What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 94 added, 78 removed, 213 unchanged (45% of the section changed)

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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 and recognized net product sales of $6.2 million and $12.1 million for the three and six months ended June 30, 2023, respectively.

On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa and recognized net product sales of $6.0 million and $ 18.0 million for the three and nine months ended September 30, 2023, respectively.

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 (“PRECISION1”) of FYARRO in patients with malignant solid tumors with alterations of the Tuberous Sclerosis Complex 1 and 2 (“ TSC1 & TSC2” ) genes.

We have completed a Type B meeting with the FDA in which we discussed the trial design and the PRECISION1 trial was opened for enrollment in the United States during the first quarter of 2022, with dosing of our first patient in March 202 2.

In addition to advanced malignant PEComa, based on exploratory data from our completed Phase 2 registrational study, Advanced Malignant PEComa Trial (“AMPECT trial"), and our expanded access program for FYARRO, we have initiated a registration-directed tumor-agnostic Phase 2 study (“PRECISION1 trial”) of FYARRO in patients with malignant solid tumors with alterations of the Tuberous Sclerosis Complex 1 and 2 (“ TSC1 & TSC2” ) genes.

The PRECISION1 trial was opened for enrollment in the United States during the first quarter of 2022, with dosing of our first patient in March 202 2.

Based on initial information from the PRECISION1 trial, enrollment is well-balanced, the trial is accruing relatively evenly between the TSC1 and TSC2 arms, and more than 25 discrete tumor types have been enroll ed.

A pre-planned interim analysis on 40 patients with appropriate follow-up is expected before the end of 2023.

Presentation of an interim analysis on the first third of trial participants (n=40) with a minimum of 4.5 months of follow-up is planned for mid-December 2023.

The presentation is expected to include safety and investigator-assessed response in approximately 20 patients in each of the TSC1 and TSC2 arms.

Recent Developments

• Leadership Transition and Board Appointment .

On September 27, 2023, our board of directors (the "Board") appointed David J.

Lennon, Ph.D., to serve as our President and Chief Executive Officer, effective as of October 2, 2023, replacing Scott Giacobello in such roles.

Giacobello had served as our Interim CEO and President since March 15, 2023, and will continue to serve as the Company’s Chief Financial Officer, a position he has held

since November 2021, following Dr.

Lennon’s appointment.

In addition, effective October 2, 2023, Dr.

Lennon was appointed to the Board as a Class II director and his term of office will expire at our 2025 annual meeting of stockholders or until his successor is duly elected and qualified.

• Adoption of the Aadi Bioscience, Inc.

2023 Inducement Equity Incentive Plan.

On September 27, 2023, the Board adopted the Aadi Bioscience, Inc.

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

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

The Inducement Plan was adopted without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4) and will be administered by the Compensation Committee of the Board.

• New Clinical Indications .

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As part of our continued evaluation of potential new clinical programs for FYARRO, either as a single agent or in combination with other targeted therapies, we selected these new clinical indications based on preclinical data supporting these programs, which we believe are promising, and the prospect of providing enhanced therapeutic benefit in these indications with meaningful patient populations and high unmet needs.

In the fourth quarter of 2023, we expect to initiate a Phase 2 open-label, multi-institutional study to evaluate the efficacy and safety of the combination of FYARRO with letrozole for the treatment of advanced or recurrent endometrioid-type endometrial cancer (EEC) and a Phase 2 multicenter, open-label, single-arm trial to evaluate adult patients with functional or non-functional, well-differentiated, locally advanced unresectable or metastatic NETs of the GI tract, lung, or pancreas who have received no more than two prior lines of therapy.

• First Patient Dosing Under Mi rati 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.

In August 2023, we announced that the first patient dosing occurred in the Phase 1/2 trial.

See "Mirati Collaboration" below for more information about the Mirati Collaboration.

We are currently enrolling patients in a Phase 2 open-label, multi-institutional study to evaluate the efficacy and safety of the combination of FYARRO with letrozole for the treatment of advanced or recurrent endometrioid-type endometrial cancer (EEC) and a Phase 2 multicenter, open-label, single-arm trial to evaluate FYARRO in adult patients with functional or non-functional, well-differentiated, locally advanced unresectable or metastatic NETs of the GI tract, lung, or pancreas who have received no more than two prior lines of therapy.

BMS License Agreement

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

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

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

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

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

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

See Note 8 to the condensed consolidated financial statements for more information about the BMS License Agreement.

Under the terms of the August 2021 amendment to the BMS License Agreement, we paid BMS $5.8 million, representing 50% of the previously outstanding payment obligation under the agreement, following the effective time of our 2021 private investment in public equity (PIPE) Financing ("2021 PIPE Financing") that occurred in connection with the closing of the reverse merger of Aerpio Pharmaceuticals, Inc.

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

1 (the “Amendment”) to the BMS License Agreement.

Under the terms of the Amendment, we paid BMS $5.8 million, representing 50% of the previously outstanding payment obligation under the agreement, following the effective time of our 2021 private investment in public equity (PIPE) financing ("2021 PIPE Financing") that occurred in connection with the closing of the reverse merger of Aerpio Pharmaceuticals, Inc.

whereby Aspen Merger Subsidiary, Inc., our wholly-owned subsidiary (“Merger Sub”), merged with and into Aadi Subsidiary, Inc.

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(“Private Aadi”)), with Private Aadi surviving as our wholly-owned subsidiary (the “Merger”).

Pursuant to the terms of the amendment, the remaining portion of the previously outstanding payment obligation ($5.8 million), which is recorded on our condensed consolidated balance sheets as due to licensor, is due on the third anniversary of the effective time of such 2021 PIPE Financing (i.e., August 26, 2024), plus any accrued and unpaid interest due thereon.

Pursuant to the terms of the amendment, the remaining portion of the previously outstanding payment obligation ($5.8 million), which is recorded on our condensed consolidated balance sheets as due to licensor, is due on the third anniversary of the effective time of the 2021 PIPE Financing (i.e., August 26, 2024), 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 December 2020, we entered into the 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”).

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

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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 as of December 31, 2021, which was paid in 2022.

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 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.

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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 June 30, 2023.

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

See Notes 8 and 13 to the condensed consolidated financial statements for more information about the EOC License Agreement, its termination and pending arbitration.

Mirati Collaboration

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

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.

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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 recent turmoil in the global banking system, public health epidemics, such as the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, and geopolitical instability, including the 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.

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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.

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 the remainder of fiscal year 2023.

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• 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 $6.2 million and $12.1 million during the three and six months ended June 30, 2023, respectively.

We recorded net product sales of $6.0 million and $ 18.0 million during the three and nine months ended September 30, 2023, respectively.

• 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 commercialization of FYARRO, including personnel expenses, sales support, and marketing are included in selling, general and administrative expenses for the three and six months ended June 30, 2023.

We expect these

expenses will continue to increase, as compared to prior periods, with the ongoing commercialization of FYARRO and preparation for potential future launches.

We expect these expenses will continue to increase, as compared to prior periods, 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, as compared to 2022, as a result of significant expenses related to the PRECISION1 trial which was open to enrollment during the year ended December 31, 2022, with the first patient dosed in March 202 2.

We also expect our research and development costs to increase in 2023 and in future periods, as compared to 2022, based on anticipated expenses related to the two new clinical programs for FYARRO described under "Recent Developments - New Clinical Indications" above.

• As a public company our expenses have increased from when we were 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.

• As a public company our expenses have increased due to (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, and these expenses may increase further since we are no longer an “emerging growth company.”.

Liquidity and Capital Resources

As of June 30, 2023, we had $134.9 million of cash, cash equivalents and short-term investments.

As of September 30, 2023, we had $119.3 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 June 30, 2023, we had an accumulated deficit of $236.4 million.

We have incurred net losses in each year since inception and as of September 30, 2023, we had an accumulated deficit of $252.7 million .

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.

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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”).

FYARRO was approved by the FDA in November 2021for treating adult patients in PEComa.

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

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

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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.

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.

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:

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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.

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

During the three and six months ended June 30, 2022, we recognized an impairment of $3.7 million to fully impair the contract intangible asset based on Gossamer's termination of the license agreement, dated June 24, 2018, with Gossamer Bio, Inc.

During the nine months ended September 30, 2022, we recognized an impairment of $3.7 million to fully impair the contract intangible asset based on Gossamer's termination of the license agreement, dated June 24, 2018, with Gossamer Bio, Inc.

(“Gossamer”), as amended (the “Gossamer License Agreement”), as a result of Gossamer not meeting its primary or secondary endpoint in the UC-SHIFT clinical trial.

Other Income (Expense), 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.

Other income, net consists of interest income earned on cash, cash equivalents and short-term investments, partially offset by interest expense related to the convertible promissory notes.

Income Tax Expense

During the three and six months ended June 30, 2023, we recognized no income tax expense on the condensed consolidated statements of operations and comprehensive loss.

For the three and six months ended June 30, 2022, we recognized $9,000 of income tax expense on the condensed consolidated statements of operations and comprehensive loss.

During the three and nine months ended September 30, 2023, we recognized no income tax expense on the condensed consolidated statements of operations and comprehensive loss.

No income tax expense was recognized for the three months ended September 30, 2022 and we recognized $9,000 of income tax expense for the nine months ended September 30, 2022 on the condensed consolidated statements of operations and comprehensive loss.

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

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The following table presents the results of operations for the periods indicated (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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Net loss $ (16,302) $ (14,474) $ (49,496) $ (46,600)

Comparison of the Six Months Ended June 30, 2023 and 2022

Comparison of the Nine Months Ended September 30, 2023 and 2022

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 three and six months ended June 30, 2023 were $6.2 million and $12.1 million, respectively.

For the three and six months ended June 30, 2022, product sales, net were $3.4 million and $5.7 million, respectively.

Product sales, net for the three and nine months ended September 30, 2023 were $6.0 million and $18.0 million, respectively.

For the three and nine months ended September 30, 2022, product sales, net were $4.2 million and $10.0 million, respectively.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2023 and 2022 were $11.8 million and $10.0 million, respectively.

The $1.8 million increase was primarily driven by $0.4 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, $0.5 million of marketing expense, and $1.6 million of legal and other related expenses, offset by a decrease of $0.7 million of consulting expenses and insurance .

Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022 were $23.0 million and $19.2 million, respectively.

The $3.8 million increase was driven by $2.0 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, $0.8 million of marketing expense, and $2.3 million of legal, marketing, and other related expenses, offset by a decrease of $1.3 million of consulting expenses and insurance.

Selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 were $11.2 million and $9.9 million, respectively.

The $1.3 million increase was primarily driven by $0.8 million of legal and other related expenses, $0.7 million of marketing expense, and $0.1 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, offset by a decrease of $0.3 million of consulting expenses and insurance .

Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 were $34.2 million and $29.1 million, respectively.

The $5.1 million increase was driven by $3.0 million of legal, and other related expenses, $2.1 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, and $1.5 million of marketing expense, offset by a decrease of $1.5 million of consulting expenses and insurance.

Research and Development Expenses

The following table presents our research and development expenses for the periods indicated (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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Total research and development expenses $ 11,890 $ 8,773 $ 36,161 $ 23,292

Research and development expenses for the three months ended June 30, 2023 and 2022 were $13.3 million and $7.7 million, respectively.

Research and development expenses for the three months ended September 30, 2023 and 2022 were $11.9 million a nd $8.8 million, respectively.

The $3.1 million increase was primarily driven by a $1.4 million increase in headcount, consultants, and other expenses, $1.3 million of clinical development expenses related to the PRECISION1 trial, and $0.4 million in clinical drug product manufacturing.

Research and development expenses for the six months ended June 30, 2023 and 2022 were $24.3 million and $14.5 million, respectively.

Research and development expenses for the nine months ended September 30, 2023 and 2022 wer e $36.2 million and $23.3 million , respectively.

The $12.9 million increase was primarily driven by a $5.8 million increase in headcount, consultants, and other expenses, $4.7 million of clinical development expenses related to the PRECISION1 trial, and $2.4 million in clinical drug product manufacturing.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2023 and 2022 was $0.7 million and $0.3 million, respectively.

Cost of goods sold for the six months ended June 30, 2023 and 2022 was $1.2 million and $0.5 million, respectively.

Cost of goods sold for the three months ended September 30, 2023 and 2022 was $0.7 million and $0.6 million, respectively.

Cost of goods sold for the nine months ended September 30, 2023 and 2022 was $1.9 million and $1.1 million, respectively.

The increase of cost goods sold is primarily driven by royalties incurred on product sold.

Impairment of Acquired Contract Intangible Asset

During the three and six months ended June 30, 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 (the “Notice of Termination”) from Gossamer for the Gossamer License Agreement.

During the nine months ended September 30, 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 (the “Notice of Termination”) from Gossamer for the Gossamer License Agreement.

The Gossamer License Agreement terminated effective July 24, 2022.

Based on the Notice of Termination, we fully impaired the intangible asset during the three and six months ended June 30, 2022, as the Gossamer License Agreement is the sole underlying asset.

In connection with the termination of the Gossamer License Agreement, the CVR Agreement, pursuant to which the CVRs were issued to legacy holders of common stock of Aerpio immediately prior to the Merger (as defined in Note 1 to the condensed consolidated financial statements), automatically terminated in accordance with its terms and the CVRs were automatically cancelled and forfeited without any consideration or payment, in each case effective July 24, 2022.

Based on the Notice of Termination, we fully impaired the intangible asset during the nine months ended September 30, 2022, as the Gossamer License Agreement is the sole underlying asset.

In connection with the termination of the Gossamer License Agreement, the CVR Agreement (as defined in Note 5 to the condensed consolidated financial statements), pursuant to which the contingent value rights (“CVRs”) were issued to legacy holders of common stock of Aerpio

immediately prior to the Merger, automatically terminated in accordance with its terms and the CVRs were automatically cancelled and forfeited without any consideration or payment, in each case effective July 24, 2022.

Other Income (Expense), Net

Other income, net for the three months ended June 30, 2023 was $1.6 million , compared to other income, net of $0.1 million for the three months ended June 30, 2022 .

The change was primarily driven by higher interest rates on short-term investments held during the three months ended June 30, 2023, compared to the three months ended June 30, 2022 .

Other income, net for the six months ended June 30, 2023 was $3.2 million , compared to other income, net of $0.1 million for the six months ended June 30, 2022 .

The change was primarily driven by higher interest rates on short-term investments held during the six months ended June 30, 2023, compared to the six months ended June 30, 2022 .

Other income, net for the three months ended September 30, 2023 was $1.5 million, compared to other income, net of $0.6 million for the three months ended September 30, 2022 .

The change was primarily driven by higher interest rates on short-term investments held during the three months ended September 30, 2023, compared to the three months ended September 30, 2022 .

Other income, net for the nine months ended September 30, 2023 was $4.7 million, compared to other income, net of $0.6 million for the nine months ended September 30, 2022 .

The change was primarily driven by higher interest rates on short-term investments held during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 .

Liquidity and Capital Resources

As of June 30, 2023 we had $134.9 million of cash, cash equivalents and short-term investments.

As of September 30, 2023 we had $119.3 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 June 30, 2023, we had an accumulated deficit of $236.4 million.

Our net losses were $18.0 million and $18.3 million for the three months ended June 30, 2023 and 2022, respectively, and $33.2 million and $32.1 million for the six months ended June 30, 2023 and 2022, respectively.

We have incurred net losses in each year since inception and as of September 30, 2023, we had an accumulated deficit of $252.7 million.

Our net losses were $16.3 million and $14.5 million for the three months ended September 30, 2023 and 2022, respectively, and $49.5 million and $$46.6 million for the nine months ended September 30, 2023 and 2022, respectively.

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

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 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.

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 June 30, 2023, 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 2021 PIPE Financing in connection with the Merger, $29.7 million of cash assumed in the Merger, and $72.2 million, net from a private investment in public equity financing (the “2022 PIPE Financing”) with certain investors (the “2022 PIPE Investors”) .

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

From inception through September 30, 2023, 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 2021 PIPE Financing in connection with the Merger, $29.7 million of cash assumed in the Merger, and $72.2 million, net from a private investment in public equity financing (the “2022 PIPE Financing”) with certain investors (the “2022 PIPE Investors”) .

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.

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

As of September 30, 2023, 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.

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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 of 3,373,526 shares of our common stock for a price of $12.50 per share and Pre-Funded Warrants to purchase an aggregate of 2,426,493 shares of our common stock, at a purchase price of $12.4999 per Pre-Funded Warrant.

Warrants to purchase an aggregate of 2,426,493 shares of our 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.

Aggregate 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 presents our cash flows for the periods indicated (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

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

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

For the six months ended June 30, 2023 , cash used in operating activities was $38.1 million and resulted from (i) our net loss of $33.2 million, and (ii) $9.0 million net decrease in our working capital accounts, primarily driven by an increase in accounts receivable, prepaid expenses, inventory, accounts payable and accrued expenses, and decrease in other non-current assets;

For the nine months ended September 30, 2023 , cash used in operating activities was $50.0 million and resulted from (i) our net loss of $49.5 million, and (ii) $7.2 million net decrease in our working capital accounts, primarily driven by an increase in accounts receivable, prepaid expenses and other current assets, inventory and a decrease in other non-current assets and accounts payable and accrued liabilities;

offset by net non-cash adjustments totaling $6.7 million, which was primarily related share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

For the six months ended June 30, 2022, cash used in operating activities was $30.1 million and resulted from (i) our net loss of $32.1 million, and (ii) $6.1 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 and a decrease in accounts payable and accrued expenses;

offset by non-cash adjustments totaling $8.1 million primarily related to the impairment of the contract intangible asset, share based compensation, depreciation and amortization.

For the nine months ended September 30, 2022, cash used in operating activities was $38.3 million and resulted from (i) our net loss of $46.6 million, and (ii) $2.5 million net decrease in our working capital accounts, primarily driven by an increase in prepaid expenses, accounts receivable, inventory related to the commercial launch of FYARRO in February 2022, and accounts payable and accrued expenses;

offset by non-cash adjustments totaling $10.7 million, which was primarily related to the impairment of the contract intangible asset, share based compensation, depreciation and amortization.

Investing Activities

Cash provided by investing activities for the six months ended June 30, 2023 was $66.9 million and related to purchases of fixed assets of $2.1 million and short-term investments of $23.1 million, offset by maturities of short-term investments of $92.0 million.

Cash used in investing activities for the six months ended June 30, 2022 was $0.3 million and related to purchases of fixed assets.

Cash provided by investing a ctivities for the nine months ended September 30, 2023 was $79.6 million and related to purchases of fixed assets of $3.2 million, and short-term investments of $50.5 million, offset by maturities of short-term investments of $133.3 million.

Cash used in investing activities for the nine months ended September 30, 2022 was $48.5 million and related to purchases of fixed assets of $0.4 million and short-term investments of $48.1 million.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2023 was $0.3 million and related to the purchase of common stock under the employee purchases plan and exercise of stock options offset by financing costs related to the Sales Agreement.

Cash provided by financing activities for the six months ended June 30, 2022 was $0.2 million and related to the exercise of stock options and warrants offset by financing costs related to the Sales Agreement.

Cash provided by financi ng activities for the nine months ended September 30, 2023 was $0.2 million and related to the issuance of common stock under the employee purchases plan and exercise of stock options offset by financing costs related to the Sales Agreement .

Cash provided by financing activities for the nine months ended September 30, 2022 was $72.7 million and related to $72.5 million gross cash proceeds from our 2022 PIPE Financing, $0.4 million from exercise of stock options and $0.1 million from exercise of warrants offset by $0.2 million of deferred financing costs related to the Sales Agreement.

Contractual Obligations and Commitments

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

Rent expense related to the Pacific Palisades and Morristown leases was $0.1 million for each of the three months ended June 30, 2023 and 2022, $0.2 million for each of the three and six months ended June 30, 2023 and 2022.

Rent expense related to the Pacific Palisades and Morristown leases for the nine months ended September 30, 2023 and 2022 was $0.3 million .

See Note 7 to the condensed 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, or 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.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis