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;

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cost of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;

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costs related to compliance with quality and regulatory requirements; and

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payments made under third-party licensing agreements.

Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.

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 that our research and development expenses will increase substantially in connection with our planned clinical development activities in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of any future product candidates.

Our clinical development costs may vary significantly based on factors such as:

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per patient trial costs;

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the number of trials required for approval;

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the number of sites included in the trials;

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the location where the trials are conducted;

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the length of time required to enroll eligible patients;

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the number of patients that participate in the trials;

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the number of doses that patients receive;

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the drop-out or discontinuation rates of patients;

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potential additional safety monitoring requested by regulatory agencies;

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the duration of patient participation in the trials and follow-up;

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the cost and timing of manufacturing our product candidates;

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the phase of development of our product candidates; and

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the efficacy and safety profile of our product candidates.

The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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the timing and progress of nonclinical and clinical development activities;

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the number and scope of nonclinical and clinical programs we decide to pursue;

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raising necessary additional funds;

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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;

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our ability to maintain our current development program and to establish new ones;

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our ability to establish new licensing or collaboration arrangements;

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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

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the receipt and related terms of regulatory approvals from applicable regulatory authorities;

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the availability of drug substance and drug product for use in production of our product candidate;

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establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;

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our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally;

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our ability to protect our rights in our intellectual property portfolio;

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the commercialization of our product candidate, if and when approved;

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obtaining and maintaining third-party insurance coverage and adequate reimbursement;

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the acceptance of our product candidate, if approved, by patients, the medical community and third-party payors;

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competition with other products; and

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a continued acceptable safety profile of our therapies following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; marketing expenses and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our business operations. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs, as well as investor and public relations expenses associated with being a public company.

Other income

In 2025 and 2024, the only component of other income was interest income from cash deposits and marketable securities.

Income taxes

We are organized as a Delaware corporation and treated as a c-corporation for federal and state income taxes. Our wholly-owned subsidiaries are included in the consolidated corporate tax return. Prior to the Merger in 2020, we were established as a Delaware limited liability company, and the business that was acquired in the Merger was treated as a partnership for income tax reporting purposes; therefore, federal and state income taxes were the responsibility of its individual members. As such, no federal or state income taxes related to the limited liability company were recorded in our consolidated financial statements. All such taxes have been recorded in our financial statements. As of December 31, 2025 we recorded a deferred tax asset of $79.2 million primarily related to a net operating loss carryforward, section 174 capitalization, research and development tax credit carryforward, and capitalized licensing fees. The asset has a corresponding fully deferred tax valuation allowance. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in the ownership of its equity over a three-year period), the corporation's ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of shifts in our stock ownership, some of which are outside our control. See Note 14 to our consolidated financial statements appearing in this Form 10-K.

Results of Operations

Comparison of the Years Ended December 31, 2025 and 2024

The following table summarizes the results of operations for the years ended December 31, 2025 and 2024:

		Year Ended December 31,
		2025				2024				Change
		(000's)
Licensing revenue		$	-			$	850			$	(850	)
Operating expenses:
Research and development			55,969				42,342				13,627
General and administrative			16,870				15,133				1,737
Total operating expenses			72,839				57,475				15,364
Loss from operations			(72,839	)			(56,625	)			(15,364	)
Other income			6,350				7,250				(900	)
Net loss		$	(66,489	)		$	(49,375	)		$	(16,264	)

Licensing revenue

There was no licensing revenue for the year ended December 31, 2025. Licensing revenue was $850 thousand for the year ended December 31, 2024. The licensing revenue consisted of a $1 million milestone payment from Elpiscience for completing a Phase 1 trial in China. This license revenue is reported net of a 15% sublicense royalty due to ABL Bio (see Note 11 of the consolidated financial statements appearing in this Form 10-K for further information on this sublicense agreement).

Research and development expenses

Research and development expenses increased by $13.6 million from $42.3 million in 2024 to $56.0 million in 2025. This increase was primarily attributable to an increase of $14.2 million of manufacturing expenses related to tovecimig and CTX-10726.

We track supplies, outsourced development, personnel costs and other research and development costs of specific programs. Facility and equipment costs are not allocated to programs. Research and development expenses are summarized by program in the table below:

		Year Ended December 31,
		2025				2024				Change
		(000's)
tovecimig		$	25,259			$	27,938			$	(2,679	)
CTX-471			8,248				4,863				3,385
CTX-8371			4,781				3,473				1,308
CTX-10726			10,216				-				10,216
Other research and development expenses			7,465				6,068				1,397
Total research and development expenses		$	55,969			$	42,342			$	13,627

General and administrative expenses

General and administrative expenses increased by $1.7 million from $15.1 million in 2024 to $16.9 million in 2025. The increase was primarily attributable to commercialization expenses of approximately $0.7 million and $0.5 million of advisory fees. We anticipate that our general and administrative expenses will increase in the future as we expand our commercial operations and to support our growing research and development efforts.

Other income

Other income consists only of interest income which decreased by $0.9 million from $7.3 million in 2024 to $6.4 million in 2025.

Income tax expense

We did not have income tax expense in 2025 or 2024.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from any product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. We have funded our operations primarily with proceeds from multiple equity financings. As of December 31, 2025, we had cash, cash equivalents and marketable securities of $209 million.

On July 9, 2021, we filed an S-3 registration statement which became effective July 20, 2021. Included in this registration statement was a shelf registration allowing us to sell securities up to $300 million. The Follow-On Public Offering was made pursuant to this registration statement. In addition, the S-3 registration statement included a sales agreement with B. Riley Securities, Inc., pursuant to which we could offer and sell shares of our common stock having an aggregate of up to $75 million. We terminated the sales agreement with B. Riley effective July 29, 2022.

On August 1, 2022, we entered into an Open Market Sale Agreement^SM with Jefferies LLC, pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock, which has since been terminated.

On December 2, 2022, we filed an S-3 registration statement which was declared effective by the SEC on January 20, 2023, for the shares issued through the PIPE offering.

On August 30, 2024, we filed an S-3 registration statement which was declared effective by the SEC on September 6, 2024. This registration statement includes (i) a base prospectus that covers the offering, issuance and sale by us of up to $300 million of our common stock, preferred stock, debt securities, warrants and/or units and (ii) a sale agreement prospectus supplement that covers the offer and sale, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $55 million pursuant to our Open Market Sale Agreement^SM with Jefferies LLC.

On December 30, 2025, we filed an S-3 registration statement which was declared effective by the SEC on January 7, 2026. This registration statement includes (i) a base prospectus that covers the offering, issuance and sale by us of up to $400 million of our common stock, preferred stock, debt securities, warrants and/or units and (ii) a sale agreement prospectus supplement that covers the offer and sale, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $100 million pursuant to our Sales Agreement with Leerink Partners LLC and Cantor Fitzgerald & Co. The prior Open Market Sale Agreement^SM with Jefferies LLC was terminated as part of this filing.

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. 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:

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the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

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the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

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the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

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our ability to establish additional collaborations on favorable terms, if at all;

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the costs required to scale up our clinical, regulatory and manufacturing capabilities;

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the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and

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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. 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 trials.

Cash Flows

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

		Year ended December 31,
		2025				2024
		(000's)
Cash used in operating activities		$	(49,143	)		$	(44,855	)
Cash (used in) provided by investing activities			(93,306	)			46,772
Cash provided by financing activities			129,609				17,338
Net (decrease) increase in cash and cash equivalents		$	(12,840	)		$	19,255

Operating Activities

During the year ended December 31, 2025, we used $49.1 million of cash in operating activities, resulting from our net loss of $66.5 million and the change in operating assets and liabilities of $9.2 million and non-cash charges of $8.2 million. Our non-cash charges primarily consisted of stock-based compensation expense of $8.4 million.

During the year ended December 31, 2024, we used $44.9 million of cash in operating activities, resulting from our net loss of $49.4 million and the change in operating assets and liabilities of $4.1 million, offset by non-cash charges of $8.7 million. Our non-cash charges primarily consisted of stock-based compensation expense of $8.6 million.

Investing Activities

During the year ended December 31, 2025, cash used in investing activities was $93.3 million, which was primarily attributed to the net purchases of marketable securities of $93.3 million. During the year ended December 31, 2024, cash provided by investing activities was $46.8 million, which was primarily attributed to the net proceeds from the sale of marketable securities of $46.8 million.

Financing Activities

During the year ended December 31, 2025, cash provided by financing activities was $129.6 million. This was primarily from the issuance of stock through an underwritten stock offering for net proceeds of $129.4 million. During the year ended December 31, 2024, cash provided by financing activities was $17.3 million. This was primarily from the issuance of stock pursuant to our ATM program for net proceeds of $17.6 million.

Future Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates into their next clinical trial phases. The timing and amount of our operating expenditures will depend largely on:

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the initiation, progress, timing, costs and results of clinical trials for our current product candidates or any future product candidates we may develop;

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the initiation, progress, timing, costs and results of nonclinical studies for our product candidates or any future product candidates we may develop;

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our ability to maintain our relationships with key collaborators;

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the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies or trials that had previously been agreed to;

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the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;

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the effect of competing technological and market developments;

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the costs of continuing to grow our business, including hiring key personnel and maintain or acquiring operating space;

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market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors;

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the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

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the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing;

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the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and

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our need to implement additional internal systems and infrastructure, including financial and reporting systems.

We believe that our existing cash, cash equivalents and marketable securities as of December 31, 2025 will enable us to fund our operating expenses and capital expenditure requirements into 2028. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect that we will require additional funding to complete the clinical development of our product candidates, commercialize our product candidates, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize our product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders' ownership interests may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise 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, reduce or eliminate 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.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2025 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

		Payments due by Period (000's)(2)
		Total				Less than 1 year				1 to 3 years				3 to 5 years				More than 5 years
Operating lease commitments(1)		$	11,623			$	1,525			$	4,453			$	4,650			$	995

(1)

Reflects payments due for our leases of office and laboratory space in Boston, Massachusetts under an operating lease agreement that expires in May 2031.

(2)

This table does not include (i) any milestone payments that are not deemed probable under license agreements as the timing and likelihood of such payments are not known with certainty, (ii) any royalty payments to third parties as the amounts, timing and likelihood of such payments are not known, and (iii) contracts that are entered into in the ordinary course of business which are cancelable.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting period. We base our estimates on historical experience, known trends and events, and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing in this Form 10-K, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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.

At the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record net prepaid or accrued expenses relating to these costs.

Stock Awards and Unit-Based Compensation

The following table summarizes stock awards and unit-based compensation expense:

		Year Ended December 31,
		2025				2024
		(000's)
Research and development		$	3,346			$	2,971
General and administrative			5,022				5,589
Total		$	8,368			$	8,560

See Notes 3 and 9 to our consolidated financial statements appearing in this Form 10-K for additional stock compensation information.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3 to our consolidated financial statements appearing in this Annual Report.