Results
Alto Neuroscience Inc.
03/16/2026 | Press release | Distributed by Public on 03/16/2026 04:11
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report.
As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis includes forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to those identified below and those set forth in the section titled "Risk Factors" under Part I, Item 1A.
Overview
We are a clinical-stage biopharmaceutical company with a mission to redefine psychiatry by leveraging neurobiology to develop personalized and highly effective treatment options. Through insights derived from our scalable and proprietary Platform, we aim to discover brain-based biomarkers to better identify which patients are more likely to respond to our novel product candidates. Our current pipeline consists of seven clinical-stage assets addressing high-need therapeutic areas, including MDD, BPD, TRD, schizophrenia, and Parkinson's disease.
Our clinical-stage product candidates are being advanced based on extensive preclinical and clinical data that suggest the potential to bring significant improvements to patient populations not adequately treated with current standard-of-care medications.
Our pipeline of clinical-stage product candidates is depicted below:
Since our inception in 2019, we have devoted substantially all of our resources to the research and development of our product candidates by conducting clinical trials and preclinical studies, building our Platform, and recruiting management and technical staff to support these operations. To date, we have funded our operations primarily through the aggregate net
proceeds from equity financings (including from our IPO, our Private Placement (described below), and pre-IPO sales of our convertible preferred stock) and borrowings under our loan and security agreement.
In October 2025, we entered into a Securities Purchase Agreement, or the Purchase Agreement, with certain institutional and other accredited investors, or the Purchasers, pursuant to which we sold and issued to the Purchasers in a private placement transaction, or Private Placement: (i) 3,832,263 shares of our common stock and (ii) with respect to certain Purchasers, pre-funded warrants to purchase 4,622,251 shares of common stock, or Pre-Funded Warrants, in lieu of shares of common stock. The purchase price per share of common stock was $5.9140 per share, or the Purchase Price, and the purchase price for the Pre-Funded Warrants was $5.9139 per Pre-Funded Warrant. The closing of the Private Placement occurred on October 21, 2025. The total gross proceeds to us in the Private Placement were approximately $50.0 million, and, after deducting offering expenses payable by us, net proceeds were approximately $49.7 million.
We have not generated any revenue from product sales and we have incurred recurring losses since our inception. Our net losses were $63.2 million and $61.4 millionfor the years ended December 31, 2025 and2024, respectively. As of December 31, 2025, we had an accumulated deficit of $201.6 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future. We anticipate that our operating expenses and capital expenditures will increase substantially with our ongoing activities, particularly as we:
•continue to progress the clinical development of our product candidates, including ALTO-207 in our planned Phase 2b and Phase 3 clinical trials, ALTO-100 and ALTO-300 in ongoing Phase 2b clinical trials, ALTO-101 in our ongoing Phase 2 POC trial, as well as ALTO-203 and ALTO-208;
•advance additional product candidates through clinical development;
•require the manufacture of larger quantities of our product candidates to support future clinical trials or potential commercialization;
•seek marketing authorizations for any of our product candidates that successfully complete clinical development, if any;
•acquire or license other product candidates or technologies;
•make milestone, royalty, or other payments under any current or future license agreements;
•obtain, maintain, protect, and enforce our intellectual property portfolio;
•seek to attract and retain new and existing skilled personnel; and
•add operational, legal, financial and management information systems and personnel to support our product development and clinical execution, as well as to support our transition to a public company.
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution.
As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval, and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time, if ever, as we can generate substantial revenue from product sales to support our cost structure, we expect to finance our operating activities through a combination of public or private sales of equity, government or private party grants, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all.
If we are unable to obtain funding, we will be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
As of December 31, 2025, we had cash, cash equivalents, and restricted cash of $177.0 million. We believe that our existing cash and cash equivalents, together with the anticipated proceeds under our Convertible Grant Agreement with Wellcome, will be sufficient to fund our operating expenses and capital expenditure requirements into 2028. See "-Liquidity and Capital Resources."
License and Other Agreements
For a detailed description of our license, collaboration, and other agreements, see "Item 1. Business-License and Other Agreements" in this Annual Report.
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates and our platform and technology building efforts, which include:
•personnel expenses, including salaries, benefits, and stock-based compensation expense for our employees engaged in research and development functions;
•expenses incurred in connection with the clinical development of our product candidates, including under agreements with clinical sites and contract research organizations, or CROs;
•fees incurred in connection with license agreements and asset acquisitions;
•costs of manufacturing drug product and drug supply related to our current or future product candidates;
•cost of outside consultants engaged in research and development functions;
•expenses related to regulatory affairs; and
•fees for maintaining licenses and other amounts due under our third-party licensing agreements.
We expense research and development costs in the periods in which they are incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks, using information provided to us by our vendors and analyzing the progress of our clinical trials or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
Research and development activities are central to our business model. We expect our research and development expenses to increase substantially for the foreseeable future as we advance our product candidates into and through later stage clinical trials, pursue regulatory approval of our product candidates, build our operational and commercial capabilities for supplying and marketing our products, if approved, and expand our pipeline of product candidates.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. Furthermore, product candidates in later stages of clinical development 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. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, conduct of clinical trials, investment in our clinical programs, competition, manufacturing capability, and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion of costs of our research and development projects or if, when, and to what extent we will generate revenue from the commercialization and sale of our product candidates, if approved by the FDA and other applicable regulatory authorities.
Our future research and development costs may vary significantly based on factors such as:
•the timing and progress of our clinical development activities;
•the number and scope of preclinical and clinical programs we decide to pursue;
•the amount and timing of any milestone payment due under an existing, or any future, license or collaboration agreement or asset acquisition;
•the number of patients that participate in our clinical trials, and per participant clinical trial costs;
•the number and duration of clinical trials required for approval of our product candidates;
•the number of sites included in our clinical trials, and the locations of those sites;
•delays or difficulties in adding trial sites and enrolling participants in our clinical trials;
•patient drop-out or discontinuation rates;
•potential additional safety monitoring requested by regulatory authorities;
•the phase of development of our product candidates;
•the efficacy and safety profile of our product candidates;
•the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;
•maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;
•changes in the competitive outlook;
•the extent to which we establish additional strategic collaborations or other arrangements; and
•the impact of any business interruptions to our operations or to those of the third parties with whom we work.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
We also expect to incur significant manufacturing costs as our CMOs develop scaled commercial manufacturing processes. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, travel expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we expand our headcount to support our continued research and development of our product candidates. We also expect to incur increased expenses associated with operating as a public company, including costs related to accounting, audit, legal, (including legal costs related to the stockholder litigation described in "Part I, Item 3. Legal Proceedings," above), regulatory, and tax-related services, costs related to compliance with the rules and regulations of the SEC and listing standards applicable to companies listed on a national securities exchange, director and officer insurance costs, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates 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.
Other Income (Expense)
Other income (expense) consists primarily of interest income on our cash and cash equivalents, interest expense on borrowings under our loan and security agreement, loss on debt extinguishment, and non-cash changes in the fair value of our Convertible Grant Agreement with Wellcome (See "- Liquidity and Capital Resources") and our preferred stock warrant liability. In February 2024, in connection with the IPO, the Series A Preferred Stock Warrants were net exercised and settled in common stock and the K2 Warrant was converted into a common stock warrant (see Note 14 to our consolidated financial statements included elsewhere in this Annual Report); as a result, both of these warrants became equity-classified, and are no longer subject to ongoing remeasurement. Therefore, there will be no incremental changes to the fair value of the warrants in future periods.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations for the years ended December 31, 2025and 2024 (in thousands):
|
Year Ended December 31, |
|||||||||||
| 2025 | 2024 | ||||||||||
|
Operating expenses:
|
|||||||||||
|
Research and development
|
$ | 45,619 | $ | 46,996 | |||||||
|
General and administrative
|
20,745 | 21,614 | |||||||||
|
Total operating expenses
|
66,364 | 68,610 | |||||||||
|
Loss from operations
|
(66,364) | (68,610) | |||||||||
|
Other income (expense):
|
|||||||||||
|
Interest income
|
6,603 | 8,851 | |||||||||
|
Interest expense
|
(2,469) | (1,375) | |||||||||
| Loss on debt extinguishment | (681) | - | |||||||||
|
Other, net
|
(327) | (297) | |||||||||
|
Total other income, net
|
3,126 | 7,179 | |||||||||
|
Net loss
|
$ | (63,238) | $ | (61,431) | |||||||
Research and Development Expenses
The following table summarizes our research and development expenses by program for the periods presented (in thousands):
|
Year Ended December 31, |
|||||||||||
| 2025 | 2024 | ||||||||||
|
Direct external program expenses:
|
|||||||||||
|
ALTO-100
|
$ | 5,871 | $ | 7,371 | |||||||
|
ALTO-300
|
4,469 | 6,410 | |||||||||
| ALTO-203 | 1,620 | 3,672 | |||||||||
|
ALTO-101
|
4,978 | 2,798 | |||||||||
|
ALTO-207
|
1,599 | - | |||||||||
|
Other clinical development
|
1,112 | 1,622 | |||||||||
|
Licenses
|
2,973 | 2,064 | |||||||||
|
Internal and unallocated expenses:
|
|||||||||||
|
Personnel-related costs
|
19,548 | 18,935 | |||||||||
|
Other unallocated expenses
|
3,449 | 4,124 | |||||||||
|
Total research and development expenses
|
$ | 45,619 | $ | 46,996 | |||||||
Research and development expenses were $45.6 million for the year ended December 31, 2025, compared to $47.0 million for the year ended December 31, 2024. The decrease of $1.4 million was primarily due to the following:
•a decrease of approximately $1.5 million of clinical development related expenses for ALTO-100, primarily driven by a decrease in expenses related to the completion of our ALTO-100 Phase 2b trial in MDD of $4.6 million, partially offset by an increase in expenses related to our ongoing Phase 2b trial of ALTO-100 in BPD of $3.3 million; and
•a decrease of approximately $4.0 million of clinical development related expenses primarily driven by the completion of our ALTO-203 Phase 2 POC clinical trial as well as timing of enrollment in our ongoing ALTO-300 Phase 2b trial in MDD.
The above decrease in research and development expenses was offset by:
•an increase of approximately $3.8 millionof clinical development related expenses primarily driven by development work on ALTO-207 (which was acquired in 2025) and our Phase 2 POC trial of ALTO-101;
•an increase of approximately $0.9 million in asset acquisition and licensing fees primarily driven by fees related to the Chase asset acquisition during 2025; and
•an increase of approximately $0.6 million in salary and personnel related costs.
General and Administrative Expenses
General and administrative expenses were $20.7 million for the year ended December 31, 2025, compared to $21.6 million for the year ended December 31, 2024. The decrease of $0.9 million during 2025 was primarily due to reduced consulting and professional fees.
Other Income (Expense)
Other income, net was $3.1 million for the year ended December 31, 2025, compared to $7.2 millionfor the year ended December 31, 2024. The decrease was primarily due to a decrease in interest income of $2.2 million, an increase in interest expense of $1.1 million, and an increase of $0.7 millionrelated to debt extinguishment costs ($0.4 million of which was non-cash) for our Amended Term Loan.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. We have not yet commercialized any of our product candidates, which are in various phases of development, and we do not expect to generate revenue from sales of any of our product candidates for several years, if at all. As we progress through the phases of development, we anticipate that we will incur increasing losses in future quarters and years compared to historical periods. To date, we have funded our operations primarily through the aggregate net proceeds from equity financings (including from our IPO, the Private Placement, and pre-IPO sales of our convertible preferred stock) and borrowings under our loan and security agreement.
As of December 31, 2025and December 31, 2024, we had cash, cash equivalents and restricted cash of $177.0 millionand $168.7 million, respectively.
On February 6, 2024, we issued 9,246,000 shares of common stock in our IPO, which included the exercise in full by the underwriters of their option to purchase 1,206,000 additional shares. The price to the public for each share was $16.00. The aggregate net proceeds from our IPO were $133.0 million, after underwriting discounts and commissions and other offering expenses of $4.6 million.
In October 2025, we entered into the Purchase Agreement with the Purchasers pursuant to which we sold and issued to the Purchasers in the Private Placement: (i) 3,832,263 shares of our common stock and (ii) with respect to certain Purchasers, Pre-Funded Warrants to purchase 4,622,251 shares of common stock in lieu of shares of common stock. The Purchase Price was $5.9140 per share and the purchase price for the Pre-Funded Warrants was $5.9139 per Pre-Funded Warrant. The Private Placement closed on October 21, 2025. The total gross proceeds to us in the Private Placement were approximately $50.0 million, and, after deducting offering expenses payable by us, net proceeds were approximately $49.7 million.
Amended Loan and Security Agreement
In December 2022, we entered into the Original Loan Agreement with K2 HealthVentures LLC as a lender, the other lenders party thereto (collectively, the Lenders), K2 HealthVentures LLC, or the Administrative Agent, and Ankura Trust Company, LLC, as collateral agent for the Lender. In January 2025, we entered into the Amended Loan Agreement to, among other things, extend the maturity date of the facility and increase the maximum available amount of term loans. The Amended Loan Agreement provides for term loans, which we refer to collectively as the Term Loan, in an aggregate principal amount of up to $75.0 million consisting of:
•a first tranche term loan of $20.0 million;
•second tranche term loans of up to $30.0 million in the aggregate available at our request until December 15, 2025, subject to certain time-based, clinical milestones; and
•third tranche term loans of up to $25.0 million in the aggregate available at our request subject to the Lender's approval.
We drew $20.0 million upon entry into the Amendment (approximately $10.0 million of which was used to refinance obligations under the Original Loan Agreement and pay fees and expenses incurred in connection with the Amendment). The second tranche term loans, which were tied to the timing of clinical milestones, expired without being drawn.
As of December 31, 2025 and December 31, 2024, we had an outstanding principal balance of $16.0 million and $10.0 million under the Amended Loan Agreement and Original Loan Agreement, respectively.
The Amended Loan Agreement has a Term Loan maturity date of January 1, 2029, or the Amended Term Loan Maturity Date. The Amended Loan Agreement provides for an interest only period until January 1, 2027, following which the Term Loan shall be repaid in equal monthly payments through the Amended Term Loan Maturity Date.
The Term Loan bears interest at (i) a variable per annum cash pay rate equal to the Prime Rate plus 1.45% (subject to a floor of 8.45% per annum) and (ii) a fixed per annum paid-in-kind rate equal to 1.0%. Interest is due and payable monthly in arrears. Upon final payment or prepayment of the Term Loan, the Company is required to pay a final payment equal to 5.95% of the amount borrowed.
We were obligated to pay the Lender a one-time facility fee of $0.3 million upon entry into the Amendment. We are also obligated to pay a funding fee on each third tranche term loan in an amount equal to the sum of 0.5% multiplied by the amount of such third tranche term loan, if and when funded. Our obligation under the Original Loan Agreement to pay the Lender a one-time fee of $0.6 million, or the Original Exit Fee, remains outstanding. We are also obligated to pay a final fee equal to 5.95% of the aggregate amount of the Term Loan funded thereunder, or the Amended Exit Fee, upon the earliest of (i) the Amended Term Loan Maturity Date, (ii) the acceleration of the Term Loan, and (iii) the prepayment of the Term Loan.
We have the option to prepay all, but not less than all, of the Term Loan prior to the Amended Term Loan Maturity Date, which would require that we pay the Lender a prepayment penalty fee based on a percentage of the outstanding principal balance and the funding date of the individual tranches thereunder. As to each such tranche under the Term Loan, such fee shall be equal to 3% if the payment occurs on or before 24 months after the funding date of such tranche, 2% if the prepayment occurs more than 24 months after, but on or before 36 months after the funding date of such tranche, or 1% if the prepayment occurs more than 36 months after the funding date of such tranche. No prepayment penalty fee is required if the applicable tranche is prepaid within six months prior to the Amended Term Loan Maturity Date or refinanced with the Lender.
Following an initial period with no financial covenants, beginning January 1, 2026, we must maintain, at all times, a cash runway of at least five months based upon a trailing three month cash consumption calculation, provided that this covenant will be waived during any period in which our market capitalization exceeds $700.0 million. The Term Loan is secured by substantially all of our assets, excluding intellectual property.
Additionally, under the terms of the Amended Loan Agreement, the Lender may, at its option, elect to convert up to $9.0 million of the then outstanding Term Loan ($4.0 million of which was reflected in the Original Loan Agreement and $5.0 million of which is reflected in the Amendment) into shares of our common stock. On November 17, 2025, the Lender elected to convert $4.0 million of its outstanding loan balance into the Company's common stock. Pursuant to the terms of
the Amended Loan Agreement, the conversion price was $4.83 per share, resulting in the issuance of 828,860 shares. The Lender has the option to convert a remaining $5 million into shares of common stock; the conversion price per share for the remaining option is as follows; $1.0 million at $4.83 and $4.0 million at $10.49 .
Convertible Grant Agreement
In July 2024, we entered into the Convertible Grant Agreement with Wellcome. The Convertible Grant Agreement provides for the Convertible Loan from Wellcome of up to approximately $11.7 million, payable in six tranches. As of December 31, 2025, we had drawn down $2.0 million under the Convertible Grant Agreement, and the remainder will be funded upon draw down of payments following the completion of certain milestones as set forth in the Convertible Grant Agreement, subject to certain conditions described therein, which may or may not be achieved. In addition to the funds that we have drawn down as of December 31, 2025, we have achieved clinical milestones that allow us to draw down an incremental $3.0 million under the Convertible Grant Agreement.
We may use proceeds from the Convertible Loan solely to advance development of ALTO-100 in bipolar depression. In addition, if we do not exploit or develop ALTO-100 (other than for safety or efficacy concerns) within a specified period following the completion of our Phase 2b clinical trial evaluating ALTO-100 in patients with bipolar depression, the Convertible Grant Agreement provides Wellcome with a limited right to exploit ALTO-100, solely in bipolar depression, subject to a revenue share between Wellcome and us of any proceeds arising from Wellcome's exploitation. Outstanding amounts under the Convertible Loan accrue interest at an annual rate equal to the Sterling Overnight Index Rate plus 2%, subject to potential adjustment if such interest rate equals or exceeds 9% at any time. At any time after the second anniversary of the effective date of the Convertible Grant Agreement or in connection with an event of default, Wellcome has the right, at its election, to convert some or all of the Convertible Loan into shares of our common stock at a price per share equal to a 20% discount to the thirty-day volume-weighted average price of Common Stock on the New York Stock Exchange at the date of such conversion. The Convertible Grant Agreement provides that in no event shall the aggregate number of shares of our common stock issued pursuant to conversion of the Convertible Loan exceed 5,363,326, which is equal to 19.9% of the number of shares of our common stock outstanding as of the date of the Convertible Grant Agreement. At any time after the fifth anniversary of the date of the Convertible Grant Agreement or in connection with an event of default, Wellcome may require repayment of the Convertible Loan in full, together with accrued interest, to the extent not converted as described above.
Shelf Registration Statement
On February 3, 2025, we filed a shelf registration statement on Form S-3 with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants and units or any combination thereof up to a total aggregate offering price of $300.0 million.
On February 3, 2025, we also simultaneously entered into a Sales Agreement, or the Sales Agreement, with Leerink Partners LLC, or the Sales Agent, pursuant to which we could issue and sell, from time to time at our discretion, shares of our common stock having an aggregate offering price of up to $75.0 million through or to the Sales Agent. We terminated the Sales Agreement effective as of October 30, 2025. We had not sold any shares of common stock under the Sales Agreement prior to termination.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
|
Year Ended December 31, |
|||||||||||
| 2025 | 2024 | ||||||||||
|
Net cash used in operating activities
|
$ | (51,769) | $ | (47,424) | |||||||
|
Net cash used in investing activities
|
(24) | (2,075) | |||||||||
|
Net cash provided by financing activities
|
60,078 | 135,691 | |||||||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(30) | (11) | |||||||||
|
Net increase in cash, cash equivalents and restricted cash
|
$ | 8,255 | $ | 86,181 | |||||||
Operating activities
Net cash used in operating activities was $51.8 million for the year ended December 31, 2025, as compared to $47.4 million for the year ended December 31, 2024.The increase in cash used was primarily the result of the increase in net loss of $1.8 million. The increase in net loss was offset by:
•increased non-cash expenses including stock-based compensation and debt extinguishment expenses which increased by $0.5 million and $0.7 million, respectively, for the year ended December 31, 2025, compared to the year ended December 31, 2024, and
•a decrease in accrued expenses and other liabilities of $0.3 million in the year ended December 31, 2025 compared to an increase in accrued expenses and other liabilities of $4.0 million in the year ended December 31, 2024, primarily due to the timing of personnel related payments.
Investing activities
Net cash used in investing activities was nominal for the year ended December 31, 2025, as compared to $2.1 million for the year ended December 31, 2024 for corporate and clinical trial related capital expenditures, primarily related to the purchase of EEG machines utilized in our clinical trials.
Financing activities
Net cash provided by financing activities was $60.1 million for the year ended December 31, 2025, primarily related to proceeds from the Private Placement of $50.0 million less fees paid of $0.2 million. Cash provided from financing activities also included: net increases in borrowings under our Amended Loan Agreement of $9.5 million, $0.8 million drawn down under our Convertible Grant Agreement and $0.7 million from the exercise of stock options.
Net cash provided by financing activities was $135.7 millionfor the year ended December 31, 2024, related to the issuance of 9,246,000 shares of common stock in our IPO at a price to the public of $16.00 per share, offset by $3.2 million of other offering expenses related to our IPO that were paid during the year ended December 31, 2024.
Future Funding Requirements
We believe that our existing cash and cash equivalents of $176.5 millionas of December 31, 2025, together with the anticipated proceeds under our Convertible Grant Agreement with Wellcome, will be sufficient to fund our operating expenses and capital expenditure requirements into 2028. This estimate reflects both our prioritization efforts to improve operating efficiency, including reducing headcount in May 2025 which resulted in short-term severance costs, and our re-deployment of long-term savings toward new programs such as ALTO-207 and ALTO-208. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we currently expect.
We will need substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Our future capital requirements will depend on many factors, including:
•the scope, timing, rate of progress, and costs of our clinical trials for our current and any future product candidates;
•the number and scope of clinical programs we decide to pursue;
•the cost, timing, and outcome of preparing for and undergoing regulatory review of our current and any future product candidates;
•the cost and timing of manufacturing our product candidates;
•the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
•the terms and timing of establishing and maintaining collaborations, licenses, and other similar arrangements;
•the timing of any milestone and royalty payments to our existing or future suppliers, collaborators, or licensors;
•our efforts to enhance operational systems and our ability to attract, hire, and retain qualified personnel, including personnel to support the development of our product candidates;
•the costs associated with being a public company;
•the extent to which we acquire or in-license other product candidates and technologies;
•the extent to which we enter into licensing or collaboration arrangements for any of our programs; and
•the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution of our product candidates, if they receive marketing approval.
Until such time, if ever, as we can generate substantial revenue from product sales to support our cost structure, we expect to finance our cash needs through the public or private sale of equity, government or private party grants, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting 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, and may require the issuance of warrants, which could potentially dilute the ownership interests of our stockholders. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings on acceptable terms when needed, we may be required to delay, limit, reduce, or terminate our drug development or future commercialization efforts or grant rights to develop and market our current or any future product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Contractual Obligations and Commitments
In addition to ongoing needs to fund our operations, our material cash requirements as of December 31, 2025consist primarily of obligations under our Amended Loan Agreement, and lease commitment over the next four years.For additional information regarding our Amended Loan Agreement, see "Item 8. Financial Statementsand Supplementary Data- Note 8. Debt". For additional information regarding our lease commitment, see "Item 8. Financial Statements and Supplementary Data- Note 7. Leases".
We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturers and with vendors for preclinical studies and clinical trials, research supplies, and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, we believe that our non-cancelable obligations under these agreements are not material.
In addition, we enter into agreements in the normal course of business with clinical trial sites, CROs, CMOs, and other vendors for research and development services. Such agreements generally provide for termination upon limited written notice. These payments are therefore not included in our contractual obligations discussion above. For additional information regarding our contractual obligations and commitments, see "Item 8. Financial Statements and Supplementary Data- Note 15. Commitments and Contingencies."
We are also party to certain collaboration and license agreements, which contain a number of contractual obligations. Those contractual obligations may entitle us to receive, or may obligate us to make, certain payments. The amount and timing of those payments are unknown or uncertain as we are unable to estimate the timing or likelihood of the events that will obligate those payments. We have milestones, royalties, and/or other payments due to third parties under our existing license agreements. See "Item 1. Business-License and Other Agreements" and "Item 8. Financial Statements and Supplementary Data- Note 10. Asset Purchase and License Agreements." We could not estimate when such payments will be due, and none of these events were probable to occur as of December 31, 2025.
Critical Accounting Policies and Significant Judgments and Estimates
This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis, including those related to accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in our audited consolidated financial statements (see "Item 8. Financial Statementsand Supplementary Data- Note 3. Summary of Significant Accounting Policies"), we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, including our site contracts for sites that are participating in our ongoing clinical studies, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.
Costs incurred in obtaining technology licenses through asset acquisitions or in-licensing arrangements are charged to research and development expense if the acquired technology has not reached technological feasibility and has no alternative future use.
Stock-Based Compensation
We measure the cost of employee, nonemployee, and director services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant and recognize the related expense over the period during which the employee, nonemployee or director is required to provide service in exchange for the award on a straight-line basis.
We estimate the fair value of each award on the date of grant using the Black-Scholes option-pricing model. This model requires the use of highly subjective assumptions to determine the fair value of each stock-based award, including:
•Fair value of common stock. See "-Determination of the Fair Value of Common Stock" below.
•Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The expected term for our stock options was calculated based on the weighted-average vesting term of the awards and the contract period, or simplified method.
•Expected volatility. Since we do not have sufficient trading history to estimate the volatility of our common stock, the expected volatility was estimated based on the average historical volatility of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their size, stage of their life cycle, or area of specialty. We will continue to apply this process until enough historical information regarding the volatility of our stock price becomes available.
•Risk-free interest rate. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options.
•Expected dividend yield. We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
Changes in the foregoing assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Item 8. Financial Statementsand Supplementary Data- Note 11. Stock Based Plans for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the periods presented.
As of December 31, 2025, there was $14.5 millionof unrecognized stock-based compensation expense related to our granted service-based vesting options, which we expect to recognize over a remaining weighted-average period of 2.4 years. In addition, there was $1.0 million of unrecognized stock based compensation related to the stock option repricing which is expected to be recognized over a weighted-average period of 1.0 year.
Determination of the Fair Value of Common Stock
As there was no public market for our common stock prior to our IPO, the estimated fair value of our common stock underlying our stock-based awards historically has been determined by our board of directors as of each option grant date with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. In valuing our common stock, the equity value of the business was determined using the backsolve method, a form of the subject company transaction method, wherein the equity value for a privately held company is derived from a recent transaction in our securities. The value was then allocated using the hybrid method allocation methodology. In accordance with the Practice Aid, we used a hybrid method, which is a hybrid between the option pricing method, or OPM, and the probability-weighted expected return method, or PWERM. The hybrid method is a combination of the PWERM and OPM. The OPM allocates the overall company value to the various share classes based on differences in liquidation preferences, participation rights, dividend policy, and conversion rights, using a series of call options. The call right is valued using a Black-Scholes option pricing model. The PWERM employs additional information not used in the OPM, including various market approach calculations depending upon the likelihood of various discrete future liquidity scenarios, such as an initial public offering or sale of the company, as well as the probability of remaining a private company. In a hybrid method, various exit scenarios are analyzed. A discount for lack of marketability of our common stock was then applied to arrive at an indication of value for the common stock.
In addition to considering the results of these third-party valuations, we considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:
•the prices of our convertible preferred stock sold to or exchanged between outside investors in arm's length transactions, and the rights, preferences and privileges of our convertible preferred stock as compared to those of our common stock, including the liquidation preferences of our convertible preferred stock;
•the progress of our research and development efforts, including the status of preclinical studies and ongoing and planned clinical trials for our product candidates;
•our stage of development and our business strategy, and material risks related to our business;
•external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;
•our financial position, including cash on hand, and our historical and forecasted performance and results of operations;
•the lack of an active public market for our common stock and our convertible preferred stock;
•the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering, or a sale of our company, given prevailing market conditions;
•the achievement of enterprise milestones, including entering into collaboration and license agreements;
•the analysis of initial public offerings and the market performance of similar companies in the biotechnology industry; and
•the economy in general.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we used significantly different estimates and assumptions, our stock-based compensation expense could be materially different. Following the IPO, the fair value of our common stock is determined based on the quoted market price of our common stock on the New York Stock Exchange.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the JOBS Act, and we may remain an emerging growth company for up to five years following the completion of our IPO. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this Annual Report, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
In addition, 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 provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period, and therefore, we are not subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies; however, we may adopt certain new or revised accounting standards early. We would cease to be an "emerging growth company" upon the earliest to occur of: (i) the last day of the fiscal year in which we have $1.235 billion or more in annual revenue; (ii) the date on which we first qualify as a large accelerated filer under the rules of the SEC; (iii) the date on which we have, in any three-year period issued more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of our IPO (December 31, 2029).
We are also a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Off-Balance Sheet Arrangements
In connection with our office lease, we have a standby letter of credit issued on our behalf with $0.5 million available and no amounts outstanding as of December 31, 2025. Since our inception, we have not had any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangement.
Alto Neuroscience Inc. published this content on March 16, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 16, 2026 at 10:11 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]