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

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, future results of operations and financial position, and our objectives for future operations, includes forward-looking statements that involve risks and uncertainties. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "might," "intend," "target," "ongoing," "project," "estimate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other similar expressions intended to identify statements about the future. As a result of many factors, including those factors set forth in the section entitled "Risk Factors" of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis or set forth elsewhere in this Annual Report.

Overview

We are a clinical-stage biopharmaceutical company focused on improving the lives of patients suffering from debilitating central nervous system, or CNS, disorders. We were founded by globally recognized leaders in psychiatry and neuroscience research to address the lack of circuit-specific pharmacotherapies available for patients. Our discovery platform holds the potential to fill this void by identifying neural circuits causally linked to disease and targeting those circuits for therapeutic modulation. We believe our deep understanding of these causal links between the modulation of defined neural circuits and the resulting changes in disease-specific behaviors will enable us to develop therapeutics that can deliver efficacy, safety, tolerability and ease-of-use advantages to patients and prescribers.

Our lead product candidate, ML-007C-MA, is a fixed-dose combination of an M1/M4muscarinic agonist, ML-007, co-formulated with a peripherally acting anticholinergic, or PAC, which we are initially developing for the treatment of schizophrenia and Alzheimer's disease psychosis, or ADP. ML-007C-MA is designed to activate both M1and M4muscarinic receptors centrally to drive efficacy, while synchronizing the pharmacokinetics of the agonist and antagonist components to mitigate peripheral cholinergic side effects. ML-007 alone, co-administered or co-formulated with the PAC has been evaluated in four Phase 1 trials, with a total of 270 healthy participants enrolled and more than 1,500 doses of ML-007 administered. Based on our clinical and preclinical data, we believe that ML-007C-MA has demonstrated the potential to be a well-tolerated treatment option with convenient dosing, while achieving or exceeding cerebrospinal fluid, or CSF, exposures expected to result in improvement across key symptom domains. We are conducting ZEPHYR, a Phase 2 trial evaluating ML-007C-MA for the treatment of schizophrenia, and we expect the trial to reach the target enrollment of 300 participants in April 2026 and report topline results in the third quarter of 2026. We are also conducting VISTA, a Phase 2 trial evaluating ML-007C-MA for the treatment of ADP, and expect to report topline results in the second half of 2027. In December 2025, ML-007C-MA was granted Fast Track designation by the FDA for the treatment of hallucinations and delusions associated with ADP.

Since our inception in 2018, we have devoted substantially all of our time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support our operations. To date, we have financed our operations primarily with proceeds from the sales of our redeemable convertible preferred stock and research and development grants received and most recently, with net proceeds from our initial public offering, or IPO, and concurrent private placement.

We have incurred significant net losses since inception. Our net losses for the years ended December 31, 2025 and 2024 were $161.2 million and $77.6 million, respectively. As of December 31, 2025 and 2024, we had an accumulated deficit of $360.5 million and $199.4 million, respectively. We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future as we advance our current and future product candidates through preclinical and clinical development, seek regulatory approval for such product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, expand our infrastructure and operate as a public company.

We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses that we did not incur as a private company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities, initially in the United States.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.

At this time, due to the inherently unpredictable nature of clinical and preclinical development and given the current stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current or future product candidates, if at all. For the same reasons, we are also unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or sustain profitability on a continuing basis, then we may be unable to raise additional capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.

As of December 31, 2025, we had cash, cash equivalents and investments of $453.1 million. Based on our current operational plans and assumptions, we expect that our existing cash, cash equivalents and investments will be sufficient to fund our operations through 2027. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. If we are unable to raise sufficient funding, we may be unable to continue to operate in the long term. See "-Liquidity and Capital Resources-Plan of Operation and Future Funding Requirements" below.

NeuroSolis Asset Purchase Agreement

In June 2020, we entered into an Asset Purchase Agreement, or the NeuroSolis Agreement, with NeuroSolis Inc., or NeuroSolis, to acquire NeuroSolis's proprietary M1/M4agonist molecules and associated intellectual property.

Pursuant to the NeuroSolis Agreement, NeuroSolis sold us its assets related to both its proprietary M1/M4agonist molecules and its program for the identification of molecules that modulate the activity of the muscarinic M1receptor or the muscarinic M4receptor. We did not assume any liabilities of NeuroSolis in connection with our purchase of these assets. We are obligated to use commercially reasonable efforts to achieve specified development and regulatory milestones by developing a product covered by a transferred patent, including ML-007C-MA.

We have made upfront and development milestone payments of $150,000 in the aggregate to NeuroSolis. In addition, we agreed to issue NeuroSolis up to an aggregate of 62,083 shares of our common stock, contingent upon the occurrence of specified development and regulatory milestones, of which 26,607 shares were issued in June 2025.

Stellaromics Agreement

In October 2023, we entered into an Assignment and Assumption Agreement with Stellaromics, Inc., or Stellaromics, an entity focused on developing and commercializing a proprietary three-dimensional transcriptomic device inclusive of a confocal, probes, operating software and sample analysis software, pursuant to which we transferred all our rights and obligations under the licenses for STARmap and other technologies from Stanford University, or the Stellaromics Agreement. In exchange for the transfer of intellectual property, we received an equity investment in Stellaromics common stock and the right to continue using these technologies in devices

already owned. See "-Loss from Equity Method Investment" below and the notes to our consolidated financial statements appearing elsewhere in this Annual Report for information regarding our equity method investment.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates and our research activities, including our discovery efforts, and include:

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 activities. Payments for these activities are based on the terms of the individual agreements, which may differ from the timing of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses.

We typically use our employee and infrastructure resources across our development programs and therefore we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. We also do not track external expenses by specific development program or product candidate.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we initiate and conduct clinical trials, advance our preclinical programs and continue to discover and develop additional product candidates.

The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time consuming. We cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. There are numerous risks and uncertainties associated with the duration and cost of successfully developing product candidates, which can vary significantly, including:

A change in the outcome of any of these variables with respect to the development of our current and future product candidates may 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 these uncertainties, we are unable to precisely forecast 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, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued clinical development efforts, research and development activities, manufacturing activities and related expansion of our operations. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and the listing standards of the Nasdaq Stock Market LLC, or Nasdaq, director and officer insurance premiums and investor relations costs.

Other Income (Expense), Net

Interest Income

Interest income consists of interest income earned on our cash, cash equivalents and investments.

Loss from Equity Method Investment

In October 2023, we entered into the Stellaromics Agreement. As of December 31, 2025, we held approximately 3.7% of the outstanding capital stock of Stellaromics. Additionally, Christopher A. Kroeger, M.D., our Chief Executive Officer and a member of our board of directors, and George Pavlov, one of our directors, are members of Stellaromics' board of directors, and our largest stockholder, Catalyst4, Inc., holds greater than 70.0% of the outstanding capital stock of Stellaromics. We have significant influence over, but do not control, Stellaromics through our noncontrolling representation on Stellaromics' board of directors and our equity interest in Stellaromics. We determined that Stellaromics is a variable interest entity because it does not have sufficient equity at risk to

finance its operations without additional subordinated financial support. We are not the primary beneficiary as we do not have the power to direct activities that most significantly impact Stellaromics' economic performance. Accordingly, we do not consolidate the financial statements of Stellaromics and account for this investment using the equity method of accounting.

Under the equity method of accounting, our investments are initially recorded at fair value on our consolidated balance sheets. Upon recording an equity method investment, we evaluate whether there are basis differences between the carrying value and fair value of our proportionate share of the investee's underlying net assets. Typically, we amortize identified basis differences on a straight-line basis over the underlying asset's or liability's estimated useful life when calculating the attributable earnings or losses. If we are unable to attribute all of the basis difference to specific assets or liabilities of the investee, we consider the residual excess of the cost of the investment over the proportional fair value of the investee's assets and liabilities to be equity method goodwill, which is recognized within the equity investment balance. We subsequently record in the consolidated statements of operations and comprehensive loss our share of income or loss of the other entity within the equity method investment, net line item.

We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired and consider qualitative and quantitative factors including the investee's financial metrics, product and commercial outlook and cash usage. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period and the investment is written down to fair value.

Other Income, Net

Other income, net consists primarily of amortization of premiums and accretion of discounts to maturity for available-for-sale debt securities.

Income Taxes

Since our inception, we have not recorded income tax benefits for the net operating losses, or NOLs, incurred or the research and development tax credits generated in each year due to the uncertainty of realizing a benefit from those items. As of December 31, 2025, we had U.S. federal and state net operating loss carryforwards of $96.6 million and $13.1 million, respectively, which may be available to offset future taxable income. The federal net operating loss carryforwards do not expire, but may only be used to offset 80% of annual taxable income. The state net operating loss carryforwards expire beginning in 2039. As of December 31, 2025, we also had federal and state research and development tax credit carryforwards of $13.3 million and $0.2 million, respectively.

Results of Operations

Comparison of the years ended December 31, 2025 and 2024

The following table summarizes our results of operations for the periods indicated (in thousands):

Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated (in thousands):

Research and development expenses were $138.3 million for the year ended December 31, 2025, compared to $68.5 million for the year ended December 31, 2024. The increase in total research and development expenses of $69.8 million was primarily due to an increase of $35.3 million in clinical trial expenses; an increase of $29.7 million in employee-related expenses, including an increase in stock-based compensation expense of $21.6 million, primarily related to the vesting of restricted stock units in connection with the effectiveness of the IPO; and an increase of $6.8 million in chemistry, manufacturing and controls, or CMC, expenses; offset by a decrease of $3.6 million in preclinical program expenses. Research and development expenses were reduced due to grant earnings of $3.2 million and $1.0 million recognized for the years ended December 31, 2025 and 2024, respectively.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the periods indicated (in thousands):

General and administrative expenses were $30.7 million for the year ended December 31, 2025, compared to $14.4 million for the year ended December 31, 2024. The increase in total general and administrative expenses of $16.3 million was due primarily due to an increase of $14.2 million in employee-related expenses, including an increase in stock-based compensation expense of $13.3 million, primarily related to the vesting of restricted stock units in connection with the effectiveness of the IPO; and an increase of $2.1 million in professional fees and other expenses.

Other Income (Expense), Net

Interest Income

Interestincome was $5.5 million for the year ended December 31, 2025, compared to $4.5 million for the year ended December 31, 2024. The increase in interest income of $1.0 million was due to an increase in short-term and long-term investments held during the year ended December 31, 2025 compared to the year ended December 31, 2024.

Loss from Equity Method Investment

The loss from equity method investment of $1.0 million recognized during the year ended December 31, 2024 was due to recognition of the loss from equity method investment related to our investment in Stellaromics. As of year ended December 31, 2025, the carrying value of the equity method investment was $0, and no further losses will be recorded because we do not have any obligation to fund future losses.

Other Income, Net

Other income, net was $2.4 million for the year ended December 31, 2025, compared to $1.8 million for the year ended December 31, 2024. The increase of $0.6 million was primarily due to increased amortization of premiums and accretion of discounts on investments held during the year ended December 31, 2025.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred significant net losses since inception. We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future as we advance our current and future product candidates through preclinical and clinical development, seek regulatory approval for our current and future product candidates through clinical and preclinical development, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, scale-up our production capabilities and operate as a public company. As of December 31, 2025, we had cash, cash equivalents and investments of $453.1 million and an accumulated deficit of $360.5 million. Historically, we have financed our operations primarily through issuances of our redeemable convertible preferred stock and research and development grants, and more recently, with proceeds from our IPO and concurrent private placement.

In October 2025, we closed our IPO, pursuant to which we issued and sold an aggregate of 16,962,500 shares of our common stock at a public offering price of $17.00 per share for gross proceeds of $288.4 million. The aggregate net proceeds from our IPO, including the exercise by the underwriters of their option to purchase additional shares, were $261.6 million, after deducting underwriting discounts and commissions and offering expenses. Concurrent with our IPO, we also closed our concurrent private placement, or Concurrent Private Placement, in which we issued and sold 476,707 shares of our common stock at a price of $17.00 per share. We received aggregate net proceeds of $7.5 million from our Concurrent Private Placement, after deducting placement agent fees and private placement expenses.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Operating Activities

Our cash flows from operating activities are primarily driven by our use of cash for operating expenses and working capital required to support our business. We have historically generated negative cash flows from operating activities due to expenses incurred for our clinical trials, preclinical studies, and research and development initiatives.

Net cash used in operating activities was $138.1 million for the year ended December 31, 2025, reflecting a net loss of $161.2 million and a net change in our net operating assets and liabilities of $12.8 million, partially offset by non-cash charges of $35.9 million. The change in our net operating assets and liabilities was primarily due to a $13.1 million increase in prepaid expenses and other assets, a $3.2 million decrease in deferred grant earnings and a $0.8 million decrease in operating lease liability, offset by a $2.9 million increase in accrued expenses and a $1.4 million increase in accounts payable. Non-cash charges primarily consisted of $36.0 million of stock-based compensation expense, $0.9 million of non-cash lease expense, $0.6 million of depreciation and $0.5 million of common stock issued to NeuroSolis, offset by $2.1 million of net amortization of premiums and accretion of discounts on investments.

Net cash used in operating activities was $78.8 million for the year ended December 31, 2024, reflecting a net loss of $77.6 million and a net change in our net operating assets and liabilities of $3.1 million, partially offset by non-cash charges of $1.8 million. The change in our net operating assets and liabilities was primarily due to a $2.3 million increase in prepaid expenses and other assets and a $1.3 million decrease in accounts payable, partially offset by a $2.2 million increase in accrued expenses. Non-cash charges primarily consisted of stock-based compensation expense of $1.1 million and a loss on equity method investment of $1.0 million, partially offset by net amortization of premiums and accretion of discounts on investments of $1.7 million.

Investing Activities

Net cash used in investing activities was $323.2 million for the year ended December 31, 2025, compared to net cash used in investing activities of $80.8 million for the year ended December 31, 2024. The increase in cash used in investing activities during the year ended December 31, 2025 was driven by the purchases of short-term and long-term investments.

Financing Activities

Net cash provided by financing activities was $469.8 million for the year ended December 31, 2025, compared to net cash provided by financing activities of $118.1 million for the year ended December 31, 2024. The increase in cash provided by financing activities was primarily due to net proceeds received from our IPO, the Concurrent Private Placement and the issuance and sale of shares of our Series D redeemable convertible preferred stock, net of issuance costs during the year ended December 31, 2025.

Plan of Operation and Future Funding Requirements

We use our capital resources mainly to fund operating expenses, including research and development expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue

clinical trial activities, advance our preclinical programs into the clinic and continue to discover and develop additional product candidates. At this time, due to the inherently unpredictable nature of clinical and preclinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if any. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

As of December 31, 2025, we had cash, cash equivalents and investments of $453.1 million. Based on our current operational plans and assumptions, we expect that our existing cash, cash equivalents and investments will be sufficient to fund our operations through 2027. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.

The timing and amount of our operating expenditures will depend largely on:

Our existing cash, cash equivalents and investments will not be sufficient to complete development of any product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.

Until we can generate substantial revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings. We may also consider entering into collaborations, strategic alliances and licensing arrangements or selectively partnering for clinical development and commercialization as well as funding through other sources. 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 financial covenants that could restrict our operations or our ability to incur additional indebtedness or pay dividends, among other things. 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 or cease operations. Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects.

Contractual Obligations

Leases

In August 2020, we entered into a lab and office lease agreement in Redwood City, California. We rented additional space under amendments to the lease agreement in August 2022 and August 2023. We currently lease a total of 13,734 square feet and the term of the lease extends to June 2031. The lease provides for escalating annualized base rent payments starting at $0.8 million and increasing to $1.2 million in the final year of the lease. Remaining lease payments from January 1, 2026 through the end of the lease term total $6.0 million.

In September 2023, we entered into a lease agreement for office space located in Burlington, Massachusetts. This lease commenced in April 2024 and has an initial term of approximately five years, with an option to extend the term for an additional five years. Cash that is required to be held as a security deposit in accordance with the lease is $0.2 million. Remaining lease payments from January 1, 2026 through the end of the lease term total $1.1 million.

Purchase and Other Obligations

We enter into contracts in the normal course of business with CROs and other vendors to assist in the performance of our clinical trials, CMC, research and development and other services and products for operating purposes. These contracts typically do not contain minimum purchase commitments and generally provide for termination on notice. Payments due upon cancellation consist of payments for services provided or expenses incurred to date, including payment of noncancelable obligations of our service providers, up to the date of cancellation, and may also include termination penalties. As of December 31, 2025, the timing, amount or likelihood of such payments are not known.

Grant and License Agreements

We are party to certain grant agreements with the Michael J. Fox Foundation and license and collaboration agreements with NeuroSolis, Stanford University, Vanderbilt University and other third parties. We may be obligated to make certain future payments under these agreements that are contingent upon future events such as our achievement of specified preclinical, clinical, regulatory and commercial milestones or royalties on net product sales under these agreements. As of December 31, 2025, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

Critical Accounting Policies and Use of Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our 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. 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 more fully described in Note 2 in our consolidated financial statements included elsewhere in this Annual Report, we believe that our critical accounting estimates are as follows.

Research and Development Expense and Accruals

In preparing the consolidated financial statements, we estimate amounts related to accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with personnel and contract research organizations, or CROs, to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of research and development service providers invoice in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of accrued expenses as of each consolidated balance sheet date in the consolidated financial statements based on facts and circumstances known to at that time. Examples of estimated accrued research and development expenses include fees paid to:

Expenses relate to preclinical studies and clinical trials based on estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment of the preclinical and clinical expenses. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect the estimates to be materially different from amounts actually incurred, the understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to prior estimates of accrued research and development expenses.

Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, or ASC 718. ASC 718 requires all share-based payments to employees and directors to be recognized as expense in the consolidated statement of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of options granted using the Black-Scholes option pricing model for stock option grants to both employees and non-employees. We believe the fair value of the stock options granted to non-employees is more reliably determinable than the fair value of the services provided.

The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the stock price, (b) the expected volatility, (c) the expected term of the award, (d) the risk-free interest rate and (e) expected dividends. Prior to the IPO, our board of directors determined the fair value of our common stock, taking

into consideration our most recently available third-party valuations of common stock as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the grant date. We have historically been a private company that lacked company-specific historical and implied volatility information. Following the IPO, the fair value of our common stock is determined based on the quoted market price of common stock. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. We use the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population. For options granted to non-employees, we utilize the contractual term of the share-based payment as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on common stock.

There are significant judgments and estimates inherent in the determination of the fair value of common stock. These estimates and assumptions include a number of objective and subjective factors, including external market conditions and the prices at which we sold shares of redeemable convertible preferred stock.

We expense the fair value of share-based compensation awards to employees and non-employees that have time-based vesting criteria on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are recognized as they occur. We expense the fair value of share-based compensation awards to employees and non-employees that have performance-based vesting criteria when the performance condition is considered probable of achievement, using management's best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report.

Emerging Growth Company and Smaller Reporting Company Status

The JOBS Act provides that, among other things, an "emerging growth company" can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. As an emerging growth company, we have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. We intend to rely on certain of the other exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), and (ii) comply with any requirement that may be adopted by the PCAOB regarding a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis).

We will remain an emerging growth company until the earliest of (i) December 31, 2030, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700 million as of the last business day of the second fiscal quarter of such year (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a "smaller reporting company," as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million 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.

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.