What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 98 added, 138 removed, 169 unchanged (58% of the section changed)

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Throughout this document we refer to FYARRO (nab-sirolimus, sirolimus protein-bound particles for injectable suspension (albumin-bound)) as FYARRO in the context of commercialization for the treatment of advanced malignant perivascular epithelioid cell tumor (PEComa), investigational use, our clinical trials, regulatory matters such as orphan drug designation, our license agreement with Bristol-Myers Squibb Company and collaboration agreement with Mirati Therapeutics, Inc., all further discussed throughout this document.

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

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

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

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

We are a biopharmaceutical company focused on developing and commercializing precision therapies for cancers with alterations in the mTOR pathway, a key regulator of cell growth and cancer progression.

Our lead drug product, FYARRO ® (sirolimus protein-bound particles for injectable suspension (albumin-bound);

nab -sirolimus), combines two established technologies - nanoparticle albumin-bound ( nab ) technology and the anti-cancer agent, sirolimus.

Nab -sirolimus is a potent inhibitor of the mTOR biological pathway with demonstrated anti-cancer activity in our lead indication, advanced malignant perivascular epithelioid cell tumor (“PEComa”), a rare cancer.

We believe our approach to utilizing the novel combination of technologies has the potential to produce transformational therapies for patients with cancers beyond PEComa that have known mTOR pathway activation and/or cancers in which other mTOR inhibitors have not been fully exploited due to problems of pharmacology, effective drug delivery, safety, or effective targeting to the disease site.

We exclusively license FYARRO, previously called ABI-009, nab -sirolimus, from Abraxis BioScience, LLC, a wholly owned subsidiary of Celgene Corporation, which is a wholly owned subsidiary of Bristol-Myers Squibb Company (“BMS”).

In November 2021, the U.S.

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

On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa and recognized net product sales of $6.0 million and $ 18.0 million for the three and nine months ended September 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 $5.4 million and $5.9 million for the three months ended March 31, 2024 and 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 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.

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.

In addition to advanced malignant PEComa, based on exploratory data from our completed Phase 2 registrational study, Advanced Malignant PEComa Trial (“AMPECT trial”) and data for FYARRO in other solid tumors with TSC1 and TSC2 inactivating alterations , we 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 (“ TSC1 ”) or Tuberous Sclerosis Complex 2 (“ TSC2 ”) genes.

The PRECISION1 trial was opened for enrollment in the United States during the first quarter of 2022 and, on December 14, 2023, we announced results from an interim analysis on the first third of participants in the PRECISION1 trial.

This interim analysis included data from the first third of trial participants (n=40) with a minimum of 4.5 months of follow-up, including investigator-assessed response and safety analyzed separately in each of the TSC1 and TSC2 arms.

We expect to report the two-thirds interim analysis in the third quarter of 2024, with the overall response rate (ORR) analysis of such two-thirds cohort (n=80) based on independent radiological review with a minimum of six months of follow-up for all patients .

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 .

On August 9, 2023, we announced the expansion of our FYARRO pipeline through the further investigation of mTOR pathway inhibition in endometrial cancer and neuroendocrine tumors (NETs).

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.

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.

• PRECISON1 Trial Enrollment and Timing .

In April 2024, we fully enrolled the PRECISION1 trial.

The trial is expected to be completed by the end of 2024, with results anticipated in early 2025.

• Amendment of Fresenius Kabi Agreement .

Effective as of March 2024, we amended our Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as previously amended effective as of August 1, 2022 (collectively, the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”) to, among other things, extend the term of the Fresenius Agreement to July 31, 2024 (or such later date as may be agreed upon between the parties) and amend certain terms related to pricing, forecasting, compliance and our obligation to purchase certain minimum quantities of FYARRO from Fresenius Kabi.

Under the Fresenius Agreement, we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

• Termination of the Mirati Collaboration .

In May 2024, we announced that, at our request, we and Mirati Therapeutics, Inc.

(“Mirati”) mutually agreed to terminate our collaboration and supply agreement .

We entered into the agreement with Mirati in October 2022 to evaluate the combination of Mirati’s adagrasib (KRAZATI ® ), a KRAS G12C selective inhibitor, and FYARRO in KRAS G12C mutant non-small cell lung cancer ("NSCLC") and other solid tumors.

The Phase 1/2 trial has been discontinued as we prioritize the evaluation of nab -sirolimus in Phase 2 trials for endometrioid endometrial cancer ("EEC") and in neuroendocrine tumors ("NETs") .

BMS License Agreement

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

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

During the 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.

We recorded royalties on net product sales of $0.4 million during the three months ended March 31, 2024 and 2023, under the terms of this agreement.

No development payments related to milestones under this agreement were paid during the three months ended March 31, 2024.

See Note 7 to the condensed consolidated financial statements for more information about the BMS License Agreement.

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.

1 (the "BMS Amendment") to the BMS License Agreement.

Under the terms of the BMS 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 the 2021 PIPE Financing (i.e., August 26, 2024), plus any accrued and unpaid interest due thereon.

Pursuant to the terms of the BMS 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

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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.

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

On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of

Commerce’s International Court of Arbitration against us.

The arbitration process is ongoing.

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

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

We are unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of March 31, 2024.

See Notes 7 and 12 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 Therapeutics, Inc.

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

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

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

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

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

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

In October 2022, we entered into a collaboration and supply agreement with Mirati to evaluate t he combination of Mirati’s adagrasib and FYARRO in KRAS G12C mutant NSCLC and other solid tumors.

In May 2024, we announced the mutually agreed upon termination of the collaboration and supply agreement with Mirati and the discontinuation of the Phase 1/2 study .

Under the terms of the agreement, Mirati was responsible for sponsoring and operating the Phase 1/2 study and we supplied study drug and jointly shared the cost of the study.

The primary objective of this multi-center, single-arm, open-label Phase 1/2 trial was 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 was intended to 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 was built on preclinical data showing enhanced anti-tumor efficacy with the combination of adagrasib and FYARRO relative to either agent alone.

Impact of Negative Global or National Events

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

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

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

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

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

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

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

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

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

At this point, the extent to which these global or national events and circumstances may affect

our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.

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

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

We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows in fiscal year 2024.

Key Trends and Factors Affecting Comparability Between Periods

• 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 $6.0 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 nine months ended September 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 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 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.”.

Expenses related to our commercialization of FYARRO, in cluding personnel expenses, sales support, and marketing are included in selling, general and administrative expenses for the three months ended March 31, 2024.

We expect these expenses to decrease, as compared to prior periods.

• We have built our research and development team and we expect our research and development costs will increase in 2024, relative to prior periods, as a result of significant expenses related to the PRECISION1 trial which was open to enrollment during the year ended December 31, 2023 and continued enrollment through the three months ended March 31, 2024, as well as our anticipated expenses related to clinical programs for FYARRO in EEC and in NETs.

We are currently enrolling patients in (i) 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 EEC and (ii) 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 ≤2 prior lines of therapy, excluding somatostatin analogs (SSTa).

Liquidity and Capital Resources

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 September 30, 2023, we had an accumulated deficit of $252.7 million .

As of March 31, 2024, we had $88.3 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 the fourth quarter of 2025.

We have incurred net losses in each year since inception and as of March 31, 2024, we had an accumulated deficit of $287.3 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 2021for treating adult patients in PEComa.

FYARRO was approved by the FDA in November 2021 for treating adult patients with locally advanced unresectable or metastatic malignant PEComa.

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

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

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

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

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

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

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

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

Research and Development Expenses

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

Impairment of Acquired Contract Intangible Asset

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

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

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Income Tax Expense

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.

During the three months ended March 31, 2024, and 2023, we recognized no income tax expense 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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Product sales, net $ 5,353 $ 5,867

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Cost of goods sold 652 529

Impairment of acquired contract intangible asset — — — 3,724

Total operating expenses 24,865 22,692

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Net loss $ (18,289) $ (15,223)

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

Comparison of the Three Months Ended March 31, 2024 and 2023

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 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.

Product sales, net for the three months ended March 31, 2024 and 2023 were $5.4 million and $5.9 million, respectively.

The decrease of sales is a result of distributor ordering patterns and fewer new patient initiations than the historical average.

Operating Expenses

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023, were $10.6 million and $11.2 million, respectively.

The decrease of $0.6 million was largely driven by a reduction of $1.1 million in consulting expenses, $0.7 million in legal and other expenses, $0.1 million in commercial and marketing expense, offset by an increase of $1.3 million of personnel expenses primarily related to severance expense due to a workforce reduction primarily related to restructuring of our commercial, medical affairs, and corporate support functions.

Research and Development Expenses

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Personnel expenses $ 6,297 $ 6,027

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Total research and development expenses $ 13,593 $ 10,956

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 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.

Research and development expenses for the three months ended March 31, 2024 and 2023 were $13.6 million and $11.0 million, respectively.

The increase of $2.6 million was driven by a $1.7 million increase in clinical development expenses primarily related to the PRECISION1 trial and $1.4 million in clinical drug product manufacturing, offset by a decrease of $0.5 million in headcount, consultants, and other expenses.

Cost of Goods Sold

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 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 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.

Cost of goods sold was $0.7 million and $0.5 million for the three months ended March 31, 2024, and 2023, respectively, primarily reflecting royalties incurred on product sold.

Other Income (Expense), Net

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 .

Other income, net for the three months ended March 31, 2024 was $1.2 million, compared to other expense, net of $1.6 million for the three months ended March 31, 2023 .

The change was primarily driven by a decrease in short-term investments held during the three months ended March 31, 2024, compared to the three months ended March 31, 2023 .

Liquidity and Capital Resources

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 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.

As of March 31, 2024 we had $88.3 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 the fourth quarter of 2025.

We have incurred net losses in each year since inception and as of March 31, 2024, we had an accumulated deficit of $287.3 million.

Our net losses were $18.3 million and $15.2 million for the three months ended March 31, 2024 and 2023, 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 continued commercial launch of FYARRO.

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 September 22, 2022, we received funding of $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 September 30, 2023, no shares of common stock had been sold under the Sales Agreement.

As of March 31, 2024, no shares of common stock had been sold under the Sales Agreement.

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

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

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

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

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

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

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.

333-277018) (the “Shelf Registration Statement”), which was filed with the SEC on February 12, 2024 and which became effective April 30, 2024.

No securities have yet been sold under the

Shelf Registration Statement.

We filed a prospectus supplement with the SEC on May 3, 2024 in connection with the offer and sale of the shares pursuant to the Sales Agreement.

The Shelf Registration Statement allows us to sell from time to time up to $150.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for our own account in one or more offerings and is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs.

The terms of any offering thereunder 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.

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.

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):

Nine Months Ended September 30,

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

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Net cash used in operating activities $ (19,653) $ (21,310)

Net cash provided by (used in) investing activities 79,557 (48,507)

Net cash provided by financing activities 246 72,727

Net increase (decrease) in cash, cash equivalents and restricted cash $ 29,784 $ (14,110)

Net cash provided by investing activities 10,555 16,329

Net cash (used in) provided by financing activities (10) 8

Net decrease in cash, cash equivalents and restricted cash $ (9,108) $ (4,973)

Operating Activities

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

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 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 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.

For the three months ended March 31, 2024 , cash used in operating activities was $19.7 million and resulted from (i) our net loss of $18.3 million, (ii) a $4.8 million net increase in our operating assets and liabilities, primarily driven by a decrease in accounts payable and accrued liabilities and a decrease in prepaid expenses and other current assets, accounts receivable, and inventory, and (iii) $3.4 million in non-cash adjustments, which were primarily related share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

For the three months ended March 31, 2023 , cash used in operating activities was $21.3 million and resulted from (i) our net loss of $15.2 million, and (ii) a $7.8 million net increase in our operating assets and liabilities, primarily driven by an increase in accounts receivable, prepaid expenses, inventory and a decrease in accounts payable and accrued liabilities, and other non-current assets, offset by net non-cash adjustments totaling $1.7 million, which was primarily related to share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

Investing Activities

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.

Cash provided by investing activities for the three months ended March 31, 2024 related to maturities of short-term investments of $18.9 million, offset by purchases of short-term investments of $7.6 million and fixed assets of $0.7 million.

Cash provided by investing activities for the three months ended March 31, 2023 related to maturities of short-term investments of $40.8 million, offset by purchases of short-term investments of $23.1 million and fixed assets of $1.4 million.

Financing Activities

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.

Cash used in financing activities for the three months ended March 31, 2024 related to the deferred offering costs.

Cash provided by financing activities for the three months ended March 31, 2023 related to the exercise of stock options.

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 for the nine months ended September 30, 2023 and 2022 was $0.3 million .

Rent expense related to the Pacific Palisades and Morristown leases was $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023 , respectively .

See Note 6 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.

In January 2022, we entered into the Fresenius Agreement with 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.

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.

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.

Under the Fresenius Agreement, which is effective through July 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.

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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Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP.

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

generally accepted accounting principles (“GAAP”).

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

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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