ZBIO

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report and the audited financial information and the notes thereto included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or SEC, on March 16, 2026. This discussion and analysis contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. See also the section titled “Special Note Regarding Forward-Looking Statements.” Overview We are a clinical-stage global biopharmaceutical company committed to being a leader in the development and commercialization of transformative immunology-based therapies for patients in need. With the evolving understanding of the pathogenesis of autoimmune diseases, along with the expansion of promising immunology-based pharmacologic targets, we are building an immunology and inflammation (“I&I”) focused biopharmaceutical company. Our core business strategy combines disciplined product candidate acquisition with strategic deployment of internal expertise and effective use of external resources. We leverage our experienced executive management team and our established networks throughout the biopharmaceutical industry to identify, acquire and develop product candidates that we believe can provide superior clinical benefits to patients living with autoimmune diseases. Our lead I&I product candidate, obexelimab, is a bifunctional monoclonal antibody designed to bind both CD19 and FcγRIIb, which are broadly present across B cell lineage, in order to inhibit the activity of cells that are implicated in many 30 Table of Contents autoimmune diseases without depleting them. Based on existing clinical data generated to date, we believe that targeting B cell lineage via CD19 and FcγRIIb can inhibit B cells and has been shown to be well-tolerated. We are developing obexelimab as a potential I&I franchise for patients in several autoimmune diseases, representing substantial commercial opportunities individually and in the aggregate. We are conducting clinical trials in IgG4-RD through a registration-directed Phase 3 trial which reported topline data in January 2026, relapsing multiple sclerosis (“RMS”) through an ongoing Phase 2, double-blind, randomized, placebo-controlled trial which reported topline data in October 2025 and systemic lupus erythematosus (“SLE”) through an ongoing Phase 2, double-blind, randomized, placebo-controlled trial, for which we expect to report topline results, including biomarker data, in the fourth quarter 2026. In January 2026, we reported positive results from the Phase 3 trial of obexelimab in patients with IgG4-RD. Obexelimab met the primary endpoint, demonstrating a highly statistically significant and clinically meaningful 56% reduction in the risk of IgG4-RD flare compared to placebo (Hazard Ratio 0.44, p=0.0005) and also met and demonstrated highly statistically significant activity compared to placebo on all four key secondary endpoints. Obexelimab was well tolerated with a safety profile consistent with that observed in previously completed clinical trials. Based on these results, we submitted the obexelimab Biologics License Application (“BLA”) to the FDA for the treatment of IgG4-RD in May 2026. In August, the FDA accepted the Company’s BLA and assigned a Prescription Drug User Fee Act (“PDUFA”) target date of May 27, 2027. We intend to submit a Marketing Authorization Application to the European Medicines Agency in the second half of 2026. In August 2026, we announced that bioequivalence was established between obexelimab delivered via prefilled syringe and single-dose prefilled pen. The single-dose prefilled pen has the potential to offer a more convenient delivery option for patients. We intend to submit a supplemental application to obexelimab’s IgG4-RD BLA, if approved, and to include the bioequivalence data to a European MAA submission in the second half of 2026. In April 2026, we completed enrollment in the SunStone trial and expect to report topline results, including biomarker data, in the fourth quarter of 2026. Based on the outcome of the SunStone trial, and considering other factors, we may initiate a Phase 3 program in patients with SLE in the first half of 2027. In October 2025, we announced topline data from the MoonStone trial. Obexelimab met the primary endpoint, demonstrating a statistically significant 95% relative reduction in the cumulative number of new gadolinium-enhancing T1 hyperintense lesions, which are markers of active inflammation, over week 8 and week 12 compared with placebo (p=0.0009). In February 2026, we reported the 24-week data from the MoonStone trial which confirmed the reductions in new gadolinium enhancing (“GdE”) T1 hyperintense lesions observed with obexelimab over weeks 8 and 12 were maintained through week 24; unadjusted mean of new lesions per scan were 0.87 at baseline, 0.08 at week 12 and 0.04 at week 24 for obexelimab indicating a 95% reduction. The 24-week data from additional secondary and exploratory endpoints may inform obexelimab’s potential impact on disability progression and help the Company determine next steps for future development of obexelimab in RMS. As we continue to evaluate the MoonStone data and consider next steps for clinical development in this indication, we will consider, among other items, the evolving treatment landscape in RMS, including existing therapies, current pivotal trial endpoints and prioritization of capital. In October 2025, we entered into a License Agreement (the “InnoCare License Agreement”) with InnoCare Pharma Inc. (“InnoCare”). pursuant to which we were granted exclusive rights to develop, manufacture, and commercialize orelabrutinib, a Bruton’s Tyrosine Kinase inhibitor (“BTK”), for multiple sclerosis (“MS”) worldwide, and in all non-oncology indications worldwide excluding mainland China, Hong Kong, Macau and Taiwan (“greater China”), and Brunei, Burma, Cambodia, Timor-Leste, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam (“Southeast Asia”), as well as two early-development product candidates: ZB021, an IL-17AA/AF inhibitor, in all fields of use worldwide excluding greater China and Southeast Asia, and ZB022, a TYK2 inhibitor, in all fields of use worldwide. Orelabrutinib is a highly selective and central nervous system (“CNS”) penetrant, oral small molecule BTK inhibitor. Orelabrutinib is designed to bind irreversibly to BTK with minimal off-target effects, which may potentially reduce certain side effects. We believe orelabrutinib is designed to efficiently cross the blood-brain barrier, reaching therapeutic levels within the CNS to directly target inflammation in diseases like MS. 31 Table of Contents In September 2025, the Phase 3 PriMroSe trial of orelabrutinib in patients with primary progressive multiple sclerosis (“PPMS”) was initiated. The PriMroSe trial is a global, multicenter, randomized, double-blind, placebo-controlled clinical trial evaluating the safety and efficacy of orelabrutinib dosed 80 mg once daily (“QD”) compared to placebo in patients with PPMS, with a primary endpoint of time to onset of 12-week composite confirmed disability progression. In March of 2026, we initiated a second global, Phase 3, multicenter, randomized, double-blind, placebo-controlled clinical trial evaluating orelabrutinib dosed 80 mg QD compared to placebo in patients with non-active secondary progressive multiple sclerosis (“naSPMS”), with a primary endpoint of time to onset of 24-week CDP. ZB021 is an oral IL-17AA/AF inhibitor designed to block both IL-17AA homodimer and IL-17AF heterodimer signaling. Preclinical studies for ZB021 have shown favorable PK and ADME properties. ZB021 achieved comparable activity in vivo to a reference anti-IL-17 biologic in a rat CIA model. We, along with our partner, InnoCare, initiated a Phase 1 clinical study in the second quarter of 2026. ZB022 is an oral, brain-penetrant TYK2-JH2 inhibitor, currently in IND-enabling studies. Subject to the results of Investigational New Drug (“IND”) enabling studies, we expect to initiate a Phase 1 clinical study in 2027. We are also advancing ZB014, a half-life extended anti-CD-19 and FcγRIIb monoclonal antibody, currently in IND-enabling studies. Subject to the results of IND-enabling studies, we expect to initiate a Phase 1 clinical study in 2027. In addition, we have two other programs for the potential treatment of other I&I indications that we may continue to advance and ultimately commercialize with partners. These consist of ZB002 and ZB004. We retain global rights for both assets. In addition, we hold the development and commercialization rights to one regional program, ZB001, and related programs, which were exclusively sublicensed to a partner in China, as discussed below. In September 2024, we completed our initial public offering (“IPO”) in which we issued and sold an aggregate of 15,220,588 shares of our common stock, including 1,985,294 shares of common stock sold pursuant to the full exercise of the underwriter’s option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $258.7 million. We received $234.3 million in net proceeds after deducting underwriting discounts, commissions and other offering costs. In October 2024, we entered into the Novation Agreement with Tenacia Biotechnology (Hong Kong) Limited (“Tenacia”), under which we transferred our rights and obligations under our agreements with Dianthus to Tenacia for ZB005. As partial consideration for the Tenacia Agreement, we received a non-creditable, non-refundable upfront fee of $5.0 million from Tenacia. In June 2026, we recorded collaboration and license revenue of $1.0 million upon successful achievement of a development milestone. In addition, we are eligible to receive up to an additional $85.0 million upon the achievement of certain future regulatory and commercial milestones. In January 2025, we entered into the Zai License Agreement, with Zai Lab (Hong Kong) Limited (“Zai”), under which we granted to Zai an exclusive sublicense to develop and commercialize ZB001 and related programs in greater China. As partial consideration for the Zai License Agreement, we received an upfront fee of $10.0 million from Zai. In addition, we are eligible to receive up to $96.0 million upon the achievement of certain future development and commercial milestones and royalty percentage rates from the low to mid-single digits, net of pass-through obligations due to Viridian. In September 2025, we entered into the Revenue Participation Right and Sales Agreement (the “Royalty Purchase Agreement”), with Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”), pursuant to which Royalty Pharma purchased the right to receive, for each calendar quarter, (i) 5.5% of net sales of obexelimab products sold by us and our affiliates worldwide, (ii) 5.5% of net sales of obexelimab products sold by licensees of us and our affiliates in the U.S., the United Kingdom and the European Union, (iii) 25% of royalty income payable to us or any of our affiliates on sales of obexelimab products in countries other than the U.S., the United Kingdom, and in the European Union by its licensees pursuant to out-licenses less royalty payments payable by us to Xencor Inc. and (iv) 25% of non-royalty income attributable to obexelimab products payable to us or any of our affiliates by its licensees (other than certain milestone payments payable by Bristol-Myers Squibb) pursuant to out-licenses and allocated to countries other than the U.S., the United Kingdom and in the European Union. ​ 32 Table of Contents In October 2025, we entered into a License Agreement (the “InnoCare License Agreement”) with InnoCare Pharma Inc. (“InnoCare”), under which InnoCare granted to us the exclusive rights to develop, manufacture, and commercialize: i) orelabrutinib, in the MS field worldwide, and in all non-oncology indications outside greater China and Southeast Asia, ii) ZB021 in all fields of use worldwide, excluding greater China and Southeast Asia and iii) ZB022 in all fields of use worldwide. We also obtained certain non-exclusive rights to perform development and manufacturing activities in greater China and Southeast Asia. As consideration for the InnoCare License Agreement, we made a non-refundable upfront payment of $35.0 million. We also issued 5,000,000 shares of common stock to InnoCare in a private placement, and we may be required to issue an additional 2,000,000 shares of common stock in a private placement, upon the achievement of a specified development milestone related to a Phase 3 clinical trial for orelabrutinib in any indication other than PPMS. We are further obligated to pay future regulatory and commercial milestones of up to $723.0 million related to orelabrutinib and future development, regulatory, and commercial milestones of up to $636.0 million for ZB021, and $656.0 million for ZB022. In addition, we may be obligated to pay royalties on net sales at rates ranging from high-single digits to high-teens for orelabrutinib, and mid-single digits to mid-teens for the preclinical compounds. ​ Since inception, our operations have focused on research and development activities with respect to our product candidates as described above, as well as raising capital, business planning, organizing and staffing our company, establishing our intellectual property portfolio, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We have financed our operations to date primarily with the proceeds from the issuance of convertible preferred stock, convertible senior notes, from the sale of common stock in our IPO completed in September 2024, private and public equity offerings, as well as from payments received under our license, collaboration and royalty purchase agreements and the senior secured term loan with Pharmakon Advisors, LP (“Pharmakon”). In October 2025, we closed our private investment in public equity (“PIPE”) of 6,311,030 shares of common stock for net proceeds of approximately $111.8 million, after deducting agent fees and other offering costs. Additionally, in October 2025, we entered into a sales agreement with Jefferies LLC (“Jefferies”) under which we may, from time to time, issue and sell shares of our common stock having aggregate sales proceeds of up to $200.0 million, in a series of one or more at-the-market (“ATM”) equity offerings (“2025 ATM Program”). During the six months ended June 30, 2026, we sold 2,827,723 shares of common stock under the 2025 ATM Program, with proceeds of $71.5 million, net of commissions. As of June 30, 2026, $96.8 million remained available under the 2025 ATM Program. Further in March 2026, we entered into the Loan Agreement with the Collateral Agent, BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP, which are funds managed by Pharmakon, providing for up to a $250.0 million term loan facility consisting of several tranches of loans that will become available upon the achievement of certain milestones. We have incurred significant operating losses and negative cash flows since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses for the three and six months ended June 30, 2026 were $111.5 million and $192.4 million, respectively, and we recorded net loss of $52.2 million and $85.8 million, for the three and six months ended June 30, 2025. As of June 30, 2026, we had an accumulated deficit of $957.6 million. We expect to continue to incur significant and increasing losses for the foreseeable future. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: ● continue clinical development of obexelimab, orelabrutinib and our other programs; ● advance our obexelimab and orelabrutinib programs and our other product candidates through preclinical development and clinical trials; ● identify additional product candidates and acquire rights from third parties to those product candidates through licenses or acquisitions and conduct development activities, including preclinical studies and clinical trials; ● make royalty, milestone or other payments under current, and any future, license, synthetic royalty or collaboration agreements; ● make payments under current, and any future, secured term loans and convertible senior notes. 33 Table of Contents ● procure the manufacturing of preclinical, clinical and commercial supply of our current or any future product candidates; ● seek marketing regulatory approvals for our current or any future product candidates that successfully complete clinical trials; ● commercialize our current or any future product candidates, if approved; ● take steps toward our goal of being an integrated biopharma company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure; ● continue to develop, maintain and defend our intellectual property portfolio, including against third-party interference, infringement and other intellectual property claims, if any; ● seek to attract, hire and retain qualified clinical, scientific, operations and management personnel; ● add and maintain operational, financial and information management systems; ● attempt to address any competing therapies and market developments; ● experience delays in our preclinical studies, clinical trials or regulatory approval for our current or any future product candidates, including with respect to failed studies, inconclusive results, safety issues or other regulatory challenges; ● establish agreements with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”); and ● incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, and we cannot assure investors that we will ever generate significant revenue or profits. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. We expect to continue to incur significant losses for the foreseeable future as we continue to advance the development of our product candidates and incur additional costs associated with being a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical studies and expenditures related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued research and development and other current liabilities. We will need to continue to raise substantial additional capital to support our continuing operations and pursue our growth strategy as a public company. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other capital sources, which could include collaborations with other companies, or other strategic transactions and licensing agreements. We may be unable to obtain financing on acceptable terms, or at all, and we may be unable to enter into collaborations or other arrangements. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, prospects, results of operations, and financial condition, including requiring us to have to delay, reduce or eliminate product development or future commercialization efforts, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves. 34 Table of Contents As there are numerous risks and uncertainties associated with development of I&I therapeutics, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. We will need to generate significant revenue to achieve profitability, and we may never do so. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of June 30, 2026, we had $673.9 million in cash, cash equivalents and investments. We expect that our existing cash, cash equivalents and investments will be sufficient to fund our capital and operating expenditures for at least twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. We estimate that our existing cash, cash equivalents and investments will be sufficient to fund our projected operations and capital expenditure requirements into 2029. Assuming receipt of the potential $75 million milestone payment from Royalty Pharma combined with the potential $75 million from the senior secured term loan with Pharmakon associated with achieving FDA marketing approval of obexelimab for IgG4-RD, we expect our cash, cash equivalents and investments will fund our operating expenses and capital expenditure requirements at least through the second quarter of 2029. We have based this estimate on our current assumptions, which may prove to be wrong, and we may exhaust our available capital resources sooner than we expect. See section titled “Liquidity and Capital Resources.” Significant Risks and Uncertainties The current geopolitical, trade, regulatory and economic environment, including, but not limited to imposition of new tariffs or increases in tariff rates and other trade measures, may materially affect our business and operating results by increasing the costs of our clinical trial materials and supplies, which in turn increase our overhead costs. Additionally, the ongoing recession risk together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term and, as a result could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Such economic conditions could increase our operating costs, including our labor costs and research and development costs. For example, we import drug products and other components from and into China for use in the manufacturing process and in our clinical studies, and such components and products are subject to tariffs, which we anticipate will result in increased costs. Our operating and labor costs and research and development costs may also be negatively impacted due to supply chain constraints, global geopolitical tensions, worsening macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital. Additionally, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the clinical stage biopharmaceutical industry. Components of Our Results of Operations Revenue To date, we have no product candidates approved for commercial sale in any country, and we have not generated any revenues from the sale of products. Our revenue has been derived from collaboration arrangements and license fees. License and Collaboration Revenue License and collaboration revenue may be generated from milestones achieved under our BMS Agreement, our Tenacia Agreement and our Zai License Agreement. Pursuant to the BMS Agreement, we sublicensed the rights to develop and commercialize obexelimab in Japan, South Korea, Taiwan, Singapore, Hong Kong and Australia (the “BMS Territory”). We retain exclusive rights to commercialize the licensed products containing obexelimab outside of the BMS Territory. The revenue recognized to date pursuant to this arrangement relates to the license of obexelimab and the related technology transfer, which was recognized upon delivery of the license. This arrangement includes the participation by BMS in certain joint global studies of obexelimab in accordance with the terms of the BMS Agreement, in which BMS will reimburse us for its share of the 35 Table of Contents related study costs. Such reimbursements will be classified as a reduction to research and development expense in the period such costs are incurred. We will recognize development and regulatory milestones defined in the BMS Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur. Pursuant to the Tenacia Agreement, we transferred our rights, title, interest, liabilities, duties and obligations under the Option and License Agreements with Dianthus to Tenacia for ZB005. The revenue recognized to date pursuant to this arrangement relates to the novation of the ZB005 license, asset transfer and technology transfer, which was recognized upon delivery of the license, related assets and technology transfer as well as revenue related to a certain development milestone which was recognized upon achievement of such milestone. We will recognize additional development and regulatory milestones as defined in the Tenacia Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur. Pursuant to the Zai License Agreement, we granted Zai an exclusive sublicense to develop and commercialize ZB001 and related programs in greater China. As partial consideration for the Zai License Agreement, we received an upfront fee of $10.0 million from Zai. In addition, we are eligible to receive up to $96.0 million upon the achievement of certain development and commercial milestones and royalty percentage rates from the low to mid-single digits, net of pass-through obligations due to Viridian. ​ For a more detailed description of these agreements, see Note 7, License and Collaboration Revenue, to our unaudited condensed consolidated financial statements in this Quarterly Report. Operating Expenses Our operating expenses consist of (i) research and development expenses, (ii) general and administrative expenses and (iii) acquired in-process research and development expenses. Research and Development Expenses Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the preclinical and clinical development of our product candidates, and include: Direct Costs: ● external research and development expenses incurred under agreements with CROs and consultants that conduct our clinical studies and other scientific development services; ● costs incurred under agreements with CMOs for manufacturing material for our preclinical studies and clinical trials; ● costs to obtain and maintain licenses to intellectual property, and related future payments should milestones described in those agreements be achieved; and ● costs related to compliance with regulatory requirements. Indirect Costs: ● employee-related expenses including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development activities; and ● costs of outside consultants, including their fees, stock-based compensation and related travel expenses. 36 Table of Contents We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors or our estimate of the level of service that has been performed at each reporting date. Payments for these external development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid expenses or accrued expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. A significant portion of our research and development costs have been external costs, which we track on an individual product candidate basis after a clinical product candidate has been identified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Our internal research and development costs are primarily personnel-related costs and other indirect costs. We do not track internal costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified. Where we share costs with our collaboration partners, such as in our BMS Agreement, research and development expenses may include cost sharing reimbursements from our partners. Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance clinical trials for our product candidates, pursue additional indications, continue to develop additional product candidates, expand our headcount and maintain, expand and enforce our intellectual property portfolio. We also expect our manufacturing costs to increase with our CMOs as we scale up our processes for commercial manufacturing. Product candidates in later stages of clinical development will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and additional manufacturing activities. There are numerous factors associated with the successful development and commercialization of any product candidates we may develop, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products, and future commercial and regulatory factors beyond our control that will impact our clinical development program and plans. The successful development of our current product candidates, or any product candidates we may develop in the future is highly uncertain. Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of our product candidates, if approved, and any other product candidates that we may develop. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of any current or future product candidate, if approved. This is due to the numerous risks and uncertainties associated with product development, including the uncertainty of: ● the scope, timing and progress of our ongoing clinical studies and other research and development activities associated with the development of our current and future product candidates; ● the number and scope of preclinical and clinical programs we decide to pursue; ● our ability to maintain our current research and development programs and to establish new programs; ● the timing of and successful patient enrollment in, and the initiation and completion of, clinical trials; ● the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA, or any comparable foreign regulatory authority; ● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; 37 Table of Contents ● our ability to establish new licensing or collaboration arrangements; ● the performance of our future collaborators, if any; ● our ability to establish and maintain arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any; ● development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercialization; ● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; ● our ability to hire additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, chemistry, manufacturing, and controls, quality and commercial personnel; ● commercializing product candidates, if approved, whether alone or in collaboration with others; ● the costs and timing of establishing or securing sales and marketing capabilities for our product candidates if approved; ● the imposition of new laws and regulations, including those relating to labor conditions and safety standards, information and data transfer, imports, duties, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds, particularly new or increased tariffs imposed on imports, and as a result supply-related costs, from countries where our suppliers operate, as well as tariffs that impact the biopharmaceutical industry generally; ● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; and ● maintaining a continued acceptable safety profile of the product candidates following approval. Any changes in the outcome of any of these variables with respect to the development of our current product candidates or any future product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the Food and Drug Administration (“FDA”) or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently anticipate would be required for the completion of clinical development, or if we experience significant delays in enrollment in any clinical trials following the FDA’s acceptance and clearance of an IND, we could be required to expend significant additional financial resources and time to complete clinical development than we currently expect. We may never obtain regulatory approval for any product candidates that we develop. General and Administrative Expenses General and administrative expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation expenses for personnel in executive, finance, accounting, human resources and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting and other professional services, and expenses for rent, insurance and other operating costs not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase in the next few years as we increase our headcount to support our continued research and development activities of our product candidates. These increases will likely include 38 Table of Contents increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with the rules and regulations of the SEC, listing standards applicable to companies listed on a national securities exchange, director and officer insurance costs, and investor and public relations costs. In addition, if we obtain regulatory approval for our current product candidates or any product candidates we may develop in the future and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities. We will also incur pre-commercialization expenses to facilitate commercial readiness, as we prepare for a potential product candidate approval. Acquired In-Process Research and Development Expenses We expense acquisition costs for assets purchased for use in research and development activities that have no alternative future use as in-process research and development (“IPR&D”) expenses as of the acquisition date. When we become obligated to make contingent milestone payments under the terms of the agreements by which we acquired the IPR&D assets, we will recognize additional IPR&D expense. We measure and recognize contingent consideration in the period in which the related milestone is achieved and becomes payable. Certain agreements may require the payment of milestones in shares of our common stock, which if determined not to be a derivative or liability are recognized as acquired IPR&D expense and a component of equity based on the fair value of the shares at execution. Total Other Income (Expense), Net Other Income (Expense), Net Other income (expense), net primarily consists of interest expense related to our royalty obligation, our senior secured term loan and our convertible senior notes, income generated from cash equivalents and investments as well as realized and unrealized gains and losses on foreign currency transactions. Income Taxes Since our inception, we have not recorded income tax benefits for any of our deferred tax assets, including the net operating losses (“NOLs”) incurred or the research and development tax credits generated in each year, as we have concluded that it is more likely than not that these deferred tax assets will not be realized. 39 Table of Contents Results of Operations ​ Comparison of the Three Months Ended June 30, 2026 and 2025 The following table summarizes our results of operations for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ License and collaboration revenue ​ ​ $ 1,000 ​ ​ $ — ​ $ 1,000 Total revenue ​ ​ 1,000 ​ ​ — ​ ​ 1,000 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 62,913 ​ $ 43,027 ​ $ 19,886 General and administrative ​ ​ 15,746 ​ ​ 12,136 ​ ​ 3,610 Acquired in-process research and development ​ ​ 30,000 ​ ​ — ​ ​ 30,000 Total operating expenses ​ ​ 108,659 ​ ​ 55,163 ​ ​ 53,496 Loss from operations ​ ​ (107,659) ​ ​ (55,163) ​ ​ (52,496) Other income (expense), net: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense on royalty obligation ​ ​ (6,837) ​ ​ — ​ ​ (6,837) Interest expense on senior secured term loan ​ ​ (1,720) ​ ​ — ​ ​ (1,720) Interest expense on convertible note ​ ​ (1,745) ​ ​ — ​ ​ (1,745) Interest income ​ ​ 6,603 ​ ​ 2,743 ​ ​ 3,860 Other income (expense), net ​ ​ 16 ​ ​ 217 ​ ​ (201) Total other income (expense), net ​ ​ (3,683) ​ ​ 2,960 ​ ​ (6,643) Loss before income taxes ​ ​ (111,342) ​ ​ (52,203) ​ ​ (59,139) Income tax provision (benefit) ​ ​ 114 ​ ​ 20 ​ ​ 94 Net loss ​ $ (111,456) ​ $ (52,223) ​ $ (59,233) ​ Revenue For the three months ended June 30, 2026, we recognized license and collaboration revenue of $1.0 million, related to the achievement of a development milestone under the Tenacia Agreement. For the three months ended June 30, 2025, we did not recognize any license and collaboration revenue. Research and Development Expenses The following table summarizes our research and development expenses for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Direct research and development expenses by program: ​ ​ ​ ​ ​ ​ ​ ​ ​ Obexelimab ​ ​ ​ $ 29,394 ​ ​ ​ $ 29,894 ​ ​ ​ $ (500) Orelabrutinib ​ ​ 11,206 ​ ​ — ​ ​ 11,206 Other programs (ZB002, ZB004, ZB014, ZB021 & ZB022) ​ ​ 1,458 ​ ​ 400 ​ ​ 1,058 Partnered regional programs (ZB001 & ZB005) ​ ​ (24) ​ ​ (137) ​ ​ 113 Unallocated research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Personnel related expenses (including stock-based compensation) ​ ​ 18,481 ​ ​ 12,303 ​ ​ 6,178 Other expenses ​ ​ 2,398 ​ ​ 567 ​ ​ 1,831 Total research and development expenses ​ $ 62,913 ​ $ 43,027 ​ $ 19,886 ​ 40 Table of Contents Research and development expenses were $62.9 million for the three months ended June 30, 2026, compared to $43.0 million for the three months ended June 30, 2025. The increase of $19.9 million was primarily attributable to the following: ​ ● $0.5 million decrease in costs related to the development of obexelimab, our lead product candidate, driven by $0.8 million decrease in manufacturing costs for clinical trial materials offset by a $0.3 million increase in clinical trial, development and regulatory costs; ​ ● a $11.2 million increase in costs related to the development of orelabrutinib, driven by clinical trial and regulatory costs; and ● a $6.2 million increase in personnel costs, including a $4.3 million increase in salary and benefit related expense, due to an increase in headcount, a $1.7 million increase in stock-based compensation expense, and a $0.2 million increase in external contractor expenses and other personnel costs. ​ General and Administrative Expenses The following table summarizes our general and administrative expenses for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Personnel related expenses (including stock-based compensation) ​ ​ ​ $ 10,808 ​ ​ ​ $ 8,508 ​ ​ ​ $ 2,300 Legal and professional fees ​ 4,447 ​ 2,073 ​ ​ 2,374 Facilities and other expenses ​ 491 ​ 1,555 ​ ​ (1,064) Total general and administrative expenses ​ $ 15,746 ​ $ 12,136 ​ $ 3,610 ​ General and administrative expenses were $15.7 million for the three months ended June 30, 2026, compared to $12.1 million for the three months ended June 30, 2025. The increase of $3.6 million was primarily attributable to the following: ● a $2.3 million increase in personnel costs, including a $1.7 million increase in salary and benefit related expense, primarily due to an increase in headcount to support pre-commercialization efforts, a $0.8 million increase in stock-based compensation expense, offset by a $0.1 million decrease in external contractor expense and other personnel costs, and a $0.1 million decrease in recruiting expense; and ● a $2.4 million increase in legal and professional fees, including consulting, pre-commercialization efforts, audit and tax expenses, primarily attributable to company growth and continued operations as a public company. Acquired In-Process Research and Development Expenses For the three months ended June 30, 2026, acquired IPR&D expenses were $30.0 million, which included $10.0 million, related to the achievement of a milestone under the Xencor Agreement and related to the completion of the FDA marketing authorization submission for obexelimab and $20.0 million, related to the achievement of a Regulatory Milestone under the InnoCare Agreement. The Company did not recognize any acquired IPR&D expenses for the three months ended June 30, 2025. ​ Total Other Income (Expense), Net ​ For the three months ended June 30, 2026, total other income (expense), net was $3.7 million of expense, compared to $3.0 million of income for the three months ended June 30, 2025. The change of $6.6 million is primarily related to an 41 Table of Contents increase in interest expense of $10.3 million related to our royalty obligation, senior secured term loan and convertible senior notes, partially offset by interest income related to higher cash, cash equivalents and investments balances. Comparison of the Six Months Ended June 30, 2026 and 2025 The following table summarizes our results of operations for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ License and collaboration revenue ​ ​ $ 1,000 ​ ​ $ 10,000 ​ $ (9,000) Total revenue ​ ​ 1,000 ​ ​ 10,000 ​ ​ (9,000) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 123,352 ​ $ 77,942 ​ $ 45,410 General and administrative ​ ​ 32,657 ​ ​ 24,551 ​ ​ 8,106 Acquired in-process research and development ​ ​ 30,000 ​ ​ — ​ ​ 30,000 Total operating expenses ​ ​ 186,009 ​ ​ 102,493 ​ ​ 83,516 Loss from operations ​ ​ (185,009) ​ ​ (92,493) ​ ​ (92,516) Other income (expense), net: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense on royalty obligation ​ ​ (13,100) ​ ​ — ​ ​ (13,100) Interest expense on senior secured term loan ​ ​ (2,088) ​ ​ — ​ ​ (2,088) Interest expense on convertible note ​ ​ (1,745) ​ ​ — ​ ​ (1,745) Interest income ​ ​ 9,621 ​ ​ 6,136 ​ ​ 3,485 Other (expense) income, net ​ ​ (8) ​ ​ 376 ​ ​ (384) Total other income (expense), net ​ ​ (7,320) ​ ​ 6,512 ​ ​ (13,832) Loss before income taxes ​ ​ (192,329) ​ ​ (85,981) ​ ​ (106,348) Income tax provision (benefit) ​ ​ 114 ​ ​ (185) ​ ​ 299 Net loss ​ $ (192,443) ​ $ (85,796) ​ $ (106,647) ​ Revenue For the six months ended June 30, 2026, we recognized license and collaboration revenue of $1.0 million, related to the achievement of a development milestone under the Tenacia Agreement. For the six months ended June 30, 2025, we recognized revenue of $10.0 million related to the one-time non-refundable upfront cash payment under the Zai License Agreement that was recognized upon delivery of the license and related technology transfer. 42 Table of Contents Research and Development Expenses The following table summarizes our research and development expenses for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Direct research and development expenses by program: ​ ​ ​ ​ ​ ​ ​ ​ ​ Obexelimab ​ ​ ​ $ 61,154 ​ ​ ​ $ 53,254 ​ ​ ​ $ 7,900 Orelabrutinib ​ ​ 21,307 ​ ​ — ​ ​ 21,307 Other programs (ZB002, ZB004, ZB014, ZB021 & ZB022) ​ ​ 2,026 ​ ​ 736 ​ ​ 1,290 Partnered regional programs (ZB001 & ZB005) ​ ​ (24) ​ ​ (37) ​ ​ 13 Unallocated research and development expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Personnel related expenses (including stock-based compensation) ​ ​ 35,040 ​ ​ 23,081 ​ ​ 11,959 Other expenses ​ ​ 3,849 ​ ​ 908 ​ ​ 2,941 Total research and development expenses ​ $ 123,352 ​ $ 77,942 ​ $ 45,410 ​ Research and development expenses were $123.4 million for the six months ended June 30, 2026, compared to $78.0 million for the six months ended June 30, 2025. The increase of $45.4 million was primarily attributable to the following: ​ ● a $7.9 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $4.2 million increase in clinical trial, development and regulatory costs and a $3.7 million increase in manufacturing costs for clinical trial materials; ● a $21.3 million increase in costs related to the development of orelabrutinib, driven by clinical trial and regulatory costs; and ​ ● a $12.0 million increase in personnel costs, including a $8.2 million increase in salary and benefit related expense, due to an increase in headcount, a $3.3 million increase in stock-based compensation expense, and a $0.5 million increase in external contractor expenses and other personnel costs. General and Administrative Expenses The following table summarizes our general and administrative expenses for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ ​ ​ ​ 2026 ​ 2025 ​ ​ Increase (Decrease) Personnel related expenses (including stock-based compensation) ​ ​ ​ $ 23,413 ​ ​ ​ $ 17,216 ​ ​ ​ $ 6,197 Legal and professional fees ​ 8,140 ​ 4,226 ​ ​ 3,914 Facilities and other expenses ​ 1,104 ​ 3,109 ​ ​ (2,005) Total general and administrative expenses ​ $ 32,657 ​ $ 24,551 ​ $ 8,106 ​ General and administrative expenses were $32.7 million for the six months ended June 30, 2026, compared to $24.6 million for the six months ended June 30, 2025. The increase of $8.1 million was primarily attributable to the following: ● a $6.2 million increase in personnel costs, including a $3.4 million increase in salary and benefit related expense, primarily due to an increase in headcount to support pre-commercialization efforts, a $3.1 million increase in stock-based compensation expense, and a $0.1 million increase in external contractor expenses and other personnel costs, offset by a $0.4 million decrease in recruiting expense; and 43 Table of Contents ● a $3.9 million increase in legal and professional fees, including consulting, pre-commercialization efforts, audit and tax expenses, primarily attributable to company growth and continued operations as a public company. Acquired In-Process Research and Development Expenses For the six months ended June 30, 2026, acquired IPR&D expenses were $30.0 million, which included $10.0 million, related to the achievement of a milestone under the Xencor Agreement and related to the completion of the FDA marketing authorization submission for obexelimab and $20.0 million, related to the achievement of a Regulatory Milestone under the InnoCare Agreement. The Company did not recognize any acquired IPR&D expenses for the six months ended June 30, 2025. ​ Total Other Income (Expense), Net ​ For the six months ended June 30, 2026, total other income (expense), net was $7.3 million of expense, compared to $6.5 million of income for the six months ended June 30, 2025. The change of $13.8 million is primarily related to an increase in interest expense of $16.9 million related to our royalty obligation, senior secured term loan and convertible senior notes, partially offset by interest income related to higher cash, cash equivalents and investments balances. Liquidity and Capital Resources Overview We have incurred significant operating losses since inception. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates or from other sources until 2027 at the earliest, if at all. As of June 30, 2026, we had $673.9 million in cash, cash equivalents, and investments and we had an accumulated deficit of $957.6 million. Through June 30, 2026, we have funded our operations primarily with gross proceeds of $358.0 million through the sale and issuance of preferred stock and convertible notes, net proceeds from the sale of common stock of $234.3 million after deducting underwriting discounts, commissions and other offering costs from our IPO, $111.8 million, after deducting placement fees and other offering costs from our PIPE offering, $100.1 million, after deducting commissions and other offering costs from our 2025 ATM Program, $330.4 million, after deducting commissions and issuance costs from our current convertible notes and equity offering inclusive of the underwriters’ exercise of the overallotment option in full, as well as $65.0 million from our BMS Agreement, Tenacia Agreement and Zai License Agreement, collectively, $71.3 million after deducting issuance cost, from our Royalty Purchase Agreement and $72.0 million from the first tranche under our debt arrangement with Pharmakon after deducting discounts and issuance costs. Future Funding Requirements: We expect that our available cash, cash equivalents and investments, as of June 30, 2026, will be sufficient to fund our capital and operating expenditures for at least the next twelve months from the date of the issuance of this Quarterly Report on Form 10-Q. We estimate that our existing cash, cash equivalents and investments will be sufficient to fund our projected operations and capital expenditure requirements into 2029. Assuming receipt of the potential $75 million milestone payment from Royalty Pharma combined with the potential $75 million from the senior secured term loan with Pharmakon associated with achieving FDA marketing approval of obexelimab for IgG4-RD, we expect that our cash, cash equivalents and investments will fund our operating expenses and capital expenditure requirements at least through the second quarter of 2029. Our primary uses of capital are, and we expect to continue to be, third-party clinical research and development services, manufacturing costs, pre-commercialization expenses, compensation and related expenses, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and 44 Table of Contents commercialization of our product candidates or whether, or when, we may achieve profitability. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including: ● the scope, timing, progress results and costs of our ongoing clinical studies and other research and development activities associated with the development of our other and future product candidates; ● the costs, timing and outcome of regulatory review of product candidates; ● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, for any product candidates for which we receive marketing approval; ● the costs of establishing and maintaining arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any; ● the costs and timing of manufacturing for obexelimab, orelabrutinib and other product candidates, including commercial manufacturing at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues or component shortages; ● the revenue, if any, received from commercial sale of our products, should any product candidates receive marketing approval; ● the cash requirements of any future acquisitions or discovery of product candidates; ● the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth; ● the cost of implementing operational, financial and management systems; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; ● our ability to establish and maintain collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all; ● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; ● the timing, receipt and amount of sales of, or milestone payments related to or royalties on, current or future product candidates, if any; and ● the costs associated with operating as a public company, including legal, accounting or other expenses in operating our business. A change in the outcome of any of these or other variables with respect to the development of obexelimab, orelabrutinib or any other product candidate could significantly change the costs and timing associated with our operating plans. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. We have no products approved for commercial sale and have not generated any revenues from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financing and additional funding from licenses, strategic alliances and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or 45 Table of Contents make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity. We have incurred losses and cumulative negative cash flows from operations since our inception. We anticipate that we will continue to incur significant losses for at least the next several years. We expect our research and development, and general and administrative expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of the sale of our equity, debt financings, or other sources, including potential collaborations. To the extent that we raise capital through the future sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we enter into debt financing arrangements, if available, they may involve restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business. If we raise additional funds through licenses, strategic alliances or collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. Senior Secured Term Loan In March 2026, the Company entered into the Loan Agreement with the Collateral Agent, BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP, which are funds managed by Pharmakon and the guarantors party thereto. The Loan Agreement provides for up to a $250.0 million Term Loan that matures on March 27, 2031 and consists of five tranches including (1) a Tranche A Loan of $75.0 million drawn March 27, 2026, (2) a Tranche B Loan of $50.0 million which will be required to be drawn (and up to an additional $25.0 million that the Company may elect to draw) by no later than November 1, 2027, subject to the occurrence of the Tranche B/C Approval Condition, (3) a Tranche C Loan of $25.0 million (less any amounts elected to be (and actually) drawn under the Tranche B Loan in excess of $50.0 million) which will be available at the Company’s election, subject to the occurrence of the Tranche B/C Approval Condition, no later than April 28, 2028, (4) a Tranche D Loan of $50.0 million which will be available at the Company’s election no later than October 30, 2028, subject to the occurrence of the Tranche B/C Approval Condition and achievement of certain milestones in respect of certain net sales levels and (5) a Tranche E Loan of $50.0 million which will be available at the Company’s election no later than April 30, 2029, subject to the occurrence of the Tranche B/C Approval Condition and achievement of certain milestones in respect of net sales levels. We received net proceeds of $73.0 million from the draw of the Tranche A Loan after deducting the 2.00% funding fee. As of June 30, 2026, we are in compliance with all covenants under the Loan Agreement. The Term Loan bears interest at a rate based upon an annual interest rate of 3-month secured overnight financing rate (subject to a 3.25% floor) plus 5.75% payable quarterly in arrears; provided that the Company may elect for 100% of the interest for the first 24 months following the Tranche A Loan funding date may be paid-in-kind without an increase in the interest rate. ​ The Company is required to pay a funding fee equal to (i) 2.00% of $50,000,000 of the funding amount of the Tranche B Loan on the funding date for such loan, (ii) 1.00% of any amounts in excess of $50,000,000 of the funding amount for the Tranche B Loan on the funding date for such loan, and (iii) 1.00% of each of the funding amount of the Tranche C Loan, Tranche D Loan, and Tranche E Loan on each respective funding date. The Company may elect to prepay the Term Loans in whole or, subject to certain conditions, in part prior to the Term Loan Maturity Date with such prepayments being subject to certain prepayment, make-whole and exit fees. The Term Loans are subject to certain mandatory prepayments, including a repayment in full of all term loans in four equal payments commencing on September 30, 2028 to the extent the Tranche B/C Approval Condition is not met on or prior to June 30, 2028. 46 Table of Contents The Loan Agreement contains customary affirmative and restrictive covenants, representations and warranties and events of default. We and our subsidiaries are bound by certain affirmative covenants setting forth actions that are required during the term of the Loan Agreement, including, without limitation, certain information delivery requirements (including that consolidated financial statements delivered for and after the fiscal year ending December 31, 2026 are not subject to any qualification as to “going concern” or “scope of audit”), obligations to maintain certain insurance, and certain notice requirements. The Loan Agreement contains customary financial covenants, including (i) at all times prior to the satisfaction of the Tranche B/C Approval Condition, a minimum liquidity requirement and (ii) subject to the outstanding aggregate principal amount of Term Loans advanced under the Loan Agreement being equal to or greater than $200.0 million, a minimum trailing twelve months consolidated net revenue covenant. Additionally, we and our subsidiaries are bound by certain restrictive covenants setting forth actions that are not permitted to be taken during the term of the Loan Agreement, including, without limitation, (i) selling or disposing of assets, (ii) amending, modifying or waiving our rights under material agreements, (iii) consummating change in control transactions unless all amounts becoming due under the Loan Agreement are paid in full immediately upon (and concurrent with) the consummation of any such change in control transaction, (iv) incurring additional indebtedness, (v) incurring non-permitted liens or encumbrances on our or our subsidiaries’ assets, (vi) paying dividends or making any distribution or payment on or redeeming, retiring or purchasing any equity interests, (vii) making payments on subordinated indebtedness and (viii) making investments other than permitted acquisitions and permitted investments, in each case, subject to specified exceptions including, in the case of restrictions on incurrence of additional indebtedness, the ability to incur certain convertible indebtedness and enter into certain permitted royalty financing agreements. The Loan Agreement also contains certain events of default, including the following: (i) failure to pay principal, interest and other amounts when due, (ii) the breach of the covenants under the Loan Agreement, (iii) the occurrence of a material adverse change or a withdrawal event in respect of obexelimab or orelabrutinib, (iv) certain attachments of the credit parties assets and restraints on their business, (v) certain insolvency, liquidation, bankruptcy or similar events, (vi) certain cross-default of third-party indebtedness and royalty revenue contracts, (vii) the failure to pay certain judgements, (viii) material misrepresentations, (ix) the loan documents ceasing to create a valid security interest in a material portion of the collateral, (x) the occurrence of certain ERISA events and (xi) the occurrence of a default under any intercreditor agreement, in each case subject to the grace periods, cure period and thresholds as specified in the Loan Agreement. Upon the occurrence of an event of default, the Lenders may, among other things, accelerate our obligations under the Loan Agreement (including all obligations for principal, interest and any applicable make-whole and prepayment premiums); provided that upon an event of default relating to certain insolvency, liquidation, bankruptcy or similar events, all outstanding obligations will be automatically accelerated. Our obligations under the Loan Agreement are secured by substantially all of our assets, including our intellectual property. Certain of our subsidiaries may, from time to time after the Tranche A Closing Date, be required to guarantee our obligations under the Loan Agreement and, in connection with such guarantee, pledge substantially all of their assets, including intellectual property, to secure such guarantee. Convertible Senior Notes and Equity Follow-on Offering In March 2026, the Company issued an aggregate principal amount of $200.0 million of 2.50% convertible senior notes due 2032 (the “Convertible Notes”) in an underwritten public offering. The Convertible Notes were issued pursuant to, and are governed by, the Base Indenture, dated March 31, 2026, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Concurrently, the Company issued 5,000,000 shares of common stock at a public offering price of $20.00 per share, with gross proceeds of $100.0 million. Additionally, in April 2026, the Company issued (i) an additional $30.0 million of Convertible Notes upon the underwriters’ exercise in full of their over-allotment option for gross proceeds of $30.0 million and (ii) an additional 750,000 shares of common stock upon the exercise in full of the underwriters’ over-allotment option to purchase additional shares for gross proceeds of $15.0 million. The Convertible Notes are general, unsecured, senior obligations of the Company. The Convertible Notes will accrue interest payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2026, at a rate equal to 2.50% per year. The Convertible Notes will mature on April 1, 2032, unless earlier converted, redeemed or repurchased by us. Holders of Convertible Notes will have the right to convert their Convertible Notes in certain circumstances and during specified periods. See Note 6, Long-Term Obligations within the notes to the unaudited condensed consolidated financial statements for additional information. 47 Table of Contents At-the-Market Program In October 2025, we entered into a sales agreement with Jefferies under which we could, from time to time, issue and sell shares of our common stock having aggregate sales proceeds of up to $200.0 million, under the 2025 ATM Program. Pursuant to the sales agreement, shares will be sold under the shelf registration statement on Form S-3 ASR (Registration No. 333-290777), which became automatically effective upon filing on October 8, 2025. Our common stock will be sold at prevailing market prices at the time of the sale; and as a result, prices may vary. For the three months ended June 30, 2026, we did not sell any shares of common stock under the 2025 ATM Program. Since June 30, 2026, we have sold an additional 1,818,181 shares of common stock under the 2025 ATM Program, with proceeds of $48.7 million, net of commissions. As of the issuance date of this Quarterly Report on Form 10-Q, $46.8 million remained available under the 2025 ATM Program. Royalty Pharma Agreement In September 2025, the Company and Royalty Pharma entered into the Royalty Purchase Agreement. Pursuant to the Royalty Purchase Agreement, the Company received a $75.0 million upfront payment in exchange for which Royalty Pharma purchased the right to receive, for each calendar quarter, (i) 5.5% of net sales of obexelimab products sold by the Company and its affiliates worldwide, (ii) 5.5% of net sales of obexelimab products sold by licensees of Zenas and its affiliates in the U.S., the United Kingdom and the European Union, (iii) 25% of royalty income payable to Zenas or any of its affiliates on sales of obexelimab products in countries other than the U.S., the United Kingdom, and in the European Union by its licensees pursuant to out-licenses less royalty payments payable by Zenas to Xencor Inc. and (iv) 25% of non-royalty income attributable to obexelimab products payable to Zenas or any of its affiliates by its licensees (other than certain milestone payments payable by Bristol-Myers Squibb) pursuant to out-licenses and allocated to countries other than the U.S., the United Kingdom and in the European Union. The Royalty Purchase Agreement provides for an additional $225.0 million of payments to be paid to the Company by Royalty Pharma upon the occurrence of certain triggering events which includes (1) $75.0 million payable upon the achievement of certain milestones with respect to Zenas’ INDIGO Phase 3 Trial, noting the Company is not currently eligible for this milestone, (2) $75.0 million payable following receipt of marketing approval for obexelimab from the FDA for the treatment of IgG4-Related Disease on or before a specified date and (3) $75.0 million payable following receipt of marketing approval for obexelimab from the FDA for the treatment of systemic lupus erythematosus on or before a specified date. Cash Flows The following table provides information regarding our cash flows for each of the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2026 ​ 2025 ​ Net cash used in operating activities ​ ​ $ (132,433) ​ ​ $ (78,794) ​ Net cash used in investing activities ​ (256,093) ​ (198,565) ​ Net cash provided by financing activities ​ 475,536 ​ 1,821 ​ Effect of exchange rate changes on cash and cash equivalents ​ (1,074) ​ (288) ​ Net increase (decrease) in cash and cash equivalents ​ $ 85,936 ​ $ (275,826) ​ ​ ​ Net Cash Used in Operating Activities Net cash used in operating activities for the six months ended June 30, 2026 was $132.4 million, and was primarily due to our net loss of $192.4 million, which included non-cash charges principally related to stock-based compensation and interest charges on our agreement with Royalty Pharma. Net changes in our working capital during the three months resulted in a $2.4 million cash outflow. 48 Table of Contents Net cash used in operating activities for the six months ended June 30, 2025 was $78.8 million, and was primarily due to our net loss of $85.8 million, which included non-cash charges principally related to stock-based compensation. Net changes in our working capital during the six months resulted in a $3.7 million cash outflow. Net Cash Used in Investing Activities Net cash used in investing activities for the six months ended June 30, 2026 was $256.1 million and consisted primarily of purchases of investments of $408.3 million and $30.0 million of milestone payments, which included $10.0 million, related to the achievement of a milestone under the Xencor Agreement and $20.0 million, related to the achievement of a Regulatory Milestone under the InnoCare Agreement, partially offset by proceeds from sales and maturities of investments of $182.2 million. Net cash used in investing activities for the six months ended June 30, 2025 was $198.6 million and consisted primarily of purchases of investments of $225.7 million and proceeds from the sale and maturities of investments of $27.1 million. Net Cash Provided by Financing Activities Net cash provided by financing activities for the six months ended June 30, 2026 was $475.5 million, resulting primarily from $223.1 million in net proceeds received in connection with the convertible senior notes offering inclusive of the underwriters’ exercise of the overallotment option in full, $108.1 million and $71.5 million received in net proceeds from the sale and issuance of common stock under a follow-on equity offering inclusive of the underwriters’ exercise of the overallotment option in full and 2025 ATM Program, net of commissions, respectively, and $73.5 million in net proceeds received in connection with the senior secured term loan, net of discounts, offset by $2.5 million of payments related to deferred offering costs and debt issuance costs. Net cash provided by financing activities for the six months ended June 30, 2025 was $1.8 million, resulting from $1.8 million in net proceeds received from the exercise of stock options. Material Cash Requirements for Known Contractual and Other Obligations During the three months ended June 30, 2026, except as disclosed in Note 13 – Commitments and Contingencies, of these unaudited condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Critical Accounting Policies and Significant Judgments and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make judgments, assumptions and estimates that may affect the reported amounts of assets and liabilities, equity, and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reported periods. On an ongoing basis, we evaluate our judgments, assumptions and estimates in light of changes in circumstances, facts and experiences. We base our estimates on historical experience, known trends and events, and various other factors that we believe 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. The effects of material revisions in estimates, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of change in estimates. During the six months ended June 30, 2026, there were no material changes in our critical accounting policies from those described under our “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical 49 Table of Contents Accounting Policies and Significant Judgments and Estimates” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, except for the following: Embedded Derivative Financial Instruments As of March 2026, we entered into a senior secured term loan and issued convertible senior notes, see Note 6, Long – Term Obligations, in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Our evaluation of our debt and equity transactions, consider whether the transaction includes embedded derivatives and whether any embedded derivatives require bifurcation. The evaluation of such features consider whether (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not -remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative would be considered a derivative instrument. We exercise judgment in the evaluation of whether embedded features require bifurcation and the fair value of any features that are bifurcated. Should there be changes in our judgments and related conclusions, it could impact the effective interest expense recorded on our debt obligations, which could materially affect our financial statements. Recent Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies, in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Implications of Being an Emerging Growth Company and Smaller Reporting Company We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold nonbinding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We may take advantage of these exemptions until December 31, 2029 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least twelve months and have filed one Annual Report on Form 10-K) or we issue more than $1.0 billion of nonconvertible debt securities over a three year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions. In addition, the Jumpstart Our Business Startups Act of 2012, as amended (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. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies. We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates following the IPO is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller 50 Table of Contents reporting company if either (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. 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. We may continue to be a smaller reporting company until the fiscal year following the determination that we no longer meet the requirements necessary to be considered a smaller reporting company. However, as of December 31, 2026, we will no longer qualify as an emerging growth company or a “smaller reporting company” as defined under the JOBS Act and Rule 12b-2 of the Exchange Act due to the market value of our common stock held by our non-affiliates as of the last business day of the fiscal quarter ended June 30, 2026, exceeding the applicable threshold for these statuses. Accordingly, while we remain eligible to take advantage of certain reduced disclosure and reporting requirements applicable to these statuses with this Quarterly Report on Form 10-Q, we will no longer be eligible to rely on the reduced disclosures and reporting requirements in future periods beginning in 2027.

Interest Rate Risk We are exposed to interest rate risk in the ordinary course of our business. As of June 30, 2026, we had cash, cash equivalents and investments of $673.9 million. We also have exposure to market risk on our Loan Agreement with Pharmakon. Our Loan Agreement accrues interest from its date of issuance at a variable interest rate equal to 3-month SOFR subject to a 3.25% floor, plus 5.75%. As of June 30, 2026, $75.0 million was outstanding under the Loan Agreement. The effect of a 100 basis points adverse change in market interest rates on our loan payable, in excess of applicable minimum floors, on our interest expense would be approximately $0.8 million. Foreign Currency Exchange Risk Our reporting currency is the U.S. dollar (“USD”). Our functional currency for Zenas BioPharma (HK) Limited, our wholly owned subsidiary in Hong Kong, is the USD, and our functional currency for Shanghai Zenas Biotechnology Co. Limited, our wholly-owned subsidiary in China, is the Chinese Yuan. Our functional currency for Zenas BioPharma GmbH, our wholly-owned subsidiary in Switzerland, is the Swiss Franc. Our functional currency of our wholly-owned subsidiaries, Zenas BioPharma B.V., in the Netherlands and Zenas BioPharma GmbH (Germany), is the Euro. Our functional currency of our wholly-owned U.S. subsidiaries, Zenas BioPharma (USA) LLC and Zenas BioPharma Securities Corp., is the USD. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the functional currency are included in other income (expense), net in the unaudited condensed consolidated statements of operations and comprehensive loss as incurred. Realized foreign currency transaction gains (losses) were immaterial for the three and six months ended June 30, 2026. We do not currently engage in currency hedging activities in order to reduce our currency exposure, but we may begin to do so in the future. Instruments that may be used to hedge future risks may include foreign currency forward and swap contracts. These instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against material foreign currency fluctuations. We do not believe that a hypothetical 10% increase or decrease in exchange rates during any of the periods presented would have had a material impact on our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 51 Table of Contents Effects of Inflation Inflation generally affects us by increasing our cost of labor and clinical trial costs. We believe that inflation has not had a material effect on our business, or on our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm and other factors.

Investors should carefully consider the risks uncertainties and other factors, contained in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, together with the other information contained in this Quarterly Report, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q. The events discussed below may occur and adversely impact our business, financial condition, results of operations and prospects, which may cause the trading price of our common stock to decline. These risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also affect our business. See “Special Note Regarding Forward-Looking Statements.” ​ 52 Table of Contents Risks Related to Government Regulation Significant political, trade, regulatory developments, including changes in relations between the U.S. and China, and other circumstances beyond our control, may adversely impact our business, financial condition, and results of operations. Various political, trade, or regulatory developments have, and could further, adversely affect our business and the results of our operations and financial condition. For example, recent actions and statements by the governments of the U.S. and China, including those relating to the imposition or threatened imposition of tariffs (including tariffs on patented pharmaceutical products), affecting (among others) certain products manufactured in China, have impacted, and may continue to impact, companies like us who import materials and rely on suppliers and other commercial partners with significant operations in China. For example, while we have selected new CMOs in the U.S. to establish additional sources of supply for obexelimab, currently we import from China certain drug substance, drug product and other components, and such imports are subject to existing tariffs and may be impacted by additional tariffs. Currently, many of our suppliers primarily operate outside of the U.S., including our current sole CMO for obexelimab, WuXi Biologics, and our collaboration partner InnoCare for supply of orelabrutinib, which provide services to us from facilities located in China, and increases in tariffs could result in increased costs. As a result, we are subject to risks associated with political, trade, regulatory developments with respect to such countries, and between the U.S. and such countries. Any unfavorable legislation, regulations, executive orders, government policies on cross-border relations and/or international trade, including increased scrutiny on certain of our suppliers with significant China-based operations, capital controls, or tariffs, may have an adverse effect on our business, financial condition, and results of operations. For example, in March and April 2025, the U.S. imposed tariffs on, or increased the tariff rates applicable to, imports from many foreign countries. In response to these tariffs, a number of other countries have threatened or implemented retaliatory tariffs on U.S. goods. Political tensions resulting from trade policies could reduce trade volume, investment, technological exchange and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. In April 2026, the U.S. announced the imposition of tariffs on patented pharmaceutical products, and there can be no guarantee that further retaliatory tariffs will not be forthcoming. Further, supply chain disruptions and delays as a result of tariff policies or trade restrictions could also negatively impact our cost of materials and processes. Such changes in political, trade, regulatory, and economic conditions, including U.S. trade policies, could have a material adverse effect on our financial condition or results of operations. Risks Related to our Indebtedness Servicing our Loan Agreement and the Convertible Notes will require a significant amount of cash, and we may not have sufficient cash flow to pay our indebtedness. Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Loan Agreement and the Convertible Notes, depends on our future performance, which is subject to many factors, including, economic, financial, competitive and others, beyond our control. Additionally, we are liable for the secured obligations pursuant to the Royalty Purchase Agreement. We do not expect our business to be able to generate cash flow from operations in the foreseeable future sufficient to service our debt and make necessary capital expenditures and we may therefore be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance the Loan Agreement, which matures in 2031, as well as the Convertible Notes, will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and limit our flexibility in planning for and reacting to changes in our business. Our indebtedness and liabilities could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things: ● increasing our vulnerability to adverse economic and industry conditions; ● limiting our ability to obtain additional financing on acceptable terms or at all; 53 Table of Contents ● requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes; ● limiting our flexibility to plan for, or react to, changes in our business; ● diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Convertible Notes; and ● placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital. Any of these factors could harm our business, prospects, operating results and financial condition. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness and secured obligations will increase. We may be unable to raise the funds necessary to repurchase the Convertible Notes for cash following a fundamental change or to pay any cash amounts due upon maturity or conversion of the Convertible Notes, and our other indebtedness may limit our ability to repurchase the Convertible Notes or to pay any cash amounts due upon their maturity or conversion. Noteholders may, subject to certain limited exceptions, require us to repurchase their Convertible Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. Upon maturity of the Convertible Notes, we must pay their principal amount and accrued and unpaid interest in cash, unless they have been previously converted, redeemed or repurchased. In addition, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), all conversions of Convertible Notes will be settled partially or entirely in cash. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Convertible Notes or pay any cash amounts due upon their maturity or conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including the Loan Agreement, may restrict our ability to repurchase the Convertible Notes or to pay any cash amounts due upon their maturity or conversion. Our failure to repurchase Convertible Notes or to pay any cash amounts due upon their maturity or conversion when required will constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, including under the Loan Agreement, which may result in that other indebtedness becoming immediately payable in full after any applicable notice or grace periods. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Convertible Notes. The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and results of operations. In the event the conditional conversion feature of the Convertible Notes is triggered, noteholders will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more noteholders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if noteholders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital. The accounting method for the Convertible Notes could adversely affect our reported financial condition and results. The accounting method for reflecting the Convertible Notes on our balance sheet, accruing interest expense for the Convertible Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. 54 Table of Contents In accordance with applicable accounting standards, the Convertible Notes are reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the Convertible Notes, net of issuance costs. The issuance costs will be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Convertible Notes. As a result of this amortization, the interest expense to recognize for the Convertible Notes for accounting purposes will be greater than the cash interest payments we will pay on the Convertible Notes, which will result in lower reported income. In addition, the shares of our common stock underlying the Convertible Notes are reflected in our diluted earnings per share using the “if converted” method. Under that method, if the conversion value of the Convertible Notes exceeds their principal amount for a reporting period, then we will calculate our diluted earnings per share assuming that all of the Convertible Notes were converted at the beginning of the reporting period and that we issued shares of our common stock to settle the excess. The after-tax interest expense associated with the Convertible Notes will not be added back to the numerator of the diluted earnings per share calculation for these purposes. However, if reflecting the Convertible Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Convertible Notes does not exceed their principal amount for a reporting period, then the shares of our common stock underlying the Convertible Notes will not be reflected in our diluted earnings per share. The application of the if-converted method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share. Furthermore, if any of the conditions to the convertibility of the Convertible Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Convertible Notes as a current, rather than a long-term, liability. This reclassification could be required even if no holders of Convertible Notes convert their Convertible Notes and could materially reduce our reported working capital. Conversions of the Convertible Notes could impair our financial position and liquidity. Unless we elect to deliver solely shares of our common stock to settle conversions of the Convertible Notes (other than paying cash in lieu of delivering any fractional share), we must settle at least a portion of our conversion obligation in cash, and therefore, conversions of the Convertible Notes could materially and adversely affect our financial position and liquidity. Before January 1, 2032, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after January 1, 2032, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. See “Description of Notes - Conversion Rights.” However, many of the conditions that permit the conversion of notes before January 1, 2032 are beyond our control. We could be required to expend a significant amount of cash to settle conversions, which could significantly harm our financial position and liquidity.