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Item 7. Management’s Discussion and Analysis

2026-03-05 compared with 2025-03-03 · 54 added, 32 removed, 202 unchanged (30% of the section changed)

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We are a clinical-stage biopharmaceutical company dedicated to the identification, development and commercialization of differentiated medicines to address the unmet medical needs of patients with cancers.

We seek to utilize our team’s deep drug development experience to maximize the potential of our lead development candidate, firmonertinib, and advance a pipeline of novel therapeutics, such as next-generation antibody drug conjugates, through approval and commercialization in patients suffering from cancer, with an initial focus on solid tumors.

Firmonertinib is currently being evaluated in multiple clinical trials across a range of EGFRm in NSCLC, including a pivotal Phase 3 clinical trial in treatment naive, or first-line, patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations.

We received Breakthrough Therapy Designation for firmonertinib for this disease from the FDA in October 2023, and Orphan Drug Designation for treatment of NSCLC with EGFRm or HER2 mutations or HER4 mutations in February 2024.

A product candidate can receive Breakthrough Therapy Designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for development.

The receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and does not increase the likelihood that the product candidate will ultimately receive FDA approval for any indication.

We seek to utilize our team’s deep drug development experience to maximize the potential of our lead product candidate, firmonertinib, and advance a pipeline of novel therapeutics, such as next-generation antibody drug conjugates, including ARR-217 (MRG007) through approval and commercialization in patients suffering from cancer, with an initial focus on solid tumors.

Firmonertinib is currently being evaluated in multiple clinical trials across a range of EGFRm in NSCLC.

We are conducting a pivotal Phase 3 clinical trial of firmonertinib in treatment naive, or first-line, patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations and a pivotal Phase 3 clinical trial of

firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with PACC mutations.

We are also conducting a Phase 1 clinical trial of ARR-217 in patients with unresectable locally advanced or metastatic solid tumors.

We received Breakthrough Therapy Designation for firmonertinib for first line EGFRm NSCLC with exon 20 insertion from the FDA in October 2023, and Orphan Drug Designation for treatment of NSCLC with EGFRm or HER2 mutations or HER4 mutations in February 2024.

A product candidate can receive BTD if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for development although BTD may not result in a faster development process, review or approval and does not increase the likelihood that the product candidate will ultimately receive FDA approval for any indication.

In 2021, we licensed from Allist the right to develop and commercialize firmonertinib worldwide, with the exception of greater China, which includes mainland China, Hong Kong, Macau and Taiwan.

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The FDA has not approved firmonertinib for any use.

We selected firmonertinib for global development against nonclassical, or uncommon, mutations based on preliminary reductions in tumor size observed in seven out of ten patients in first-line treatment with EGFR exon 20 insertion mutations in the ongoing Phase 1b clinical trial, the FAVOUR trial, conducted by Allist in China, and preclinical activity in PACC mutations, each a subtype of uncommon mutation.

We selected firmonertinib for global development against nonclassical, or uncommon, mutations based on preliminary reductions in tumor size observed in seven out of ten patients with EGFR exon 20 insertion mutations treated with firmonertinib in the ongoing Phase 1b clinical trial, the FAVOUR trial, conducted by Allist in China, and preclinical activity in PACC mutations, each a subtype of uncommon mutation.

In a subsequent interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations who were administered a 240 mg once-daily dose of firmonertinib, 79% of patients (n=22 out of 28 patients) were observed to experience a reduction in tumor size of at least 30%.

In a final analysis from the Phase 1B FURTHER trial of firmonertinib, which included a cohort of EGFRm NSCLC with PACC mutations, we observed 16.0 months mPFS with firmonertinib 240 mg in first-line, cORR 68.2% (n=15 out of 22 1L patients at 240 mg) and DOR 14.6 months, and confirmed CNS responses with firmonertinib including CRs.

As one of the most prevalent cancers in the world, lung cancer imposes a significant global burden on human health, and EGFRm NSCLC represents a significant proportion of those affected.

Despite progress in the therapeutic landscape for EGFRm NSCLC, many patients, particularly those with uncommon mutations, such as exon 20 insertions or PACC mutations, are underserved by existing treatments.

In an interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients

(n=22 out of 28 patients) who were administered a 240 mg once-daily dose of firmonertinib were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by RECIST 1.1 criteria.

In an interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients (n=22 out of 28 patients) who were administered a 240 mg once-daily dose of firmonertinib were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by RECIST 1.1 criteria.

This measurement of reduction is the threshold in this trial for a partial response and for inclusion in determination of the ORR, which is the primary endpoint of this trial.

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Under the Allist License Agreement, we are obligated to pay Allist milestone payments up to an aggregate of $765.0 million upon the achievement of certain development, regulatory and sales milestone events as set forth in the Allist License Agreement.

During the year ended December 31, 2023, we paid $5.0 million in clinical milestones to Allist.

We are also obligated under the Allist License Agreement to pay Allist tiered royalties based on net sales of Licensed Products.

See “Business — Licenses, Partnerships and Collaborations — Allist Agreements.” We have entered into the Lepu Biopharma Agreement, pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Lepu Biopharma to develop and commercialize any product containing ARR-217 or the antibody component of ARR-217.

During the year ended December 31, 2025, we incurred $5.0 million in clinical milestones to Allist.

We are also obligated under the Allist License Agreement to pay Allist tiered royalties based on net sales of Licensed Products (as defined in the Allist License Agreement).

See “Business — Licenses, Partnerships and Collaborations — Allist Agreements.”

We have entered into the Lepu Biopharma Agreement, pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Lepu Biopharma to develop and commercialize any product containing ARR-217 or the antibody component of ARR-217.

Further, we are obligated to pay Lepu Biopharma milestone payments up to an aggregate of approximately $1.17 billion upon the achievement of certain development, regulatory and sales milestone events as set forth in the Lepu Biopharma Agreement, as defined herein.

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We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.

We have funded our operations to date primarily through the private placement of convertible preferred stock and through our initial public offering of common stock.

We have funded our operations to date primarily through the private placement of convertible preferred stock and through our initial public offering of common stock in January 2024, our “at-the-market” offering, and our underwritten public offering of common stock and pre-funded warrants to purchase common stock in July 2025.

We have incurred significant operating losses since our inception and have not yet generated any revenue.

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We anticipate these losses will increase substantially as we:

● advance our lead product candidate, firmonertinib, through clinical trials;

● advance our product candidates through clinical trials;

● acquire or in-license additional product candidates;

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However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Key Components of Our Results of Operations

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We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of product candidates due to the inherently unpredictable nature of preclinical and clinical development.

Clinical and preclinical development timelines, the probability of success and development costs can differ

materially from expectations.

Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.

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Research and Development

We track outsourced clinical and preclinical costs and other external research and development costs associated with our lead product candidate, firmonertinib, and other discovery-stage programs.

We do not track internal research and development costs by product candidate.

We track outsourced clinical and preclinical costs and other external research and development costs associated with our lead product candidate, firmonertinib, and other early-stage programs.

We do not track internal research and

development costs by product candidate.

The following table summarizes our research and development expenses for the years ended December 31, 2025 and 2024:

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Total Firmonertinib

Discovery-stage programs

Early-stage programs

Personnel-related and other internal costs

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The increase of $74.3 million was primarily due to an increase of $44.5 million in preclinical discovery work, and a $13.1 million increase due to higher personnel-related costs due to increased headcount.

Costs related to firmonertinib increased $0.4 million as a result of increased costs related to our FURVENT Phase 3 clinical trial of $8.2 million, offset by a decrease of $6.6 million in costs related to our FURTHER Phase 1 clinical trial, and a decrease of $1.1 million in costs related to our FAVOUR trial.

Cost increases related to early-stage programs were largely due to a $40.0 million one-time up front payment pursuant to our collaboration with Lepu.

Costs related to firmonertinib increased $16.7 million as a result of increased costs related to our FURVENT Phase 3 clinical trial of $14.6 million, $4.4 million for general firmonertinib costs, and $0.1 million for our FAVOUR trial, offset by a decrease of $2.4 million in costs related to our FURTHER Phase 1 clinical trial.

General and Administrative

General and administrative expenses were $24.2 million and $15.3 million for the years ended December 31, 2025 and 2024, respectively.

The increase of $5.6 million was due primarily to increases of $3.0 million in personnel-related expenses, $1.0 million in insurance costs, and $1.6 million in professional services and other corporate expenses.

The increase of $8.9 million was due primarily to increases of $7.3 million in personnel-related expenses, $1.8 million in professional services and infrastructure costs, offset by $0.2 million in general corporate expenses.

Interest and Investment Income

Interest and investment income was $11.2 million and $13.8 million for the years ended December 31, 2025 and 2024, respectively.

The increase is due to higher rates of return on higher invested balances year-over-year.

The decrease is due to lower rates of return on lower invested balances year-over-year.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations primarily through the private placement of convertible preferred stock and the issuance of common stock in our initial public offering.

We have funded our operations primarily through the private placement of convertible preferred stock our initial public offering of common stock, our “at-the-market” offering, and our underwritten public offering of common stock and pre-funded warrants to purchase common stock in July 2025.

We have raised gross proceeds of $305.0 million from the issuance of convertible preferred stock since our inception through December 31, 2025.

In the first quarter of 2024, we completed our initial public offering of 11,180,555 shares of our common stock at a price to the public of $18.00 per share, including the exercise in full by the underwriters of their option to purchase 1,458,333 additional shares of our common stock.

Additionally, in the first quarter of 2024, we completed our initial public offering of 11,180,555 shares of our common stock at a price to the public of $18.00 per share, including the exercise in full by the underwriters of their option to purchase 1,458,333 additional shares of our common stock.

Including the option exercise, our aggregate net proceeds from the offering were $183.2 million, net of underwriting discounts, commissions and offering costs.

As of December 31, 2025, we had cash and cash equivalents, and short and long-term investments of $312.8 million in the aggregate.

On February 3, 2025, we filed an automatic shelf registration statement on Form S-3ASR (File No.

333-284661) with the SEC.

The shelf registration statement consists of (i) a base prospectus pursuant to which we may offer and sell, from time to time, shares of our common stock, shares of our preferred stock, various series of debt securities, warrants, rights, and/or units to purchase any of such securities in one or more registered offerings, and (ii) a prospectus supplement pursuant to which we may offer and sell, from time to time, up to $250 million of shares of common stock in “at-the-market” offerings.

During the year ended December 31, 2025, we sold 5,560,266 shares of common stock

pursuant to our Open Market Sale Agreement SM with Jefferies LLC (ATM Program) for total proceeds of $122.2 million, net of commissions and other expenses.

As of December 31, 2025, we have approximately $123.3 million remaining for future issuances of common stock pursuant to the ATM Program.

There has been no material change in the planned use of proceeds as described in the shelf registration statement.

None of the offering expenses were paid or payable, directly, or indirectly, to our directors, officers, or persons owning 10% or more of any class of equity securities or to our affiliates.

In May 2025, we entered into a $75 million loan and security agreement with Silicon Valley Bank (Loan Agreement), a division of First Citizens Bank & Trust Company.

The credit facility provides the right, but not the obligation, to draw up to $75 million of capital, of which $40 million will be available if certain conditions and milestones are met.

In March 2026, we entered into an amendment of the Loan Agreement in which such conditions and milestones were amended.

No amounts have been drawn on this facility as of the date of this report.

On July 3, 2025, we closed an underwritten public offering (the July 2025 Offering) in which we issued and sold an aggregate of 3,059,615 shares of our common stock, including the exercise in full of the underwriters’ option to purchase 576,923 additional shares of common stock, at a public offering price of $19.50 per share, and, in lieu of shares of common stock to certain investors, pre-funded warrants to purchase up to 1,363,469 shares of common stock at a public offering price of $19.4999 per pre-funded warrant, which represents the per share public offering price for the shares less the $0.0001 per share exercise price for each pre-funded warrant.

The proceeds to us, net of underwriting discounts, commissions, and other expenses, were $80.5 million.

Future Funding Requirements

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Financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Operating Activities

Net cash used in operating activities was $70.2 million for the year ended December 31, 2024 reflecting our net loss of $80.5 million that was offset by $3.2 million in stock-based compensation and a $7.1 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Net cash used in operating activities was $55.8 million for the year ended December 31, 2023 reflecting our net loss of $69.3 million that was offset by $0.9 million in stock-based compensation and a $12.6 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Net cash used in operating activities was $160.6 million for the year ended December 31, 2025 reflecting our net loss of $166.3 million, $3.0 million of amortization and accretion of discounts and premiums, and a $3.8 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

These were offset by $12.5 million in stock-based compensation.

operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2025 included $272.9 million of purchases of short and long-term investments, offset by $201.7 million of maturities of short-term investments.

Net cash used in investing activities for the year ended December 31, 2024 included $194.2 million of purchases of short and long-term investments, offset by $1.7 million of maturities of investments.

Net cash used in investing activities for the year ended December 31, 2023 included $25.0 million of purchases of short-term investments, offset by $25.0 million of maturities of short-term investments.

Financing Activities

Net cash provided by financing activities was $203.1 million for the year ended December 31, 2025, due to $80.5 million of net proceeds from our July 2025 offering and $122.2 million in net proceeds from the issuance of shares under the “at-the-market” program.

There were also $0.5 million of proceeds from the exercise of stock options.

Net cash provided by financing activities was $186.6 million for the year ended December 31, 2024, due to $186.0 million of net proceeds from our initial public offering in January 2024, in addition to $0.6 million in proceeds from the exercise of stock options.

Net cash provided by financing activities was $42.9 million for the year ended December 31, 2023, due to $44.9 million of net proceeds from the issuance of Series B convertible preferred stock and $0.4 million of proceeds from the exercise of stock options offset by a $2.4 million payment of deferred offering costs.

Contractual Obligations and Commitments

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We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our initial public offering , (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if, among other factors, the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the

second fiscal quarter of such year (subject to certain conditions), or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

total annual gross revenue of at least $1.235 billion, (iii) the day on which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a smaller reporting company as defined in the Exchange Act.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis