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Item 7. Management’s Discussion and Analysis

2023-03-29 compared with 2022-03-17 · 290 added, 237 removed, 130 unchanged (80% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations of Aadi Bioscience, Inc.

should be read in conjunction with the consolidated financial statements and the related notes to those statements thereto appearing elsewhere in this Annual Report for the year ending December 31, 2021.

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes to those statements thereto appearing elsewhere in this Annual Report on Form 10-K filed with the SEC for the year ending December 31, 2022 .

Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions.

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You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report.

You should read this Annual Report completely, including the “Risk Factors” section under Part I, Item 1A of this Annual Report and the “Forward-Looking Statements” sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by our forward-looking statements contained in the following discussion and analysis.

You should read this Annual Report completely, including Part I, Item 1A (Risk Factors) of this Annual Report and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by our forward-looking statements contained in the following discussion and analysis.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

We are a biopharmaceutical company focused on developing and commercializing precision therapies for genetically defined cancers with alterations in mTOR pathway genes.

Our lead drug product, FYARRO, nab -sirolimus, (sirolimus protein-bound particles for injectable suspension (albumin-bound)), is a form of sirolimus bound to albumin.

Sirolimus is a potent inhibitor of the mTOR biological pathway, the activation of which pathway can promote tumor growth, and inhibits downstream signaling from mTOR.

In May 2021, we completed the filing of a rolling new drug application (“NDA”) for FYARRO to the U.S.

Food and Drug Administration (the “FDA”), for approval to treat patients with advanced malignant PEComa.

The FDA accepted the NDA in July 2021 and granted us priority review designation with a Prescription Drug User Fee Act target action date in November 2021.

The NDA was based on results from our Phase 2 registrational study, AMPECT (Advanced Malignant PEComa Trial), in advanced malignant PEComa.

In November 2021, the FDA approved FYARRO sirolimus protein-bound particles for injectable suspension (albumin-bound) for intravenous use for the treatment of adult patients with locally advanced malignant PEComa.

During the first quarter of 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa.

In addition to advanced malignant PEComa, based on data from the completed AMPECT trial and our expanded access program, we have initiated a registration-directed tumor-agnostic Phase 2 study (“PRECISION 1”) of FYARRO in patients with Tuberous Sclerosis Complex 1 and 2 ( TSC1 & TSC2 ) alterations.

We have completed a Type B meeting with the FDA in which we discussed the initial trial design and the PRECISION 1 trial was opened for enrollment in the first quarter of 2022 in the United States.

For more information regarding our business, including FYARRO, the AMPECT trial and the PRECISION 1 trial, see Part I, Item 1 (Business).

For the fiscal year ended December 31, 2021, we recorded revenue of $1.1 million and net loss of $110.1 million.

Our lead drug product, FYARRO ® , is a form of sirolimus bound to albumin.

Sirolimus is a potent inhibitor of the mTOR biological pathway, the activation of which pathway can promote tumor growth.

We believe our approach to utilizing albumin bound sirolimus has the potential to produce transformational therapies to cancer patients with mTOR pathway driver alterations where other mTOR inhibitors have not or cannot be effectively exploited due to problems of pharmacology, effective drug delivery, safety, or effective targeting to the disease site.

In November 2021, the U.S.

Food and Drug Administration (the “FDA”) approved FYARRO sirolimus protein-bound particles for injectable suspension (albumin-bound) for the treatment of adult patients with locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumor (“PEComa”).

On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa.

For the fiscal year ended December 31, 2022 , we recorded net revenue from product sales of $15.2 million and net loss of $60.5 million.

See “Results of Consolidated Operations” for further discussion of our results.

In addition to advanced malignant PEComa, based on exploratory data from our completed Phase 2 registrational study, Advanced Malignant PEComa Trial (“AMPECT”), and our expanded access program for FYARRO, we have initiated a registration-directed tumor-agnostic Phase 2 study (“PRECISION 1”) of FYARRO in patients with Tuberous Sclerosis Complex 1 and 2 (“ TSC1 & TSC2 ”) alterations.

We have completed a Type B meeting with the FDA in which we discussed the trial design and the PRECISION 1 trial was opened for enrollment in the United States during the first quarter of 2022, with dosing of our first patient in March 2022.

We anticipate having preliminary data on a meaningful number of patients in the PRECISION 1 trial during the second quarter of 2023.

For more information regarding our business, including FYARRO, AMPECT and the PRECISION 1 trial, see Part I, Item 1 (Business).

Recent Developments

• Leadership Transition .

Effective January 1, 2023, our board of directors appointed Brendan Delaney, our former Chief Operating Officer, to President and Chief Executive Officer and Neil Desai, our founder, director, and former-President and Chief Executive Officer, to Executive Chairman.

Delaney was also appointed to serve on our board of directors.

Effective March 14, 2023, Mr.

Delaney resigned from his position as President and Chief Executive Officer and as a member of our board of directors, and, effective March 15, 2023, our board of directors appointed Scott Giacobello, our Chief Financial Officer, as Interim Chief Executive Officer and President.

Giacobello will continue to serve in his role as Chief Financial Officer in addition to his role as Interim Chief Executive Officer and President.

In addition, Dr.

Desai, the founder of the company and our President and Chief Executive Officer prior to Mr.

Delaney, continues to serve as the Executive Chairman and a member of our board of directors and will assist with the leadership transition.

The Board has also initiated an executive search for a successor chief executive officer, and, as such, Mr.

Giacobello’s position of Interim Chief Executive Officer and President will end when a successor is appointed.

• 2022 Private Investment in Public Equity (PIPE) Financing .

On September 22, 2022, we entered into a securities purchase agreement (“Purchase Agreement”) for a private placement (the “2022 PIPE Financing”) with certain investors (“2022 PIPE Investors”).

Upon closing the 2022 PIPE Financing on September 26, 2022, we sold (i) 3,373,526 shares of our common stock, at a purchase price of $12.50 per share, and (ii)

2,426,493 pre-funded warrants (the “Pre-Funded Warrants”) to purchase shares of our common stock, at a purchase price of $12.4999 per Pre-Funded Warrant.

The Pre-Funded Warrants will have an exercise price of $0.0001 per share of common stock, be immediately exercisable and remain exercisable until exercised in full.

In connection with the 2022 PIPE Financing, we entered into a Registration Rights Agreement, dated September 22, 2022 (“2022 PIPE Registration Rights Agreement”), with the 2022 PIPE Investors.

Pursuant to the 2022 PIPE Registration Rights Agreement, on October 26, 2022, we filed a registration statement with the Securities and Exchange Commission (the "SEC") for the registration for resale of the securities sold under the Purchase Agreement, including the shares issuable upon the exercise of the Pre-Funded Warrants, which such registration statement was declared effective on November 4, 2022.

At the closing of the 2022 PIPE Financing, the total purchase price paid by the 2022 PIPE Investors was approximately $72.2 million, after deducting $0.3 million of our offering expenses.

We intend to use the net proceeds from the 2022 PIPE Financing to fund working capital and other general corporate purposes.

• Mirati Collaboration .

In October 2022, we entered into a collaboration and supply agreement with Mirati Therapeutics, Inc.

(“Mirati”) to evaluate the combination of Mirati’s adagrasib, a KRAS G12C selective inhibitor, and FYARRO in KRAS G12C mutant non-small cell lung cancer (NSCLC) and other solid tumors.

Under the terms of the agreement, Mirati will be responsible for sponsoring and operating the Phase 1/2 study and we will supply study drug and jointly share the cost of the study.

The primary objective of this multi-center, single-arm, open-label Phase 1/2 trial is to determine the optimal dose and recommended Phase 2 dose for the combination of adagrasib and FYARRO in patients with KRAS G12C- mutant solid tumors.

In addition, the study will investigate the safety, tolerability and efficacy of adagrasib and FYARRO in combination in patients both with and without prior exposure to a KRAS G12C inhibitor.

The trial will build on preclinical data showing enhanced anti-tumor efficacy with the combination of adagrasib and FYARRO relative to either agent alone.

BMS License Agreement

We have exclusive rights for certain patents and a non-exclusive license for certain technology and know-how pertaining to ABI-009 (which we refer to as FYARRO) pursuant to an amended and restated license agreement, dated November 15, 2019, as amended August 31, 2021 (the “BMS License Agreement”) with Abraxis BioScience, LLC, a wholly owned subsidiary of Celgene Corporation, which is a wholly owned subsidiary of Bristol-Myers Squibb Company (“BMS”).

Under the BMS License Agreement, BMS is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees.

During the year ended December 31, 2022 , we recorded royalties of $1.1 million under the terms of this agreement, of which $0.4 million in royalties were accrued as of December 31, 2022 .

No payments related to milestones under this agreement were paid during the year ended December 31, 2022.

See Note 9 to the consolidated financial statements for more information about the BMS License Agreement.

Under the terms of an August 2021 amendment to the license agreement, we paid BMS $5.8 million, representing 50% of the previously outstanding payment obligation under the agreement, following the effective time of the 2021 Private Investment in Public Equity (PIPE) Financing ("2021 PIPE Financing") that occurred in connection with the closing of the reverse acquisition of Aerpio Pharmaceuticals, Inc.

Pursuant to the terms of the amendment, the remaining portion of the previously outstanding payment obligation ($5.8 million), which is recorded on our balance sheet as due to licensor, is due on the third anniversary of the effective time of such 2021 PIPE Financing plus any accrued and unpaid interest due thereon.

EOC License Agreement

In December 2020, we entered into the EOC License Agreement with EOC under which we received $14.0 million in January 2021 in non-refundable upfront consideration as partial payment for the rights and licenses granted to EOC by us for the further development and commercialization of FYARRO in the People’s Republic of China, Hong Kong Special Administration Region, Macao Special Administrative Region and Taiwan (the “Licensed Territory”).

In accordance with the BMS License Agreement, we are required to pay 20% of all sublicense fees to BMS.

As such, we recognized $2.8 million of license expense in the fourth quarter of 2020 and had a corresponding $2.8 million sublicense payable to BMS on the balance sheet as of December 31, 2020, which was paid in 2021.

During the fourth quarter of 2021, we recognized license revenue and received $1.0 million from EOC for achieving the FDA approval milestone in November 2021.

In accordance with the BMS License Agreement, we recognized $0.2 million of license expense in the fourth quarter of 2021 and had a corresponding $0.2 million sublicense payable to BMS on the balance sheet as of December 31, 2021, which was paid in 2022.

On June 27, 2022, we received written notice from EOC that EOC has elected to terminate the EOC License Agreement, effective immediately.

On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of Commerce’s International Court of Arbitration against us.

The arbitration process is ongoing.

We intend to defend ourselves vigorously in this matter and pursue all relief to which we are entitled.

We are unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of December 31, 2022.

See Notes 9 and 16 to the audited financial statements for more information about the EOC License Agreement, its termination and resulting arbitration.

Impact of Negative Global or National Events

Businesses have been and will continue to be impacted by a number of challenging global and national events and circumstances that continue to evolve, including the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, and conflicts in Eastern Europe and in other countries.

The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances.

For example, as the COVID-19 pandemic has developed, we have taken numerous steps to help ensure the health and safety of our employees.

While we have largely resumed normal operations, any resurgence or worsening of the COVID-19 pandemic may cause us to reinstitute certain measures to protect employee safety, including staggered work hours or reduced in-person staffing, that could result in additional disruption and/or delays in our ability to conduct development activities.

We have been and continue to actively monitor our supply chain in light of these challenging global and national events and circumstances, including our third-party materials suppliers.

To date, we have experienced some supply disruptions due to the COVID-19 pandemic, including closures at certain chip manufacturers, which led to extended lead times for FYARRO and diversion of certain lab materials needed to support COVID-19 relief efforts.

While certain of these disruptions have been resolved since the start of the COVID-19 pandemic, we are continuing to monitor our supply chain and contingency planning is ongoing with our partners to reduce the possibility of an interruption to our development activities or the availability of necessary materials.

The ultimate impact of these global and national events and circumstances, either individually or in aggregate, is highly uncertain and subject to change.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to mitigate potentially negative impacts to our business.

For example, during the COVID-19 pandemic, our clinical trials have been, and may continue to be, affected by the closure of offices, lack of resources or closure of borders, among other measures being put in place around the world and we made certain modifications to employee travel, with masking and vaccination requirements in our offices, and with our employees working remotely fully or intermittently.

Any continued inability to travel and conduct face-to-face meetings, as well as constraints surrounding hospital infrastructure and staff, can also make it more difficult to enroll and maintain patients in ongoing or planned clinical trials.

We will continue to actively monitor the rapidly evolving situation related to these global and national events, and may take further actions to mitigate potential negative impacts to our business, and that may alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.

At this point, the extent to which these global or national events and circumstances may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows in fiscal year 2023.

August 2021 Reverse Merger

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(“Private Aadi”));

and (ii) a subscription agreement (“Subscription Agreement”) with certain investors (the “PIPE Investors”), pursuant to which we agreed to sell shares of our common stock to the PIPE Investors concurrently with the closing of the Merger (as defined below) (the “PIPE Financing”).

and (ii) a subscription agreement (“Subscription Agreement”) with certain investors (the “2021 PIPE Investors”), pursuant to which we agreed to sell shares of our common stock to the 2021 PIPE Investors concurrently with the closing of the Merger (as defined below).

See Note 1 to our audited financial statements for more information about the Merger Agreement and the Subscription Agreement.

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• concurrently with the Closing of the Merger, we issued and sold 11,852,862 shares of common stock to the 2021 PIPE Investors for total gross proceeds of $155 million and, immediately after the closing of the Merger and the 2021 PIPE Financing, the 2021 PIPE Investors and the Private Aadi investors as of immediately prior to the effective time of the Merger owned 55.6% and 29.2%, respectively, of our outstanding common stock on a fully-diluted basis;

we entered into a contingent value rights agreement (“CVR Agreement”) pursuant to which each of our stockholders as of immediately prior to the effective time of the Merger became entitled to certain contingent value rights entitling them to receive 90% of the net proceeds (calculated as gross consideration minus certain permitted deductions), if any, received by us under the license agreement, dated June 24, 2018, with Gossamer Bio, Inc., as amended, and certain other covered agreements, as specified in the CVR Agreement (see Note 1 to our audited financial statements for more information about the CVR Agreement).

Celgene License Agreement

In April 2014, Private Aadi entered into a license agreement (the “Celgene License Agreement”) with Abraxis BioScience, LLC, a wholly owned subsidiary of Celgene Corporation, now Bristol Myers Squibb Company (“Celgene”), for exclusive rights for certain patents and a non-exclusive license for certain technology and know-how pertaining to ABI-009 (which we refer to as FYARRO).

Under the Celgene License Agreement, as amended, Celgene is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees.

No payments related to milestones or royalties under this agreement were paid during the twelve months ended December 31, 2021 and December 31, 2020.

See Note 2 to the audited financial statements for more information about the Celgene License Agreement.

Under the terms of an August 2021 amendment to the Celgene License Agreement, we paid Celgene $5.8 million, representing 50% of the previously outstanding payment obligation under the terms of the Celgene License Agreement, following the effective time of the PIPE Financing.

Pursuant to the terms of the amendment, the remaining portion of the previously outstanding payment obligation ($5.8 million), which is recorded on our balance sheet as a “payable to related party,” is due on the third anniversary of the effective time plus any accrued and unpaid interest due thereon.

EOC License Agreement

In December 2020, we entered into a license agreement (“EOC License Agreement”) with EOC Pharma (Hong Kong) Limited (“EOC”) under which we received $14.0 million in January 2021 in non-refundable upfront consideration as partial payment for the rights and licenses granted to EOC by us for the further development and commercialization of FYARRO in the People’s Republic of China, Hong Kong Special Administration Region, Macao Special Administrative Region and Taiwan (the “Licensed Territory”).

See Note 8 to the audited financial statements for more information about the EOC License Agreement.

In accordance with the Celgene License Agreement, we are required to pay 20% of all sublicense fees to Celgene.

As such, we recognized $2.8 million of license expense in the fourth quarter of 2020 and had a corresponding $2.8 million sublicense payable to Celgene on the balance sheet as of December 31, 2020, which was paid in 2021.

During the fourth quarter of 2021, we recognized license revenue and received $1.0 million from EOC for achieving the FDA approval milestone in November 2021.

In accordance with the Celgene License Agreement, we recognized $0.2 million of license expense in the fourth quarter of 2021 and had a corresponding $0.2 million sublicense payable to Celgene on the balance sheet as of December 31, 2021, which was paid in 2022.

• we entered into a contingent value rights agreement (“CVR Agreement”) pursuant to which each of our stockholders as of immediately prior to the effective time of the Merger became entitled to certain contingent value rights entitling them to receive 90% of the net proceeds (calculated as gross consideration minus certain permitted deductions), if any, received by us under the license agreement, dated June 24, 2018, with Gossamer Bio, Inc., as amended (the “Gossamer License Agreement”), and certain other covered agreements, as specified in the CVR Agreement (see Note 1 to our audited financial statements for more information about the CVR Agreement).

The CVR Agreement automatically terminated effective July 24, 2022, the date the Gossamer License Agreement terminated.

Key Trends and Factors Affecting Comparability Between Periods

Following FDA approval in November 2021, we have been actively engaged in commercial preparations to support the U.S.

launch of FYARRO for the treatment of patients with advanced malignant PEComa.

We have built a cross-functional commercial team consisting of marketing, market access, commercial operations, and sales to support our launch and are building a commercial infrastructure with capabilities designed to scale when necessary to support future commercial launches.

Expenses related to our commercial launch including personnel expenses, sales support, and marketing are included in general and administrative expenses for the year ended December 31, 2021.

We expect these expenses will continue to increase as we launch FYARRO and support future launches.

We expect that our research and development costs will increase in 2022 relative to 2021 as a result of anticipated significant expenses related to the PRECISION 1 trial.

Following the Merger, we have incurred, and expect to continue to incur, significant additional expenses associated with being a public company that we did not incur as a privately-held company, including (i) costs to comply with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities and (v) other administrative and professional services.

We accounted for the Merger as a reverse asset acquisition because substantially all of the fair value was concentrated in cash, working capital, and a long-lived contract intangible asset.

Due to the significant excess purchase price being allocated over the fair value of the acquired contract intangible asset, we determined that an indicator of impairment was present and recognized in 2021 a non-cash impairment charge of $74.2 million, to bring the carrying amount of the contract intangible asset down to its estimated fair value of $3.9 million.

The intangible asset is being amortized over the life of the underlying asset, 14.3 years.

The COVID-19 pandemic has resulted, and is likely to continue to result in, significant national and global economic disruption and may adversely affect our operations.

Our clinical trials have been, and may continue to be, affected by the closure of offices, lack of resources or closure of borders, among other measures being put in place around the world.

The inability to travel and conduct face-to-face meetings, as well as constraints surrounding hospital infrastructure and staff, can also make it more difficult to enroll and maintain patients in ongoing or planned clinical trials.

We are actively monitoring the impact of COVID-19 and the possible effects on our financial condition, liquidity, operations, suppliers, industry and workforce.

However, the full extent, consequences and duration of the COVID-19 pandemic and the resulting impact on us cannot currently be predicted.

We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows in fiscal year 2022.

• Commercial sale of FYARRO was launched on February 22, 2022, for the treatment of patients with advanced malignant PEComa.

We recorded net product sales of $15.2 million during the year ended December 31, 2022.

• We have built a cross-functional commercial team consisting of marketing, market access and commercial operations and will continue to strategically build our sales and our commercial infrastructure with capabilities designed to scale when necessary to support future commercial launches.

Expenses related to our commercial launch including personnel expenses, sales support, and marketing are included in selling, general and administrative expenses for the year ended December 31, 2022.

We expect these expenses will continue to increase in 2023, as compared to 2022, with the ongoing commercialization of FYARRO and preparation for potential future launches.

• We continue to build out our research and development team and we expect our research and development costs will increase in 2023, relative to 2022, as a result of significant expenses related to the PRECISION 1 trial which was open to enrollment during the year ended December 31, 2022, with the first patient dosed in March 2022.

• As a public company our expenses have increased from prior year as a privately held company, including (i) costs to comply with the rules and regulations of the SEC and those of the Nasdaq Capital Market (“Nasdaq”), (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.

Liquidity and Capital Resources

As of December 31, 2022, we had $172.6 million of cash, cash equivalents and short-term investments.

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into 2025.

We have incurred net losses in each year since inception and as of December 31, 2022 we had an accumulated deficit of $203.2 million.

These losses have resulted principally from costs incurred in connection with research and development activities, general and administrative costs associated with our operations, and costs associated with the Merger.

We expect to continue to incur significant expenses and operating losses for the foreseeable future due to the cost of research and development, including identifying and designing product candidates and conducting preclinical studies and clinical trials, the regulatory approval process for our product candidates and the commercial launch of FYARRO.

As of December 31, 2021, we had $149.0 million of cash and cash equivalents.

Based on our current plans, we believe our existing cash and cash equivalents will enable us to conduct our planned operations into 2024.

Key M anagement C hanges

Upon the closing of the Merger, Neil Desai, Ph.D.

became our President and Chief Executive Officer.

Following the Merger, we appointed Brendan Delaney as our Chief Operating Officer (September 2021), Loretta M.

as our Chief Medical Officer (October 2021), and Scott Giacobello as our Chief Financial Officer (November 2021).

Additionally, in September 2021, we appointed Emma Reeve to serve as a Class III director and as Chair of the Audit Committee.

These losses have resulted principally from costs incurred in connection with research and development activities, selling, general and administrative costs associated with our operations, and costs associated with the Merger.

designing product candidates, the regulatory approval process for FYARRO outside the United States and in additional indications and any other product candidates we may develop in the future and the commercial launch of FYARRO.

Basis of Presentation

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the consolidated balance sheets and statements of operation and comprehensive loss presented herein.

The following discussion and analysis are based on our consolidated financial statements contained in this Annual Report, which we have prepared in accordance with U.S.

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Components of Statements of Operations and Comprehensive Loss

EOC Pharma License Revenue

In December 2020, we entered into the EOC License Agreement with EOC pursuant to which, we granted EOC exclusive rights to develop and commercialize FYARRO in the Licensed Territory for human use in specified indications.

EOC is obligated to pay royalties to us on sales of licensed products in the Licensed Territory.

Under the terms of the EOC License Agreement, EOC has agreed to use commercially reasonable efforts to develop and commercialize FYARRO in the Licensed Territory and to obtain and maintain regulatory approval.

Unless earlier terminated, the EOC License Agreement will remain in effect until all milestones are achieved and royalty payment obligations are fulfilled as provided for in the EOC License Agreement.

Prior to the expiration of the EOC License Agreement, EOC has the right to terminate the agreement for any reason upon a specified number of days advance written notice.

Either party may terminate the EOC License Agreement in the event that the other party materially breaches the agreement and fails to cure the breach, or experiences certain events of financial distress.

We may terminate the EOC License Agreement if EOC or its affiliates challenge the licensed patents in a legal, administrative or arbitration proceeding.

In December 2020, we recognized revenue of $14.0 million related to the upfront payment which was paid in January 2021.

We are eligible to receive up to an additional $257.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties on net sales in the Licensed Territory, which royalties are potentially subject to various reductions.

EOC is responsible for controlling the filing for and obtaining all regulatory approvals, with our reasonable cooperation, and for bearing all costs associated with those approvals.

In November 2021, we achieved the FDA approval milestone and recognized $1.0 million of revenue, which was paid in December 2021.

We assessed the EOC License Agreement and concluded that EOC is a customer.

Additionally, we identified the license of FYARRO provided to EOC as the sole performance obligation.

The $14.0 million upfront payment received from EOC is non-refundable and non-creditable and is considered fixed consideration.

Both the milestones and royalty payments under the EOC License Agreement are considered variable consideration and, with respect to revenue recognition, are constrained until we receive notification from EOC that the milestones and royalty payments have been achieved.

Product Sales, Net

FYARRO was approved by the FDA in November 2021.

On February 22, 2022, we launched sales of FYARRO to specialty distributors (“SD”s) and a specialty pharmacy (“SP”).

We recognize product sales when the SDs and SP obtain control of the product, which occurs upon delivery.

Product sales are recorded at the net sales price, which includes provisions for the following allowances which are reflected either as a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:

• Distribution Fees :

Distribution fees include distribution service fees paid to the SDs and SP based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”).

Distribution fees are recorded as an offset to product sales based on contractual terms at the time the sale is recognized.

Allowance for rebates include mandated discounts under the Medicaid Drug Rebate Program and TRICARE program.

Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements.

The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants.

Our estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product launch.

Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity.

If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.

• Chargebacks :

Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs and SP at a discounted price.

The SDs and SP charge back to us the difference between the price initially paid by the SDs and SP and the discounted price paid to the SDs and SP by these entities.

If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.

• Co-Payment Assistance :

We offer co-payment assistance to commercially insured patients meeting certain eligibility requirement.

Co-payment assistance is accrued at the time of product sale to the SDs and SP based on estimated patient participation and average co-pay benefit to be paid per a claim.

Our estimated amounts are compared to actual program participation and co-pay amounts paid using data provided by third-party administrators.

If actual amounts differ from the original estimates the assumptions being applied are updated and adjustment for prior period accruals will be adjusted in the current period.

• Product Returns :

Consistent with industry practice, we offer the SDs and SP limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement.

We do not allow product returns for product that has been dispensed to a patient.

As we receive inventory reports from the SDs and SP and have the ability to control the amount of product that is sold to the SDs and SP, we estimate future potential product returns based on the on-hand channel inventory data and sell-through data obtained from the SDs and SP.

In arriving at our estimate, we also consider historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

Grant Revenue

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We have determined that the government agencies providing grants to us are not customers.

Grant revenue is recognized when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received.

Grant revenue is recognized when there is reasonable assurance of compliance

with the conditions of the grant and reasonable assurance that the grant revenue will be received.

We recognize grant revenue as reimbursable grant costs are incurred.

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Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, sales and marketing, and other corporate functions.

Other general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, insurance costs, intellectual property and patent costs, facility costs and travel costs.

We expect that selling, general and administrative expenses will increase in the future as we expand our operating activities.

Additionally, we have incurred, and expect to continue to incur, significant additional expenses associated with being a public company that we did not incur as a privately-held company, including (i) costs to comply with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.

Research and Development Expenses

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Research and development expenses consist primarily of:

(i) employee related costs, including salaries, benefits and stock-based compensation expense for employees engaged in scientific research and development functions;

(i) employee related costs, including salaries, benefits and share-based compensation expense for employees engaged in scientific research and development functions;

(ii) third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clinical trial activities;

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Research and development activities are central to our business.

We expect to increase our investment in research and development in order to advance our product candidates through clinical trials.

As a result, we expect that our research and development expenses will increase substantially in the foreseeable future as we continue to invest in research and development activities, pursue clinical development of our product candidates and expand our product candidate pipeline.

We expect to increase our investment in research and development in order to advance FYARRO in additional indications through clinical trials.

As a result, we expect that our research and development expenses will increase substantially in the foreseeable future as we continue to invest in research and development activities, pursue clinical development of FYARRO in additional indications and any other product candidates we may develop in the future and expand our product candidate pipeline.

The process of commercialization and conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming.

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Accordingly, to the extent that our product candidates continue to advance into clinical trials, including larger and later-stage clinical trials, our expenses will increase substantially and may become more variable.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development, sales and marketing, and other corporate functions.

We expect that general and administrative expenses will increase in the future as we expand our operating activities.

Additionally, we will incur significant additional expenses associated with being a public company that we did not incur as a privately-held company, including (i) costs to comply with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities and (v) other administrative and professional services.

Impairment of Acquired Contract Intangible Asset

Impairment of acquired contract intangible asset relates to a write down of the acquired contract intangible asset to fair value.

The contract intangible asset was assessed for recoverability using an undiscounted cash flow model, which resulted in undiscounted cash flows below the carrying amount.

We recognized an impairment of $74.2 million to bring the carrying amount of the contract intangible asset down to its estimated fair value of $3.9 million at August 26, 2021.

The fair value determination of the contract intangible asset was based upon a discounted cash flow valuation of the milestone payments and Monte Carlo valuation for the sales royalties.

Other Income (Expense), Net

Other income (expense) consists of the change in fair value of convertible promissory notes and interest expense related to such notes.

These expenses are partially offset by interest income earned on cash and cash equivalents and gain on extinguishment of debt.

During the year s ending December 31, 2021 and 2020 , we recognized state tax payments as income tax expense on the statement of operations and comprehensive loss .

Since our formation in 2011, we ha ve not recorded any U.S.

During the year ended December 31, 2021, we recognized an impairment of $74.2 million to bring the carrying amount of the contract intangible asset down to its estimated fair value of $3.9 million at August 26, 2021.

During the year ended December 31, 2022, w e recognized an impairment charge of $3.7 million to fully impair the contract intangible asset based on Gossamer's termination of the Gossamer License Agreement as a result of Gossamer not meeting its primary or secondary endpoint in the UC-SHIFT clinical trial.

Cost of Goods Sold

Cost of goods sold consist primarily of royalties paid to BMS, costs incurred on sales of FYARRO and costs to manufacture and prepare the product for sales subsequent to the FDA approval in November 2021.

Costs incurred prior to the FDA approval were expensed when incurred .

Other Income, Net

Other income, net consists of the change in fair value of convertible promissory notes and interest expense related to such notes.

These expenses are partially offset by interest income earned on cash, cash equivalents and short-term investments, and gain on extinguishment of debt.

Income Tax Expense

During the years ending December 31, 2022 and 2021, we recognized zero and $2,000 of income tax expense on the statement of operations and comprehensive loss, respectively.

Since our formation in 2011, we have not recorded any U.S.

federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from those items.

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The following table presents the results of operations for the periods indicated (amounts in thousands):

Years Ended December 31,

Year Ended December 31,

Product sales, net $ 15,216 $ —

License revenue — 1,000

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Operating expenses

Selling, general and administrative 40,176 18,511

Research and development 32,662 19,670

General and administrative

Cost of goods sold 1,335 —

Impairment of acquired contract intangible asset 3,724 74,156

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Loss from operations (62,681) (111,217)

Other income (expense), net

Loss before income taxes

Other income, net 2,168 1,129

Loss before income tax expense (60,513) (110,088)

Income tax expense — (2)

Net and comprehensive loss

Net loss $ (60,513) $ (110,090)

Comparison of Years Ended December 31, 2022 and 2021

Product Sales, Net

Our product sales, net consist of sales of FYARRO since its launch in the United States on February 22, 2022.

Product sales, net for the year ended December 31, 2022 were $15.2 million.

There were no product sales for the year ended December 31, 2021.

License Revenue

License revenue for the years ended December 31, 2021 and 2020 relate to payments received from EOC Pharma as consideration pursuant to the License Agreement.

During the year ended December 31, 2021, we recognized $1.0 million of revenue upon achieving the FDA approval milestone from EOC Pharma as consideration pursuant to the EOC License Agreement.

This revenue was recognized when earned.

During the year ended December 31, 2021, we recognized $1.0 million of revenue upon achieving the FDA approval milestone on November 22, 2021.

During the year ended December 31, 2020, we recognized $14.0 million of revenue, related to the non-refundable upfront payment for the rights and license granted to EOC for the further development and commercialization of FYARRO in the Licensed Territory.

No license revenue was recognized during the year ended December 31, 2022.

Grant Revenue

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Grant revenue decreased by $0.1 million for the year ended December 31, 2022 , compared to the same period in 2021, primarily due to a decrease in the eligible expenses for grant reimbursement incurred during 2022 compared to 2021.

The period for eligible grant reimbursement with the FDA ended during the year ended December 31, 2021 .

There were no new grants during the year ended December 31, 2022 .

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2022 , were $40.2 million, an increase of $21.7 million, compared to $18.5 million for the year ended December 31, 2021.

The increase was driven by the following in support of our increased headcount, commercial and marketing expenses, and expenses related to being a public company.

We expect these expenses to continue to increase to support future launches:

• $13.4 million in personnel related expenses due to increased headcount, incentive bonuses and share-based compensation.

Sales and administrative headcount increased to 32 em ployees at December 31, 2022 from 17 employees at December 31, 2021;

• $4.0 million of legal, insurance and other related expenses;

• $2.9 million of commercial and marketing expenses;

• $1.4 million of consulting exp enses.

Research and Development Expenses

The following table presents our research and development expenses for the periods indicated (amounts in thousands):

Years Ended December 31,

Clinical drug product manufacturing expense

External clinical development expense

Personnel and other expenses

Year Ended December 31,

Personnel expense $ 18,526 $ 4,359

Consultants 4,543 2,458

External clinical development 8,347 5,838

Clinical drug product manufacturing 818 6,646

Other expense 428 369

Total research and development expense $ 32,662 $ 19,670

Research and development expenses for the year ended December 31, 2022 , were $32.7 million, an increase of $13.0 million, compared to $19.7 million for the year ended December 31, 2021.

The increase was primarily driven by a $2.9 million increase in clinical drug manufacturing costs to prepare for our commercial launch of FYARRO, a $1.4 million increase for external clinical development, and a $3.0 million increase in headcount, consultants, and other expenses offset by a reduction of $2.6 million in license fee expense paid to Celgene.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2021 , were $18.5 million, an increase of $16.4 million, compared to $2.1 million for the year ended December 31, 2020 .

The increase was primarily driven by the following in support of our increased headcount, preparation of our commercial launch and expenses related to being a public company.

We expect these expenses to continue to increase as we commercialize FYARRO and future launches:

$2.8 in personnel related expenses due to increased headcount, incentive bonuses and share-based compensation.

Sales and administrative headcount increased to 17 employees at December 31, 2021 from two employees at December 31, 2020;

$2.0 million of compensation related expenses to former Aerpio executives related to the Merger;

$3.6 million of consulting expenses to support the growth of the organization;

$5.4 million of commercialization readiness and marketing expenses;

and $2.6 million of legal, insurance and other office related expenses.

The increase was primarily driven by a $16.3 million increase in expenses related to headcount, consultants, and other expenses, a $2.5 million increase in clinical development expenses related to the PRECISION 1 trial, offset by a $5.8 million decrease related to clinical drug product manufacturing.

Cost of Goods Sold

Cost of goods sold was $1.3 million reflecting primarily royalties incurred on product sold during the year ended December 31, 2022 .

There were no cost of goods sold during the year ended December 31, 2021 .

Impairment of Acquired Contract Intangible Asset

During the year ended December 31, 2021 , as a result of the excess fair value ascribed to the acquired contract intangible asset related to the Merger, we recorded a $74.2 million impairment charge to reduce the carrying value of the intangible asset to its fair value at August 26, 2021.

No impairments were recognized during the year ended December 31, 2020.

Other Income (Expense), Net

The following table sets forth our other income (expense), net:

Years Ended December 31,

During the year ended December 31, 2022 , we recorded a $3.7 million impairment charge to reduce the carrying value of the intangible asset to its fair value of zero, based on a formal notice of termination we received on April 25, 2022 from Gossamer for the Gossamer License Agreement.

The Gossamer License Agreement terminated effective July 24, 2022.

During the year ended December 31, 2021, we recorded a $74.2 million impairment charge to reduce the carrying value of the intangible asset to its fair value to $3.9 million at the Effective Times, as a result of the excess fair value ascribed to the acquired contract intangible asset related to the Merger.

Other Income, Net

The following table sets forth our other income, net:

Year Ended December 31,

Change in fair value of convertible promissory notes $ — $ 1,585

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Interest expense (230) (665)

Total other income (expense)

Other income (expense), net for the year ended December 31, 2021 , were $1.1 million of income, compared to $0.9 million of expense for the year ended December 31, 2020.

The change was primarily driven by an increase of $1.7 million of non-cash income related to the change in fair value of the convertible promissory notes and a $0.2 million gain recognized on the extinguishment of the Paycheck Protection Program loan forgiven by the Small Business Administration in April 2021 .

Total other income $ 2,168 $ 1,129

Other income, net for the year ended December 31, 2022 , was $2.2 million of income, compared to $1.1 million of income for the year ended December 31, 2021 .

The change was primarily driven by interest income of $2.4 million from investment holdings in the year ended December 31, 2022 compared to $1.6 million of non-cash income related to the change in fair value of the convertible promissory notes and a $0.2 million gain recognized on the extinguishment of the Paycheck Protection Program loan forgiven by the Small Business Administration in the year ended December 31, 2021 .

Liquidity and Capital Resources

As of December 31, 2022, we had $172.6 million of cash, cash equivalents and short-term investments.

Prior to and a s of the date of filing this Annual Report on Form 10-K, we had and continue to have access to and control over all our cash, cash equivalents and short-term investments, notwithstanding the closure of Silicon Valley Bank (as discussed below and elsewhere in this Annual Report on Form 10-K).

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into 2025.

We have incurred net losses in each year since inception and as of December 31, 2022, we had an accumulated deficit of $203.2 million.

Our net losses were $60.5 million and $110.1 million for the years ended December 31, 2022 and 2021, respectively.

Additionally, during the year ended December 31, 2021, we recognized a non-cash impairment charge of $74.2 million on the contract intangible asset acquired in the Merger.

We expect to continue to incur significant expenses and operating losses for the foreseeable future due to the cost of research and development, including identifying and designing product candidates and conducting preclinical studies and clinical trials, and the regulatory approval process for our product candidates.

We expect our expenses, and the potential for losses, to increase substantially as we conduct clinical trials of FYARRO, seek to expand our pipeline, and operate as a public company.

From inception through December 31, 2021, we received funding of $25.4 million from our initial seed financing and the sale of Series A convertible preferred stock, $9.1 million from the issuance of convertible promissory notes, $145.4 million, net from the PIPE Financing in connection with the Merger and $29.7 million of cash assumed in the Merger.

As of December 31, 2021, we had $149.0 million of cash and cash equivalents.

Based on our current plans, we believe our existing cash and cash equivalents will enable us to conduct our planned operations into 2024.

The following table summarizes our cash flows for the years presented:

We expect to continue to incur significant expenses and operating losses for the foreseeable future due to the cost of research and development, including conducting preclinical studies and clinical trials, identifying and designing product candidates, the regulatory approval process for FYARRO in additional indications, outside the United States and any other product candidates we may develop in the future, and the commercial launch of FYARRO.

We expect our expenses, and the potential for losses, to increase substantially as we conduct clinical trials of FYARRO, in additional indications and seek to expand our pipeline.

From inception through December 31, 2022, we received funding of $25.4 million from our initial seed financing and the sale of Series A convertible preferred stock, $9.1 million from the issuance of convertible promissory notes, $145.4 million, net from the 2022 PIPE Financing in connection with the Merger, $29.7 million of cash assumed in the Merger, and $72.2 million, net cash proceeds from the 2022 PIPE Financing.

Shelf Registration Statement;

$75M At the Market Offering

On March 17, 2022, we entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), with respect to an “at the market offering” pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock having aggregate gross proceeds of up to $75.0 million through Cowen as our sales agent.

Under the Sales Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number or dollar value of shares that may be sold in any one trading day and any minimum price below which sales may not be made.

We will pay Cowen 3.0% of the aggregate gross proceeds from each sale of shares of common stock under the Sales Agreement.

As of December 31, 2022, no shares of common stock had been sold under the Sales Agreement.

The shares of our common stock to be offered and sold under the Sales Agreement will be issued and sold pursuant to our shelf registration statement on the Form S-3 (File No.

333-255129), which was filed with the SEC on April 8, 2021, and which became effective on April 15, 2021.

We filed a prospectus supplement with the SEC on March 21, 2022 in connection with the offer and sale of the shares pursuant to the Sales Agreement.

The shelf registration statement allows us to sell from time to time up to $150.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for our own account in one or more

The shelf registration statement is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs.

The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

On September 22, 2022, the Company entered into the Purchase Agreement for the 2022 PIPE Financing with the 2022 PIPE Investors for the sale by the Company of 3,373,526 shares of the Company’s common stock for a price of $12.50 per share and Pre-Funded Warrants to purchase an aggregate of 2,426,493 shares of the Company's common stock, at a purchase price of $12.4999 per Pre-Funded Warrant.

The Pre-Funded Warrants are exercisable at an exercise price of $0.0001 and will be exercisable until exercised in full.

The 2022 PIPE Financing closed on September 26, 2022.

Aggregated net proceeds, after deducting certain expenses incurred of $0.3 million related to the issuance of the shares were $72.2 million.

The following table summarizes our cash flows for the years presented (amounts in thousands):

Year Ended December 31,

Net cash used in operating activities $ (49,640) $ (22,423)

Net cash provided by investing activities

Net cash (used in) provided by investing activities (132,886) 25,153

Net cash provided by financing activities 72,620 141,804

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash, cash equivalents and restricted cash $ (109,906) $ 144,534

Operating Activities

Our net cash used in operating activities primarily results from our net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs and employee-related expenditures for research and development and general and administrative activities.

Our cash flows from operating activities will continue to be affected by spending to advance and support our product candidates in the clinic and other operating and general administrative activities, including operating as a public company.

For the year ended December 31, 2021, cash used in operating activities was $22.4 million and resulted from (i) our net loss of $110.1 million offset by non-cash adjustments totaling $75.4 million, which was primarily related to impairment of the acquired contract intangible asset of $74.2 million, and (ii) a $12.3 million net increase in our working capital accounts, primarily driven by the receipt of the $14.0 million upfront payment from EOC under the EOC License Agreement.

For the year ended December 31, 2020, cash used in operating activities was $12.7 million and resulted from (i) our net loss of $3.5 million, and (ii) a $10.5 million net decrease in our working capital accounts, offset by (ii) $1.3 million in non-cash expenses related to interest expense on convertible promissory notes, stock-based compensation expense, lease expense and depreciation and amortization expense.

Our cash used in operating activities primarily results from our net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs and employee-related expenditures for research and development and selling, general and administrative activities.

Our cash flows from operating activities will continue to be affected by spending to commercialize FYARRO in advanced malignant PEComa, advance and support FYARRO in additional indications in the clinic, develop new product candidates, and other operating and general administrative activities, including operating as a public company.

For the year ended December 31, 2022, cash used in operating activities was $49.6 million and resulted from (i) our net loss of $60.5 million, and (ii) a $1.8 million net decrease in our working capital accounts, primarily driven by an increase in accounts receivable and inventory related to the commercial launch of FYARRO in February 2022;

offset by (i) a decrease in accounts payable and accrued expenses, and $12.7 million in non-cash adjustments, which was primarily related to share-based compensation expense, the impairment of the contract intangible asset, and depreciation and amortization expense.

Investing Activities

Cash provided by investing activities for the year ended December 31, 2021 related to cash acquired in connection with the Merger partially offset by transaction related expenses and purchases of property and equipment .

There were no investing activities for the year ended December 31, 2020 .

Cash used in investing activities for the year ended December 31, 2022 related to purchases of short-term investments $145.2 million, offset by maturities of $12.8 million.

Cash provided by investing activities for the year ended December 31, 2021 related to cash acquired in connection with the Merger of $29.7 million offset by $4.5 million of transaction related expenses.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2022 related to $72.5 million gross cash proceeds from our 2022 PIPE Financing, $0.4 million from exercise of stock options and $0.3 million in proceeds from the issuances of stock under the ESPP, offset by $0.7 million of financing costs related to the 2021 PIPE Financing and the 2022 PIPE Financing.

Cash provided by financing activities for the year ended December 31, 2021 includes $155.0 million gross cash proceeds from our 2021 PIPE Financing and $0.8 million from exercise of stock options, partially offset by $9.6 million of issuance costs related to the 2021 PIPE Financing, and $4.4 million of dividends paid to preferred stockholders.

Net cash provided by financing activities for the year ended December 31, 2020 includes $1.0 million related to the issuance of convertible promissory notes and $0.2 million related to proceeds from our PPP Loan.

Contractual Obligations and Commitments

In April 2022, we entered into a lease for 10,615 square feet of office space in Morristown, New Jersey.

The term of the lease is seventy-three months unless terminated sooner.

Rent expense is being recorded on a straight-line basis.

Rent expense related to the Pacific Palisades and Morristown leases was $0.4 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively.

See Note 8 to the consolidated financial statements for details related to future lease payments.

In January 2022, we entered into a Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as amended effective as of August 1, 2022 (the “Fresenius Agreement”), with Fresenius Kabi, LLC (“Fresenius Kabi”), pursuant to which Fresenius Kabi will manufacture FYARRO for us and we will purchase FYARRO as a finished drug product from Fresenius Kabi, on a purchase-order basis.

The Fresenius Agreement contains specific activities such as non-cancellable commitments, minimum purchase commitments, and binding annual forecasts.

Under the Fresenius Agreement, which is effective through March 31, 2024 (or such later date as may be agreed between the parties in writing), we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

In August 2021, we entered into an amendment to extend the lease of our 2,760 square feet of office space in Pacific Palisades, California.

We exercised an option, under our prior lease agreement, to extend the term of the lease for an a dditional three-year period.

We exercised an option, under our prior lease agreement, to extend the term of the lease for an additional three-year period.

Included in the renewal were nine months of rent abatement and a rent escalation clause.

Rent expense is being recorded on a straight- line basis.

Rent expense related to this lease was $0.2 million for each of the years ended December 31, 2021 and December 31, 2020.

On April 9, 2014, we entered into a license agreement (the “Celgene License Agreement”) with Celgene for exclusive rights for certain patents and a non-exclusive license for certain technology and know-how pertaining to FYARRO.

On November 15, 2019, we entered into an amendment to the Celgene License Agreement (“Amended Celgene License Agreement”) to terminate certain of Celgene’s FYARRO product supply obligations and to transfer control over certain regulatory filings under the original Celgene License Agreement to us.

This amendment also waived the obligations related to certain development milestone payments and waived the liability related to 2016 and 2017 licensed drug manufacturing costs.

On August 30, 2021, we entered into Amendment No.

1 (the “Amendment”) to the Amended Celgene License Agreement related to certain intellectual property rights of Celgene pertaining to the compound known as FYARRO.

Celgene is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees.

On December 8, 2020, we entered into a license agreement (“EOC License Agreement”) with EOC Pharma (Hong Kong) Limited (“EOC”) for the rights and licenses granted to EOC by us for the further development and commercialization of FYARRO in the People’s Republic of China, Hong Kong Special Administration Region, Macao Special Administrative Region and Taiwan (the “Licensed Territory”).

In accordance with the Celgene License Agreement, we are required to pay 20% of all sublicense fees to Celgene.

On January 13, 2022, we entered into a Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product (the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”) pursuant to which Fresenius Kabi will manufacture FYARRO for us, and we will purchase FYARRO as a finished drug product from Fresenius Kabi, on a purchase-order basis.

Under the Agreement, which shall be effective through December 22, 2022 (or such later date as may be agreed between the parties in writing and currently being discussed), we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

In addition to manufacturing, Fresenius Kabi will perform specified labeling, packaging and serialization activities in respect of FYARRO for our benefit.

The price of FYARRO will be fixed, subject to the ability of Fresenius Kabi to increase pricing under specified circumstances.

We have an obligation to purchase certain minimum quantities of FYARRO.

Failure to purchase those minimum quantities will result in an additional payment from us to Fresenius Kabi.

We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage clinical trial activities and manufacturing companies to manufacture the drug product used in the clinical trials.

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In the event of a cancellation, we would be liable for the cost and expenses incurred to date as well as any close out costs of the service arrangement.

With respect to our obligations under the CVR Agreement, certain events specified in the CVR Agreement need to occur for us to receive funds, and it is currently uncertain whether any funds will be received under the CVR Agreement.

We do not have any commitment or obligation under the CVR Agreement unless and until funds are received.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial position and results of consolidated operations are based on consolidated financial statements prepared in accordance with GAAP.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures.

On an ongoing basis, we evaluate our estimates and judgments, including those related to prepaid and accrued research and development expenses, revenue recognition and stock-based compensation.

We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

These accounting principles require us to make certain estimates, judgements and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.

To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.

Historically, revisions to our estimates have not resulted in a material change to our financial statements.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that we determine are within the scope of ASC Topic 606, Revenue from Contracts with Customer (“Topic 606”), the following five steps are performed:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy a performance obligation.

Net Product Sales

We sell our product primarily through a limited number of specialty distributors (SDs) and specialty pharmacy (SP) customers.

The delivery of our product represents a single performance obligation for these transactions, and we record net product sales when control is transferred to the customer, which occurs upon receipt by the customer.

The transaction price for net product sales represents the amount we expect to receive, which is net of estimated distribution fees, government-mandated rebates, chargebacks, co-payment assistance, and estimated product returns.

Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals.

We reflect these accruals as either a reduction in the related account receivable from the distributor or as an accrued liability, depending on the nature of the sales deduction.

Sales deductions are based on management's estimates that consider channel mix and experience to date.

Estimates are assessed periodically and updated to reflect current information.

These estimates involve a substantial degree of judgment, in particular, for government-mandated rebates and chargebacks, such as for the Medicaid and 340B programs.

Research and Development Costs

We incur substantial expenses associated with clinical trials.

Accounting for clinical trials relating to activities performed by CROs and other external vendors requires us to exercise significant estimates in regard to the timing and accounting for these expenses.

We estimate costs of research and development activities conducted by service providers, which include, the conduct of preclinical studies, contract manufacturing activities and clinical activities.

The diverse nature of services being provided under CRO and other vendor arrangements, the different terms and milestone arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs and other vendors in connection with clinical trials.

We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in the accrued and other current liabilities or prepaid expenses, as applicable, on the balance sheets and within research and development expense on the consolidated statements of operations and comprehensive loss.

In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, payment arrangements and services rendered attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.

We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers.

We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period.

As actual costs become known, we adjust our estimates and related accounts on the balance sheet.

We have not experienced any material differences between accrued costs and actual costs incurred since our inception.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that may be used to conduct and manage clinical trials on our behalf.

We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity.

If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

Share-Based Compensation

We recognize all share-based payments to employees, including grants of employee stock options in the consolidated statements of operations and comprehensive loss based on their fair values.

All of our share-based awards, to employees, non-employees, officers, and directors, are subject only to service-based vesting conditions.

We estimate the fair value of our share-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate based on the U.S.

Treasury yield in effect at the time of the grant for zero-coupon U.S.

treasury notes with maturities approximately equal to the expected term of the stock options and (iv) expected dividends.

Options granted during the year have a maximum contractual term of ten years.

Forfeitures are recognized and accounted for as they occur.

Due to the historical lack of a public market for the trading of our common stock following the Merger and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to ours, including stage of product development and life science industry focus.

We believe the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of us.

We have limited historical stock option activity and therefore estimate the expected term of stock options granted to employees, officers, and directors using the simplified method, which represent the average of the contractual term of the stock option and its weighted-average vesting period, to calculate the expected term, as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees, and utilize the contractual term for options granted to non-employees.

The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population.

Compensation expense related to awards to employees is calculated on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term.

For the years ended

December 31, 2022 and 2021, we recognized share‑based compensation expense, net of estimated forfeitures, in the statements of operations and comprehensive loss as follows (amounts in thousands):

Year Ended December 31,

Selling, general and administrative $ 6,333 $ 1,449

Research and development 3,310 657

Total $ 9,643 $ 2,106

As of December 31, 2022, total unamortized share‑based compensation was $28.8 million which we expect to recognize over a weighted average period of 2.7 years.

The intrinsic value of all out standing stock options as of December 31, 2022 w as $2.8 million.

Merger and Acquired Contractual Intangible Asset

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As a result, we performed a valuation of the acquired contract intangible asset and recognized an impairment of $74.2 million to adjust the carrying amount of the contractual intangible asset to its estimated fair value of $3.9 million.

During the year ended December 31, 2022, upon receipt of the Notice of Termination, we impaired the contract intangible asset by $3.7 million to its estimated fair value of zero based on receipt of the formal notice of termination from Gossamer for the Gossamer License Agreement.

The license agreement with Gossamer Bio.

includes potential payments to us in the event of certain development and commercialization milestones and sales-based royalties.

Our fair value determination of the intangible asset utilized a scenario-based, risk-adjusted, discounted cash flow model with respect to the potential development milestone payments and a Monte Carlo option-pricing model with respect to the sales-based milestone and royalty payments:

Our fair value determination of the intangible asset utilized a

scenario-based, risk-adjusted, discounted cash flow model with respect to the potential development milestone payments and a Monte Carlo option-pricing model with respect to the sales-based milestone and royalty payments:

• We determined fair value of the potential development milestone payments under the license agreement with inputs based on certain subjective assumptions, including (a) the probability of clinical success determined with reference to various academic studies reporting probabilities of approval for clinical trials;

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and (e) a revenue metric risk premium determined with reference to a long-term risk-free rate, a weighted-average cost of capital, revenue volatility and asset volatility.

Research and Development Costs

We incur substantial expenses associated with clinical trials.

We estimate costs of research and development activities conducted by service providers, which include, the conduct of preclinical studies, contract manufacturing activities and clinical activities.

We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period.

As actual costs become known, we adjust our estimates and related accounts on the balance sheet.

We have not experienced any material differences between accrued costs and actual costs incurred since our inception.

We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity.

Revenue Recognition

We account for revenue related to the EOC License Agreement and Grant Revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, we recognize revenue when the defined customer, under ASC 606, transfers promised goods or services in an amount that reflects the consideration

to which we expect to be entitled in exchange for goods or services.

To determine revenue recognition for contracts with customer s, we perform the following five steps:

(i) identif y the promised goods or services in the contract;

(ii) identif y the performance obligation in the contract, including whether they are distinct in the context of the contract;

(iii) determine the transaction price, including the constraint on variable consideration;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisf y the performance obligation.

W e recognize revenue when our customer obtains control of promised goods or services in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

We only apply the five-step model to contracts when it is probable that we will collect consideration to which we are entitled in exchange for the goods or services we transfer to the customer.

Stock‑Based Compensation

We recognize all stock-based payments to employees, including grants of employee stock options in the consolidated statements of operations and comprehensive loss based on their fair values.

All of our share-based awards, to employees, non-employees, officers, and directors, are subject only to service-based vesting conditions.

We estimate the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate based on the U.S.

Treasury yield in effect at the time of the grant for zero-coupon U.S.

treasury notes with maturities approximately equal to the expected term of the stock options and (iv) expected dividends.

Options granted during the year have a maximum contractual term of ten years.

Forfeitures are recognized and accounted for as they occur.

Due to the historical lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

We believe the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of us.

The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population.

For the years ended December 31, 2021 and December 31, 2020, we recognized stock‑based compensation expense, net of estimated forfeitures, in the statements of operations and comprehensive loss as follows (amounts in thousands):

Year Ended December 31,

Research and development

General and administrative

As of December 31, 2021, total unamortized stock‑based compensation was $22.1 million which we expect to recognize over a weighted average period of 2.9 years.

The intrinsic value of all outstanding stock options as of December 31, 2021 was $10.0 million.

We have accounted for income taxes using the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax

assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance against deferred tax assets is recorded if, based upon the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized .

When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances.

We recognize interest and penalties related to uncertain tax positions, if any exist, in income tax expense.

During the years ending December 31, 2021 and 2020, we recognized state tax payments as income tax expense on the statement of operations and comprehensive loss.

Since our formation in 2011, we have not recorded any U.S.

federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from those items.

Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.

The deferred tax assets were primarily comprised of federal and state tax net operating losses (“NOL”).

Pursuant to Section 382 and 383 of the Internal Revenue Code (“IRC”), utilization of our NOL carryforwards and research and development credits may be subject to annual limitations in the event of any significant future changes in our ownership structure.

These annual limitations may result in the expiration of NOL carryforwards and research and development credits prior to utilization.

As of December 31, 2021, we have completed an IRC Section 382 analysis through the date of the Merger.

Ownership changes were identified that will result in annual limitations on future utilization of NOLs and research and development credit carryforwards.

To the extent such limitations will cause NOL and R&D credit carryforwards to expire unused, these tax attributes have been removed from deferred tax assets.

As of December 31, 2021, we have federal and state net operating loss carryforwards of approximately $150.9 million and $55.8 million, respectively.

We also have federal and state research credit carryforwards of approximately $3.1 million and $1.7 million, respectively, as of December 31, 2021.

Ownership changes may occur in the future which can result in future limitations of the available NOL and R&D credit carryforwards.

JOBS Act Accounting Election

We are an “emerging growth company” within the meaning of the JOBS Act.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis