UPB

Business Context and Reporting Period

Upstream Bio, Inc. is a clinical-stage biopharmaceutical company focused on developing treatments for inflammatory diseases, specifically severe respiratory disorders. The company's sole product candidate is verekitug, a monoclonal antibody targeting the Thymic Stromal Lymphopoietin (TSLP) receptor. The company is currently conducting Phase 2 clinical trials for severe asthma and chronic rhinosinusitis with nasal polyps (CRSwNP) and plans to initiate development for chronic obstructive pulmonary disease (COPD).

This Form 10-Q covers the quarterly period ended September 30, 2024. The company is classified as an emerging growth company and a smaller reporting company.

Key Financial Metrics

Note: The company has no debt obligations listed on the balance sheet as of September 30, 2024. Liquidity is supported by cash, cash equivalents, and short-term investments.

Material Changes vs. Prior Period

• Revenue: Collaboration revenue from the related party Maruho remained relatively flat, decreasing slightly from $1.9 million in the nine months ended Sept 30, 2023, to $1.8 million in the same period in 2024.
• Operating Expenses: Total operating expenses increased significantly by $25.5 million (92%) for the nine months ended Sept 30, 2024, compared to the prior year period.
  • R&D: Increased by $20.9 million, driven by progress in Phase 2 clinical trials for asthma and CRSwNP, and the initiation of COPD development. Manufacturing costs for Phase 3 clinical material also contributed to the increase.
  • G&A: Increased by $4.5 million, primarily due to increased headcount and professional fees.
• Net Loss: Net loss widened substantially to $41.6 million for the nine months ended Sept 30, 2024, compared to $8.7 million in the prior year period. This was driven by higher operating expenses and a reduction in non-cash income from the change in fair value of preferred stock tranche right liabilities (which were settled in April 2024).
• Interest Income: Increased by $4.4 million year-over-year due to higher balances in money market funds and U.S. treasury bills.

Guidance, Outlook, and Risks

• Capital Resources & IPO: In October 2024, subsequent to the reporting period, the company completed its Initial Public Offering (IPO), raising approximately $268.7 million in net proceeds. Management believes existing cash, cash equivalents, and short-term investments, including IPO proceeds, will fund operations through 2027.
• Outlook: The company expects to continue incurring significant losses as it advances verekitug through clinical trials, seeks regulatory approval, and builds infrastructure for potential commercialization. Expenses are expected to increase substantially.
• Risks:
  • Development Risk: Verekitug is the only product candidate; failure in clinical trials or inability to obtain regulatory approval would materially harm the business.
  • Third-Party Dependence: The company relies on third parties for manufacturing (including WuXi Biologics) and clinical trial conduct. Geopolitical tensions and legislation like the BIOSECURE Act pose risks to supply chains.
  • Liquidity: While the IPO provided significant capital, the company has a history of losses and will require additional financing in the future to sustain operations beyond 2027.
  • Intellectual Property: Success depends on maintaining patent protection and defending against third-party claims.

Key Facts for Investor Verification

• IPO Proceeds: Verify the final net proceeds from the October 2024 IPO ($268.7 million) and the current cash balance post-IPO to confirm the runway through 2027.
• Clinical Trial Progress: Monitor enrollment rates and interim data readouts for the ongoing Phase 2 trials in severe asthma and CRSwNP, as well as the initiation timeline for the COPD program.
• Manufacturing Supply Chain: Assess the impact of the BIOSECURE Act and other geopolitical factors on the company's relationship with WuXi Biologics and its ability to secure drug supply.
• Burn Rate: Track the quarterly cash burn rate to ensure it aligns with the management's projection of funding through 2027.
• Related Party Transactions: Review the terms and financial impact of the collaboration agreement with Maruho Co., Ltd., which is a co-founder and board member.