Whitehawk Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes to those statements thereto appearing elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ending December 31, 2023 filed with the SEC on March 13, 2024. Some of the information contained in this discussion and analysis including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions. Our actual results could differ materially from those discussed in our forward-looking statements for many reasons, including those risks. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. You should read this Quarterly Report completely, including Part II, Item 1A (Risk Factors) of this Quarterly Report and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by our forward-looking statements contained in the following discussion and analysis. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. References in the following discussion to “ we, ” “ our, ” “ us, ” or “ Aadi ” refer to Aadi Bioscience, Inc. and its subsidiaries. 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 our former agreements with Mirati Therapeutics, Inc. and EOC Pharma (Hong Kong) Limited, all further discussed throughout this document. Overview 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 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 $7.2 million and $18.7 million for the three and nine months ended September 30, 2024, respectively. See “Results of Consolidated Operations” for further discussion of our results. Recent Developments • Clinical Trials Updates. On August 20, 2024, we halted the PRECISION1 trial, a registration-directed tumor-agnostic Phase 2 study of FYARRO in patients with Tuberous Sclerosis Complex 1 (" TSC1 ") and Tuberous Sclerosis Complex 2 (" TSC2 ") alterations, based on efficacy results from a planned interim analysis of efficacy results from two-thirds of participants in the trial. An analysis by the Independent Data Monitoring Committee demonstrated that the study was unlikely to exceed an efficacy threshold necessary to support an accelerated approval, the key goal of this Phase 2 study. We are completing the wind-down of the PRECISION1 trial and all patients who were still receiving benefit at the time the study was halted were transitioned to an expanded access protocol. We expect to report out the PRECISION1 trial results in 2025. To further preserve cash runway, we paused new enrollment, but continue dosing previously enrolled patients, in two, ongoing Phase 2 trials of FYARRO for advanced or recurrent endometrioid-type endometrial cancer (EEC) and neuroendocrine tumors (NETs). Both studies have enrolled sufficient patients (n=24 and n=12 for EEC and NETs, respectively) to assess initial efficacy signals in the fourth quarter of 2024. • Strategic Review. On August 20, 2024, we announced our commencement of a comprehensive strategic review to maximize shareholder value. Such strategic review is ongoing. 26 Table of Contents • Employee Matters . On August 16, 2024, our Board of Directors (the “Board”) approved a plan of termination that resulted in a workforce reduction of 22 employees, representing approximately 32% of our workforce. In addition, as of October 1, 2024, Neil Desai, Ph.D., our former Executive Chairman, and Loretta Itri, our former Chief Medical Officer, ceased their respective employments with the company. Dr. Desai will continue to serve as a member of our Board. Dr. Itri will provide consulting services to the company for up to ten hours per month for an initial three-month term. • Arbitration Win . On September 26, 2024, we received the arbitration panel's Final Award in our arbitration against EOC Pharma (Hong Kong) Limited ("EOC"). EOC had claimed that we breached certain provisions of our license agreement with EOC, dated December 8, 2020 (the “EOC License Agreement”), including failing to provide certain manufacturing information to EOC and, as a result, EOC sought monetary damages against us. In the arbitration panel's Final Award, it found and concluded, among other things, that we did not breach the EOC License Agreement and accordingly we are not liable for any damages to EOC. See Notes 7 and 12 to the condensed consolidated financial statements and "EOC License Agreement" below for more information about the EOC License Agreement, its termination and the arbitration proceedings. 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 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, 2024 and 2023, royalties on net product sales were $0.5 million and $0.4 million, respectively under the terms of this agreement. During the nine months ended September 30, 2024 and 2023, royalties on net product sales were $1.4 million and $1.3 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, 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. whereby Aspen Merger Subsidiary, Inc., our wholly-owned subsidiary (“Merger Sub”), merged with and into Aadi Subsidiary, Inc. (formerly known as Aadi Bioscience, Inc. (“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), was paid by the third anniversary of the effective time of the 2021 PIPE Financing (i.e., August 26, 2024). EOC License Agreement 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. As such, we recognized $2.8 million of license expense in the fourth quarter of 2020 and had a corresponding $2.8 million sublicense payable to BMS as of December 31, 2020, which was paid in 2021. During the fourth quarter of 2021, we recognized license revenue and received $1.0 million from EOC for achieving the FDA approval milestone in November 2021. In accordance with the BMS License Agreement, we recognized $0.2 million of license expense in the fourth quarter of 2021 and had a corresponding $0.2 million sublicense payable to BMS as of December 31, 2021, which was paid in 2022. On June 27, 2022, we received written notice from EOC that EOC 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 September 26, 2024, the arbitration panel issued a Final Award which, among other things, found and concluded that we did not breach the EOC License Agreement and 27 Table of Contents accordingly we are not liable for any damages to EOC . See Notes 7 and 12 to the condensed consolidated financial statements for more information about the EOC License Agreement, its termination and the arbitration proceedings. Former Mirati Collaboration 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. Enrollment in the Phase 1/2 study has been closed and the study is winding down. 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, which will continue during the winding down process. 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 $7.2 million and $18.7 million during the three and nine months ended September 30, 2024, respectively. • We had built a cross-functional commercial team consisting of marketing, market access and commercial operations. 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 and nine months ended September 30, 2024. We expect these expenses to decrease, as compared to prior periods, due to our workforce reductions in 2024. • We expect to decrease our investment in research and development as a result of our halt and subsequent wind-down of the PRECISION1 study following interim data results and the pause of enrollment of our two Phase 2 trials of FYARRO in patients with EEC and NETs, respectively. • Under the BMS License Agreement, as described above, we made a payment of $5.8 million to BMS on August 26, 2024 . • Our future expenses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on our strategic review and the ultimate outcome of that process. Liquidity and Capital Resources As of September 30, 2024, we had $62.6 million of cash, cash equivalents and short-term investments. Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into the second half of 2026. We have incurred net losses in each year since inception and as of September 30, 2024, we had an accumulated deficit of $314.4 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. 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 and clinical trials and 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 commercialization of FYARRO. 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 Ukraine, the Middle East and in other countries. The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances. For example, as the COVID-19 pandemic developed, we took numerous steps to help ensure the health and safety of our employees. While we have resumed normal operations, any resurgence of the COVID-19 pandemic may cause us to 28 Table of Contents reinstitute certain measures to protect employee safety, including staggered work hours or reduced in-person staffing, that could result in additional disruption and/or delays in our ability to conduct development activities. We have been and continue to actively monitor our supply chain in light of these challenging global and national events and circumstances, including our third-party materials suppliers. 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 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 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 clinical trials. We will continue to actively monitor the rapidly evolving situation related to these global and national events, and may take further actions to mitigate potential negative impacts to our business, and that may alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which these global or national events and circumstances may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain. We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows in fiscal year 2024. Basis of Presentation The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the condensed consolidated balance sheets and condensed consolidated statements of operations and comprehensive loss presented herein. The following discussion and analysis are based on our condensed consolidated financial statements contained in this Quarterly Report, which we have prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). You should read the discussion and analysis together with such condensed consolidated financial statements and the related notes thereto. Components of Condensed Consolidated Statements of Operations and Comprehensive Loss Revenue Product Sales, Net 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”). We recognize product sales when the SDs and SP obtain control of the product, which occurs upon delivery. Product sales are recorded at the net sales price, which includes provisions for the following allowances which are reflected either as a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled: • Distribution Fees : Distribution fees include distribution service fees paid to the SDs and SP based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”). Distribution fees are recorded as an offset to product sales based on contractual terms at the time the sale is recognized. • Rebates : Allowance for rebates include mandated discounts under the Medicaid Drug Rebate Program and TRICARE program. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements. The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants. Our estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment. • Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs and SP at a discounted price. The SDs and SP charge back to us the difference between 29 Table of Contents the price initially paid by the SDs and SP and the discounted price paid to the SDs and SP by these entities. If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment. • Co-Payment Assistance: We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued at the time of product sale to the SDs and SP based on estimated patient participation and average co-pay benefit to be paid per a claim. Our estimated amounts are compared to actual program participation and co-pay amounts paid using data provided by third-party administrators. If actual amounts differ from the original estimates the assumptions being applied are updated and adjustment for prior period accruals will be adjusted in the current period. • Product Returns: Consistent with industry practice, we offer the SDs and SP limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. We do not allow product returns for product that has been dispensed to a patient. As we receive inventory reports from the SDs and SP and have the ability to control the amount of product that is sold to the SDs and SP, we estimate future potential product returns based on the on-hand channel inventory data and sell-through data obtained from the SDs and SP. In arriving at our estimate, we also consider historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry. Operating Expenses Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, sales and marketing, and other corporate functions. Other general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, insurance costs, intellectual property and patent costs, facility costs and travel costs. Research and Development Expenses Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of: (i) employee related costs, including salaries, benefits and share-based compensation expense for employees engaged in scientific research and development functions; (ii) third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clinical trial activities; (iii) external costs of outside consultants who assist with technology development, regulatory affairs, clinical development and quality assurance; (iv) payments made under our third-party licensing agreements; and (v) allocated facility-related costs. Costs for certain activities, such as manufacturing, nonclinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators. Research and development activities are central to our business. We expect to decrease our investment in research and development as a result of our halt and subsequent wind-down of the PRECISION1 study following interim data results and the pause of our two Phase 2 trials of FYARRO in patients with EEC and NETs, respectively. As a result, we expect that our research and development expenses will decrease in the foreseeable future. Cost of Goods Sold Cost of goods sold consist primarily of royalties paid to BMS, costs incurred on sales of FYARRO and costs to manufacture and prepare the product for sales subsequent to the FDA approval in November 2021. Costs incurred prior to the FDA approval were expensed when incurred. Other Income (Expense), Net 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 nine months ended September 30, 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. federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from those items. 30 Table of Contents Results of Operations: The following table presents the results of operations for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue Product sales, net $ 7,212 $ 5,959 $ 18,744 $ 18,028 Total revenue 7,212 5,959 18,744 18,028 Operating expenses Selling, general and administrative 7,186 11,221 25,698 34,204 Research and development 9,997 11,890 36,683 36,161 Restructuring charges 2,638 — 2,638 — Cost of goods sold 804 697 2,234 1,882 Total operating expenses 20,625 23,808 67,253 72,247 Loss from operations (13,413) (17,849) (48,509) (54,219) Other income (expense), net 867 1,547 3,091 4,723 Loss before income tax expense (12,546) (16,302) (45,418) (49,496) Net loss $ (12,546) $ (16,302) $ (45,418) $ (49,496) Comparison of the Three and Nine Months Ended September 30, 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, 2024 were $7.2 million and $18.7 million, respectively. For the three and nine months ended September 30, 2023, product sales, net were $6.0 million and $18.0 million, respectively. The increase in the three and nine months ended September 30, 2024 compared to the same period in the prior year was primarily due to strong demand. Operating Expenses Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2024 and 2023 were $7.2 million and $11.2 million, respectively. The $4.0 million decrease was primarily driven by a reduction of $2.3 million in personnel expenses, $1.5 million in commercial and marketing expenses, and $0.3 million of legal and other expenses, offset by an increase of $0.1 million related to consulting expenses. Selling, general and administrative expenses for the nine months ended September 30, 2024 and 2023 were $25.7 million and $34.2 million, respectively. The $8.5 million decrease was driven b y a reduction of $4.0 million in commercial and marketing expenses, $2.3 million in legal and other expenses, $2.1 million in personnel expenses, and $0.1 million of consulting and insurance expenses. 31 Table of Contents 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, 2024 2023 2024 2023 Personnel expenses $ 3,857 $ 6,215 $ 15,673 $ 18,067 Consultants 250 663 975 3,193 External clinical development 4,044 4,021 13,347 10,485 Clinical drug product manufacturing 1,617 743 5,984 3,247 Other expenses 229 248 704 1,169 Total research and development expenses $ 9,997 $ 11,890 $ 36,683 $ 36,161 Research and development expenses for the three months ended September 30, 2024 and 2023 were $10.0 million a nd $11.9 million, respectively. The $1.9 million decrease was primarily driven by a $2.8 million decrease in personnel expense, consulting expense, and other expenses, offset by an increase of $0.9 million of clinical drug product manufacturing. Research and development expenses for the nine months ended September 30, 2024 and 2023 wer e $36.7 million and $36.2 million , respectively. The $0.5 million increase was primarily driven by a $2.9 million increase in clinical development expenses related to the EEC, NET, and PRECISION1 trials, and $2.7 million in clinical drug product manufacturing, offset by a decrease of $5.1 million in personnel expense, consulting expense, and other expenses. Restructuring Charges Restructuring charges for the three and nine months ended September 30, 2024 were $2.6 million. The increase in restructuring expense was due to a restructuring plan to reduce the Company's workforce by 32% in response to our announcement on August 20, 2024 that we will halt the registration-intended PRECISION1 trial of nab-sirolimus in patients with solid tumors harboring TSC1 or TSC2 inactivating alterations. Cost of Goods Sold Cost of goods sold for the three months ended September 30, 2024 and 2023 was $0.8 million and $0.7 million, respectively. Cost of goods sold for the nine months ended September 30, 2024 and 2023 was $2.2 million and $1.9 million, respectively. The increase of cost of goods sold of $0.1 million and $0.3 million for the three and nine months ended September 30, 2024 compared to the same period in 2023 was primarily driven by an increase of costs incurred on sales of FYARRO and costs to manufacture and prepare the product for sale. Other Income (Expense), Net Other income, net for the three months ended September 30, 2024 was $0.9 million, compared to other income, net of $1.5 million for the three months ended September 30, 2023 . The change was primarily driven by a decrease in short-term investments held during the three months ended September 30, 2024, compared to the three months ended September 30, 2023 . Other income, net for the nine months ended September 30, 2024 was $3.1 million, compared to other income, net of $4.7 million for the nine months ended September 30, 2023 . The change was primarily driven by a decrease in short-term investments held during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 . Liquidity and Capital Resources Overview As of September 30, 2024 we had $62.6 million of cash, cash equivalents and short-term investments. Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into the second half of 2026. We have incurred net losses in each year since inception and as of September 30, 2024, we had an accumulated deficit of $314.4 million. Our net losses were $12.5 million and $16.3 million for the three months ended September 30, 2024 and 2023, respectively, and $45.4 million and $49.5 million for the nine months ended September 30, 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 32 Table of Contents 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 any other product candidates we may develop in the future, and the continued commercialization of FYARRO. We expect our expenses to decrease given the recent headcount reductions, the halting and wind-down of the PRECISION1 trial and the pausing of the trials in EEC and NETs. 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, subject to limitations under applicable securities laws, shares of our common stock having aggregate gross proceeds of up to $75.0 million through Cowen as our sales agent. Under the Sales Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number or dollar value of shares that may be sold in any one trading day and any minimum price below which sales may not be made. We will pay Cowen 3.0% of the aggregate gross proceeds from each sale of shares of common stock under the Sales Agreement. As of September 30, 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. 333-277018) (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 prospectus supplement offers up to an aggregate of $13.5 million in shares of our common stock. We will be required to file another prospectus supplement in the event we want to offer more than $13.5 million in shares of our common stock in accordance with 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, 2024 2023 Net cash used in operating activities $ (44,497) $ (50,019) Net cash provided by investing activities 12,069 79,557 Net cash provided by financing activities 77 246 Net (decrease) increase in cash, cash equivalents and restricted cash $ (32,351) $ 29,784 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 and other operating and general administrative activities, including operating as a public company, and may fluctuate significantly from quarter-to-quarter and year-to-year, depending on our strategic review and the ultimate outcome of that process. For the nine months ended September 30, 2024 , cash used in operating activities was $44.5 million and resulted from (i) our net loss of $45.4 million, (ii) $7.5 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 and 33 Table of Contents inventory, and (iii) $8.4 million in non-cash adjustments, which were primarily related to share based compensation, discount amortization on short-term investments, lease expense, and depreciation. 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, (ii) $7.2 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 asset, and (iii) non-cash adjustments totaling $6.7 million, which was primarily related share based compensation, discount amortization on short-term investments, lease expense, and depreciation. Investing Activities Cash provided by investing a ctivities for the nine months ended September 30, 2024 was $12.1 million related to maturities of short-term investments of $50.0 million, offset by purchases of short-term investments of $36.5 million, and fixed assets of $1.5 million. Cash provided by investing activities for the nine months ended September 30, 2023 was $79.6 million related to maturities of short-term investments of $133.3 million, offset by purchases of short-term investments of $50.5 million, and fixed assets of $3.2 million . Financing Activities Cash provided by financi ng activities for the nine months ended September 30, 2024 was $0.1 million related to the purchase of common stock under the employee stock purchase plan offset by financing costs related to the Sales Agreement. Cash provided by financing activities for the nine months ended September 30, 2023 was $0.2 million related to the issuance of common stock under the employee stock purchase plan and exercise of stock options offset by financing costs related to the Sales Agreement . Contractual Obligations and Commitments In April 2022, we entered into a lease for 10,615 square feet of office space in Morristown, New Jersey. The term of the lease is seventy-three months unless terminated sooner. In August 2021, we entered into an amendment to extend the lease of our 2,760 square feet of office space in Pacific Palisades, California. We exercised an option, under our prior lease agreement, to extend the term for an additional period of three (3) years and six (6) months, until February 28, 2025, with an option to renew for an additional three (3) years in accordance with the terms of the Pacific Palisades Lease. Included in the renewal were nine months of rent abatement and a rent escalation clause. Rent expense is being recorded on a straight-line basis. Rent expense related to the Pacific Palisades and Morristown leases for the nine months ended September 30, 2024 and 2023 was $0.3 million . 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, March 31, 2024, and July 31, 2024 (the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”), pursuant to which Fresenius Kabi manufactured FYARRO for us and we purchased FYARRO as a finished drug product from Fresenius Kabi, on a purchase order basis. The Fresenius Agreement contained specific activities such as non-cancellable commitments, minimum purchase commitments, or binding annual forecasts. Under the Fresenius Agreement, which was effective through September 30, 2024, we purchased FYARRO for either clinical or commercial purposes for use in the United States and Canada. Although we believe we presently have sufficient supply of FYARRO for at least the next two years based on our estimated demand and are seeking to enter into a new agreement with Fresenius Kabi for the manufacture of FYARRO, if we are unable to enter into a new agreement on favorable terms or at all, our business could be materially adversely affected. 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. The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice. In the event of cancellation, we would be liable for the cost and expenses incurred to date as well as any close out costs of the service arrangement. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance with 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 34 Table of Contents presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. For a discussion of our critical accounting estimates, please read Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 13, 2024. There have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this Item.