Financial Analysis

5. Commitments and Contingencies Operating Leases In June 2023, Shanghai ShouTi entered into a lease agreement for approximately 22,500 square feet of office space in Shanghai, China, for its research and development operations office, which commenced in July 2023 and will expire on December 31, 2026. The annual base rent is approximately $0.7 million based on the exchange rate upon entering into this lease agreement, and Shanghai ShouTi is also responsible for the payment of additional costs and fees related to its use of the premises. According to the lease agreement, the Company is obligated to restore the premises and all fixtures, fittings and equipment in the premises to its original condition. The Companys asset retirement obligations are primarily associated with leasehold improvements which the Company is contractually obligated to remove at the end of a lease to comply with the lease agreement. The Company recognized an asset retirement obligation at the inception of a lease at its estimated fair value based on the expected timing of payment of the related costs. In the determination of fair value for an asset retirement obligation, the Company uses various assumptions and judgments, including such factors as the existence of a legal obligation, estimated amounts and timing of settlements, discount and inflation rates. The key estimates as of the inception date were the fair value of the asset retirement obligation of $0.4 million, timing of the settlement of 3.4 ye …

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7. Shareholders Equity 2019 Equity Incentive Plan In April 2019, the Company adopted the 2019 Equity Incentive Plan (2019 Plan), under which its board of directors can issue share options. Awards granted under the 2019 Plan may be either incentive share options (ISOs), nonstatutory share options (NSOs), share appreciation rights (SARs), or restricted share units (RSUs). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and consultants. The exercise price of ISOs and NSOs shall not be less than 100% of the estimated fair value of the shares on the date of grant. The exercise price of ISOs granted to an employee who, at the time of grant, owns shares representing more than 10% (10% shareholder) of the voting power of all classes of shares of the Company shall be no less than 110% of the estimated fair value of the shares on the date of grant. The options usually have a term of 10 years (or no more than five years if granted to a 10% shareholder). Vesting conditions determined by the plan administrator may apply to share options and may include continued service, performance and/or other conditions. Generally, options and restricted share awards vest over a four-year period. 2023 Equity Incentive Plan In January 2023, prior to the IPO closing, the Companys board of directors and shareholders approved the 2023 Equity Incentive Plan (2023 Plan), which became effective upon the IPO closi …

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4. Fair Value Measurements The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three levels of inputs that may be used to measure fair value, as follows: Level 1Observable inputs, such as quoted prices in active markets for identical assets or liabilities; Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3Unobservable inputs which reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make j …

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10. Income Taxes The components of income (loss) before income taxes by U.S. and foreign jurisdictions are as follows (in thousands): YEAR ENDED DECEMBER 31, 2025 2024 2023 Income (loss) before income tax expense: United States $ (144,077) $ (113,107) $ (79,895) Foreign 3,390 (9,109) (9,489) Total $ (140,687) $ (122,216) $ (89,384) The provision for (benefit from) income taxes consists of the following (in thousands): YEAR ENDED DECEMBER 31, 2025 2024 2023 Current tax provision (benefit): U.S. Federal $ $ $ U.S. State 9 8 5 Foreign 427 320 217 436 328 222 Deferred tax provision (benefit): U.S. Federal U.S. State Foreign 79 (18) 14 Total provision for (benefit from) income taxes: $ 515 $ 310 $ 236 The Company adopted ASU 2023-09 retrospectively in the year ended December 31, 2025. The Company is domiciled in the Cayman Islands; however, it is a resident for U.S. federal income tax purposes. Consequently, the Company has elected to use the U.S. federal statutory income tax rate of 21% as the applicable statutory rate for its effective tax rate reconciliation. This rate is the rate of the primary jurisdiction in which the Company is subject to income tax. A reconciliation of the U.S. federal statutory income tax rate to its effective tax rate, pursuant to the disclosure requirements of ASU 2023-09 for the years ended December 31, 2025, 2024 and 2023, are as follows (in thousands, except percentages): YEAR ENDED DECEMBER 31, 2025 2024 2023 $ % $ % $ % U.S. federal statutory incom …

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Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (FASB) issued Account Standards Update (ASU) 2023-09, Improvements to Income Tax Disclosures . This ASU requires greater disaggregation of information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This ASU applies to all entities subject to income taxes and is intended to help investors better understand an entitys exposure to potential changes in jurisdictional tax legislation and assess income tax information that affects cash flow forecasts and capital allocation decisions. This ASU is applicable to the Company beginning with its Annual Report on Form 10-K for the fiscal year ending December 31, 2025. The adoption of this ASU using a retrospective approach will only impact disclosures and did not have a material impact on the Companys consolidated financial statements (see Note 10). Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . This ASU requires additional information about a reporting entitys certain expense categories in the notes to financial statements in interim and annual reporting periods. Among other provisions, the new standard requires disclosure of disaggregated amounts for expen …

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13. Related Party Transactions Ramy Farid, the President and Chief Executive Officer of Schrodinger, Inc. (Schrodinger) was a member of the Companys board of directors until June 25, 2024, at which time Mr. Farid ceased being a related party. During the years ended December 31, 2024 and 2023, the Company had existing collaboration agreements to use the results provided by Schrodingers software platform for its research purposes. During the years ended December 31, 2024 and 2023, the Company paid $3.2 million and $0.3 million to Schrodinger, respectively, and had a payable balance of $0.3 million to Schrodinger as of December 31, 2024. Lhotse Collaboration Agreement with Schrodinger LLC In October 2020, Lhotse Bio, Inc. (Lhotse), the Companys wholly-owned subsidiary, entered into a collaboration agreement (the Lhotse-Schrodinger Agreement) with Schrodinger LLC, one of the Companys shareholders, to discover and develop novel, orally bioavailable, small molecule inhibitors of lysophosphatidic acid 1 receptor (LPA1R). Under the Lhotse-Schrodinger Agreement, Schrodinger LLC was obligated to provide computational modeling and design support, including by using its technology platform to perform virtual screens, and Lhotse was obligated to provide day-to-day chemistry and biology support. Pursuant to the Lhotse-Schrodinger Agreement, a joint steering committee comprised of representatives from both parties to oversee the research performed under the agreement. During the term of the …

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2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The functional and reporting currency of the Company and its subsidiaries is the U.S. dollar. The aggregate foreign currency transaction gain (loss) included in determining net loss was not material for the periods presented. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of expenses during the reporting periods. Such estimates include lease liability, accruals for research and development activities, share-based compensation and certain other accrued liabilities. Actual results could differ from those estimates. Segments The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of medicines that target chronic diseases with unmet medical need. The Companys Chief Executive Officer, who is the chief o …

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6. Ordinary Shares As of December 31, 2025, the Companys amended and restated memorandum and articles of association, authorizes the Company to issue 500,000,000 ordinary shares and 100,000,000 undesignated shares, all of which remain undesignated shares, all with a par value of $0.0001 per share. The undesignated shares may be designated by the Companys board of directors in accordance with the Companys amended and restated memorandum and articles of association. Ordinary shareholders are entitled to dividends if and when declared by the Companys board of directors. As of December 31, 2025 and 2024, no dividends on ordinary shares had been declared by the board of directors. The Company has the following ordinary shares reserved for future issuance (in thousands): DECEMBER 31, 2025 2024 Share options issued and outstanding 15,355 12,597 Share options available for future grant 10,082 10,722 Pre-Funded Warrants outstanding 4,615 Restricted share units outstanding 4,292 1,051 Ordinary shares available for employee share purchase plan 3,909 2,324 Total ordinary shares reserved 38,253 26,694 …

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