What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-09 · 137 added, 112 removed, 606 unchanged (29% of the section changed)

3 unchanged sentences

(In thousands, except share data and par value)

September 30,

2023 December 31,

15 unchanged sentences

Operating lease liabilities, current portion 423 394

Due to licensor payable (Note 8) 5,757 —

Total current liabilities 20,517 18,835

5 unchanged sentences

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized;

issued and outstanding as of June 30, 2023 and December 31, 2022

issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $ 0.0001 par value;

300,000,000 shares authorized;

and 24,435,007 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

and 24,435,007 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 370,904 361,689

7 unchanged sentences

(In thousands, except share data and earnings per share amounts)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

16 unchanged sentences

Net loss $ ( 16,302 ) $ ( 14,474 ) $ ( 49,496 ) $ ( 46,600 )

Other comprehensive loss:

Other comprehensive income (loss):

Change in unrealized loss on short-term investments 28 ( 99 ) 99 ( 99 )

Comprehensive loss $ ( 17,983 ) $ ( 18,269 ) $ ( 33,123 ) $ ( 32,126 )

Comprehensive income (loss) $ ( 16,274 ) $ ( 14,573 ) $ ( 49,397 ) $ ( 46,699 )

Net loss per share, basic and diluted $ ( 0.60 ) $ ( 0.68 ) $ ( 1.84 ) $ ( 2.21 )

4 unchanged sentences

(In thousands, including share amounts)

For the Three and Six Months Ended June 30, 2023

For the Three and Nine Months Ended September 30, 2023

Stockholders' Equity

6 unchanged sentences

Issuance of common stock upon exercise of stock options 2 — 8 — — 8

Change in unrealized gain (loss) on investments, net of tax — — — 83 — 83

Unrealized gain on investments, net of tax — — — 83 — 83

Net loss — — — — ( 15,223 ) ( 15,223 )

3 unchanged sentences

Issuance of shares under the employee stock purchase plan 49 — 294 — — 294

Change in unrealized gain (loss) on investments, net of tax — — — ( 12 ) — ( 12 )

Unrealized loss on investments, net of tax — — — ( 12 ) — ( 12 )

Net loss — — — — ( 17,971 ) ( 17,971 )

Balance at June 30, 2023 24,520 $ 2 $ 367,853 $ ( 44 ) $ ( 236,392 ) $ 131,419

For the Three and Six Months Ended June 30, 2022

Share-based compensation expense — — 3,049 — — 3,049

Issuance of common stock upon exercise of stock options 6 — 2 — — 2

Unrealized gain on investments, net of tax — — — 28 — 28

Net loss — — — — ( 16,302 ) ( 16,302 )

Balance at September 30, 2023 24,526 $ 2 $ 370,904 $ ( 16 ) $ ( 252,694 ) $ 118,196

For the Three and Nine Months Ended September 30, 2022

Stockholders' Equity

13 unchanged sentences

Balance at June 30, 2022 21,017 $ 2 $ 283,539 $ — $ ( 174,811 ) $ 108,730

Share-based compensation expense — — 2,757 — — 2,757

Issuance of common stock upon exercise of stock options 5 — 16 — — 16

Private placement, net of transaction costs 3,373 — 72,178 — — 72,178

Other comprehensive loss — — — ( 99 ) — ( 99 )

Net loss — — — — ( 14,474 ) ( 14,474 )

Balance at September 30, 2022 24,395 $ 2 $ 358,490 $ ( 99 ) $ ( 189,285 ) $ 169,108

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

14 unchanged sentences

Accounts payable and accrued liabilities ( 4,947 ) 1,917

Other liabilities — 109

Net cash used in operating activities ( 50,019 ) ( 38,330 )

5 unchanged sentences

Cash flows from financing activities:

Proceeds from sale of common stock and prefunded warrants — 72,500

Issuance of common stock upon exercise of stock options 78 396

10 unchanged sentences

Supplemental disclosure of non-cash activities:

Costs incurred in connection with Private Placement included in accounts payable $ — $ 322

Deferred transaction costs included in accounts payable and accrued liabilities $ 9 $ 75

16 unchanged sentences

The Company has experienced net losses since its inception and expects to continue to incur net losses into the foreseeable future.

The Company had an accumulated deficit of $ 236.4 million as of June 30, 2023.

For the three months ended June 30, 2023 and 2022, the Company had a net loss of $ 18.0 million and $ 18.3 million, respectively.

For the six months ended June 30, 2023 and 2022, the Company had a net loss of $ 33.2 million and $ 32.1 million, respectively.

The Company had an accumulated deficit of $ 252.7 million as of September 30, 2023.

For the three months ended September 30, 2023 and 2022, the Company had a net loss of $ 16.3 million and $ 14.5 million, respectively.

For the nine months ended September 30, 2023 and 2022, the Company had a net loss of $ 49.5 million and $ 46.6 million, respectively.

To date, these operating losses have been funded primarily from outside sources of invested capital through the issuance of convertible promissory notes, grant funding, the sale of securities, and proceeds from license agreements.

The Company had cash, cash equivalents and short-term investments of $ 134.9 million at June 30, 2023.

The Company had cash, cash equivalents and short-term investments of $ 119.3 million at September 30, 2023.

Management believes the Company’s current cash, cash equivalents and short-term investments will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.

4 unchanged sentences

Any sales under the Sales Agreement may result in dilution to existing shareholders.

As of June 30, 2023 , no shares of common stock had been sold under this Sales Agreement.

As of September 30, 2023 , no shares of common stock had been sold under this Sales Agreement.

Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements, and the related disclosures, have been prepared in accordance with GAAP and SEC regulations and, in the opinion of management include all adjustments necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity and cash flows for each period presented.

The unaudited condensed consolidated financial statements, and the related disclosures, have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP")and U.S.

Securities and Exchange Commission ("SEC") regulations and, in the opinion of management include all adjustments necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity and cash flows for each period presented.

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

29 unchanged sentences

Customer Concentration

For the three months ended June 30, 2023 and 2022, two customers represented 55 % and 45 %, and 47 % and 50 % of the Company's revenue, respectively.

For the six months ended June 30, 2023 and 2022, two customers represented 53 % and 46 %, and 47 % and 51 % of the Company’s revenue, respectively.

Additionally, two customers accounted for 78 % and 22 % of net accounts receivable as of June 30, 2023.

For the three months ended September 30, 2023 and 2022, two customers represented 56 % and 44 %, and 55 % and 45 % of the Company's revenue, respectively.

For the nine months ended September 30, 2023 and 2022, two customers represented 54 % and 46 %, and 50 % and 48 % of the Company’s revenue, respectively.

Additionally, two customers accounted for 61 % and 39 % of net accounts receivable as of September 30, 2023.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid marketable securities purchased with original maturities of three months or less at the time of purchase date to be cash equivalents.

As of June 30, 2023 and December 31, 2022, cash and cash equivalents including money market investments totaled $ 67.0 million and $ 32.0 million, respectively.

As of September 30, 2023 and December 31, 2022, cash and cash equivalents including money market investments totaled $ 66.3 million and $ 32.0 million, respectively.

Restricted cash consists of a letter of credit secured by restricted cash in connection with one of the Company's office leases described in Note 7, and is included in other assets on the condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 68,803 $ 39,019

13 unchanged sentences

In the case fair value is not observable, for the items subject to fair value measurements, the Company applies valuation techniques deemed the most appropriate under the GAAP guidance based on the nature of the assets and liabilities being measured.

The carrying amounts of cash equivalents, accounts receivable, prepaid expenses and other current assets, and accounts payable are reasonable estimates of their fair value because of the short maturity of these items.

The carrying amounts of cash equivalents, accounts receivable, accounts payable, accrued liabilities, and due to licensor payable are reasonable estimates of their fair value because of the short maturity of these items.

Short-Term Investments

8 unchanged sentences

The Company records changes in allowance for expected credit loss in other income (expense).

There have been no allowance for expected credit losses recorded during any of the periods presented.

There has been no allowance for expected credit losses recorded during any of the periods presented.

See Note 4 for further information.

5 unchanged sentences

terms of the customer contracts.

As of June 30, 2023 and December 31, 2022, recorded customer allowances for chargebacks were $ 1.2 million and $ 0.1 million, respectively.

There were no allowances for credit losses and no receivables were written off for the periods ended June 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, recorded customer allowances for chargebacks were $ 1.5 million and $ 0.1 million, respectively.

There were no allowances for credit losses and no receivables were written off for the periods ended September 30, 2023 and December 31, 2022, respectively.

Inventory is stated at the lower of cost or estimated net realizable value.

3 unchanged sentences

Details of inventory are presented as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Raw materials $ 2,292 $ 944

3 unchanged sentences

Property and Equipment, Net

Property and equipment, consisting of computers, furniture and fixtures, office equipment, construction in process and leasehold improvements are stated at cost, less accumulated depreciation.

Property and equipment, consisting of computers and software, construction in process, furniture and fixtures, lab equipment, and leasehold improvements are stated at cost, less accumulated depreciation.

Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three to five years .

1 unchanged sentence

Details of property and equipment are presented as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Computers and software $ 405 $ 338

1 unchanged sentence

Furniture and fixtures 65 65

Lab equipment 25 —

Leasehold improvements 128 129

12 unchanged sentences

Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate

incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment.

As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment.

For finance leases, depreciation expense is recognized for the leased asset acquired and interest expense is recognized related to the portion of the financing in the condensed consolidated statements of operations and comprehensive loss .

6 unchanged sentences

When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range.

The Company has not recorded any such liabilities as of June 30, 2023 and December 31, 2022 .

The Company has no t recorded any such liabilities as of September 30, 2023 and December 31, 2022 .

Revenue Recognition and Related Allowances

27 unchanged sentences

Co-Payment Assistance:

The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirement.

The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements.

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

The Company estimated amounts are compared to

actual program participation and co-pay amounts paid using data provided by third-party administrators.

The Company 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.

4 unchanged sentences

In arriving at its estimate, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

The total amount deducted from gross product sales for the allowances described above for the three months ended June 30, 2023, and 2022, was $ 1.1 million and $ 0.6 million, respectively, and for the six months ended June 30, 2023 and 2022 was $ 2.1 million and $ 1.0 million, respectively.

The total amount deducted from gross product sales for the allowances described above for the three months ended September 30, 2023, and 2022, was $ 1.3 million and $ 0.8 million, respectively, and for the nine months ended September 30, 2023 and 2022 was $ 3.4 million and $ 1.8 million, respectively.

The following table sets forth the changes in the accrued revenue allowances (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

2 unchanged sentences

Payments ( 550 ) ( 500 ) ( 2,187 ) ( 688 )

Balance at June 30, 2023 $ 1,927 $ 825 $ 1,927 $ 825

Balance at End of Period $ 2,646 $ 1,075 $ 2,646 $ 1,075

Research and Development

14 unchanged sentences

The Company believes the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of the Company.

The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted to employees, officers, and directors using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period, to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees, and utilizes the contractual term for options granted to non-employees.

The expected term is applied

to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population.

term of the stock option and its weighted-average vesting period, to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees, and utilizes the contractual term for options granted to non-employees.

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

The risk-free interest rate is based on the U.S.

14 unchanged sentences

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period.

Basic and diluted weighted average shares of common stock outstanding for the three and six months ended June 30, 2023, includes the weighted average effect of 2,426,493 Pre-Funded Warrants (as defined below), which were issued in September 2022, for the purchase of shares of common stock, for which the remaining unfunded exercise price is $ 0.0001 per share.

Basic and diluted weighted average shares of common stock outstanding for the three and nine months ended September 30, 2023, includes the weighted average effect of 2,426,493 Pre-Funded Warrants (as defined below), which were issued in September 2022, for the purchase of shares of common stock, for which the remaining unfunded exercise price is $ 0.0001 per share.

Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares and common share equivalents outstanding for the period.

2 unchanged sentences

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive (in thousands):

Six Months Ended June 30,

Three and Nine Months Ended September 30,

Options to purchase common stock 4,117 2,938

8 unchanged sentences

In 2016, the FASB issued ASU 2016-13 “ Financial Instruments - Credit Losses” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model which will be based on an estimate of current expected credit loss;

provides for recording credit losses on available-for-sale debt securities through an allowance account.

and (ii) provides for recording credit losses on available-for-sale debt securities through an allowance account.

The standard also requires certain incremental disclosures.

4 unchanged sentences

The following table sets forth the recurring fair value of the Company’s financial assets and liabilities, allocated into the Level 1, Level 2 and Level 3 hierarchy that were measured at fair value on a recurring basis (in thousands):

Fair Value Measurements as of June 30, 2023

Fair Value Measurements as of September 30, 2023

Level 1 Level 2 Level 3 Total

14 unchanged sentences

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

As of June 30, 2023, net unrealized loss on investments was $ 44,000 .

All marketable securities had a contractual maturity of less than one year as of June 30, 2023.

As of September 30, 2023, net unrealized loss on investments was $ 16,000 .

All marketable securities had a contractual maturity of less than one year as of September 30, 2023.

Short-Term Investments and Cash Equivalents

The following table summarizes the Company's short-term investments (in thousands):

As of June 30, 2023

As of September 30, 2023

Maturity (In Years) Amortized Cost Unrealized Gains Unrealized Losses Fair Value

27 unchanged sentences

Based on the termination of the Gossamer License Agreement, the Company fully impaired the intangible asset, $ 3.7 million, of which the Gossamer License Agreement is the underlying asset, during the year ended December 31, 2022.

There was no amortization expense for the three and six months ended June 30, 2023.

Amortization expense was $ 19,000 and $ 87,000 for the three and six months ended June 30, 2022.

The following table shows the amortization expense and impairment of the finite lived intangible asset for the six months ended June 30, 2022 (in thousands):

There was no amortization expense for the three and nine months ended September 30, 2023.

Amortization expense was $ 0 and $ 87,000 for the three and nine months ended September 30, 2022.

The following table shows the amortization expense and impairment of the finite lived intangible asset for the nine months ended September 30, 2022 (in thousands):

September 30,

Intangible asset, December 31, 2021 $ 3,811

4 unchanged sentences

Details of accrued liabilities are presented as follows (in thousands):

September 30,

2023 December 31,

8 unchanged sentences

Total accrued liabilities $ 11,732 $ 14,922

Operating Lease

Operating Leases

In April 2019, the Company entered into a twenty-eight month facility lease agreement for office space in Pacific Palisades, California (the “Pacific Palisades Lease”).

6 unchanged sentences

Included in the Morristown Lease are fixed rent escalations of approximately 2 % on each anniversary year of the lease term.

The following table summarizes information related to the Company’s lease (in thousands):

June 30, 2023 December 31, 2022

The following table summarizes information related to the Company’s leases (in thousands):

September 30, 2023 December 31, 2022

Operating lease right-of-use assets $ 1,260 $ 1,522

2 unchanged sentences

Total operating lease liabilities $ 1,369 $ 1,661

Rent expense for the three and six months ended June 30, 2023 and 2022 is presented on the following table (in thousands):

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

Rent expense for the three and nine months ended September 30, 2023 and 2022 is presented on the following table (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Operating leases rent expense $ 115 $ 112 $ 346 $ 270

Cash paid for leases and included in operating cash flows for the six months ended June 30, 2023 and 2022 is presented on the following table (in thousands):

Six Months Ended June 30,

Cash paid for leases and included in operating cash flows for the nine months ended September 30, 2023 and 2022 is presented on the following table (in thousands):

Nine Months Ended September 30,

Cash paid included in operating cash flows $ 375 $ 170

The future minimum lease payments required under the operating lease as of June 30, 2023, are summarized below (in thousands):

The future minimum lease payments required under the operating leases as of September 30, 2023, are summarized below (in thousands):

Future Minimum Lease Payments:

10 unchanged sentences

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

The BMS License Agreement will remain in effect from the effective date of April 9, 2014 until expiration of all milestone and royalty payment obligations under the agreement, unless terminated by either of the parties upon giving an advance notice as specified in the BMS License Agreement.

The BMS License Agreement will remain in effect from the effective date of April 9, 2014 until expiration of all milestone and royalty payment obligations under the agreement, unless terminated by either of the parties pursuant to the terms of the BMS License Agreement, including providing advance notice as specified in the agreement.

Under the terms of the BMS License Agreement, BMS agreed to supply the Company with licensed products of FYARRO necessary for clinical or non-clinical development.

Under the terms of 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 three months ended June 30, 2023 and 2022, royalties on net product sales were $ 0.5 million and $ 0.2 million, respectively.

During the six months ended June 30, 2023 and 2022, royalties on net product sales were $ 0.9 million and $ 0.4 million, respectively.

No payments related to development milestones were paid during the three and six months ended June 30, 2023 or 2022.

During the three months ended September 30, 2023 and 2022, royalties on net product sales were $ 0.4 million and $ 0.3 million, respectively.

During the nine months ended September 30, 2023 and 2022, royalties on net product sales were $ 1.3 million and $ 0.7 million, respectively.

No payments related to development milestones were paid during the three and nine months ended September 30, 2023 or 2022.

On August 30, 2021, the Company and BMS entered into Amendment No.

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

Under the terms of the Amendment, the Company paid BMS $ 5.8 million representing 50 % of the previously outstanding payment obligation under the terms of the BMS License Agreement, following the effective time of the 2021 private investment in public equity financing (the “2021 PIPE Financing”).

investment in public equity financing (the “2021 PIPE Financing”).

Pursuant to the terms of the Amendment, the remaining previously outstanding payment obligation of $ 5.8 million, is due on the third anniversary of the effective time of the 2021 PIPE Financing, or August 26, 2024 plus any accrued and unpaid interest due thereon (the “Balloon Payment”).

Balloon Payment shall accrue interest, beginning August 26, 2021 until paid in full, at a rate equal to 4.00 % per annum based on the weighted average amount outstanding during the applicable calendar quarter, and interest is payable quarterly in arrears.

The Balloon Payment shall accrue interest, beginning August 26, 2021 until paid in full, at a rate equal to 4.00 % per annum based on the weighted average amount outstanding during the applicable calendar quarter, and interest is payable quarterly in arrears.

In addition, the parties agreed to amend the royalty rates payable to BMS based on net sales of products subject to the BMS License Agreement.

2 unchanged sentences

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

On June 27, 2022, the Company received written notice from EOC that EOC elected to terminate the EOC License Agreement, effective immediately, due to alleged material breaches by the Company under such agreement.

The Company disagrees with, and continues to dispute, EOC’s allegations of material breach and does not believe that EOC had a right to terminate the EOC License Agreement for material breach, and accordingly believes that the termination of the EOC License Agreement is a termination for convenience.

EOC had the right to terminate the agreement for convenience upon 120 days advance written notice.

The Company waived such notice period in connection with EOC's termination notice and, as a result, the EOC License Agreement was terminated effective June 27, 2022.

Either party had the right to terminate the EOC License Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement.

The Company assessed the EOC License Agreement and concluded that EOC was a customer and identified the license of ABI-009 provided to EOC as the sole performance obligation.

The Company assessed the EOC License Agreement and concluded that EOC was a customer and 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.

6 unchanged sentences

In accordance with the BMS License Agreement, 20 % of the $ 1.0 million payment, or $ 0.2 million, was accrued at December 21, 2021, and paid in January 2022.

EOC had the right to terminate the agreement for convenience upon 120 days advance written notice.

The Company waived such notice period in connection with EOC's termination notice and, as a result, the EOC License Agreement was terminated effective June 27, 2022.

Stockholders’ Equity (Deficit)

Preferred Stock

As of June 30, 2023 and December 31, 2022 , under the Company’s certificate of incorporation, as amended and restated, the Company has 10,000,000 shares of preferred stock, par value $ 0.0001 per share, in authorized capital with no shares outstanding.

As of September 30, 2023 and December 31, 2022 , under the Company’s certificate of incorporation, as amended and restated, the Company has 10,000,000 shares of preferred stock, par value $ 0.0001 per share, in authorized capital with no shares outstanding.

Common Stock and Pre-Funded Warrants

As of June 30, 2023 and December 31, 2022, the Company had 300,000,000 shares of authorized common stock, par value of $ 0.0001 per share under the Company's certificate of incorporation, as amended and restated.

As of June 30, 2023 and December 31, 2022, the shares of common stock outstanding were 24,519,860 and 24,435,007 , respectively.

As of September 30, 2023 and December 31, 2022, the Company had 300,000,000 shares of authorized common stock, par value of $ 0.0001 per share, under the Company's certificate of incorporation, as amended and restated.

As of September 30, 2023 and December 31, 2022, the shares of common stock outstanding were 24,525,860 and 24,435,007 , respectively.

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

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

As of June 30, 2023 , no shares of common stock had been sold pursuant to the Sales Agreement.

Investors”) for the sale by the Company of (i) 3,373,526 shares of the Company’s common stock for a price of $ 12.50 per share and (ii) pre-funded warrants to purchase an aggregate of 2,426,493 shares of the Company's common stock (the "Pre-Funded Warrants") at a purchase price of $ 12.4999 per Pre-Funded Warrant.

The Company will pay Cowen 3.0 % of the aggregate gross proceeds from each sale of shares of

common stock under the Sales Agreement.

As of September 30, 2023 , no shares of common stock had been sold pursuant to the Sales Agreement.

On September 22, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) for a private investment in public equity financing (the “2022 PIPE Financing”) with certain investors (the “2022 PIPE Investors”) for the sale by the Company of (i) 3,373,526 shares of the Company’s common stock for a price of $ 12.50 per share and (ii) pre-funded warrants to purchase an aggregate of 2,426,493 shares of the Company's common stock (the "Pre-Funded Warrants") 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.

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

On September 22, 2022, the Company and the 2022 PIPE Investors entered into a Registration Rights Agreement (the “2022 PIPE Registration Rights Agreement”) providing 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, that are not then registered on an effective registration statement, pursuant to a registration statement filed with the SEC.

The Pre-Funded Warrants meet the criteria to be classified within stockholders’ equity.

As of June 30, 2023, all Pre-Funded Warrants are still outstanding.

As of September 30, 2023, all Pre-Funded Warrants are still outstanding.

The holders of common stock are entitled to receive cash dividends, if and when declared by the board of directors of the Company (the “board of directors”).

11 unchanged sentences

In connection with the closing of the Merger, the Company assumed the Aerpio 2011 Equity Incentive Plan (the “2011 Plan”) and the Aerpio 2017 Stock Option and Incentive Plan (the “2017 Plan,” and together with the 2011 Plan, the “Prior Plans”).

No new awards will be granted under the Prior Plans effective as of the closing of the Merger and adoption of the 2021 Plan (as defined below).

No new awards will be granted under the Prior Plans effective as of the closing of the Merger and the adoption of the 2021 Plan (as defined below).

At the closing of the Merger, the Company adopted the Aadi Bioscience, Inc.

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Subject to the adjustment provisions contained in the 2021 Plan and the evergreen provision described below, a total of 2,070,784 shares of common stock were initially reserved for issuance pursuant to the 2021 Plan.

In addition, the shares reserved for issuance under the 2021 Plan include any shares of common stock (i) subject to awards of stock options or other awards granted under the Prior Plans that expire or otherwise terminate without having been exercised in full and shares of common stock granted under the Prior Plans that are forfeited or repurchased by the Company, and (ii) any shares of common stock subject to stock options or similar awards granted under the Private Aadi Plan that were assumed in the Merger (provided that the maximum number of shares that may be added to the 2021 Plan pursuant to this sentence is 764,154 shares).

shares of common stock granted under the Prior Plans that are forfeited or repurchased by the Company, and (ii) any shares of common stock subject to stock options or similar awards granted under the Private Aadi Plan that were assumed in the Merger (provided that the maximum number of shares that may be added to the 2021 Plan pursuant to this sentence is 764,154 shares).

The number of shares available for issuance under the 2021 Plan will include an annual increase, or the evergreen feature, on the first day of each of the Company’s fiscal years, beginning with the Company’s fiscal year 2022, equal to the least of:

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• such number of shares as the board of directors or its designated committee may determine.

As a result of the evergreen increase, a total of 977,400 shares were added to the 2021 Plan on January 1, 2023.

As a result of the evergreen increase, a total of 977,400 shares of common stock were added to the 2021 Plan on January 1, 2023.

Shares issuable under the 2021 Plan are authorized, but unissued, or reacquired shares of common stock.

If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased by the combined company due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated).

As of June 30, 2023, 262,454 , 99,025 and 3,723,886 shares were outstanding under the Private Aadi Plan, 2017 Plan and 2021 Plan, respectively.

As of June 30, 2023, no shares were outstanding under the 2011 Plan.

The following table summarizes the stock option activity during the six months ended June 30, 2023:

2023 Inducement Equity Incentive Plan

On September 27, 2023 the Company adopted the 2023 Inducement Equity Incentive Plan (the “Inducement Plan”), pursuant to which the Company may from time to time make equity grants to new employees as a material inducement to their employment.

The Company reserved 600,000 shares of common stock for issuance under the Inducement Plan.

The only persons eligible to receive awards under the Inducement Plan are individuals who are new employees and satisfy the standards for inducement grants under applicable Nasdaq listing rules.

As of September 30, 2023, 256,456 , 99,025 and 3,761,029 shares were outstanding under the Private Aadi Plan, 2017 Plan and 2021 Plan, respectively.

As of September 30, 2023, no shares were outstanding under the 2011 Plan and the 2023 Inducement Equity Incentive Plan.

The following table summarizes the stock option activity during the nine months ended September 30, 2023:

Shares Weighted Average

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Expired/cancelled ( 607,989 ) 20.34

Outstanding as of June 30, 2023 4,085,366 $ 15.50 8.66 $ 960

Options exercisable as of June 30, 2023 1,131,691 $ 17.40 7.31 $ 895

Vested and expected to vest as of June 30, 2023 4,085,366 $ 15.50 8.66 $ 960

As of June 30, 2023, the aggregate intrinsic value of options outstanding was $ 1.0 million.

For the six months ended June 30, 2023, and 2022, the weighted-average grant-date fair value of options granted was $ 6.07 and $ 12.08 per share, respectively.

As of June 30, 2023, there was $ 25.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.6 years.

The total intrinsic value of the options exercised during the three months ended June 30, 2023, and 2022, was $ 0.2 million and $ 1.0 million, respectively.

The total intrinsic value of the options exercised during the six months ended June 30, 2023 and 2022 was $ 0.2 million and $ 1.5 million, respectively.

As of June 30, 2023, and December 31, 2022, 700,584 and 853,760 shares were reserved for issuance under the 2021 Plan, respectively.

Outstanding as of September 30, 2023 4,116,510 $ 15.32 8.45 $ 510

Options exercisable as of September 30, 2023 1,345,041 $ 17.82 7.34 $ 489

Vested and expected to vest as of September 30, 2023 4,116,510 $ 15.32 8.45 $ 510

As of September 30, 2023, the aggregate intrinsic value of options outstanding was $ 0.5 million.

For the nine months ended September 30, 2023, and 2022, the weighted-average grant-date fair value of options granted was $ 7.78 and $ 9.93 per share, respectively.

As of September 30, 2023, there was $ 26.9 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.6 years.

The total intrinsic value of the options exercised during the three months ended September 30, 2023 and 2022, was $ 31,000 and $ 45,000 , respectively.

The total intrinsic value of the options exercised during the nine months ended September 30, 2023 and 2022 was $ 0.2 million and $ 1.6 million , respectively.

As of September 30, 2023, and December 31, 2022, 663,441 and 853,760 shares were reserved for issuance under the 2021 Plan, respectively.

Compensation Expense Summary

The Company recognized the following compensation cost related to employee and non-employee share-based compensation activity for the periods presented (in thousands):

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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The calculation was based on the following assumptions:

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Merger Warrants to Purchase Common Stock

The Company had warrants outstanding for the purchase of 29,167 shares of the Company’s common stock at both June 30, 2023, and December 31, 2022.

The Company had warrants outstanding for the purchase of 29,167 shares of the Company’s common stock at both September 30, 2023, and December 31, 2022.

These warrants were assumed in the Merger and were issued by Aerpio in October 2019, for the purchase of 40,000 shares (after taking into account the reverse stock split of the Company’s common stock at a ratio of 15:1 effected on August 26, 2021 immediately prior to the closing of the Merger (the "Reverse Stock Split")) of the Company’s common stock at an exercise price of $ 7.29 per share (after taking into account the Reverse Stock Split).

These warrants were fully vested as of the date of the Merger and expire on October 24, 2024.

No warrants were exercised during the six months ended June 30, 2023.

No warrants were exercised during the nine months ended September 30, 2023.

At the grant date, the fair value of these awards was determined using a Black-Scholes option pricing model.

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The calculation was based on the following assumptions:

Three and Six Months Ended June 30, 2023 Three and Six Months Ended June 30, 2022

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Strike price (per share) $ 5.98 $ 11.66 $ 5.98 - $ 11.40

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Expected term (in years) 0.5 0.5 0.5 0.5

Expected dividend yield — —

As of June 30, 2023, and December 31, 2022, 687,491 and 492,361 shares of common stock were available for issuance under the 2021 ESPP, respectively.

The Company had an outstanding liability of $ 50,000 and $ 0.1 million as of June 30, 2023, and December 31, 2022, respectively, which will be recognized over six months .

For the six months ended June 30, 2023 and December 31, 2022, 49,220 and 27,202 shares were issued under the 2021 ESPP, respectively.

The Company recorde d no income tax expense for the three and six months ended June 30, 2023 and $ 9,000 for the three and six months ended June 30, 2022.

As of September 30, 2023, and December 31, 2022, 687,491 and 492,361 shares of common stock were available for issuance under the 2021 ESPP, respectively.

The Company had an outstanding liability of $ 0.1 million and $ 0.1 million as of September 30, 2023, and December 31, 2022, respectively, which will be recognized over six months .

As of September 30, 2023 and December 31, 2022, 49,220 and 27,202 shares were issued under the 2021 ESPP, respectively.

The Company recorde d no income tax expense for the three months ended September 30, 2023 and 2022.

The Company recorded no income tax expense for the nine months ended September 30, 2023 and $ 9,000 for the nine months ended September 30, 2022.

The Company continues to maintain a full valuation allowance.

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The Company intends to defend itself vigorously in this matter and pursue all relief to which the Company is entitled.

The Company is unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of June 30, 2023.

The Company is unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of September 30, 2023.

See Note 8 for more information about the EOC License Agreement and its termination.

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These contracts are generally cancellable, with notice, at the Company’s option.

The Company recorded accrued expenses of $ 2.2 million and $ 2.8 million for expenditures incurred by clinical and contract manufacturing vendors as of June 30, 2023, and December 31, 2022, respectively.

At June 30, 2023, the Company was party to 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 that contains specific activities including non-cancellable commitments, minimum purchase commitments, and binding annual forecasts.

As of June 30, 2023, there were non-cancellable purchase commitments under the Fresenius Agreement related to the purchase of inventory for $ 2.1 million to be paid in 2023.

The Company recorded accrued expenses of $ 2.4 million and $ 2.8 million for expenditures incurred by clinical and contract manufacturing vendors as of September 30, 2023, and December 31, 2022, respectively.

At September 30, 2023, the Company was party to 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 that contains specific activities including non-cancellable commitments, minimum purchase commitments, and binding annual forecasts.

As of September 30, 2023, there were non-cancellable purchase commitments under the Fresenius Agreement related to the purchase of inventory for $ 3.6 million to be paid in 2023.

Mirati Collaboration

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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.

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.

For the three and six months ended June 30, 2023, the Company incurred $ 0.2 million and $ 0.5 million in expenses related to the Mirati collaboration.

For the three and nine months ended September 30, 2023, the Company incurred $ 0.1 million and $ 0.7 million in expenses related to the Mirati collaboration.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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• our plans and potential for success relating to commercializing FYARRO, or any other product candidate that we may develop, if approved;

• the anticipated timing of releasing data for any current or future clinical trials;

• the anticipated timing of commencement, enrollment, and completion of any current or future clinical trials for FYARRO in additional indications, or any other product candidates we may develop in the future;

• our plans related to the further development and manufacturing of FYARRO;

• the timing, scope or likelihood of regulatory filings and approvals for FYARRO for advanced malignant PEComa in foreign jurisdictions and any additional indications we may pursue and any other product candidates we may develop in the future;

• our commercialization, marketing and manufacturing capabilities and strategy;

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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-Q

Item 1. Financial Statements