Shattuck Labs Inc.
03/05/2026 | Press release | Distributed by Public on 03/05/2026 05:29
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors." You should carefully read the "Cautionary Note About Forward-Looking Statements" and "Risk Factors" sections of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.
Overview
We are a clinical-stage biotechnology company pioneering the development of potentially first-in-class monoclonal and bispecific Death Receptor 3 ("DR3") blocking antibodies for the treatment of patients with inflammatory and immune-mediated diseases. Our expertise in protein engineering and the development of novel tumor necrosis factor ("TNF") receptor therapeutics come together in our lead program, SL-325, a potentially first-in-class DR3 blocking antibody designed to achieve a more complete blockade of the clinically validated DR3/TL1A pathway than TL1A blocking antibodies.
SL-325 is a high-affinity DR3 blocking monoclonal antibody. DR3 is the sole known receptor for tumor necrosis factor like ligand 1A ("TL1A"). In our head-to-head preclinical studies, SL-325 blocked TL1A binding to DR3 better than sequence equivalents of leading TL1A blocking antibodies. We believe that the underlying biological differences in the expression of DR3 and TL1A, and the design characteristics of SL-325, may allow SL-325 to achieve best-in-class clinical remission rates in patients with IBD due to a more complete and durable blockade of the clinically validated DR3/TL1A pathway. Additionally, we expect that SL-325 has the potential to demonstrate a superior immunogenicity profile in comparison to TL1A blocking antibodies. By targeting DR3 instead of TL1A, we expect to avoid the formation of immune complexes, which we believe are the primary source of immunogenicity for all TL1A blocking antibodies, and lead to high rates of anti-drug antibody ("ADA") formation toward TL1A targeting antibodies. ADA to TL1A targeting antibodies has been shown to reduce efficacy in IBD patients. We are currently conducting a single ascending dose ("SAD") and multiple ascending dose ("MAD") Phase 1 clinical trial evaluating SL-325 in healthy volunteers. We expect this Phase 1 clinical trial to be completed in the second quarter of 2026. We expect to initiate a randomized, placebo-controlled Phase 2 clinical trial evaluating SL-325 in patients with Crohn's Disease ("CD") in the third quarter of 2026.
TL1A is the sole known signaling ligand for DR3, and TL1A does not signal through any other receptors. Thus, we believe that the clinical safety profile of TL1A blocking antibodies generated to date in clinical trials conducted by other parties derisks the clinical safety profile for DR3 blockade. The lack of toxicity of SL-325 in our recently completed non-human primate ("NHP") acute toxicology study also suggests a potentially favorable clinical safety profile. We engineered SL-325 to lack any Fc gamma receptor binding function, and SL-325 has not shown any evidence in our preclinical studies to date of antibody dependent cellular cytotoxicity or cellular phagocytosis, which further supports a potentially derisked safety profile. We have demonstrated that SL-325 binds an epitope on DR3 that does not trigger receptor-mediated endocytosis, and the binding of SL-325 to DR3 was shown to be highly durable in our preclinical assays and in our NHP studies. Because DR3 is expressed on circulating, peripheral blood lymphocytes, we are able to directly measure DR3 receptor occupancy ("RO"), and
our nonclinical studies suggest that blockade is durable for at least two months as a result of the properties of SL-325 and the stable expression of DR3. In our preclinical studies, including our acute NHP toxicology study, the RO and pharmacokinetic ("PK") profile of SL-325 suggest extended dosing intervals, which are being further characterized in our ongoing Phase 1 clinical trial.
DR3 has a distinct expression pattern from TL1A, and, consequently, blocking the receptor may allow a more complete and durable blockade of the axis, which we believe will translate to improved efficacy in patients with IBD. DR3 and TL1A have distinct expression patterns within the gastrointestinal tract ("GI") of patients with IBD, including both ulcerative colitis ("UC") and Crohn's disease ("CD"). The cells within the GI tract that are capable of expressing TL1A include tissue resident antigen presenting cells and other non-hematopoietic cells. While TL1A is not usually expressed, when antigen presenting cells are exposed to inflammatory signals, a wave of TL1A mRNA expression begins, which peaks within 12 hours and ceases within 24 hours. In contrast, DR3 is stably expressed, primarily by lymphocytes both in the peripheral blood and in tissues. Direct comparison of TL1A and DR3 expression in the GI tracts of patients with IBD shows that TL1A is only upregulated in the actively inflamed areas of the GI tract. In contrast, DR3 is more abundant than TL1A and is upregulated in both actively inflamed parts of the GI tissue and in the adjacent non-inflamed tissue. The absence of TL1A in the non-inflamed areas of the bowel eliminates the mechanism through which TL1A blocking antibodies would be retained in non-inflamed areas of the GI tract. Because inflammation observed in UC and CD can wax and wane in different areas of the bowel over time, stable blockade of DR3 may reduce the spread of inflammation and may contribute to higher rates of clinical and endoscopic remission than what TL1A blocking antibodies have achieved to date.
A source of immunogenicity shared by all TL1A blocking antibodies is the formation of immune complexes between soluble TL1A in the blood and the anti-TL1A antibodies. Binding of soluble TL1A in the blood by anti-TL1A antibodies leads to a significant increase in the concentration of total TL1A in the blood. These immune complexes have contributed to ADA formation in more than 64% of subjects treated with afimkibart, tulisokibart, or duvakitug in third-party clinical trials. A third-party Phase 2 trial testing the efficacy of afimkibart in CD patients demonstrated that ADA caused accelerated clearance of afimkibart, which reduced efficacy in an ADA titer dependent manner. Because DR3 is a membrane-restricted receptor, and SL-325 was engineered to bind an epitope on DR3 that is not found on DcR3, immune complex formation is not expected with SL-325. Data generated from our GLP acute NHP toxicology study, along with in silicoassessment of immunogenicity risk, consistently suggest that SL-325 may have single digit ADA rates in humans. Thus, we expect that SL-325 has the potential to demonstrate a best-in-mechanism immunogenicity profile, and we expect that this superior immunogenicity profile alone will lead to improved efficacy as a monotherapy, at both the induction and maintenance time points.
Additionally, there is a high degree of sequence identity between certain third-party anti-TL1A antibodies, including tulisokibart, afimkibart, and duvakitug, and potential third-party combination agents, including vedolizumab, risankizumab, mirikizumab, and guselkumab. This overlap in sequence identity introduces a risk that ADAs generated against TL1A antibodies may cross-bind to these potential combination agents and could cause accelerated clearance of both the anti-TL1A antibody and other antibodies included in a coformulation, and that this may impact the efficacy of each agent. Because of this, we believe that SL-325 may allow for improved efficacy in combination with other agents, compared to TL1A targeting antibodies.
We are planning initial clinical development of SL-325 in patients with CD. The clinical success of several TL1A blocking antibodies to date suggests that SL-325 may have monotherapy disease modifying activity early in clinical development. As described above, we believe that targeting DR3 may be more efficacious than targeting TL1A in patients with IBD. We expect to complete enrollment in the ongoing Phase 1 clinical trial for SL-325 in healthy volunteers in the second quarter of 2026, and initiate our Phase 2 clinical trial in patients with CD in the third quarter of 2026.
We also plan to evaluate SL-325 in other inflammatory and immune-mediated diseases where the DR3/TL1A axis is implicated.
In addition to SL-325 and SL-425 (a half-life extended version of SL-325), we are developing bispecific antibodies which co-target DR3 and other clinically validated targets in immune mediated and inflammatory diseases. Inhibition of the TL1A/DR3 axis may be mechanistically distinct from the IL-23/IL-23R, IL-17/IL-17R, TSLP/TSLP-R or α4β7/MADCAM-1 axes (as examples). Thus, dual inhibition of the TL1A/DR3 axis with coformulated or bispecific antibodies may provide additive clinical benefit in a variety of immune mediated and inflammatory diseases. As seen with TL1A directed antibodies, two third-party TL1A-directed bispecific antibodies, AMG966 and RO7837195, have also demonstrated nearly 100% ADA formation following a single dose in Phase 1 clinical trials. The mechanism of ADA formation was reported to be secondary to large immune complex formation for AMG966, which we believe is also true for RO7837195. The emerging clinical data from TL1A-directed bispecific antibodies is similar to the prior failure of TNFα-directed bispecific antibodies, which we believe is because both TNFα and TL1A are soluble trimeric proteins found in the blood, and cause immunogenicity secondary to large immune complex formation. We expect that our DR3-directed bispecific antibodies to be less immunogenic than TL1A-directed bispecifics. DR3 may thus provide a differentiated target in a bispecific antibody format, providing advantages over
TL1A-directed bispecific antibodies. Additionally, development of bispecific antibodies may enable more efficient clinical development than is expected for multi-antibody coformulations, and may avoid some of the challenges associated with potential immunogenicity in certain coformulations, as described above.
For the years ended December 31, 2025 and 2024, our net loss was $48.8 million and $75.4 million, respectively. We have not been profitable since inception, and as of December 31, 2025, we had an accumulated deficit of $430.5 million and $78.1 million in cash and cash equivalents and short-term investments. We expect to continue to incur significant expenses and operating losses in the near term in connection with our ongoing activities, as we:
•continue Phase 1 clinical development of our lead product candidate, SL-325;
•initiate nonclinical studies and clinical trials for additional product candidates that we may identify in the future, including potential DR3 based bispecific antibodies targeting DR3 together with another biologically relevant target;
•manufacture sufficient quantities of bulk drug substance and drug product to support our ongoing and planned nonclinical studies and clinical trials;
•maintain our operational, financial, and management systems;
•retain key personnel and infrastructure to support our nonclinical development, research and manufacturing, and future clinical development efforts;
•utilize our in-house process development and manufacturing capabilities;
•continue to develop, perfect, and defend our intellectual property portfolio; and
•incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company and expenses incurred in connection with ongoing and future litigation, if any.
We do not expect to generate significant product revenue unless and until we successfully complete development and obtain regulatory and marketing approval of, and begin to sell, one or more of our product candidates, if ever, which we expect will take several years. We expect to spend a significant amount in development and marketing costs prior to such time. We may never succeed in achieving regulatory and marketing approval for our product candidates. We may obtain unexpected results from our nonclinical studies and clinical trials. We may elect to discontinue, delay, or modify nonclinical studies and clinical trials of our product candidates. We may be adversely affected by inflationary pressures and the macroeconomic environment, which are beyond our control. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time as we can generate significant product revenue, if ever, we expect to continue to seek private or public equity and debt financing, and/or additional collaborations with third parties, to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our product candidates. In addition, we may not be profitable even if we commercialize any of our product candidates.
Global Economic Considerations
The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, inflation, slower growth or recession, changes in trade policies, including tariffs or other trade restrictions or the threat of such actions, instability or volatility in the global capital and credit markets, supply chain weaknesses, financial institution instability, changes to fiscal and monetary policy or government budget dynamics and instability in the geopolitical environment. Such challenges have caused, and may continue to cause, recession fears, high interest rates, foreign exchange volatility, and inflationary pressures. At this time, we are unable to quantify the potential effects of this economic instability on our future operations.
Components of our Results of Operations
We have no products approved for commercial sale, and we have not generated any revenue from commercial product sales.
Related Party License Revenue
Revenue recognized in 2025 was a result of an exclusive license agreement (the "Kayak Agreement") with Kayak Therapeutics, Inc. ("Kayak") for our oncology-focused TRIM7 program, which we entered into in August 2026. Pursuant to the Kayak Agreement, we received preferred stock of Kayak with a fair market value of $1.0 million as upfront consideration for entering into the agreement and recognized the consideration as license revenue.
Collaboration Revenue
Revenue recognized in 2024 was a result of collaboration agreements with Ono Pharmaceutical Co., Ltd ("Ono") and ImmunoGen, Inc. ("ImmunoGen").
In February 2024, we entered into a collaboration and license agreement with Ono (the "Ono Agreement") pursuant to which we and Ono collaborated in the research and preclinical development of certain compounds selected by Ono from our pipeline of bifunctional fusion proteins directed toward a pair of prespecified targets for potential treatment of autoimmune and inflammatory diseases. We have completed all obligations under the agreement and have accordingly recognized $5.4 million in revenue pursuant to terms of the Ono Agreement including the $2.0 million paid for the option to enter into an exclusive license with us. On September 30, 2024, we and Ono mutually agreed to terminate the Ono Agreement and the related option pursuant to the terms of the agreement.
As of December 31, 2024, we completed our obligations under the collaboration agreement with ImmunoGen, and have recognized all revenue pursuant to the terms of that agreement.
Operating Expense
Research and Development Expense
Our research and development expenses consist primarily of costs incurred in connection with the discovery and development of our current and potential future product candidates. These expenses include:
•expenses incurred to conduct our clinical trials, including expenses associated with clinical trials of SL-325 and any potential product candidates we may advance in the future, as well as the expenses associated with prior clinical trials of SL-172154 and the associated wind-down activities;
•costs of manufacturing nonclinical study and clinical trial materials, including the costs of raw materials required for manufacturing;
•process development activities to optimize manufacturing processes, including the development and validation of Phase 3 and commercial manufacturing processes and analytical methods;
•expenses incurred to conduct our nonclinical studies;
•employee-related expenses, including salaries, benefits, and stock-based compensation;
•laboratory materials and supplies used to support our research activities;
•fees paid to third parties who assist with research and development activities;
•expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and
•allocated expenses for facility-related costs.
The following table summarizes our research and development expenses by product candidate:
| Year ended December 31, | ||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||
|
|
||||||||||||||
|
SL-3251
|
$ | 10,777 | $ | 4,574 | ||||||||||
| SL-172154 | 2,637 | 27,608 | ||||||||||||
| Other pipeline compounds | 3,289 | 9,923 | ||||||||||||
| Internal costs, including personnel related benefits, facilities, and depreciation | 18,570 | 25,106 | ||||||||||||
| Total research and development costs | $ | 35,273 | $ | 67,211 | ||||||||||
1 Expenses for SL-325 that were incurred prior to its nomination as product candidate are included
in "other pipeline compounds" in the table above.
Research and development activities are central to our business model. We are focused on the preclinical and clinical development of SL-325 and other DR3 targeted assets, and conducting additional research on other potential product candidates. Product candidates in earlier stages of development generally have lower development costs than those in later stages of development. In 2026, we anticipate initiating Phase 2 clinical trial(s) for SL-325. Accordingly, we expect an increase in research and development and expense year-over-year, as we incur incremental clinical trial expense and additional costs
associated with commensurate increases in our workforce to support these efforts. In October 2024, we discontinued clinical development of SL-172154.
The process of conducting the necessary nonclinical and clinical research to obtain regulatory approval is costly and time consuming. The actual probability of success for our product candidates may be affected by a variety of factors including:
•the safety and efficacy of our product candidates;
•nonclinical data for our product candidates;
•investment in our pipeline;
•competition;
•manufacturing capability; and
•commercial viability.
We may never succeed in achieving regulatory approval for any of our product candidates due to the uncertainties discussed above. We are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if ever.
General and Administrative Expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, business development, and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation, and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property, corporate, and litigation matters and fees for accounting and tax services.
If any of our current or future product candidates, including SL-325, continues to advance through clinical development, or obtains regulatory approval, we expect that we would incur increased expenses associated with building the appropriate general and administrative support for our increased research and development activities, or building a sales and marketing team.
Other Income
Other income consists of interest earned on our cash, cash equivalents and short-term investments, which consists of amounts held in a money market fund and government obligations as well as investment fees and realized gain or losses on short-term investments (if any).
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net operating losses ("NOLs") we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized. Our capital loss and tax credit carryforwards as of December 31, 2024 began to expire in 2025.. We have recorded a full valuation allowance against our deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table sets forth our results of operations for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | Dollar | Percentage | |||||||||||||||||||
|
Related party license revenue
|
$ | 1,000 | $ | - | $ | 1,000 | 100.0 | % | |||||||||||||||
|
Collaboration revenue
|
- | 5,721 | (5,721) | (100.0) | % | ||||||||||||||||||
|
Total revenue
|
1,000 | 5,721 | (4,721) | (472.1) | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 35,273 | 67,211 | (31,938) | (47.5) | % | ||||||||||||||||||
| General and administrative | 17,235 | 19,077 | (1,842) | (9.7) | % | ||||||||||||||||||
| Loss from operations | (51,508) | (80,567) | 29,059 | (36.1) | % | ||||||||||||||||||
| Other income | 2,699 | 5,157 | (2,458) | (47.7) | % | ||||||||||||||||||
| Net loss | $ | (48,809) | $ | (75,410) | $ | 26,601 | (35.3) | % | |||||||||||||||
Related Party License Revenue
Related party license revenue increased by $1.0 million, or 100.0%, for the year ended December 31, 2025 from $0.0 million for the year ended December 31, 2024. The increase in related party license revenue was a result of license revenue recognized pursuant to the Kayak Agreement of $1.0 million.
Collaboration Revenue
Collaboration revenue decreased by $5.7 million, or 100.0%,for the year ended December 31, 2025 from $5.7 million for the year ended December 31, 2024. The decrease in collaboration revenue was a result of completing all obligations and recognizing all revenues associated with the Ono and ImmunoGen collaboration agreements in 2024.
Research and Development Expense
Research and development expense decreased by $31.9 million, or 47.5%, to $35.3 million for the year ended December 31, 2025 from $67.2 million for the year ended December 31, 2024. The decrease in research and development expense was primarily due to a decrease of $31.5 million as a result of the discontinuation of the SL-172154 program and related workforce reductions and a decrease of $6.6 million in other pipeline compounds cost, partially offset by an increase of $6.2 million in SL-325 expenses primarily as a result of moving SL-325 into clinical development in 2025.
General and Administrative Expense
General and administrative expenses decreased by $1.8 million, or 9.7%, to $17.2 million for the year ended December 31, 2025 from $19.1 million for the year ended December 31, 2024. The decrease is primarily the result of a $1.2 million decrease in compensation and related benefit expenses as a result of workforce reductions in 2024 as well as a decrease of $0.6 million in legal fees.
Liquidity and Capital Resources
Since our inception, our primary sources of liquidity have been generated by sales of our common stock, pre-funded warrants, common stock warrants, convertible preferred stock, and convertible notes, and through collaboration agreements. As of December 31, 2025, we had an accumulated deficit of $430.5 million and $78.1 million of cash and cash equivalents and short-term investments.
In August 2025, we issued and sold 15,225,158 shares of common stock, pre-funded warrants to purchase up to 37,410,188 shares of common stock, and accompanying common stock warrants to purchase up to 52,635,346 shares of common stock for gross proceeds of $45.7 million. In January 2026, 4,866,055 common stock warrants were exercised for gross proceeds of $5.3 million and we may receive an additional $51.7 million in gross proceeds if the remaining common stock warrants are exercised.
In January 2026, we entered into a sales agreement (the "Sales Agreement") with Leerink Partners LLC (the "Sales Agent"), pursuant to which we may offer and sell up to $75.0 million of shares of our common stock from time to time through our ATM Facility. The Sales Agent is generally entitled to compensation at a commission equal to up to 3.0% of the aggregate
gross sales price per share sold under the Sales Agreement. We sold 5,000,000 shares of common stock at $4.28 per share for gross proceeds of $21.4 million in January 2026.
Capital Resources and Funding Requirements
Our primary uses of cash, cash equivalents and short-term investments are to fund our operations, which consist primarily of research and development expenditures related to our programs, product development costs, research expenses, administrative support, capital expenditures related to bringing in-house certain process development and manufacturing capabilities, and working capital requirements. We anticipate incurring additional net losses and negative cash flows from operations in the near future until such time, if ever, that we can generate significant sales of our product candidates currently in development. Our future funding requirements will depend on many factors, including:
•the scope, timing, progress and results of discovery, nonclinical development, laboratory testing, and clinical trials for our product candidates;
•the costs of process development and scale up of a commercially ready manufacturing process to support registrational clinical trials;
•the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
•the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending other intellectual property-related claims;
•the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
•the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing, distribution and storage capabilities, for any of our product candidates for which we receive marketing approval; and
•revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
Until we obtain regulatory approval to market our product candidates, if ever, we cannot generate revenues from sales of our products. Even if we are able to sell our products, we may not generate a sufficient amount of product revenues to finance our cash requirements. Accordingly, it will be necessary for us to seek to raise additional capital through equity offerings and/or debt financings or from other potential sources of liquidity, which may include new collaborations, licensing or other commercial agreements for one or more of our development programs or patent portfolios. There can be no assurance that such funding may be available to us on acceptable terms, or at all. The issuance of equity securities may result in dilution to stockholders and the issuance of debt securities may have rights, preferences and privileges senior to those of our common stock and the terms of any such debt securities could impose significant restrictions on our operations. The failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. Additionally, if additional funding is not secured when required, we may need to delay or curtail our operations until such funding is received, which would have a material and adverse impact on our business prospects and results of operations.
We believe that our cash, cash equivalents and short-term investments as of December 31, 2025 and the potential future proceeds assuming the full exercise of all outstanding common stock warrants will be sufficient to fund projected operations into 2029.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
|
Year ended December 31,
|
|||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Net cash used in operating activities | $ | (39,882) | $ | (60,515) | |||||||
| Net cash used in investing activities | (7,887) | (8,511) | |||||||||
| Net cash provided by financing activities | 44,574 | 787 | |||||||||
| Decrease in cash and cash equivalents | $ | (3,195) | $ | (68,239) | |||||||
Net Cash Used in Operating Activities
During the year ended December 31, 2025, net cash used in operating activities was $39.9 million and primarily reflected our net loss of $48.8 million, partially offset by noncash charges of $9.7 million and a net change in our operating assets and liabilities of $0.8 million. We expect to continue to use cash in our operating activities as we conduct our clinical trials and nonclinical studies, incur costs of manufacturing clinical trial and nonclinical study materials and continue process development activities to optimize our manufacturing processes.
During the year ended December 31, 2024, net cash used in operating activities was $60.5 million and primarily reflected by our net loss of $75.4 million, partially offset by noncash charges of $11.9 million and a net change in our operating assets and liabilities of $3.0 million.
Net Cash Provided by Investing Activities
During the year ended December 31, 2025, net cash used in investing activities was $7.9 million due primarily to purchases of government securities, net of sales and maturities of investments.
During the year ended December 31, 2024, net cash used in investing activities was $8.5 million due primarily to purchases of government securities, net of sales and maturities of investments.
Net Cash Provided by Financing Activities
During the year ended December 31, 2025, net cash provided by financing activities was $44.6 million due to the sale of common stock, pre-funded warrants and common stock warrants, the exercise of stock options and common stock warrants and purchases pursuant to our employee stock purchase plan.
During the year ended December 31, 2024, net cash provided by financing activities was $0.8 million due to the exercise of stock options and purchases pursuant to our employee stock purchase plan.
Contractual Obligations and Other Commitments
See Note 6 and Note 7 to our financial statements found elsewhere in this Annual Report on Form 10-K for additional disclosures.
Critical Accounting Policies
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, the accrual for research and development expenses, and the valuation of stock-based awards. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our financial statements. We believe that the assumptions and estimates associated with our most critical accounting policies are those relating to revenue, accrued research and development costs and stock-based compensation.
Revenue Recognition
We have and may continue to enter into license and collaboration agreements with other companies. Arrangements with other companies may include licenses to intellectual property, research and development services, manufacturing services for clinical and commercial supply, and participation on joint steering and patent committees. We evaluate the promised goods or services in the contract to determine which promises, or group of promises, represent performance obligations. In contemplation of whether a promised good or service meets the criteria required of a performance obligation, we consider the stage of development of the underlying intellectual property, the capabilities and expertise of the customer relative to the underlying intellectual property, and whether the promised goods or services are integral to or dependent on other promises in the contract. When accounting for an arrangement that contains multiple performance obligations, we develop judgmental assumptions, which may include market conditions, reimbursement rates for personnel costs, development timelines, and probabilities of regulatory success to determine the stand-alone selling price for each performance obligation identified in the contract.
Upon the amendment of an existing agreement, we evaluate whether the amendment represents a modification to an existing contract that would be recorded through a cumulative catch-up to revenue, prospective modification, or a separate
contract. If it is determined that it is a separate contract, we will evaluate the necessary revenue recognition through the five-step process described below.
When we conclude that a contract should be accounted for as a combined performance obligation and recognized over time, we then determine the period over which revenue should be recognized and the method by which to measure revenue. We generally recognize revenue using a cost-based input method.
We recognize collaboration revenue in an amount that reflects the consideration that we expect to receive in exchange for those goods or services when our customer or collaborator obtains control of promised goods or services. To determine revenue recognition for such arrangements, we perform the following five steps:
i.identify the contract(s) with a customer;
ii.identify the performance obligations in the contract;
iii.determine the transaction price;
iv.allocate the transaction price to the performance obligations within the contract; and
v.recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when we determine that it is probable we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.
At contract inception, we assess the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the arrangement may consist of a license of, or options to license, our intellectual property and research, development and manufacturing services. We may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) are separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.
We determine transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, we estimate the probability and extent of consideration we expect to receive under the contract utilizing either the most-likely amount method or expected amount method, whichever best estimates the amount expected to be received. We then consider any constraints on the variable consideration and includes variable consideration in the transaction price to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We then allocate the transaction price to each performance obligation based on the relative standalone selling price and recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations that consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
We record amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue.
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in our balance sheet. Deferred revenues expected to be recognized as revenue within the 12 months following the balance sheet date are classified as a current liability. Deferred revenues not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as non-current liabilities.
Research and Development Expense
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.
We accrue expenses for manufacturing, process development, nonclinical studies and clinical trial activities performed by vendors based upon estimates of the proportion of work completed. We determine the estimates by reviewing contracts,
vendor agreements and purchase orders, and through discussions with our internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.
We make estimates of our prepaid and accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Stock-Based Compensation
We measure compensation expense for all share-based awards based on the estimated fair value of the share-based awards on the grant date. We use the Black-Scholes option pricing model to value our stock option awards. The fair values of restricted stock units are based on the fair value of the Company's common stock on the date of the grant. We recognize compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. We also grant stock options that vest upon achievement of certain market-based conditions. We use the Monte Carlo pricing model to estimate the fair value of options that have market-based conditions.
The Black-Scholes option-pricing model requires the use of subjective assumptions that include the expected stock price volatility and, for options granted prior to our IPO, the fair value of the underlying common stock on the date of grant. See Note 10 to our financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during the year ended December 31, 2025.
Recent Accounting Pronouncements
See Note 2 to our financial statements found elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company and Smaller Reporting Company Status
The Company was previously an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended ("JOBS Act"). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
As of December 31, 2025, the Company ceased to qualify as an emerging growth company. The Company continues to qualify as a "smaller reporting company" as defined in Rule 12b-2 under the Exchange Act and thus will continue to be permitted to make certain reduced disclosures in this Annual Report on Form 10-K and other periodic reports.
We will continue to be a smaller reporting company so long as (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. As long as we remain a smaller reporting 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 financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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