Werewolf Therapeutics Inc.

08/14/2025 | Press release | Distributed by Public on 08/14/2025 05:11

Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside resources, so as to allow investors to better view our company from management's perspective. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our Annual Report on Form 10-K for the year ended December 31, 2024, or the 2024 Annual Report, that was filed with the United States Securities and Exchange Commission, or SEC, on March 11, 2025. In addition to historical information, the discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report, including those factors set forth in the section entitled "Cautionary Note Regarding Forward-Looking Statements and Industry Data" and in the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report. You should carefully read the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report.
Overview
We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body's immune system for the treatment of cancer and other immune-mediated conditions. We are leveraging our proprietary PREDATOR platform to design conditionally activated molecules that stimulate both adaptive and innate immunity with the goal of addressing the limitations of conventional proinflammatory immune therapies. Our molecules, which we refer to as INDUKINE and INDUCER molecules, are intended to activate selectively in the tumor microenvironment, or TME. Our most advanced product candidates, WTX-124 and WTX-330, are systemically delivered, conditionally activated Interleukin-2 and Interleukin-12, respectively, INDUKINE molecules for the treatment of multiple tumor types.
We are currently evaluating WTX-124 in a Phase 1/1b clinical trial as a monotherapy and in combination with Merck & Co., Inc.'s anti-PD-1 therapy KEYTRUDA (pembrolizumab) in patients with immunotherapy sensitive advanced or metastatic solid tumors who have failed standard of care treatment, including checkpoint inhibitor therapy. In June 2024, we reported updated interim data from the monotherapy dose-escalation arms of the Phase 1/1b clinical trial, selected a recommended dose for expansion, initiated monotherapy dose expansion arms, and reported initial data from the combination dose escalation cohorts of the Phase 1/1b clinical trial. All expansion arms are actively enrolling patients in the ongoing Phase 1/1b clinical trial at a recommended dose of 18 mg administered intravenously every two weeks. During the second half of 2025, we plan to present interim data from the monotherapy and combination expansion arms, including tolerability, response rate, and durability, and to engage with regulatory authorities to discuss potential registrational pathways for WTX-124, including strategies for accelerated approval.
We evaluated WTX-330 in a first-in-human Phase 1 clinical trial for the treatment of immunotherapy resistant advanced or metastatic solid tumors or lymphoma. Phase 1 of this clinical trial was completed in the first quarter of 2025. We reported initial data from the Phase 1 clinical trial in June 2024 and presented updated interim safety and efficacy data from the Phase 1 clinical trial at the Society for Immunotherapy of Cancer Annual Meeting in November 2024, highlighting the tolerability profile and monotherapy efficacy signals of WTX-330. Guided by these data, we initiated a Phase 1b/2 clinical trial of WTX-330 in the first quarter of 2025 in patients with selected advanced or metastatic solid tumors and dosed our first patient in the second quarter of 2025.
We continue to build our PREDATOR platform to generate a pipeline of innovative therapeutics that cover a diversity of immune stimulating mechanisms with the potential to address significant unmet medical need in therapeutic areas including new immuno-oncology, autoimmune, and inflammatory diseases. Our PREDATOR platform consists of our protein engineering technologies and our know-how, which we use to generate INDUKINE and INDUCER molecules with multiple functional domains rationally engineered into a single protein to achieve the desired pharmaceutical profile. Each of our lead INDUKINE and INDUCER molecules consists of four components: an immunomodulating agent (cytokine or T cell engager), an inactivation domain, a half-life extension domain, and a proprietary protease-cleavable linker. Our INDUKINE molecules contain cytokines that modulate the immune system within a disease-specific tissue, with full potency and functionality observed in preclinical studies. Our INDUCER molecules contain potent T cell engager molecules that redirect T cells to tumor cells via tumor associated antigens, resulting in T cell dependent killing of tumor cells. The inactivation domain physically blocks the immunomodulating payload in non-diseased tissues throughout the body, or the periphery, preventing the payload from being active until the inactivation domain is removed by protease cleavage in the disease-specific tissue, resulting in an active immunomodulating agent (cytokine or T cell engager). The half-life extension domain enables high systemic and disease-specific tissue exposure for the INDUKINE or INDUCER molecule prior to its cleavage in the disease-specific tissue. After tissue specific cleavage, the half-life extension domain is removed, and the payload is released to modulate the activity of immune cells. We select the proprietary protease-cleavable linker to enable conditional release of the immunomodulating agent
of the INDUKINE or INDUCER molecule within disease-specific tissue. This selection is based on our extensive screening in preclinical studies to identify protease-cleavable linkers that are efficiently cleaved by a broad array of disease-specific tissues (e.g., human tumor tissues) with minimal cleavage in non-diseased tissues.
We continue to further the development of our INDUKINE preclinical product candidates, WTX-712, WTX-518, and WTX-921. WTX-712 is a systemically delivered, conditionally activated Interleukin-21 (IL-21) INDUKINE molecule that is being developed to minimize the severe toxicities that have been observed with recombinant IL-21 therapy and maximize clinical benefit when administered as monotherapy or in combination with checkpoint inhibitors in refractory and/or immunologically unresponsive tumors. In April 2024, we presented preclinical data for WTX-712 at the American Association for Cancer Research, or AACR, Annual Meeting demonstrating that WTX-712 acts through a unique mechanism that robustly activates tumor-specific T lymphocytes with an expanded therapeutic window through its selective release of wild-type IL-21 in the TME. WTX-518 is a systemically delivered, conditionally activated Interleukin-18 (IL-18) INDUKINE molecule in development for the treatment of cancer and is designed to promote activation of immune cells in the TME, resulting in antitumor immunity. In April 2024, we also presented preclinical data for WTX-518 at the AACR Annual Meeting demonstrating that WTX-518 exhibits remarkable tumor-selective activation, resistance to IL-18BP and robust immune activation. WTX-921 is a systemically delivered, conditionally activated Interleukin-10 (IL-10) INDUKINE molecule for treatment of inflammatory bowel disease, or IBD, and potentially other inflammatory diseases.
We are also utilizing this PREDATOR platform know-how and expertise to develop conditionally activated immune cell engagers, such as T cell engagers. T cell engagers are typically bispecific antibodies that redirect immune cells to cancer cells via engagement with tumor associated cell surface antigens, leading to immune cell mediated killing of the cancer cells. We call our T cell engager molecules INDUCER molecules and have provided initial preclinical data for our proprietary INDUCER T cell engager molecules demonstrating that our PREDATOR masking technology silenced peripheral activity and prevented cytokine release. We have nominated our first INDUCER development candidate, WTX-1011, targeting Six-Transmembrane Epithelial Antigen of the Prostate 1 (STEAP1). STEAP1 has limited expression in normal tissues but is overexpressed in prostate tumors. This makes it an attractive target for T cell engager therapy, but existing anti-STEAP1 T-cell engager therapies are still associated with notable toxicities in the periphery such as cytokine release. Preclinical data has demonstrated that the masking technology in Werewolf's WTX-1011 INDUCER molecule has successfully silenced peripheral activity and prevented cytokine release, providing an expanded therapeutic window.
In April 2022, we entered into a global collaboration and license agreement, or the Collaboration Agreement, with Jazz Pharmaceuticals Ireland Limited, or Jazz, under which Jazz acquired exclusive global development and commercialization rights related to Interferon alpha, or IFNα, INDUKINE molecule, JZP898 (formerly WTX-613), as well as products containing certain isolated recombinant polypeptides comprising IFNα that meet specified criteria (each such product, a Licensed Product). Pursuant to the terms of the Collaboration Agreement, we were responsible for certain preclinical development activities with respect to JZP898 and other development activities specified in mutually agreed upon development plans. Jazz generally reimbursed us for the cost of such activities. Jazz is responsible for all other development and commercialization activities conducted to exploit the Licensed Products.
In June 2024, we executed a transfer agreement, or the Transfer Agreement, to assign our rights in a development agreement with a contract manufacturer of JZP898 to Jazz. The execution of this Transfer Agreement was the last material performance obligation required of us under the Collaboration Agreement.
Financial Operations Overview
Revenue
All of our revenue has been generated from the Collaboration Agreement with Jazz. Revenue from the transaction price for the Collaboration Agreement was recognized based on a cost-to-cost input method and included upfront, milestone, and cost reimbursement payments. The Collaboration Agreement includes multiple development and regulatory and sales-based milestones, which were excluded from the transaction price at inception of the Collaboration Agreement based on our assessment that there was a high level of uncertainty of achieving the milestones. During the six months ended June 30, 2025, we re-evaluated this assessment as it pertains to any milestones that continue to be excluded from the transaction price, and concluded no adjustment to the transaction price associated with variable consideration previously excluded from the transaction price should be recognized. As of the execution of the Transfer Agreement, we no longer have any material performance obligations under the Collaboration Agreement, and all remaining deferred revenue related to the Collaboration Agreement was recognized upon execution of the Transfer Agreement. Accordingly, we recognized no revenue related to the Collaboration Agreement during the six months ended June 30, 2025.
In the future, our ability to generate revenue from the Collaboration Agreement will depend on successfully achieving the various development and regulatory and sales-based milestones. We may also generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that potential future revenue, if any, will
fluctuate from quarter-to-quarter and year-to-year based upon our ability to successfully meet the criteria for payment of the remaining development and regulatory milestones, and the timing and amount of other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•expenses incurred under agreements with third parties that conduct research, preclinical and clinical activities on our behalf;
•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; and
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses.
We typically use our employee and infrastructure resources across our development programs. We track external development costs by product candidate or development program, but generally we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.
Our external development costs were as follows:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2025 2024 2025 2024
(in thousands)
WTX-124 $ 4,573 $ 4,338 $ 9,368 $ 6,145
WTX-330 1,758 3,891 3,212 7,929
WTX-712 17 368 104 574
WTX-921 31 - 40 -
WTX-518 1 169 2 183
JZP898 - 200 - 524
Pre-development candidates 1,063 262 1,644 510
Total external development costs
$ 7,443 $ 9,228 $ 14,370 $ 15,865
Research and development activities are central to our business model. We expect that our research and development expenses will continue to be substantial for the foreseeable future as we progress our clinical trials of WTX-124 and WTX-330, continue preclinical development of WTX-712 and WTX-518, begin preclinical development of WTX-1011, and continue to discover and develop additional product candidates. As a result of our entry into the Collaboration Agreement, which commenced in April 2022, our external preclinical development costs for JZP898 were generally reimbursed by Jazz until we completed all material performance obligations in June 2024.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete
development of our current or future product candidates. The actual probability of success for our product candidates will depend on a variety of factors, including:
•the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials, including our ongoing Phase 1/1b clinical trial for WTX-124 and the Phase 1b/2 clinical trial for WTX-330, as well as other research and development activities;
•establishing an appropriate safety profile;
•successful enrollment in and completion of clinical trials;
•whether our product candidates show safety and efficacy in our clinical trials;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
•continued acceptable safety profile of the products following any regulatory approval.
A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates and we may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel in our executive, finance, people operations, business development, legal, information technology and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, audit, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will fluctuate in the future based on the operating needs of our business, including the general and administrative resources needed to support our research, development and manufacturing activities.
Other (Expense) Income
Interest Income
Interest income consists of interest earned from cash and cash equivalents and restricted cash and cash equivalents invested in money market funds.
Interest Expense
Interest expense represents interest incurred from our loan agreement, or the PWB Loan Agreement, with Pacific Western Bank, or PWB, until the extinguishment of the PWB term loan in May 2024, interest incurred from our loan and security agreement, or the K2HV Loan Agreement, with K2 HealthVentures LLC, or K2HV, and non-cash interest expense related to the amortization of debt issuance costs.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of any residual financial impact from the repayment of term loans with lenders, specifically the extinguishment of the PWB term loan in May 2024.
Other Income, Net
Other income, net primarily consists of the unrealized gain or loss recognized on the change in the fair value of the derivative liability associated with the K2HV Loan Agreement.
Results of Operations
Comparison of the Three Months Ended June 30, 2025 and 2024
The following table summarizes our results of operations:
Three Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Revenue:
Collaboration revenue $ - $ 1,143 $ (1,143)
Operating expenses:
Research and development
13,143 15,271 (2,128)
General and administrative
4,399 4,832 (433)
Total operating expenses
17,542 20,103 (2,561)
Operating loss
(17,542) (18,960) 1,418
Other (expense) income:
Interest income 850 1,793 (943)
Interest expense (1,301) (1,142) (159)
Loss on extinguishment of debt - (553) 553
Other income, net 11 1,613 (1,602)
Total other (expense) income (440) 1,711 (2,151)
Net loss
$ (17,982) $ (17,249) $ (733)
Revenue
No revenue was recognized during the three months ended June 30, 2025. Following the execution of the Transfer Agreement with Jazz in June 2024, the only significant sources of revenue expected to be generated from the Collaboration Agreement are the remaining development and regulatory and sales-based milestones. Based on our assessment that there continues to be a high level of uncertainty of achieving these milestones, no revenue from the remaining milestones has been recognized during the three months ended June 30, 2025. Comparatively, we recognized $1.1 million during the three months ended June 30, 2024 related to the Collaboration Agreement with Jazz prior to the execution of the Transfer Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses:
Three Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Clinical trial costs $ 4,201 $ 4,566 $ (365)
Personnel 3,750 4,295 (545)
Manufacturing 2,052 3,899 (1,847)
Contract research organization 1,190 763 427
Lab consumables 1,045 735 310
Facility costs 776 771 5
Other 129 242 (113)
Total research and development expenses $ 13,143 $ 15,271 $ (2,128)
Research and development expenses for the three months ended June 30, 2025 were $13.1 million compared to $15.3 million for the three months ended June 30, 2024. The decrease of $2.1 million was primarily due to:
•$0.4 million of decreased clinical trial costs driven primarily by a decrease in costs associated with the Phase 1/1b clinical trial for WTX-124, which incurred higher patient and site monitoring costs during three months ended June 30, 2024 compared to the three months ended June 30, 2025;
•$0.5 million of decreased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees; and
•$1.8 million of decreased manufacturing costs driven primarily by a decrease in costs associated with WTX-330, which were higher during the three months ended June 30, 2024 in preparation for our Phase 1b/2 clinical trial for WTX-330 that was initiated during the first quarter of 2025.
These decreases were partially offset by:
•$0.4 million of increased contract research organization costs and $0.3 million of increased lab consumables, both driven primarily by costs associated with furthering the development of our preclinical candidates.
General and Administrative Expenses
The following table summarizes our general and administrative expenses:
Three Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Personnel $ 2,095 $ 2,429 $ (334)
Professional services 1,325 1,308 17
Facility costs 326 313 13
Corporate insurance 264 277 (13)
Information technology costs 196 227 (31)
Other 193 278 (85)
Total general and administrative expenses
$ 4,399 $ 4,832 $ (433)
General and administrative expenses were $4.4 million for the three months ended June 30, 2025 compared to $4.8 million for three months ended June 30, 2024. The decrease of $0.4 million was primarily due to a decrease in personnel costs of $0.3 million driven primarily by the timing and valuation of stock-based awards granted to employees.
Interest Income
Interest income was $0.9 million for the three months ended June 30, 2025 compared to $1.8 million for the three months ended June 30, 2024. This decrease in interest income was primarily a result of lower balances in money market accounts during the three months ended June 30, 2025 compared to the three months ended June 30, 2024.
Interest Expense
Interest expense was $1.3 million for the three months ended June 30, 2025, compared to $1.1 million for the three months ended June 30, 2024. This increase in interest expense was primarily the result of a higher effective interest rate under the K2HV Loan Agreement, compared to the effective interest rate associated with our previous term loan with PWB.
Loss on Extinguishment of Debt
The extinguishment of the PWB term loan resulted in a one-time loss of $0.6 million for the three months ended June 30, 2024. As no corresponding finance activity occurred for the three months ended June 30, 2025, we did not incur any gain or loss on a debt extinguishment during the current period.
Other Income, Net
Other income, net for the three months ended June 30, 2025 and 2024 primarily consists of the gains recognized for the change in fair value of the derivative liability associated with the K2HV Loan Agreement during each period.
Results of Operations
Comparison of the Six Months Ended June 30, 2025 and 2024
The following table summarizes our results of operations:
Six Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Revenue:
Collaboration revenue $ - $ 1,885 $ (1,885)
Operating expenses:
Research and development
26,263 28,179 (1,916)
General and administrative
9,270 9,828 (558)
Total operating expenses
35,533 38,007 (2,474)
Operating loss
(35,533) (36,122) 589
Other (expense) income:
Interest income 1,847 3,766 (1,919)
Interest expense (2,564) (2,145) (419)
Loss on extinguishment of debt - (553) 553
Other income, net 179 1,612 (1,433)
Total other (expense) income (538) 2,680 (3,218)
Net loss
$ (36,071) $ (33,442) $ (2,629)
Revenue
No revenue was recognized during the six months ended June 30, 2025. Following the execution of the Transfer Agreement with Jazz in June 2024, the only significant sources of revenue expected to be generated from the Collaboration Agreement are the remaining development and regulatory and sales-based milestones. Based on our assessment that there continues to be a high level of uncertainty of achieving these milestones, no revenue from the remaining milestones has been recognized during the six months ended June 30, 2025. Comparatively, we recognized $1.9 million during the six months ended June 30, 2024 related to the Collaboration Agreement with Jazz prior to the execution of the Transfer Agreement.
Research and Development Expenses
The following table summarizes our research and development expenses:
Six Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Personnel $ 8,081 $ 8,765 $ (684)
Clinical trial costs 6,993 6,335 658
Manufacturing 5,515 7,708 (2,193)
Lab consumables 1,987 1,486 501
Contract research organization 1,862 1,822 40
Facility costs 1,581 1,664 (83)
Other 244 399 (155)
Total research and development expenses $ 26,263 $ 28,179 $ (1,916)
Research and development expenses for the six months ended June 30, 2025 were $26.3 million compared to $28.2 million for the six months ended June 30, 2024. The decrease of $1.9 million was primarily due to:
•$0.7 million of decreased personnel costs, driven primarily by the timing and valuation of stock-based awards granted to employees; and
•$2.2 million of decreased manufacturing costs, driven by a decrease of costs associated with WTX-330 and JZP898 of $4.7 million and $0.5 million, respectively. Costs associated with WTX-330 were higher during the six months ended June 30, 2024 in preparation for our Phase 1b/2 clinical trial for WTX-330 that was initiated during the first quarter of 2025, and costs associated with JZP898 were higher during the six months ended June 30, 2024 prior to the execution of the Transfer Agreement with Jazz. These decreases were partially offset by an increase in costs associated with WTX-124 of $3.2 million due to our manufacturing efforts to continue to support our ongoing Phase 1/1b clinical trial for WTX-124.
These decreases were partially offset by:
•$0.7 million of increased clinical trial costs, driven by costs associated with the continued enrollment in our ongoing Phase 1/1b clinical trial for WTX-124 and the initiation of our Phase 1b/2 clinical trial for WTX-330; and
•$0.5 million of increased lab consumables for supplies procured in our efforts to further the development of our preclinical candidates.
General and Administrative Expenses
The following table summarizes our general and administrative expenses:
Six Months Ended
June 30, 		$ Change
2025 2024
(in thousands)
Personnel $ 4,745 $ 5,028 $ (283)
Professional services 2,462 2,571 (109)
Facilities 657 696 (39)
Corporate insurance 537 599 (62)
Information technology costs
367 407 (40)
Other 502 527 (25)
Total general and administrative expenses $ 9,270 $ 9,828 $ (558)
General and administrative expenses were $9.3 million for the six months ended June 30, 2025 compared to $9.8 million for the six months ended June 30, 2024. The decrease of $0.6 million was due to moderate decreases across all general and administrative expenses, including a decrease in personnel costs of $0.3 million driven primarily by the timing and valuation of stock-based awards granted to employees.
Interest Income
Interest income was $1.8 million for the six months ended June 30, 2025 compared to $3.8 million for the six months ended June 30, 2024. This decrease in interest income was primarily a result of lower balances in money market accounts during the six months ended June 30, 2025 compared to the six months ended June 30, 2024.
Interest Expense
Interest expense was $2.6 million for the six months ended June 30, 2025 compared to $2.1 million for the six months ended June 30, 2024. This increase in interest expense was primarily the result of a higher effective interest rate under the K2HV Loan Agreement, compared to the effective interest rate associated with our previous term loan with PWB.
Loss on Extinguishment of Debt
The extinguishment of the PWB term loan resulted in a one-time loss of $0.6 million for the six months ended June 30, 2024. As no corresponding finance activity occurred for the six months ended June 30, 2025, we did not incur any gain or loss on a debt extinguishment during the current period.
Other Income, Net
Other income, net for the six months ended June 30, 2025 and 2024 primarily consists of the gains recognized for the change in fair value of the derivative liability associated with the K2HV Loan Agreement during each period.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2017, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company; business planning; raising capital; developing and optimizing our platform technology; identifying potential product candidates; enhancing our intellectual property portfolio; undertaking research, preclinical studies, and clinical trials; and enabling manufacturing for our development programs. Our net loss was $18.0 million and $36.1 million the three and six months ended June 30, 2025, respectively. As of June 30, 2025, we had an accumulated deficit of $450.7 million. As we have no products that are approved for sale, we have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all. Instead, we have financed our operations primarily through aggregate cash proceeds from convertible promissory notes, private placements of our convertible preferred stock, our initial public offering, payments from Jazz under the Collaboration Agreement, sales of common stock through our at-the-market program, and the drawdown of our term loans. Because our product candidates are in clinical development and the outcome of our efforts is uncertain, we cannot estimate the actual costs necessary to successfully complete the development and commercialization of our product candidates, or when we may achieve profitability, if at all.
We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual
property portfolio, hire additional research and development and business personnel and operate as a public company. As a result, we expect that our accumulated deficit will also increase significantly.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Additionally, the extent to which we use our at-the-market program as a source of future funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions, the extent to which we are able to secure funds from other sources, and whether we are then subject to limitations on our ability to use Form S-3 to sell more than one-third of the aggregate market value of our public float in the trailing 12-month period, which limitations will remain in place until such time as our public float exceeds $75 million. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
Term Loan Facilities
PWB Loan Agreement
In April 2022, we entered into the PWB Loan Agreement with PWB and subsequently drew down an aggregate of $40.0 million in term loans. The term loans accrued interest on the outstanding daily balance at a floating annual rate equal to greater of (i) 0.5% above the prime rate then in effect or (ii) 4.5%. If the prime rate changed throughout the term, the interest rate would have been adjusted effective on the date of the prime rate change. All interest chargeable under the PWB Loan Agreement was computed on a 360-day year for the actual number of days elapsed, with interest payable monthly.
In May 2024, we repaid all amounts outstanding under the PWB Loan Agreement, using $29.5 million in net loan proceeds received under the K2HV Loan Agreement, as described below, together with $10.5 million in existing cash. We recognized a total loss on extinguishment of debt in the amount of $0.6 million during the second quarter of 2024 primarily due to the write off of unamortized debt issuance costs.
K2HV Loan Agreement
In May 2024, we, as borrower, entered into the K2HV Loan Agreement with K2HV (which we refer to, together with any other lender from time to time, as the Lenders); K2HV, as administrative agent for the Lenders; and Ankura Trust Company, LLC, as collateral trustee for the Lenders. The K2HV Loan Agreement provides up to $60.0 million principal in term loans. We received $30.0 million in gross loan proceeds at closing; $25.0 million from the first tranche commitment and $5.0 million from the second tranche commitment. A third tranche commitment of up to $10.0 million was available to be drawn at our option through June 30, 2025, subject to the achievement, as determined by the administrative agent in its discretion, of certain time-based, clinical and regulatory milestones and receipt of not less than $60.0 million in net cash proceeds from certain financing activities, with at least $50.0 million from a single offering of common stock. Our ability to draw upon the third tranche commitment expired on June 30, 2025 without being drawn upon. A fourth tranche commitment of up to $20.0 million is available to be drawn down at our option through May 1, 2026, subject to Lender's review of our clinical, financial and operating plan and subject to the Lender's consent in its sole and absolute discretion.
The term loan matures on May 1, 2028, and we are obligated to make interest only payments for the first 24 months followed by interest and equal principal payments each month thereafter through the maturity date. The term loan bears a variable interest rate equal to the greater of (i) 10.3%, and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 1.8%. We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the term loans, subject to a prepayment premium to which the Lenders are entitled and certain notice requirements. We are obligated to pay a final fee equal to 6.95% of the aggregate amount of the term loans funded, or the Final Fee, to occur upon the earliest of (i) the maturity date, (ii) the acceleration of the term loans, and (iii) the prepayment of the term loans. The Final Fee is being accreted to interest expense using the effective interest method over the life of the debt.
Pursuant to the terms of the K2HV Loan Agreement, the lenders thereto may elect, prior to the full repayment of the term loans, to convert up to $5.0 million of the outstanding principal of the term loans into shares of our common stock at a conversion price of the lesser of $6.3182 per share, or the Fixed Price Conversion, and the lowest effective price per share of our first equity financing following the closing of the K2HV Loan Agreement, or the Variable Price Conversion, subject to customary adjustments and 9.99% and 19.99% beneficial ownership limitations. There will be no prepayment penalty for any principal amount converted into common stock. We determined that the Fixed Price Conversion and the Variable Price Conversion within the K2HV Loan Agreement are required to be bifurcated as an embedded derivative under ASC Topic 815 at fair value, and recorded as a discount on the debt on the date of issuance, with subsequent changes in fair value recognized in the accompanying condensed consolidated statements of operations.
As security for our obligations under the K2HV Loan Agreement, we granted the Lenders a first priority security interest on substantially all of our assets (other than intellectual property), subject to certain exceptions. The K2HV Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, dispose of assets, make changes to our business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, incur additional liens, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% per annum may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the K2HV Loan Agreement and under applicable law. As of June 30, 2025, we are in compliance with all covenants.
Subject to certain conditions, we granted the Lenders the right, prior to repayment of the term loans, to invest up to $5.0 million in the aggregate in future offerings of capital stock, at market terms, subject to certain exceptions and conditions.
We incurred debt issuance costs of $0.7 million in connection with the term loans, composed of the facility fee of $0.4 million and other expenses paid to the Lenders of $0.2 million and external legal fees of $0.1 million. These debt issuance costs, together with fair value of the embedded derivative of $4.5 million, resulted in a debt discount of $5.1 million which is being amortized to interest expense over the term of the K2HV Loan Agreement using the effective interest method.
ATM Offering
On May 10, 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC, or Leerink Partners, pursuant to which, from time to time, we may offer and sell shares of our common stock, which we refer to as the ATM Offering. The Sales Agreement provides that Leerink Partners is entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. We were initially entitled to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million in the ATM Offering, which was subsequently increased in February 2024 to $75.0 million. On May 8, 2025, we filed a new Registration Statement on Form S-3 and filed a new prospectus covering the ATM Offering, or the Prospectus. As a result of becoming subject to General Instruction I.B.6 of Form S-3, which is referred to as the Baby Shelf Limitation, we are entitled to offer and sell shares of our common stock with an aggregate offering price of up to $12.5 million in the ATM Offering. As of June 30, 2025, we remain subject to the Baby Shelf Limitation. During the six months ended June 30, 2025, we sold 421,766 shares of our common stock at an average price of $1.33 per share for net proceeds of $0.3 million after deducting sales commissions and offering expenses.
Jazz Collaboration
As of June 30, 2025, we have received $20.0 million in payments from Jazz, excluding payments for reimbursed costs, under the terms of the Collaboration Agreement. We are eligible to receive up to an additional $515.0 million in development and regulatory milestones, and up to $740.0 million in sales-based milestones for all Licensed Products. There is no guarantee of when the conditions necessary to receive the milestone payments will be met, if at all.
Plan of Operation and Future Funding Requirements
As of June 30, 2025, we had cash and cash equivalents of $77.6 million. We also had restricted cash and cash equivalents of $0.9 million as of June 30, 2025. We believe that our existing cash and cash equivalents at June 30, 2025, will be sufficient to fund our operational expenses and capital expenditure requirements into the fourth quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect. Our need to raise additional funds may be accelerated if our research and development expenses exceed our current expectations, if we acquire a third party, or if we acquire or license rights to additional product candidates or new technologies from one or more third parties.
The timing and amount of our operating expenditures will depend largely on:
•the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to our clinical trials of WTX-124 and WTX-330 and the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;
•the cost of manufacturing our product candidates WTX-124, WTX-330, and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;
•the costs of any third-party products used in our combination clinical trials that are not covered by such third parties or other sources;
•the success of our collaboration with Jazz;
•the timing of, and the cost involved in, obtaining marketing approval for WTX-124 and WTX-330 or any future product candidates, and our ability to obtain marketing approval and generate revenue from any potential commercial sales of such product candidates;
•the cost of building a sales force in anticipation of product commercialization and the cost of commercialization activities for WTX-124, WTX-330 or any future product candidates if we receive marketing approval, including marketing, sales and distribution costs;
•the potential emergence of competing therapies and other adverse market developments;
•the amount and timing of any payments we may be required to make pursuant to our license agreement with Harpoon Therapeutics, Inc., or Harpoon, or other future license agreements or collaboration agreements;
•our ability to establish future collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
•the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
•any product liability or other lawsuits related to our product candidates;
•the extent to which we in-license or acquire other products and technologies; and
•the costs of operating as a public company.
Our cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidates. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity may result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.
Cash Flows
The following table provides information regarding our cash flows:
Six Months Ended
June 30,
2025 2024
(in thousands)
Net cash (used in) provided by:
Operating activities
$ (34,112) $ (29,474)
Investing activities
- (128)
Financing activities
388 10,539
Net decrease in cash, cash equivalents and restricted cash and cash equivalents
$ (33,724) $ (19,063)
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2025 was $34.1 million compared to $29.5 million for the six months ended June 30, 2024. The increase in cash used for operating activities of $4.6 million is driven by several factors, including a decrease in interest income recognized during the six months ended June 30, 2025 of $1.9 million compared to the six months ended June 30, 2024. Additionally, we recognized no collaboration revenue during the six months ended June 30, 2025 following the execution of the Transfer Agreement in June 2024; a decrease of $0.5 million from the collaboration revenue recognized during the six months ended June 30, 2024, net of the change in deferred revenue for the same period. Finally, the cash used to pay down our current operating liabilities increased by $2.2 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024 due to higher operating costs towards the end of 2024 and leading into the first quarter of 2025.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was $0.1 million, which represents capital expenditures of property and equipment used in our operations during the period. No such expenditures occurred during the six months ended June 30, 2025.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2025 was $0.4 million, compared to the $10.5 million for the six months ended June 30, 2024. Net proceeds from our ATM Offering were significantly higher for the six months ended June 30, 2024 due to significantly higher transaction volume combined with a higher average price per share of our common stock sold, which resulted in $21.1 million in net proceeds from our ATM Offering during the six months ended June 30, 2024. These proceeds were partially offset by the repayment of all amounts outstanding under the PWB Loan Agreement, which resulted in the repayment of $10.7 million in term loans, net of proceeds and debt issuance costs from the K2HV Loan Agreement.
Contractual Obligations
Overview
In the normal course of business, we enter into agreements with contract research organizations, or CROs, contract manufacturers, vendors and other third parties for preclinical studies and clinical trials, manufacturing services and other services and products for operating purposes. These contracts do not contain minimum purchase commitments and are cancellable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.
Term Loan Facilities
See "Liquidity and Capital Resources - Sources of Liquidity - Term Loan Facilities"for descriptions of the PWB Loan Agreement and the K2HV Loan Agreement.
Lease Agreement
The lease for office and laboratory space that we entered into in June 2021 commenced in May 2022 and expires in May 2030. Total estimated base rent payments over the remaining term of the lease are approximately $12.1 million.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which include, but are not limited to those related to revenue recognition, accrued expenses, assumptions used in the valuation of stock-based compensation expense and the fair value of the derivative liability, and income taxes. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions and conditions.
Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our 2024 Annual Report, which was filed with the SEC on March 11, 2025. During the three and six months ended June 30, 2025, there were no material changes to our critical accounting policies from those previously disclosed.
Werewolf Therapeutics Inc. published this content on August 14, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 14, 2025 at 11:12 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]