What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-11 compared with 2026-05-07 · 60 added, 36 removed, 150 unchanged (39% of the section changed)

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The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2025 included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 11, 2026 (the “Annual Report”).

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These statements include, but are not limited to, expectations regarding our strategy, business plans, financial performance and developments relating to our industry.

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We also entered into partnerships with three large-scale contract development and manufacturing organizations (“CDMOs”) to evaluate our ECO platform of enzymatic tools and processes to ultimately synthesize GMP -grade siRNA drug substance for our customers.

In each of these agreements, we are currently in the feasibility testing stage and expect to advance at least one of these partnerships, including initiating a technology transfer to that organization, in 2026.

Under each of these agreements, we have conducted technology transfer to several partners in 2026 for further evaluation of the technology.

We believe these relationships to be a vital extension of our strategy to be a technology solutions provider for our customers.

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We expect to expand our enzymatic tools and process offerings as we further enhance the ECO Synthesis platform to address the overall market needs for scalable and sustainable RNAi manufacturing.

In November 2025, we signed a lease for a 34,000-square-foot GMP manufacturing facility in Hayward, California, which we refer to as our ECO GMP Manufacturing Center.

The multi-purpose facility is designed to expand our internal capabilities into GMP manufacturing of siRNA and other oligonucleotides using our ECO Synthesis manufacturing platform, and its flexible design is also intended to support production of purified enzymes used in the ECO Synthesis process.

We applied for a building permit during the second quarter of 2026 and expect to commence retrofit construction during the second half of 2026.

We expect the facility to support customers’ early clinical trial supply requirements.

Our CDMO partnerships and the ECO GMP Manufacturing Center are complementary elements of our strategy:

the ECO GMP Manufacturing Center is intended to serve early clinical-stage supply, while our CDMO partners are intended to provide large-scale commercial manufacturing capacity.

Small molecule pharma biocatalysis

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The following table shows the amounts from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

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Revenues are as follows (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

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Considering these industry practices and our experience, we do not believe the total of customer purchase orders outstanding (backlog) provides meaningful information that can be relied on to predict actual sales for future periods.

Total revenues increased by $7.7 million to $15.2 million in the three months ended March 31, 2026 compared to the same period in 2025.

Product revenue increased by $1.1 million to $7.2 million in the three months ended March 31, 2026 compared to the same period in 2025, primarily due to variability in manufacturing schedules and timing in clinical trial progression of our customers, which impacted order volumes for our enzyme products.

Research and development revenue increased by $6.6 million to $8.1 million in the three months ended March 31, 2026 compared to the same period in 2025 primarily due to the recognition of $6.3 million of deferred revenue related to our licensing agreement with Merck entered into during the fourth quarter of 2025 following the satisfaction of the remaining performance obligations, and $0.3 million revenue related to ECO Synthesis evaluation services.

Total revenues decreased by $0.4 million to $14.9 million in the three months ended June 30, 2026 compared to the same period in 2025, primarily due to lower research and development revenue partially offset by higher product revenue in the current period.

Total revenues increased by $7.3 million to $30.2 million in the six months ended June 30, 2026 compared to the same period in 2025, primarily due to higher product revenue.

Product revenue increased by $5.8 million to $13.2 million in the three months ended June 30, 2026 compared to the same period in 2025, primarily due to $1.7 million higher sales of enzymes used in commercial pharmaceutical manufacturing and $4.1 million higher sales of enzymes for use in clinical-stage manufacturing and process development activities.

Product revenue increased by $7.0 million to $20.4 million in the six months ended June 30, 2026 compared to the same period in 2025, primarily due to $1.8 million higher sales of enzymes used in commercial pharmaceutical manufacturing and $5.2 million higher sales of enzymes for use in clinical-stage manufacturing and process development activities.

Our product revenue fluctuates from period to period due to variability in our customers’ manufacturing schedules and the timing of their clinical trial progression and receipt of their product approvals, which affects order volumes for our enzyme products.

Research and development revenue decreased by $6.3 million to $1.7 million in the three months ended June 30, 2026 compared to the same period in 2025, primarily due to the recognition of $4.7 million of milestone revenue from legacy collaboration agreements and $2.5 million of revenue from a licensing agreement in the second quarter of 2025 that did not reoccur in the current period.

The decrease was partially offset by $0.9 million in higher revenue from existing and legacy agreements in the current period .

Research and development revenue increased by $0.3 million to $9.8 million in the six months ended June 30, 2026 compared to the same period in 2025, primarily due to the recognition of $6.3 million of license revenue previously recorded as deferred revenue as of December 31, 2025, $0.7 million of revenue recognized related to ECO Synthesis evaluation services, and $1.0 million of higher revenue from existing and legacy agreements.

The increase was partially offset by the non-recurrence of $4.7 million of milestone revenue and $3.0 million of licensing revenue recognized in 2025.

Costs and Operating Expenses

The following table shows the amounts of our cost of product revenue, research and development expense, selling, general and administrative expense from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

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The following table shows the amounts of our product revenue, cost of product revenue, product gross profit and product gross margin from our unaudited condensed consolidated statements of operations for the periods presented (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

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Product gross margin (%) (2)

73 % 72 % 73 % 64 %

(1) Cost of product revenue consists of both internal and third-party fixed and variable costs, including materials and supplies, labor, facilities and other over head costs associated with our product revenue.

(2) Product gross margin is used as a performance measure to provide additional information regarding our results of operations on a consolidated basis.

Cost of product revenue decreased by $0.7 million in the three months ended March 31, 2026, compared to the same period in 2025.

Product gross margin was 71% in the three months ended March 31, 2026, compared to 55% in the corresponding period in 2025.

Cost of product revenue increased by $1.4 million and $0.7 million in the three and six months ended June 30, 2026, respectively, compared to the same period in 2025.

Product gross margin was 73% and 73% in the three and six months ended June 30, 2026, respectively, compared to 72% and 64% in the corresponding period in 2025.

The changes in cost of product revenue and product gross margins are primarily due to a shift in sales toward more profitable products, and declines in less profitable legacy products.

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Research and development expenses are expensed when incurred.

Research and development expenses decreased by $1.5 million in the three months ended March 31, 2026 compared to the same period in 2025 primarily due to $2.3 million in lower allocable costs, partially offset by $0.3 million increase in employee-related costs, $0.2 million increase from higher use of outside services, $0.1 million increase in lease and facilities costs, and $0.1 million increase in depreciation expense of facilities and laboratory equipment.

Research and development expenses decreased by $2.1 million in the three months ended June 30, 2026 compared to the same period in 2025 primarily due to $1.6 million decrease in employee-related costs due to lower headcount, $0.3 million decrease from lower use of outside services, $0.3 million in lower lab supplies, $0.1 million decrease in depreciation expense, and $0.1 million decrease in stock-based compensation expense, partially offset by $0.2 million in higher allocable costs.

The decrease in research and development expenses of $3.6 million in the six months ended June 30, 2026, compared to the same period in 2025 , was primarily due to $3.0 million decrease in employee-related costs, $0.3 million in lower consulting and outside services, $0.3 million decrease in stock-based compensation expense, and $0.2 million in lower lab supplies, partially offset by $0.2 million in higher allocable costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of employee-related costs, which include salaries and other personnel-related expenses (including stock-based compensation), hiring and training costs, consulting and outside services expenses (including audit and legal counsel-related costs), marketing costs, various allocable expenses, which include occupancy-related costs, depreciation expenses and amortization expenses.

Selling, general and administrative expenses decreased by $2.6 million during the three months ended March 31, 2026, compared to the same period in 2025 primarily due to $3.1 million decrease in employee-related costs due to lower headcount, $0.3 million in lower consulting and outside services, $0.5 million in lower legal costs, $1.0 million in lower stock-based compensation expenses, partially offset by a $2.3 million increase in higher allocable costs.

Selling, general and administrative expenses decreased by $1.4 million during the three months ended June 30, 2026, compared to the same period in 2025 primarily due to $0.8 million in lower stock-based compensation expenses, $0.6 million decrease in employee-related costs due to lower headcount, $0.2 million decrease in allocable costs and $0.1 million in lower consulting and outside services, partially offset by $0.2 million increase in facilities associated costs.

The decrease in selling, general and administrative expenses of $4.0 million during the six months ended June 30, 2026 as compared to the same period in 2025 , was primarily due to $2.0 million in lower employee-related costs, $1.6 million decrease in stock-based compensation expense, $0.5 million in lower legal costs, $0.2 million decrease in consulting and outside services and $0.2 million in lower allocable costs, partially offset by a $0.4 million increase in facilities associated costs.

Interest Income and Interest and Other Expense, net (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

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Interest Income

Interest income slightly decreased by $0.1 million in the three months ended March 31, 2026, compared to the same period in 2025, primarily due to lower short-term investments balance.

Interest income remained relatively consistent during the three and six months ended June 30, 2026, compared to the same period in 2025, reflecting comparable average balances of cash, cash equivalents and short-term investments.

Interest and Other Expense, net

Interest and other expense, net increased by $0.3 million in the three months ended March 31, 2026, compared to the same period in 2025, primarily due to higher interest related to long-term debt due to the funding of the second tranche of the Innovatus Loan in June 2025.

Interest and other expense, net increased by $0.3 million and $0.7 million in the three and six months ended June 30, 2026, respectively, compared to the same period in 2025, primarily due to higher interest related to long-term debt due to the funding of the second tranche of the Innovatus Loan in June 2025.

Provision for Income Taxes (in thousands, except percentages):

Three Months Ended March 31, Change

Three Months Ended June 30, Change Six Months Ended June 30, Change

2026 2025 $ % 2026 2025 $ %

Provision for income taxes $ 10 $ 10 $ — — % $ 46 $ 21 $ 25 119 %

The provision for income taxes for the three months ended March 31, 2026 was primarily due to income taxes imposed by foreign taxing authorities related to the ongoing liquidation of our Indian subsidiary.

The provision for income taxes for the three months ended March 31, 2025 was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended March 31, 2026 was $8.7 million, or a net loss per basic and diluted share of $0.10.

This compared to a net loss of $20.7 million, or a net loss per basic and diluted share of $0.25, for the three months ended March 31, 2025.

The decrease in net loss was primarily related to $7.7 million higher revenue and $4.7 million lower costs and operating expenses.

The provision for income taxes for the three and six months ended June 30, 2026 was primarily due to income taxes imposed by foreign taxing authorities related to the ongoing liquidation of our Indian subsidiary and accrual of interest and penalties on historic uncertain tax positions.

The provision for income taxes for the three and six months ended June 30, 2025 was primarily due to the accrual of interest and penalties on historic uncertain tax positions.

Net loss for the three months ended June 30, 2026 was $12.0 million, or a net loss per basic and diluted share of $0.13.

This compared to a net loss of $13.3 million, or a net loss per basic and diluted share of $0.16, for the three months ended June 30, 2025.

The decrease in net loss was primarily related to $2.0 million lower costs and operating expenses in 2026.

Net loss for the six months ended June 30, 2026 was $20.7 million, or a net loss per basic and diluted share of $0.23.

This compared to a net loss of $34.0 million, or a net loss per basic and diluted share of $0.40, for the six months ended June 30, 2025.

The decrease in net loss was primarily related to higher revenue and lower costs and operating expenses in 2026.

LIQUIDITY AND CAPITAL RESOURCES

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Our cash and cash equivalents are held in U.S.

Our primary uses of capital for the foreseeable future, including the next 12 months, are for compensation and related expenses, research and development expenses including manufacturing costs, laboratory and related supplies, legal and other outside services, and general overhead costs.

The following summarizes our cash and cash equivalents and short-term investments balances and working capital as of March 31, 2026 and December 31, 2025 (in thousands):

March 31, 2026 December 31, 2025

The following summarizes our cash and cash equivalents and short-term investments balances and working capital as of June 30, 2026 and December 31, 2025 (in thousands):

June 30, 2026 December 31, 2025

Cash and cash equivalents $ 27,172 $ 50,793

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Our largest uses of cash from operating activities are for employee-related expenditures, rent payments, inventory purchases to support our product sales and non-payroll research and development costs.

In addition, we expect capital expenditures to increase as we continue investments in our new manufacturing facility, including facility improvements and equipment purchases necessary to support future operations.

Loan Agreement and Term Loans

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The Term Loan carries an interest-only period of 36 months (with the possibility to extend up to 48 months upon achievement of certain pre-specified financial milestones) and will bear interest at a floating rate of the sum of (a) the greater of (i) prime rate and (ii) 7.50% , plus (b) 3.25% .

As of March 31, 2026, we were in compliance with all covenants of the Loan Agreement.

As of June 30, 2026, we were in compliance with all covenants of the Loan Agreement.

Sales Agreements

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In 2025, 7,244,966 shares of our common stock were issued and sold pursuant to the Cantor Sales Agreement, all during the second quarter of 2025, and we received $16.4 million in net proceeds after Cantor’s commissions and direct offering expenses.

As of March 31, 2026, $26.4 million of shares remained available for sale under the Cantor Sales Agreement.

As of June 30, 2026, $26.4 million remained available for sale under the Cantor Sales Agreement.

Sales of our common stock under the Cantor Sales Agreement could be subject to business, economic or competitive unce rtainties and contingencies, many of which may be beyond our control, and which could cause actual results from the sale of our common stock to differ materially from expectations.

Public Offering

On July 23, 2026, we entered into an underwriting agreement for an underwritten public offering of 16,666,667 shares of our common stock at a public offering price of $1.50 per share, less underwriting discounts and commissions.

The underwriters were granted a 30-day option to purchase up to an additional 2,500,000 shares.

The offering closed on July 27, 2026, and we received net proceeds of approximately $23.1 million after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company.

On July 29, 2026, the underwriters partially exercised their option and purchased an additional 1,333,333 shares of common stock at the public offering price of $1.50 per share, less underwriting discounts and commissions.

We believe that our existing cash and cash equivalents, combined with our future expectations for product revenues, research and development revenue, and expense management will provide adequate funds for planned ongoing operations, capital expenditures and working capital requirement s for at least the next 12 months.

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If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.

The following is a summary of cash flows for the three months ended March 31, 2026 and 2025 (in thousands):

Three Months Ended March 31,

The following is a summary of cash flows for the six months ended June 30, 2026 and 2025 (in thousands):

Six Months Ended June 30,

Net cash used in operating activities $ (22,793) $ (31,765)

Net cash provided by (used in) investing activities (1,111) 11,769

Net cash provided by (used in) financing activities (14) 1,085

Net decrease in cash, cash equivalents and restricted cash $ (14,275) $ (944)

Net cash (used in) provided by investing activities (936) 11,402

Net cash provided by financing activities 52 27,859

Net (decrease) increase in cash, cash equivalents and restricted cash $ (23,677) $ 7,496

Cash Flows from Operating Activities

The $0.6 million decrease in net cash used in operating activities for the three months ended March 31, 2026 as compared to the same period in 2025, was primarily due to smaller net operating loss driven by higher revenue and lower operating expenses, including decreased employee-related costs resulting from the reduction in force implemented in the fourth quarter of 2025, as well as lower spending on outside services.

The $9.0 million decrease in net cash used in operating activities for the six months ended June 30, 2026 as compared to the same period in 2025, was primarily due to smaller net operating loss driven by higher revenue and lower operating expenses, including decreased employee-related costs resulting from the reduction in force implemented in the fourth quarter of 2025, as well as lower spending on outside services.

Cash Flows from Investing Activities

The $12.9 million decrease in net cash provided by investing activities for the three months ended March 31, 2026 as compared to the same period in 2025, was primarily due to higher purchases of short-term investments and lower proceeds from maturities of short-term investments in the current period, partially offset by reduced capital expenditures.

The $12.3 million decrease in net cash provided by investing activities for the six months ended June 30, 2026 as compared to the same period in 2025, was primarily due to higher purchases of short-term investments and lower proceeds from maturities of short-term investments in the current period, partially offset by reduced capital expenditures.

Cash Flows from Financing Activities

The $1.1 million decrease in net cash provided by financing activities for the three months ended March 31, 2026 as compared to the same period in 2025, was primarily due to the absence of proceeds from employee stock option exercises in the current period.

The $27.8 million decrease in net cash provided by financing activities for the six months ended June 30, 2026 as compared to the same period in 2025, was primarily due to the absence of proceeds from issuance of common stock in connection with an equity sales agreement and proceeds from long term debt in the current period.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Actual results could differ from those estimates.

There have been no material changes to our critical accounting policies or estimates during the three months ended March 31, 2026 from those discussed in our Annual Report.

There have been no material changes to our critical accounting policies or estimates during the three and six months ended June 30, 2026 from those discussed in our Annual Report.

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-Q

Item 2. Management’s Discussion and Analysis