ARS Pharmaceuticals, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 121 Consolidated Balance Sheets 122 Consolidated Statements of Operations and Comprehensive Income (Loss) 123 Consolidated Statements of Stockholders’ Equity 124 Consolidated Statements of Cash Flows 125 Notes to Consolidated Financial Statements 126 120 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of ARS Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ARS Pharmaceuticals, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. San Diego, California March 20, 2025 121 ARS Pharmaceuticals, Inc. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share amounts) December 31, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 50,817 $ 70,971 Short-term investments 263,205 157,389 Accounts receivable, net 8,175 — Inventories 5,212 — Prepaid expenses and other current assets 6,886 3,366 Total current assets 334,295 231,726 Long-term inventories 5,307 — Right-of-use asset 37 250 Fixed assets, net 1,029 574 Intangible assets, net 7,371 — Other assets 3,114 638 Total assets $ 351,153 $ 233,188 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued liabilities (including related party amounts of $ 656 and $ 178 , respectively) $ 22,841 $ 2,154 Contract liability, current 557 — Lease liability, current 42 237 Total current liabilities 23,440 2,391 Financing liability 69,383 — Contract liability 1,532 — Lease liability, net of current portion — 37 Total liabilities 94,355 2,428 Commitments and contingencies (Note 10) Stockholders’ equity Preferred stock, $ 0.0001 par value per share; 10,000,000 shares authorized at December 31, 2024 and 2023; no shares issued and outstanding at December 31, 2024 and 2023 — — Common stock, $ 0.0001 par value per share; 200,000,000 shares authorized at December 31, 2024 and 2023; 97,954,172 and 96,414,963 shares issued and outstanding at December 31, 2024 and 2023, respectively 10 10 Additional paid-in capital 379,873 362,004 Accumulated other comprehensive gain, net 220 49 Accumulated deficit ( 123,305 ) ( 131,303 ) Total stockholders’ equity 256,798 230,760 Total liabilities and stockholders’ equity $ 351,153 $ 233,188 The accompanying notes are an integral part of these financial statements. 122 ARS Pharmaceuticals, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share information) Year Ended December 31, 2024 2023 Revenue: Product revenue, net $ 7,255 $ — Revenue under collaboration agreements 81,529 30 Revenue under supply agreements 365 — Total revenue 89,149 30 Operating expenses: Cost of goods sold (including related party amounts of $ 241 and $ 0 , respectively) 977 — Research and development (including related party amounts of $ 2,066 and $ 1,796 , respectively) 19,580 20,266 Selling, general and administrative (including related party amounts of $ 465 and $ 940 , respectively) 71,675 47,284 Total operating expenses 92,232 67,550 Loss from operations ( 3,083 ) ( 67,520 ) Other income, net 11,369 13,155 Income (loss) before income taxes 8,286 ( 54,365 ) Income tax provision 288 — Net income (loss) $ 7,998 $ ( 54,365 ) Change in unrealized gains and losses on available-for-sale securities 171 ( 358 ) Comprehensive income (loss) $ 8,169 $ ( 54,723 ) Net income (loss) per share: Basic $ 0.08 $ ( 0.57 ) Diluted $ 0.08 $ ( 0.57 ) Weighted-average shares outstanding used in computing net income (loss) per share: Basic 96,936,661 95,215,322 Diluted 102,390,828 95,215,322 The accompanying notes are an integral part of these financial statements. 123 ARS Pharmaceuticals, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Gain, Net Accumulated Deficit Total Stockholders’ Equity Balance at December 31, 2022 93,943,316 $ 9 $ 349,408 $ 407 $ ( 76,938 ) $ 272,886 Exercise of common stock options, shares issued under the employee stock purchase plan, and release of restricted stock units 2,471,647 1 6,899 — — 6,900 Stock-based compensation — — 9,347 — — 9,347 Removal of retrospective insurance policy acquired in the Merger — — ( 3,650 ) — — ( 3,650 ) Net loss and comprehensive loss — — — ( 358 ) ( 54,365 ) ( 54,723 ) Balance at December 31, 2023 96,414,963 $ 10 $ 362,004 $ 49 $ ( 131,303 ) $ 230,760 Exercise of common stock options, shares issued under the employee stock purchase plan, and release of restricted stock units 1,539,209 — 3,017 — — 3,017 Stock-based compensation — — 14,853 — — 14,853 Net income and comprehensive income — — — 171 7,998 8,169 Balance at December 31, 2024 97,954,172 $ 10 $ 379,873 $ 220 $ ( 123,305 ) $ 256,798 The accompanying notes are an integral part of these financial statements 124 ARS Pharmaceuticals, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net income (loss) $ 7,998 $ ( 54,365 ) Non-cash adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Stock-based compensation expense 14,534 9,235 Depreciation 79 73 Amortization and accretion, net ( 7,254 ) ( 6,848 ) Changes in operating assets and liabilities: Accounts receivable ( 8,175 ) — Inventories ( 5,945 ) — Prepaid and other assets ( 6,191 ) ( 1,435 ) Accounts payable and accrued liabilities (including related party amounts of $ 478 and $ 162 , respectively) 16,432 ( 2,777 ) Operating right-of-use assets and lease liabilities, net ( 19 ) ( 12 ) Contract liability 2,089 ( 3,137 ) Net cash provided by (used in) operating activities 13,548 ( 59,266 ) Cash flows from investing activities: Purchases of short-term investments, available-for-sale ( 356,038 ) ( 272,005 ) Maturities of short-term investments, available-for-sale 258,000 185,000 Payments of milestone obligations under license agreements ( 7,500 ) — Purchase of property and equipment ( 563 ) ( 175 ) Net cash used in investing activities ( 106,101 ) ( 87,180 ) Cash flows from financing activities: Financing liability 69,383 — Proceeds from exercise of common stock options and employee stock purchase plan 3,016 6,899 Net cash provided by financing activities 72,399 6,899 Net change in cash and cash equivalents ( 20,154 ) ( 139,547 ) Cash and cash equivalents at beginning of period 70,971 210,518 Cash and cash equivalents at end of period $ 50,817 $ 70,971 Supplemental cash flow information: Removal of retrospective insurance policy acquired in the Merger, included in prepaid and other current assets and other assets, and related reduction in additional paid in capital $ — $ 3,649 Stock-based compensation capitalized into inventory $ 319 $ — Purchases of inventories included in accounts payable $ 4,255 $ — Purchases of property and equipment reclassed from prepaid expenses and other current assets $ — $ 174 The accompanying notes are an integral part of these financial statements. 125 ARS Pharmaceuticals, Inc. Notes to Consolidated Financial Statements 1. Nature of Business Description of Business ARS Pharmaceuticals, Inc. (“ARS”, “ARS Pharma” or the “Company”) is a biopharmaceutical company focused on the commercialization and development of neffy (previously referred to as ARS-1 and currently identified in the EU by the trade name EURneffy ) for the needle-free intranasal delivery of epinephrine for the emergency treatment of Type I allergic reactions, including anaphylaxis. neffy is the first and only FDA and European Commission-approved needle-free epinephrine product, and the first new delivery method for epinephrine in more than 35 years. The Company incorporated in Delaware in January 2016 and is located in San Diego, California. The Company has a wholly owned subsidiary, ARS Pharmaceuticals Operations, Inc., incorporated in Delaware in August 2015, through which it conducts substantially all its operations. ARS Pharmaceuticals Operations, Inc. has a wholly owned subsidiary in Ireland, ARS Pharmaceuticals IRL, Limited, to facilitate the filing of regulatory approval for neffy in European countries. Liquidity and Capital Resources The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $ 123.3 million as of December 31, 2024. The Company had cash, cash equivalents, and short-term investments of $ 314.0 million as of December 31, 2024 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily with proceeds from the merger with Silverback in November 2022 (the “Merger”), the issuance of convertible preferred stock, payments earned under collaboration agreements, bank debt, and limited net product sales. The Company’s currently available cash, cash equivalents, and short-term investments as of December 31, 2024 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date these financial statements are issued. From August 5, 2015 (inception) through December 31, 2024 , the Company has devoted substantially all of its efforts to developing intellectual property, conducting product development and clinical trials, organizing and staffing the Company, business planning, raising capital, building infrastructure, pre-commercial and commercial activities, and providing general and administrative support for these operations. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. Management expects operating expenses to increase for the foreseeable future and there can be no assurance that the Company will ever achieve profitability, or if achieved, that it will be sustained on a continuing basis. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). The Company’s financial statements are presented on a consolidated basis, which include the accounts of ARS Pharmaceuticals, Inc., ARS Pharmaceuticals Operations, Inc. and ARS Pharmaceuticals IRL, Limited. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s functional and reporting currency is the U.S. dollar. Assets and liabilities that are not d enominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income in the consolidated statements of operations and comprehensive income (loss). All adjustments considered necessary for a fair presentation have been included. 126 Use of Estimates The preparation of the Company’s consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to revenue recognized for its collaboration agreements, accruals for variable components of product revenue, and accruals for research and development expenses and valuation of equity awards. These estimates and assumptions are based on curr ent facts, historical experience and various other factors 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 and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Cash and Cash Equivalents Cash and cash equivalents include cash readily available in checking, money market mutual funds, and short-term investments with remaining maturities when purchased of 90 days or less. The Company considers all highly liquid investments with remaining maturities when purchased of 90 days or less to be cash equivalents. Trade Accounts Receivable and Allowance Trade accounts receivable are amounts owed to the Company by its customers for product that has been delivered. Trade accounts receivable are recorded at wholesale acquisition cost (“WAC”), less purchase price discounts, prompt pay discounts, chargebacks, and an allowance for credit losses, if any. The allowance for credit losses is the Company’s estimate of losses over the life of the receivables. The Company determines the allowance for credit losses based on each customer’s trade accounts receivable balance and age, their financial condition, and the general economic environment. The Company must also use professional judgment because neffy was commercially launched in September 2024 and historical data is limited. The Company is currently operating under the Title Agreement (as defined in Note 4 - Revenue ) with its 3PL Agent (as defined in Note 4 - Revenue ) and the 3PL Agent retains all credit and collection risk on sales to the Company’s wholesale distributors and pharmacy customers. When the collectability of an invoice is no longer probable, the Company will create a reserve for that specific receivable. If a receivable is determined to be uncollectible, it is charged against the general credit loss reserve or the reserve for the specific receivable, if one exists. No allowance for credit losses was deemed necessary at December 31, 2024. Investments The Company invests excess cash in investment grade fixed income securities. These investments are included in short-term investments on the balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive gain, net. Realized gains and losses on the sale of securities are recognized in net income or loss. Fair Value of Financial Instruments Cash, cash equivalents, and short-term investments are carried at fair value. The carrying amounts of all accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and contract liability, are considered to be representative of their respective fair values because of the short-term nature of those instruments. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and limits its exposure to cash risk by placing its cash with high credit quality financial institutions. The Company reviews its financial instruments portfolio on a quarterly basis to determine if any unrealized losses have resulted from a credit loss or other factors. As part of the review, management considers factors such as historical experience, market data, issuer-specific factors, and current economic conditions. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. 127 The Company is also subject to credit risk related to its trade accounts receivable from product sales. neffy is distributed primarily through wholesale distributors and pharma cies. These entities are not obligated to purchase any set number of units and they distribute neffy on demand as orders are received. The Company extends credit to its customers in the normal course of business after evaluating their overall financial condition. As stated above, t he Company is currently operating under the Title Agreement with its 3PL Agent (as defined in Note 4 - Revenue ) and the 3PL Agent retains all credit and collection risk on sales to the Company’s wholesale distributors and pharmacy customers. As of December 31, 2024, the Company’s 3PL Agent made up 93 % of its trade accounts receivable balance. For the year ended December 31, 2024 , the Company’s seven largest customers combined made up 94 % of its gross product sales. Historically, the Company has not experienced any credit losses from product sales. For the year ended December 31, 2024 , the Company’s three largest customers combined made up 100 % of its revenue under collaboration agreements. Inventories Inventories consist of finished goods held for sale and distribution, raw materials and work in process, and include labor and overhead. Inventories are stated at the lower of cost or net realizable value, and are determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company periodically reviews its inventory to identify obsolete, slow-moving, or otherwise unsalable inventories, and establishes allowances for situations in which the cost of the inventory is not expected to be recovered. Such impairment charges, if any, are recorded in cost of goods sold, on the consolidated statements of operations. The Company capitalizes inventory costs after regulatory approval, when future commercialization is considered probable and a future economic benefit is expected to be realized. Prior to regulatory approval, the Company records inventory costs as research and development expenses. As such, when regulatory approval is received, this may result in zero-cost inventory which does not have a carrying value. This inventory is available to the Company to utilize for commercial operations as well as ongoing research and development activities. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years. Repair and maintenance costs are charged to expense as incurred. Impairment of Long-Lived Assets Long-lived assets consist primarily of property and equipment and intangible assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate, including its eventual residual value. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value. The Company has not recognized any impairment losses from inception through December 31, 2024. Leases The Company determines the initial classification and measurement of its right-of-use (“ROU”) asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The lease liability is calculated by using the present value of all lease payments, with the present value determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment as well as a review of peer companies. Variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the consolidated statements of operations and comprehensive income (loss). Intangible Assets Intangible assets are measured at fair value as of the acquisition date or, in the case of commercial milestone payments, the date they become due. The evaluation of intangible assets includes assessing the amortization period for which the asset is expected to contribute to the future cash flows of the Company. Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis when the Company is unable to reliably estimate the pattern of cash flow. 128 Revenue Recognition The Company’s revenues consist of product sales of neffy and revenue derived from its collaboration and out-licensing agreements. See Note 4 - Revenue for more detail on product revenue, and Note 9 - Collaboration and Out-Licensing for more detail on revenue from collaboration and out-licensing agreements. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The provisions of ASC 606 require the following steps to determine revenue recognition: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. At contract inception, the Company assesses the goods or services promised within each contract, determines whether each promised good or service is distinct and identifies those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Cost of Goods Sold Cost of goods sold consists primarily of direct and indirect costs related to the manufacture of neffy for commercial sale, including third-party manufacturing costs, raw material and component costs, packaging services, freight, storage costs, distribution fees, amortization of capitalized in-licensed costs, supply agreement fees, and royalties on product sales. Prior to the FDA approval of neffy in August 2024, costs incurred for the manufacture of neffy were recorded as research and development expenses, which resulted in zero-cost inventory. As a result, the cost of goods sold related to neffy will initially reflect a lower average per unit cost of materials, as previously expensed zero-cost inventory is utilized for commercial production and sold to customers. Research and Development Costs Research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct clinical studies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates (including neffy prior to FDA approval in August 2024) for clinical trials and other allocated expenses. Payments for research and development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. The Company uses judgments and estimates to determine the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. Advertising Costs for producing advertising are expensed when incurred. Costs for communicating advertising, such as search engine marketing, banner advertisements, social media advertisements, and print advertisements, are recorded as prepaid expenses and then expensed when the advertisement occurs. The Company’s advertising expense was $ 12.5 million for the year ended December 31, 2024 . Patent Costs Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statements of operations and expensed as incurred since recoverability of such expenditures is uncertain. License Fees Costs incurred to acquire technology licenses and milestone payments made on existing agreements are charged to research and development expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. 129 Acquired in-process research and development expense Acquired in-process research and development expense (“IPR&D”) is expensed on the acquisition date if there is no alternative future use. Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration becomes payable. Milestone payments made to third parties subsequent to regulatory approval will be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. Stock-Based Compensation Stock-based compensation expense represents the cost of the grant date fair value of stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company recognizes expense for awards subject to performance-based milestones over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur. In the event that stock-based awards are granted in contemplation of or shortly before a planned release of material non-public information, and such information is expected to result in a material increase in the share price of the Company’s common stock, the Company may consider whether an adjustment to the observable market price is required when estimating the grant date fair value. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive income or loss typically consists of the change in unrealized gains and losses on available-for-sale securities. Segment Reporting Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker for purposes of making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (ASU 2023-07), which requires issuers to make additional disclosures with respect to segment expenses, including required disclosure on an annual and interim basis for significant segment expenses and other segment items. ASU 2023-07 also permits the disclosure of more than one measure of a segment’s profit or loss. ASU 2023-07 was effective for the Company on January 1, 2024 for annual periods and on January 1, 2025 for interim periods. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements. Recently Issued Accounting Pronouncements — Not Yet Adopted In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company beginning in fiscal year 2025, with early adoption permitted. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the financial statements and related disclosures. 3. Net Income (Loss) Per Share Basic net income (loss) per share attributable to common stockholders is calculated using the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net income (loss) per share attributable to common stockholders is calculated using the weighted-average number of common stock outstanding and, when dilutive, potential shares of common stock outstanding during the period. The impact of potential shares of common stock outstanding is generally antidilutive during periods of net loss. 130 The following table provides the calculation of basic and diluted net income (loss) per share (in thousands, except share and per share information): As of December 31, 2024 2023 Net income (loss) per share, basic: Net income (loss) $ 7,998 $ ( 54,365 ) Shares used in computation: Weighted-average common shares outstanding, basic 96,936,661 95,215,322 Net income (loss) per share, basic $ 0.08 $ ( 0.57 ) Net income (loss) per share, diluted: Net income (loss) $ 7,998 $ ( 54,365 ) Shares used in computation: Weighted-average common shares outstanding, basic 96,936,661 95,215,322 Weighted-average effect of potentially dilutive securities: Stock options 5,369,025 — Shares to be purchased under Employee Stock Purchase Plan 47,237 — Warrants 36,023 — Restricted stock units 1,882 — Diluted weighted-average common shares outstanding 102,390,828 95,215,322 Net income (loss) per share, diluted $ 0.08 $ ( 0.57 ) The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been antidilutive. As of December 31, 2024 2023 Warrants to purchase common stock — 45,456 Common stock options granted and outstanding 6,265,948 11,493,481 Restricted stock units — 4,144 6,265,948 11,543,081 4 . Revenue The Company’s revenues consist primarily of product sales of neffy and revenue derived from its collaboration and out-licensing agreements. See Note 9 - Collaboration and Out-Licensing for further discussion related to those arrangements. Product Revenue neffy was approved by the FDA in August 2024, and the Company began generating product revenue from sales of neffy in September 2024. The Company uses a third party logistics provider (“3PL Agent”) to fulfill orders of neffy to the Company’s customers. The 3PL Agent provides services to the Company that include warehousing, distribution, order and accounts receivable management, and data management. The Company entered into a title model agreement (“Title Agreement”) with the 3PL Agent so that the 3PL Agent may purchase and take title to neffy and then sell it to the Company’s wholesale distributors and pharmacy customers that have contracted to make a purchase. Under the Title Agreement, the economic substance of the transaction is such that the Company does not recognize revenue until neffy is sold and title has transferred from the 3PL Agent to a wholesale distributor or pharmacy. The Company also entered into sales agreements with pharmacies that are not subject to the Title Agreement. Under these agreements, the pharmacy holds neffy under consignment. Under the consignment model, the Company recognizes revenue when neffy is sold to a patient, at which point title transfers from the Company directly to the patient. 131 Product revenue is recorded with each sale at the transaction price, net of reserves for variable components, including but not limited to distribution service fees, prompt pay discounts, product returns, chargebacks, rebates, and co-payment assistance, which are collectively referred to as “Gross-to-Net Adjustments.” Estimates for Gross-to-Net Adjustments are reassessed each reporting period, and adjustments are recorded on a cumulative catch-up basis, which would affect product revenue and net income in the period of adjustment. Trade accounts receivable due to the Company from contracts with its customers are stated separately in the balance sheet, net of various allowances as described in the Trade Accounts Receivable and Allowance policy in Note 2 - Summary of Significant Accounting Policies . The Company utilizes the expected value method when estimating the amount of variable consideration to include in the transaction price with respect to each of the foregoing variable components. Variable consideration is included in the transaction price only to the extent it is probable that a significant revenue reversal will not occur when the uncertainty associated with the variable consideration is resolved. In accordance with ASC 606, the Company must make significant judgments to determine the estimate for certain Gross-to-Net Adjustments. The specific considerations that the Company uses in estimating the amounts related to Gross-to-Net Adjustments are as follows: Distribution services fees – The Company pays distribution service fees to its wholesale distributors. These fees are a contractually fixed percentage of WAC and are calculated at the time of sale based on the purchased amount. These fees are recorded as other current liabilities on the consolidated balance sheets. Commercial pharmacy discounts – The Company provides discounts to its pharmacy customers. These discounts are a contractually fixed percentage of WAC and are a direct reduction from the WAC price they are charged. They are calculated at the time of sale based on the purchased amount. These discounts are recorded as contra trade accounts receivable on the consolidated balance sheets. Prompt pay discounts – The Company incentivizes on time invoice payments through prompt pay discounts. Prompt pay discounts are typically taken by customers, so an estimate of the discount is recorded at the time of sale based on the purchased amount. Prompt pay discount estimates are recorded as contra trade accounts receivable on the consolidated balance sheets. Chargebacks – Certain government entities and covered entities (e.g. Veterans Administration, 340B covered entities) can purchase the product at a price discounted below WAC. The difference between the government or covered entity purchase price and WAC will be charged back to the Company. The Company estimates the amount of chargebacks based on the expected number of claims and the related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Estimated chargebacks are recorded as contra trade accounts receivable on the consolidated balance sheets. Rebates – The Company provides commercial rebates to pharmacy benefit managers and managed care organizations and is subject to mandatory discount obligations under the Medicare, Medicaid, and Tricare programs. The rebate amounts for these programs are determined by contractual arrangements or statutory requirements. Rebates are owed after the product has been dispensed to a patient and the Company has been invoiced. The Company estimates the amount in rebates based on the expected number of claims and the related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Rebate estimates are recorded as other current liabilities on the consolidated balance sheets. Co-payment program – The Company offers co-payment assistance programs to commercially insured patients whose insurance requires a co-payment to be made when filling their prescription. The Company estimates the amount of co-payment assistance based on the expected volume and the average buy down rate associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Co-payment programs estimates are recorded as other current liabilities on the consolidated balance sheets. Product returns – Customers have the right to return damaged product, product that is within six months or less of the labeled expiration date, or product that is past the expiration date by no more than twelve months. neffy was commercially launched in September 2024 and due to the lack of historical sales and returns data, the Company used professional judgment and industry data to estimate returns. A reserve for potential product returns is recorded as other current liabilities on the consolidated balance sheets. 132 5. Inventories The Company began to capitalize the inventory costs associated with neffy upon FDA approval in August 2024 when future commercialization was considered probable and it was determined that the inventory had a probable future economic benefit. These inventory costs consist primarily of purchased materials, third-party manufacturing costs, and packaging and serialization services. Noncurrent inventory consists of inventory anticipated to remain on hand for more than one year from the balance sheet date. Capitalized inventories consisted of the following (in thousands): As of December 31, 2024 2023 Finished goods $ 5,212 — Total inventory, current 5,212 — Raw materials, noncurrent 4,674 — Work in process, noncurrent 19 — Finished goods, noncurrent 614 — Total inventory $ 10,519 $ — Prior to FDA approval in August 2024, costs incurred for the manufacture of neffy were recorded as research and development expenses , which upon approval resulted in zero-cost inventory. The Company had $ 11.7 million in zero-cost inventory remaining as of December 31, 2024 , none of which was determined to be obsolete. 6. Fair Value Measurements The Company categorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance that establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1- Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2- Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3- Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. The following table identifies the Company’s assets that were measured at fair value on a recurring basis (in thousands): December 31, 2024 Level Amortized Cost Gross unrealized gains Gross unrealized losses Estimated Fair Value Cash and cash equivalents - Money market mutual funds 1 $ 6,506 $ — $ — $ 6,506 Cash and cash equivalents - U.S. Treasury securities 2 42,382 5 — 42,387 Short-term investments - U.S. Treasury securities 2 262,990 223 ( 8 ) 263,205 Total $ 311,878 $ 228 $ ( 8 ) $ 312,098 December 31, 2023 Cash and cash equivalents - Money market mutual funds 1 $ 69,938 $ — $ — $ 69,938 Short-term investments - U.S. Treasury securities 2 157,340 61 ( 12 ) 157,389 Total $ 227,278 $ 61 $ ( 12 ) $ 227,327 There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented. During the year ended December 31, 2024, the Company purchased $ 356.0 million in short-term investments, and there was $ 258.0 million in maturities of short-term investments. During the year ended December 31, 2023, the Company purchased $ 272.0 million in short-term investments, and there was $ 185.0 million in maturities of short-term investments. 133 The Company’s short-term investments portfolio contains investments in U.S. Treasury securities that have an effective maturity date that is less than one year from the respective balance sheet date. The Company's money market mutual fund holdings are highly liquid and invest primarily in cash and U.S. Treasury securities. There was a $ 0.2 million net unrealized gain on available-for-sale securities for the year ended December 31, 2024 and a $ 0.4 million net unrealized loss on available-for-sale securities for the year ended December 31, 2023. For the year ended December 31, 2023 , $ 0.3 million was reclassified from accumulated other comprehensive gain to other income. Management determined that the gross unrealized losses on the Company’s available-for-sale securities as of December 31, 2024 were primarily attributable to current economic and market conditions and not credit risk. As of December 31, 2024 and 2023, no allowance for credit losses was recorded. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell any investments prior to recovery of its amortized cost basis, which is expected to be at maturity. Accrued interest on the Company's available-for-sale securities was $ 1.0 million as of December 31, 2024 and is included in prepaid expenses and other current assets in the accompanying consolidated balance sheet. As of December 31, 2024 and 2023, the Company did no t have any liabilities that were measured at fair value on a recurring basis. 7. Balance Sheet Details Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2024 December 31, 2023 Prepaid expenses $ 3,406 $ 1,124 Prepaid insurance 1,261 904 Interest receivable 987 686 Other 1,232 652 Total $ 6,886 $ 3,366 Fixed assets, net consisted of the following (in thousands): December 31, 2024 December 31, 2023 Equipment $ 950 $ 590 Furniture and fixtures 255 81 Leasehold improvements 24 24 Less accumulated depreciation ( 200 ) ( 121 ) Total $ 1,029 $ 574 Depreciation expense was $ 0.1 million for the years ended December 31, 2024 and 2023. Other long-term assets consisted of the following (in thousands): December 31, 2024 December 31, 2023 Prepaid supply agreement fee $ 2,800 $ — Capitalized software implementation costs 314 617 Security deposit — 21 Total $ 3,114 $ 638 Accounts payable and accrued liabilities consisted of the following (in thousands): December 31, 2024 December 31, 2023 Accounts payable $ 9,870 $ 759 Accrued inventory 4,255 — Accrued compensation 2,293 315 Accrued gross-to-net adjustments 2,179 — Accrued marketing related expenses 1,855 42 Other 2,389 1,038 Total $ 22,841 $ 2,154 134 8. Intangible assets, net As described in Note 11 - In-Licensing and Supply , under the Aegis Agreement the Company capitalized a $ 2.5 million milestone payment in August 2024 and a $ 5.0 million milestone payment in September 2024. The assets are amortized on a straight-line basis over the estimated life of the intellectual property of 14.5 years, beginning from the first commercial sale of neffy in September 2024. Intangible assets, net, all of which are finite-lived, consisted of the following (in thousands): December 31, 2024 December 31, 2023 Capitalized milestone payments $ 7,500 $ — Less accumulated depreciation ( 129 ) — Total $ 7,371 $ — The amortization expense for the year ended December 31, 2024 was $ 0.1 million. As of December 31, 2024, estimated future amortization expense for capitalized intangible assets is as follows for the next five years (in thousands): Amount 2025 $ 517 2026 517 2027 517 2028 517 2029 517 Total $ 2,585 9 . Collaboration and Out-Licensing The Company has entered into collaboration and licensing agreements, including supply and distribution, to license certain rights to neffy to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; payment for clinical and commercial supply and royalties or a transfer price on the net sales of licensed products. Licenses of Intellectual Property . If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from non-refundable, up-front payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If the license is subject to repurchase by the Company, at its option, control of the license is not considered transferred to the customer, and in such case, the Company would account for the proceeds allocated to such license as either a financing obligation or a lease in accordance with ASC 606. Future amounts received related to the license which is subject to the Company’s repurchase would be accounted for as additional financing proceeds and would increase the financing obligation on the Company’s consolidated balance sheet. The Company would record such financing obligation as revenue when the right to repurchase has lapsed or was exercised. If the license is not a distinct performance obligation, the Company evaluates the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Milestone Payments . At the inception of each arrangement that includes clinical, regulatory or commercial milestone payments, the Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within the Company’s control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized when the underlying performance obligation has been met. 135 Transaction Price Allocation. At the inception of each arrangement, the Company identifies its distinct performance obligations, and allocates the transaction price to the performance obligations based upon their relative standalone selling prices. Standalone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of standalone selling price is an observable price of a good or service when sold separately by an entity in similar circumstances to similar customers. Since the Company typically does not have such evidence, the Company estimates standalone selling price so that the amount that is allocated to each performance obligation equals the amount that the Company expects to receive for transferring the promised goods or services. The methods that the Company uses to make such estimates include (1) the adjusted market assessment approach, under which the Company forecasts product sales in the appropriate market, considers probability of commercialization success, and estimates discount rates; and (2) the expected cost of satisfying the performance obligations inclusive of a reasonable margin, also known as the expected cost plus margin approach. Research and Development Revenues . For arrangements that contain research and development commitments, any arrangement consideration allocated to the research and development work is recognized as the underlying services are performed over the research and development term, if the criteria for over-time recognition are met. If the over-time recognition criteria are not met, research and development performance obligations are recognized at a point in time, when the research and development work is completed. Clinical and Commercial Supply . Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered customer options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. Royalty/Transfer Price Revenues . For arrangements that include sales-based royalties or transfer price, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company has not received any royalty or transfer price revenues as of December 31, 2024. Alfresa Agreement In March 2020, the Company signed a Letter of Intent (“LOI”) with Alfresa Pharma Corporation (“Alfresa”) for the right to negotiate a definitive agreement for the exclusive license and sublicensable right to develop, register, import, manufacture and commercialize neffy in Japan in exchange for an upfront payment of $ 2.0 million. In April 2020, the Company entered into a Collaboration and License Agreem ent for the rights pursuant to the LOI. Under the agreement, the Company delivered a license to neffy technology, completed a required clinical study, and remains obligated to use commercially reasonable efforts to develop and commercialize neffy in Japan. The parties agreed to share the cost of any additional clinical studies required for approval of neffy in Japan. Alfresa is solely responsible for regulatory and commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use in Japan. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue until the later of (i) expiration of the last-to-expire patent in Japan; or (ii) 10 years after the commercial sale of neffy in Japan. In addition to the $ 2.0 million received under the LOI, the Company was initially eligible to receive up to $ 13.0 million of milestone payments upon achievement of certain clinical and regulatory milestones. Further, the Company is eligible to receive a negotiable transfer price expected to be in the low-double-digit percentage on net sales subject to the regulatory approval to commercialize neffy in Japan. At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy and research and development services, both of which have been completed. The Company determined the initial transaction price to be $ 7.0 million, which includes a clinical milestone as it was deemed not probable of significant reversal at the inception of the agreement. Due to the uncertainty in the achievement of the regulatory and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be reassessed at each reporting period. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. In July 2020, the Company earned a $ 5.0 million milestone payment upon the completion of a clinical milestone in Japan. In November 2024, the Company earned a $ 6.0 million milestone payment upon the completion of a regulatory milestone in Japan. Of the $ 13.0 million in milestone payments that the company was eligible to earn, $ 11.0 million in milestone payments has been earned and a final $ 2.0 million regulatory milestone remains. The Company recognized $ 6.0 million and less than $ 0.1 million in revenue for the years ended 2024 and 2023, respectively, in the accompanying consolidated statements of operations and comprehensive income (loss). There was no contract liability as of December 31, 2024. 136 Recordati Agreement In September 2020, the Company entered into a License and Supply Agreement (the “Recordati Agreement”) with Recordati Ireland, Ltd. (“Recordati”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in Europe and certain European Free Trade Association, Russia/the Commonwealth of Independent States, Middle East and African countries (the “Recordati Territory”). Under the terms of the Recordati Agreement, the Company received an upfront payment of $ 11.8 million and a regulatory milestone payment of $ 6.0 million during 2020. At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy in the defined territory and the research and development services. The Company determined the initial transaction price to be the $ 11.8 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, at inception of the contract, the variable consideration associated with future milestone payments was fully constrained and excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. In November 2020, the Company earned a regulatory milestone of $ 6.0 million. On February 22, 2023, the Company and Recordati entered into a termination agreement (the “Recordati Termination Agreement”), pursuant to which, among other things, the Company and Recordati agreed to terminate the Recordati Agreement. Pursuant to the Recordati Terminat ion Agreement, the Company reacquired all of the Recordati rights, paid Recordati a one-time upfront payment of € 3.0 million ($ 3.3 million in U.S. dollars), and has agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of € 2.0 million, (ii) a milestone payment of € 5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to € 5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory (collectively, the “Recordati Rights”). The Company determined that the Recordati Rights at the time of entering into the Recordati Termination Agreement had no alternative future use and therefore recorded the € 3.0 million upfront payment to Recordati as an IPR&D expense presented within research and development expense. The Recordati Termination Agreement ended the Company’s performance obligations pursuant to the Recordati Agreement and consequently the existing contract liability of $ 3.1 million previously received from Recordati was recorded against IPR&D expense presented within research and development expense in the accompanying consolidated statements of operations and comprehensive income (loss). Accordingly, no revenue has been recognized subsequent to the Recordati Termination Agreement. In June 2024, the EMA regulatory milestone was met and a € 2.0 million ($ 2.1 million in U.S. dollars) expense was recorded in research and development expense in the accompanying consolidated statements of operations and comprehensive income (loss). The Company paid the EMA regulatory milestone to Recordati in July 2024. Pediatrix Agreement In March 2021, the Company entered into a Collaboration and Distribution Agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in the People’s Republic of China, Taiwan, Macau, and Hong Kong. Under the agreement, Pediatrix is responsible, at its sole cost and expense, for all ongoing development work that is necessary for or otherwise supports regulatory approval in the defined territory, including all clinical trials, and activities related to post approval commitments and commercialization tests. In addition, Pediatrix is responsible for commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use. The Company is responsible for the manufacturing of product for clinical studies as well as commercial supply, all at a negotiated transfer price. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue as long as Pediatrix has commercial sales of neffy in the region, or 10 years after the first commercial sale. Under the terms of the agreement, the Company received an upfront payment of $ 3.0 million. In addition, the Company is eligible to receive up to $ 84.0 million of milestone payments upon achievement of certain regulatory and commercial sales milestones. The next eligible milestone is a $ 4.0 million regulatory milestone. Subject to regulatory approval, the Company will earn tiered royalties in the low-double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Pediatrix. 137 At the commencement of this collaboration, the Company identified performance obligations related to the delivery of the license for neffy in the defined territory and manufacturing of product for clinical studies and commercial supply. The Company concluded that the license was distinct from potential supply obligation. The supply provisions are effectively options granted to Pediatrix to purchase future goods and did not contain a material right. The Company determined the initial transaction price to be the $ 3.0 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be reassessed at each reporting period. The Company recognized revenue of the full $ 3.0 million during the year ended December 31, 2021. Seqirus Agreement In March 2024, the Company entered into a License and Distribution Agreement (the “Seqirus Agreement”) with Seqirus Pty, Ltd. (“Seqirus”) for the exclusive license to commercialize neffy in Australia and New Zealand (the “Seqirus Territory”). Under the Seqirus Agreement, the Company is responsible for the transfer of know-how, which includes regulatory materials, regulatory data, and commercialization data, and also for the manufacturing of product for commercial supply which is available to Seqirus at a negotiated price. Seqirus is solely responsible for all regulatory and commercialization activities in the Seqirus Territory. Either party may terminate the Seqirus Agreement for certain breaches. Unless terminated earlier by either or both parties, the initial term of the Seqirus Agreement is 15 years from the first commercial sale of neffy in the Seqirus Territory. The Seqirus Agreement will automatically renew for two-year periods unless either party gives a notice to terminate at least 12 months prior to the end of the initial or any renewal term. Under the terms of the Seqirus Agreement, the Company received an upfront payment of $ 0.5 million in May 2024. In addition, the Company was eligible to receive up to $ 4.5 million of milestone payments upon achievement of certain event milestones. Subject to regulatory approval in Australia and New Zealand, the Company will also receive a per unit supply price for the sale of commercial supply to Seqirus. At the commencement of this collaboration, the Company identified one performance obligation which is the delivery of the license for neffy in the Seqirus Territory in combination with the transfer of know-how. The Company determined that the option to purchase the commercial supply does not represent a material right. The Company determined the initial transaction price to be the $ 0.5 million upfront payment. Due to the uncertainty in the achievement of all the regulatory milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. The variable consideration will be reassessed at each reporting period. In May 2024, the Company delivered the license for neffy in the Seqirus Territory in combination with the transfer of know-how and recognized $ 0.5 million in revenue. In August 2024, the first milestone event was met and the Company recognized $ 1.5 million in revenue. In summary, the Company recognized $ 2.0 million in revenue for the year ended December 31, 2024 in the accompanying consolidated statements of operations and comprehensive income (loss). ALK Agreement In November 2024, the Company entered into a Collaboration, License and Distribution Agreement (the “ALK Agreement”) with ALK-Abelló A/S (“ALK”). Pursuant to the ALK Agreement, the Company granted to ALK a worldwide (other than the United States, Japan, mainland China, Hong Kong, Taiwan, Macau, Australia and New Zealand) (“ALK Territory”), exclusive license under certain of the Company’s patents and know-how to develop, manufacture and commercialize products containing epinephrine administered intranasally, including EURneffy (the trade name for neffy in the European Union) (epinephrine nasal spray) (“Products”), for all human uses, including the immediate or emergency treatment of allergic reactions (including Type I) and anaphylaxis and urticaria, and other future indications as agreed by the parties. If the Company develops any new intranasally administered product that contains epinephrine and files a new drug application in the United States for such product (“New Product”), upon ALK’s request such New Product will be included as a Product under the ALK Agreement, subject to ALK bearing the costs of development of such New Product for its licensed territory. Under the ALK Agreement, the Company is obligated to transfer to ALK the existing marketing authorizations for the Products in ALK’s territory. The Company is also required to conduct certain development and regulatory activities for Products in support of obtaining further regulatory approval of Products in ALK’s territory, and will transfer such regulatory approvals to ALK. ALK is obligated to use commercially reasonable efforts to obtain and maintain regulatory approval for Products through the European Commission and within specified countries within ALK’s territory. Following such approval for a Product in each indication within specified countries within ALK’s territory, ALK is obligated to use commercially reasonable efforts to commercialize such Product in such indication in such countries and to achieve first commercial sale of a Product in certain countries in accordance with a timeline specified in the ALK Agreement. 138 Under the ALK Agreement, ALK made a $ 145.0 million upfront payment to the Company in November 2024. The Company is eligible to receive regulatory and commercialization milestones of up to $ 20.0 million and sales-based milestones of up to $ 300.0 million, provided that $ 55.0 million of such sales-based milestones are contingent upon the Company obtaining regulatory approval for the Product in Canada by a specified time. The Company is entitled to receive tiered royalty payments on net sales in the mid- to high-teens, subject to certain standard reductions and offsets. Royalties will be payable, on a Product-by-Product and country-by-country basis, until the latest of the expiration of the licensed patents covering such Product in such country, 15 years from first commercial sale of such Product in such country, or expiration of regulatory exclusivity for such Product in such country. The contract will expire upon the expiration of the last to expire royalty term for all Products in the ALK Territory, unless terminated earlier. Either the Company or ALK may terminate the ALK Agreement in the case of the other party’s insolvency or in the event of an uncured material breach of the other party, except that the Company may not terminate the ALK Agreement for ALK’s material breach of its commercial diligence obligations. ALK may terminate the ALK Agreement for convenience upon 12 months’ prior written notice or for a safety or regulatory concern. The Company may terminate the ALK Agreement in the event ALK makes certain challenges to certain of the Company’s patents. Prior to a change of control and outside of a set period of time after which the Company commences change of control negotiations, the Company may terminate the ALK Agreement with respect to all countries in the European Economic Area (“EEA”) upon prior written notice to ALK and payment of a termination fee that is the higher of an agreed mid-nine digit amount and the fair market value of the Products business in the EEA at the time of such termination (the “Repurchase Option”). The Company may also terminate the ALK Agreement if ALK commercializes a non-injectable epinephrine product or manufactures such a product in the United States. In connection with the ALK Agreement, the Company and ALK also entered into a commercial supply agreement (the “Supply Agreement”) in November 2024, under which the Company will supply ALK’s requirements (and ALK will purchase from the Company its requirements) of Products for five years for a specified supply price, after which ALK may elect to transition to itself or its contract manufacturer the manufacture and supply of Products. The contract term for the Supply Agreement is coterminous with the ALK Agreement. Either the Company or ALK may terminate the Supply Agreement in the event of an uncured material breach of the other party. Accounting Assessment The Company concluded that the ALK Agreement and the Supply Agreement qualify as a contract with a customer under ASC 606 as one combined arrangement. The Company identified the following performance obligations: (i) exclusive commercialization license in the European Economic Area (the “EEA License”); (ii) exclusive commercialization license in the rest of the ALK Territory (the “ROW License”) and; (iii) five separate development and regulatory services performance obligations. The Company also evaluated the (i) promise to add a New Product and new indications to the ALK Agreement, and (ii) the promises under the Supply Agreement, and concluded that these promises did not meet the definition of a performance obligation nor did these promises convey a material right to ALK. The Company determined that the non-refundable upfront payment of $ 145.0 million is the estimated transaction price at contract inception. The outstanding regulatory milestone payments (totaling $ 15.0 million) were fully constrained at contract inception and as of December 31, 2024, as a result of the uncertainty of whether any of the milestones will be achieved. In making the assessment of the constraint utilizing the most likely amount method, the Company considered the stage of development and the risks associated with the remaining development required to achieve the milestones, as well as whether the achievement of the milestone is outside the control of the Company or ALK. The Company has determined that the commercial milestone ($ 5.0 million) and the sales-based milestones and royalties will be recognized on the later of when the related sales occur or when control of the associated license has been transferred, as the Company determined that such sales-based consideration relates predominantly to the licenses granted to ALK. The Company reevaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and will include regulatory milestones in the transaction price if it is probable that a significant revenue reversal will not occur in future periods. At contract inception, the Company determined the estimated standalone selling prices for each performance obligation in order to allocate the transaction price among the performance obligations. The standalone selling price for the licenses was estimated using the adjusted market assessment approach. Under this method, the Company forecasted future cash flows expected in the ALK Territory, the probability of commercialization success, and a market discount rate. To estimate the standalone selling prices of the development and regulatory services, the Company forecasted its expected costs of satisfying each performance obligation inclusive of an appropriate margin for that service. 139 The Company allocated the total transaction p rice to each performance obligation on a relative standalone selling price basis and determined whether revenue should be recognized at a point in time or over time. The Company allocated $ 69.4 million to the EEA License performance obligation; $ 73.1 million to the ROW License performance obligation and; $ 2.6 million to the development and regulatory services performance obligations . Revenue should be recognized when, or as, an entity satisfies a performance obligation by transferring a promised good or service to a customer, i.e., when the customer obtains control of the good or service. The licenses granted to ALK are being accounted for as distinct performance obligations. The licenses relate to functional intellectual property for which revenue is recognized at a point in time. In the case of the EEA License, the Company evaluated the impact of the Company’s Repurchase Option, and determined that, as a result of the Company’s ability to repurchase the license, control of the EEA License has not been transferred to ALK under ASC 606. The Company determined that the transaction price allocated to the EEA License should be accounted for as a financing liability, due to the repurchase price being greater than the original selling price of this performance obligation. Control of the EEA License will not be considered transferred to ALK until such time that the Repurchase Option lapses, which under the terms of the ALK Agreement, will occur upon the expiration of the contract, or exercise by the Company of the Repurchase Option. The Company recognized the transaction price allocated to the EEA License of $ 69.4 million as a financing liability in its consolidated balance sheet as of December 31, 2024. In the case of the ROW License, the point in time for recognition of revenue was shortly after the inception of the contract because the customer obtained control of the license and was able to use and benefit from its right to use the intellectual property at that point. The Company recognized the transaction price allocated to the ROW License of $ 73.1 million as revenue under collaboration agreements in its consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2024. The development and regulatory services performance obligations under the ALK Agreement each represent a separate performance obligation. The development and regulatory services, which are transferred to the customer over time, were provided to ALK from inception of the agreement and are expected to continue through 2028. Revenue related to the development and regulatory services performance obligations was initially recorded as contract liability and is being recognized as services are performed based on the costs incurred through the end of each reporting period, as a percentage of the estimated total costs to be incurred for these performance obligations. The Company recognized $ 0.5 million of revenue related to the development and regulatory services performance obligations during the year ended December 31, 2024 on its consolidated statements of operations and comprehensive income (loss). As of December 31, 2024 , the accompanying consolidated balance sheet includes a contract liability of $ 0.6 million classified as current and $ 1.5 million classified as noncurrent, associated with these performance obligations, based on the expected period of performance for the development and regulatory services. Contract Liability A reconciliation of contract liability from collaboration and licensing agreements is as follows (in thousands): Balance at December 31, 2023 $ — Contract liability at inception under the ALK Agreement 2,563 Revenue recognized under the ALK Agreement ( 474 ) Balance at December 31, 2024 $ 2,089 140 1 0. Commitments and Contingencies Leases In October 2021, the Company entered into a 38-month noncancelable lease for its current headquarters location consisting of 4,047 rentable square feet of office space in San Diego, California. Under the terms of the agreement, there is no option to extend the lease , and the Company is subject to additional charges for common area maintenance and other costs. Monthly rental payments due under the lease commenced on December 6, 2021 and escalate through the lease term. The Company prepaid the first month’s rent upon execution of the lease, and the lease agreement provided full rent abatement for the second and third months of the rental term. As of December 31, 2024, the remaining lease term of the Company’s operating lease was 2 months , and the discount rate on the Company’s operating lease was 8 %. As there was not an implicit rate within the lease, the discount rate was determined by using a set of peer companies incremental borrowing rates. The Company’s operating lease expense was $ 0.2 million for each of the years ended December 31, 2024 and 2023. The Company’s variable lease expense was immaterial for each of the years ended December 31, 2024 and 2023 . Cash paid for amounts included in the measurement of lease liabilities was $ 0.2 million for each of the years ended December 31, 2024 and 2023. As of December 31, 2024, future minimum noncancelable operating lease payments are as follows (in thousands): Year ending December 31, Amount 2025 $ 42 Total lease payments 42 Less imputed interest — Lease liability 42 Less current portion of lease liability ( 42 ) Lease liability, net of current portion $ — Contingencies From time to time, the Company may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. On August 12, 2021, Amphastar Pharmaceuticals, Inc. (“Amphastar”) filed a Petition for Inter Partes Review with the United States Patent and Trademark Office (“USPTO”), seeking to invalidate claims 1-20 of United States Patent No. 10,682,414 (the “‘414 patent”). The ‘414 patent issued on June 16, 2020 and is entitled “Intranasal Epinephrine Formulations and Methods for the Treatment of Disease.” The claims of the ‘414 patent are directed to methods of treating a type-1 hypersensitivity reaction, including anaphylaxis, using an aqueous nasal spray pharmaceutical formulation containing epinephrine or a salt thereof in a single dose. On February 9, 2023, the USPTO issued a Final Written Decision finding claims 3-6 and 18-20, which encompass the Company’s neffy product candidate, patentable, and claims 1-2 and 7-17 unpatentable. On April 12, 2023, Amphastar filed a notice of appeal with the United States Court of Appeals for the Federal Circuit. On March 5, 2025, following the completion of briefing by the parties, Amphastar stipulated to the dismissal of its appeal. As a result, the USPTO’s Final Written Decision stands – affirming the validity of claims 3-6 and 18-20 of the ’414 patent. On July 24, 2023, Aera A/S, an IP consultancy firm in Denmark representing an unidentified opponent, filed a notice of opposition with the European Patent Office (the “EPO”) in respect of EP 3678649 (the “EP ‘649 Patent”), which is a patent directed to a nasal spray formulation of epinephrine, and uses thereof. The Company filed a response to the notice of opposition on December 15, 2023. The EPO scheduled oral proceedings on October 7, 2025, and the Company will continue to vigorously defend the EP ‘649 Patent. The results of any notice of opposition are inherently unpredictable and uncertain, and could result in the EPO finding the patent to be invalid or unenforceable. Regardless of the outcome, involvement in legal proceedings may have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. The Company cannot predict the outcome of these suits, and failure by the Company to obtain favorable resolutions could have a material adverse effect on its business, results of operations, and financial condition. The Company’s chances of success on the merits of these suits are still uncertain and any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of December 31, 2024. 141 Except as described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or other body pending or, to the knowledge of the Company’s executive officers, threatened against or affecting the Company, the Company’s common stock, any of its subsidiaries or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. Unconditional Purchase Obligations and Commitments Unconditional purchase obligations and commitments are defined as agreements to purchase goods or services that are enforceable and legally binding (non-cancelable, or cancelable only in certain circumstances). In the normal course of business, the Company enters into arrangements with suppliers, manufacturers, and various other companies that supply goods or services. These arrangements can include unconditional purchase obligations and commitments. The total amount of unconditional purchase obligations related to the supply of raw materials is ($ 64.9 ) million as of December 31, 2024 . Payment obligations by year are as follows: 2025 ($ 8.2 million), 2026 ($ 10.5 million), 2027 ($ 11.8 million), 2028 ($ 13.8 million), and $ 2.9 million per year thereafter through 2035. During the year ended December 31 2024, the Company made $ 0.2 million in purchases under these obligations. The total amount of unconditional purchase obligations related to hosted software license subscription fees is $ 3.3 million as of December 31, 2024 . Payments by year are as follows: 2025 ($ 1.4 million), 2026 ($ 1.5 million), and 2027 ($ 0.4 million). During the year ended December 31 2024, the Company made $ 0.6 million in payments under this agreement. The total amount of commitments related to a corporate sponsorship agreement with Food Allergy Research and Education, Inc. is $ 7.0 million as of December 31, 2024 . Payments by year are as follows: 2025 ($ 4.0 million) and 2026 ($ 3.0 million). During the year ended December 31 2024, the Company made $ 2.0 million in payments under this agreement. The amounts above do not represent the entire anticipated spend in the future but represent only those items for which the Company is contractually obligated. For this reason, these amounts do not provide an indication of the Company’s expected future cash outflows related to purchases and commitments. 1 1. In-Licensing and Supply License Agreement with Aegis In June 2018, the Company entered into a License Agreement (the “Aegis Agreement”) with Aegis Therapeutics, LLC (“Aegis”). Under the Aegis Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable, rights to certain proprietary Aegis technology, patent rights and know-how to develop and commercialize epinephrine products. The Company utilizes this technology in its sole commercial product, neffy . As consideration for the license, the Company paid an upfront license fee of $ 50,000 , which was recorded in research and development expenses in the consolidated statement of operations. The Company is required to make aggregate milestone payments of up to $ 20.0 million upon achievement of certain regulatory and commercial milestones. Regulatory milestone payments under the Aegis Agreement are recorded upon completion of the required events, as the triggering events are not considered to be probable until they are achieved. Prior to the FDA approval of neffy in August 2024, regulatory milestone payments were recorded as research and development expenses in the consolidated statement of operations. The Company made a $ 0.5 million milestone payment to Aegis upon the achievement of a regulatory milestone during 2019, and a $ 1.0 million milestone payment to Aegis upon the FDA’s acceptance of the Company’s new drug application submission for neffy , which occurred in the third quarter of 2022. Since the approval of neffy in August 2024 , regulatory milestone payments have been capitalized as intangible assets in the accompanying consolidated balance sheets. Amortization expense has been recorded to cost of goods sold, in the accompanying consolidated statements of operations and comprehensive income (loss), on a straight-line basis over the estimated life of the intellectual property of 14.5 years. In August 2024, a $ 2.5 million milestone was met for achieving FDA approval of neffy. In September 2024, a $ 5.0 million milestone was met for the first commercial sale of neffy . As a result, the Company capitalized $ 7.5 million as intangible assets in the accompanying consolidated balance sheets in the third quarter of 2024. The Company paid the $ 2.5 million milestone for achieving FDA approval of neffy in September 2024, and paid the $ 5.0 million milestone for the first commercial sale of neffy in October 2024. The next milestone payment of $ 2.0 million is due upon the achievement of certain annual net sales. The Company also pays royalties based on a mid-single-digit percentage of net product sales on its or its sublicensees’ net sales of the Licensed Products (as defined in the Aegis Agreement) on a product-by-product basis. Royalties are recorded to cost of goods sold in the period the related product revenue is recognized. 142 In November 2024, OrbiMed Advisors LLC (“OrbiMed”) entered into an agreement with Aegis, to purchase the rights, royalty interests, and related sales milestone payments on net product sales of neffy . Therefore the Company will make all future payments under the Aegis Agreement to OrbiMed. As described in Note 16 - Related Party Transactions , a member of the Company’s Board of Directors is a General Partner at OrbiMed. The Company is responsible for reimbursing Aegis for patent costs incurred in connection with prosecuting and maintaining patent rights that are specific to epinephrine or epinephrine products. There were no expenses recognized in connection with legal patent fees for the years ended December 31, 2024 and 2023. The Company may terminate the Aegis Agreement with 30 days written notice or either party may terminate the Aegis Agreement for certain breaches of the Aegis Agreement. Unless terminated earlier by either or both parties, the term of the Aegis Agreement will continue until the final expiration of all royalty obligations under the Aegis Agreement. In conjunction with the Aegis Agreement, the Company also entered into a supply agreement (the “Aegis Supply Agreement”) with Aegis that allows the Company to purchase materials for preclinical, development and commercial use at predetermined prices. The Company may elect to have Aegis supply minimum quantities but there are no minimum or maximum purchase obligations under the Aegis Supply Agreement unless this election is made. The parties may terminate the Aegis Supply Agreement at any time by mutual agreement. In addition, the parties may terminate the Aegis Supply Agreement in the event of certain breaches of the Aegis Supply Agreement or upon the earlier of the expiration or termination of the Aegis Agreement or June 2028. The Aegis Supply Agreement term may be extended by mutual written agreement. Under the Aegis Supply Agreement, the Company paid $ 0.7 million and $ 0.3 million for the years ended December 31, 2024 and 2023, respectively. Manufacturing Agreement with Renaissance In September 2020, the Company entered into a manufacturing agreement with Renaissance Lakewood, LLC (“Renaissance”), which was subsequently amended in July 2023 and September 2024 (the “Renaissance Agreement”). Pursuant to the Renaissance Agreement, Renaissance agreed to manufacture for, and provide to the Company, neffy nasal unit dose sprays (“Renaissance Products”). The Company is obligated to provide Renaissance with certain supplies to manufacture the Renaissance Products and to purchase from Renaissance a mid-double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the EU, and a high-double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the U.S. The Renaissance Agreement contains conventional commercial pharmaceutical manufacturing provisions including certain minimum purchase amounts to be determined in the future based on forecast needs and minimum batch size projections. The Company may also request Renaissance to perform certain services related to the Renaissance Product, for which the Company will pay reasonable compensation to Renaissance. Pursuant to the amendment in September 2024, the amended initial term of the Renaissance Agreement commenced on September 17, 2024, and will terminate (a) for Renaissance Product designated for commercial sale in the U.S., on December 31 immediately following the fifth anniversary of the initial U.S. launch date (“U.S. Initial Term”), and (b) for Renaissance Product designated for commercial sale in the EU, on December 31 immediately following the fifth anniversary of the initial EU launch date (“EU Initial Term”), in each case unless earlier terminated by one of the parties. The U.S. Initial Term and EU Initial Term automatically renew for successive two-year terms (“Renewal Term”). Either party may elect not to renew the U.S. Renewal Term and/or the EU Renewal Term by providing the requisite prior notice to the other party, with the initial terms automatically renewing for successive two-year terms, unless either party gives notice pursuant to the Renaissance Agreement. Either party may terminate the Renaissance Agreement (1) for uncured material breach of the other party, (2) upon notice for insolvency-related events of the other party that are not discharged within a defined time period, (3) on a product-by-product basis if the manufacture, distribution or sale would materially contravene any applicable law, (4) by providing the requisite notice if (a) the authorization and approval to distribute or sell Renaissance Product in the U.S. is not granted on or before a specified date, (b) the authorization and approval representing more than a certain number of units of Renaissance Product sold in the U.S. during the last calendar year is withdrawn by the FDA, or (c) the Company decided in its sole discretion to cease commercializing the Renaissance Product in the U.S., (5) in the case of a force majeure event that continues for six months or more, or (6) a violation by the other party of trade control or anti-corruption laws. Supply Agreement with Ompi In October 2024, the Company entered into a supply agreement (the “Ompi Agreement”) with Nuova Ompi S.r.l. (“Ompi”), pursuant to which Ompi has agreed to supply glass microvials to support the Company’s manufacture and commercialization of neffy . Under the Ompi Agreement, the Company has committed to purchase, and Ompi has committed to supply, specified annual minimum quantities of glass microvials, which may be increased with prior notice by the Company or through the rolling forecast process, subject to a specified annual cap. Ompi is obligated to establish the relevant manufacturing force, assets and capabilities needed to comply with its supply obligations. 143 In December 2024, as partial consideration for the supply arrangement, the Company made an upfront payment of € 3.0 million (approximately $ 3.2 million in U.S. dollars) to Ompi. The supply price for the glass microvials is specified in the Ompi Agreement, subject to an annual adjustment that is capped at a specified percentage except in the case of material and extraordinary increase in Ompi’s cost of manufacturing the glass microvials. The Ompi Agreement will expire on December 31, 2035 , and may be terminated (i) upon the parties’ mutual written consent, (ii) by the Company for any reasonable business reasons (in which case the termination will become effective at the end of the following calendar year), or (iii) by the non-breaching party if the other party is in material breach of the Ompi Agreement and fails to cure such breach within 90 days after receipt of notice thereof from the non-breaching party. 12. Common Stock and Stockholders’ Equity Authorized Shares The Company’s current Amended and Restated Certificate of Incorporation authorizes 200,000,000 shares of common stock, par value $ 0.0001 per share, and 10,000,000 shares of preferred stock, par value $ 0.0001 per share. Common Stock Common stock reserved for future issuance consisted of the following: December 31, 2024 December 31, 2023 Common stock options granted and outstanding 15,161,180 11,493,481 Restricted stock units granted and outstanding 2,763 4,144 Common stock reserved for future awards or option grants 5,905,773 6,220,866 Warrants to purchase common stock 45,456 45,456 Total 21,115,172 17,763,947 13. Stock-Based Compensation Stock-based compensation expense recognized for all equity awards has been reported in the consolidated statements of operations and comprehensive income (loss) as follows (in thousands): Year Ended December 31, 2024 2023 Research and development expense $ 2,955 $ 2,274 Selling, general and administrative expense 11,579 6,961 Total stock-based compensation expense $ 14,534 $ 9,235 During the years ended December 31, 2024 and 2023, $ 0.3 million and no stock compensation expense was capitalized into inventory, respectively. As of December 31, 2024, the total unrecognized stock-based compensation expense related to outstanding employee options was $ 41.1 million, which is expected to be recognized over a remaining weighted-average period of approximately 2.52 years. There were 2,763 and 4,144 and restricted stock units outstanding as of December 31, 2024 and 2023, respectively, Equity Incentive Plans In September 2018, ARS Pharma adopted the 2018 Equity Incentive Plan. As a result of the Merger, on November 8, 2022 ARS Pharma assumed Silverback’s 2016 and 2020 Equity Incentive Plans, and Employee Stock Purchase Plan (“ESPP”). During the years ended December 31, 2024 and 2023, there were 69,686 and 44,961 shares of common stock purchased under the ESPP, respectively. 144 As of December 31, 2024 , 20,839,408 shares were authorized under the 2016 and 2020 Equity Incentive Plans, of which 5,608,428 shares were available for future grant, and 10,721,740 shares were outstanding. As of December 31, 2024 , 6,634,333 shares were authorized under the 2018 Equity Incentive Plan, of which 297,345 shares were available for future grant, and 4,442,203 shares were outstanding. The Company does not intend to grant future stock options or other equity awards under the 2016 or 2018 Equity Incentive Plans. Stock Options Stock options granted under the Company’s equity incentive plans expire no later than 10 years from the date of grant and generally vest over a four-year period, with vesting either occurring at a rate of 25 % at the end of the first year and thereafter in 36 equal monthly installments or on a monthly basis. In the case of awards granted to the Company’s non-employee board members, vesting generally occurs on a monthly basis over three years or in full on an annual basis. The Company issues new shares of common stock upon the exercise of stock options. A summary of the Company’s stock option activity for the year ended December 31, 2024 is as follows: Shares Subject to Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2023 11,493,481 $ 5.32 Granted 5,315,325 $ 8.36 Exercised ( 1,468,142 ) $ 1.83 Forfeited ( 179,484 ) $ 13.01 Outstanding at December 31, 2024 15,161,180 $ 6.63 7.80 $ 71,497 Exercisable at December 31, 2024 8,092,985 $ 5.21 6.86 $ 51,185 The exercisable shares subject to options outstanding at December 31, 2024 in the table above include vested and early exercisable awards. The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company’s common stock for all options that were in-the-money at December 31, 2024. The aggregate intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 14.7 million and $ 8.5 million, respectively. The weighted-average grant date fair value per share of option grants for the years ended December 31, 2024 and 2023 was $ 6.51 and $ 6.31 , respectively. The total fair value of shares vested during the years ended December 31, 2024 and 2023 was $ 14.1 million and $ 4.5 million, respectively. The fair value of stock options granted was estimated using a Black-Scholes option-pricing model (“Black-Scholes”) with the following weighted-average assumptions: Year Ended December 31, 2024 2023 Expected term (in years) 6.0 6.0 Expected volatility 93.8 % 95.3 % Risk-free interest rate 3.9 % 3.9 % Expected dividend yield — — 145 The fair value of stock options was determined using the Black-Scholes assumptions below. Each of these inputs is subjective and generally requires significant judgment. Fair Value of Common Stock . The fair market value of the Company's common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded. Expected Term . The expected term represents the period that the options granted are expected to be outstanding. The expected term of stock options issued is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term. Expected Volatility . Given the Company’s limited historical stock price volatility data, the Company derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Company has limited trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free Interest Rate . The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options. Expected Dividend Yield . The Company has never paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero. 14. Income Taxes Income tax (benefit) expense consisted of the following (in thousands): Years Ended December 31, 2024 2023 Current: Federal $ 260 $ — State 28 — Foreign — — Total current 288 — Deferred: Federal — — State — — Foreign — — Total deferred — — Income tax provision $ 288 $ — A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows (in thousands): Years Ended December 31, 2024 2023 Tax computed at federal statutory rate $ 1,740 $ ( 11,416 ) State income taxes, net of federal benefit 47 ( 22 ) Officers compensation (Sec 162(m)) 1,741 745 Equity compensation ( 135 ) 749 FDII deduction ( 161 ) — Research and development credits ( 1,008 ) ( 1,179 ) Other ( 66 ) ( 88 ) Valuation allowance ( 1,870 ) 11,211 Provision for income taxes $ 288 $ — 146 Significant components of the Company’s net deferred tax assets were as follows (in thousands): Years Ended December 31, 2024 2023 Deferred tax assets: Net operating losses $ 12,834 $ 16,127 Research and development credits 4,364 4,143 Intangible assets 17,201 7,322 Equity compensation 2,283 1,498 Other 319 66 Total deferred tax assets 37,001 29,156 Deferred tax liabilities: ROU asset ( 8 ) ( 53 ) Other ( 130 ) ( 59 ) Total deferred tax liabilities ( 138 ) ( 112 ) Gross deferred tax assets 36,863 29,044 Valuation allowance ( 36,863 ) ( 29,044 ) Net deferred tax assets $ — $ — The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred assets. At such time as it is determined that it is more likely than not that the deferred tax asset will be realized, the valuation allowance will be reduced. The change in the valuation allowance for the year ended December 31, 2024 was an increase of $ 7.8 million. At December 31, 2024 , the Company had federal and state net operating loss carryforwards (NOL) of $ 60.5 million and $ 2.8 million, respectively. Federal NOL carryforwards of $ 60.5 million, generated after 2017, may be carried forward indefinitely but can only be utilized to offset 80 % of future taxable income. The state NOL carryforwards begin expiring in 2036. State NOLs totaling $ 1.9 million may be carried forward indefinitely. In addition, the Company has federal and state research and development credit carryforwards totaling $ 3.7 million and $ 0.8 million, respectively. The federal research and development credit carryforwards will begin to expire in 2036 unless previously utilized. Of the total state research credits, $ 0.3 million begin to expire in 2038 unless previously utilized, the remainder does not expire. The NOL and credit carryovers noted above do not include the pre-Merger amounts attributable to Silverback as noted in the IRC Section 382 disclosure in the paragraph below. Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of the company's NOL and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has completed an ownership change analysis pursuant to IRC Section 382 through December 31, 2024, including the tax attributes acquired in the Silverback transaction. The Company experienced several ownership changes from inception. All tax attributes reported in the above table have been adjusted based on the result of this analysis. If ownership changes occur in the future, the amount of remaining tax attribute carryforwards available to offset taxable income and income tax expense in future years may be restricted or eliminated. If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. The evaluation of uncertainty in a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority. 147 The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Unrecognized tax benefits – beginning $ 2,946 $ 1,520 Gross increases – tax positions in prior period 3,499 951 Gross increase – current-period tax positions 583 475 Unrecognized tax benefits – ending $ 7,028 $ 2,946 The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months. The Company files income tax returns in the United States, various states, and Ireland. Due to the Company’s losses incurred, the Company's income tax returns for all jurisdictions are subject to examination by tax authorities from inception. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. As of December 31, 2024 , there were no significant accruals for interest related to unrecognized tax benefits or tax penalties. The Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters. The Company does not expect that there will be unrecognized tax benefits of a significant nature that will increase or decrease within 12 months of the reporting date. 15. Employee Benefit Plans In June 2022, the Company adopted a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company’s U.S. employees. The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the Internal Rev enue Service (the “IRS”) annual limits. The Company matches up to 5 % of an employee’s pay that they contribute to the plan, subject to IRS limitations. Expenses associated with the Company’s matching contribution totaled $ 0.6 million and $ 0.4 million for the years ended December 31, 2024 and 2023, respectively. 16. Related Party Transactions In September 2015, the Company entered into a consulting agreement, superseded in July 2022, for regulatory and development services with Pacific-Link Regulatory Consulting, Inc., an entity owned by the President/Chief Executive Officer/director and his spouse, the Chief Medical Officer of the Company. The Company incurred consulting expense related to this agreement totaling $ 2.2 million and $ 1.9 million during the years ended December 31, 2024 and 2023, respectively. In September 2018, the Company entered into a consulting agreement with Marlinspike Group, LLC (“Marlinspike Group”) to provide management, business consulting services and business development support. The managing member of Marlinspike Group is the Chair of the Board of Directors of the Company and one of its stockholders. The Company incurred expenses related to this agreement totaling $ 0.2 million for both of the years ended December 31, 2024 and 2023. In April 2021, the Company entered into a consulting agreement, as amended in April 2022, with a member of the Board of Directors of the Company for general advice and assistance with the development of neffy and any future product candidates. As compensation for the consulting services the Company granted the member of the Board of Directors 590,950 stock options that vest over a four-year period. The Company incurred stock-based compensation expense related to this agreement totaling $ 0.1 million for both of the years ended December 31, 2024 and 2023. As described in Note 11 - In-Licensing and Supply , the Company is required to make milestone payments to Aegis upon achievement of certain regulatory and commercial milestones, and royalty payments to Aegis based on net product sales of neffy . In November 2024, OrbiMed entered into an agreement with Aegis to purchase the rights, royalty interests, and related sales milestone payments on net product sales of neffy . A member of the Company’s Board of Directors is a General Partner at OrbiMed. The Company incurred $ 0.2 million in expense to OrbiMed for the year ended December 31, 2024. 148 17. Segment Information The Company reports segment information using the management approach and views its operations and manages its business as a single operating segment. Revenue is generated in the United States through product sales. Outside of the United States, revenue is generated through collaboration and license agreements including supply and distribution. For the year ended December 31, 2024 , the Company had six customers that each accounted for more than 10 % of the Company ’ s gross product revenue. Those customers ’ revenue amounts for the year ended December 31, 2024 were: $ 2.2 million, $ 1.7 million, $ 1.3 million, $ 1.2 million, $ 1.1 million, and $ 1.1 million. For the year ended December 31, 2024 , the Company had one customer, ALK, which accounted for more than 10 % of the Company ’ s revenue under collaboration agreements. Under the ALK agreement, the Company recognized $ 73.5 million during the year ended December 31, 2024. The Company’s Chief Operating Decision Maker (“CODM”), who is the Chief Executive Officer , allocates resources and evaluates the performance of the operating segment based on historical and projected product sales, potential licensing opportunities, segment operating expenses, and consolidated net income, as reflected in the accompanying consolidated statements of operations and comprehensive income (loss), which is the segment measure of profit or loss. The segment reports that are provided to the CODM are tracked against the Company’s internally budgeted expenses. The segment operating expense categories consist primarily of the Company’s functional departments: Clinical, Development, Medical Affairs, Sales and Marketing, and General and Administrative. The CODM does not review assets when evaluating the operating segment's performance; therefore, this information is not presented. Segment reporting provided to the CODM for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Revenue: Product revenue, net $ 7,255 $ — Revenue under collaboration agreements 81,529 30 Revenue under supply agreements 365 — Total revenue 89,149 30 Segment operating expenses: Cost of goods sold 977 — Clinical 6,113 7,513 Development 8,485 10,275 Medical affairs 2,462 1,504 Sales and marketing 36,679 24,622 General and administrative 22,849 14,230 Stock-based compensation 14,534 9,235 Other 133 171 Total segment operating expenses 92,232 67,550 Loss from operations ( 3,083 ) ( 67,520 ) Other income, net 11,369 13,155 Income (loss) before income taxes 8,286 ( 54,365 ) Income tax provision 288 — Net income (loss) $ 7,998 $ ( 54,365 ) 18. Subsequent Events Lease Amendment On January 24, 2025, the Company entered into a lease amendment for its headquarters location lease (“Headquarters Amendment”), pursuant to which the Company will relocate to a new premises located in the same building which consists of 9,254 rentable square feet of office space. The Company will take possession of the new office space when the landlord’s work is substantially complete, which is estimated to be July 1, 2025. The Company must vacate its current office space within 15 days of taking possession of the new premises. 149 Under the Headquarters Amendment, the term of the lease will be extended to 36 full calendar months following the date the Company takes possession of the new office space. The monthly lease payments will increase when the Company takes possession of the new space and escalate through the lease term, resulting in an annualized payment of $ 0.6 million. The Company remains subject to additional charges for common area maintenance and other costs. The Company has one option to extend the lease for an additional term of three years . The monthly payment amounts would be determined by the landlord at the then-prevailing rate. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.