SEC Filing - ARS Pharmaceuticals

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39756

ARS Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its Charter)



Delaware	81-1489190
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

11682 El Camino Real, Suite 120 San Diego, California	92130
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 771-9307

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	SPRY	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2023 there were 94,774,232 shares of registrant’s common stock, $0.0001 par value per share, outstanding.

Table of Contents



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	88
Item 6.	Exhibits	89

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:


	•		any statements regarding future economic conditions or performance;


	•		research and development plans, including planned clinical trials, for neffy, including for additional indications;


	•		the design and potential benefits of neffy;


	•		our plans to submit a supplemental New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) and a post approval variation to the European Medicines Agency (“EMA”) for 1.0 mg neffy and the timing thereof;


	•		our expectations regarding the timing for FDA review of our NDA for neffy, including the anticipated Prescription Drug User Fee Act (“PDUFA”) target action date;


	•		our plans to submit regulatory filings for neffy in Japan and China in collaboration with our partners and the timing thereof;


	•		the expected timing for regulatory review decisions for neffy;


	•		the timing of the commercial launch of neffy, if approved;


	•		the commercial potential of and commercialization strategy for neffy;


	•		the size of the markets for neffy and any other product candidates, the projected growth thereof, and our ability to capture and grow those markets;


	•		the rate and degree of market acceptance of neffy and any other product candidates;


	•		our expected competitive position;


	•		our expectations regarding our ability to achieve gross profit margins similar to small molecule drugs;


	•		our potential to become the standard in treatment and transform the treatment of allergic reactions;


	•		the likelihood of neffy attaining favorable coverage;


	•		the expected intellectual property protection for neffy;


	•		legislative and regulatory developments in the United States and foreign countries;


	•		estimates regarding anticipated operating losses, capital requirements and needs for additional funds;


	•		our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection for neffy or any future product candidate; and


	•		statements of belief and any statement of assumptions underlying any of the foregoing.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms “ARS”, “the Company”, “we”, “our” and “us” refer to ARS Pharmaceuticals, Inc. and its consolidated subsidiaries, and references to our “common stock” refers to our voting common stock.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:


	•		We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated revenue from product sales and may never be profitable.


	•		We have a limited operating history and only one current product candidate, neffy, which is in the clinical stage of development and has no commercial sales, which may make it difficult to evaluate the prospects for our future viability. We may need additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development activities or commercialization efforts. Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidate.


	•		We currently depend on the success of neffy, which is our only current product candidate. If we are unable to obtain regulatory approval for, and successfully commercialize, neffy, or experience significant delays in doing so, our business will be materially harmed.


	•		If the FDA does not conclude that neffy or any future product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.


	•		If we fail to develop and commercialize neffy for additional indications or fail to discover, develop and commercialize other product candidates, we may be unable to grow our business and our ability to achieve our strategic objectives would be impaired.


	•		Competitive products may reduce or eliminate the commercial opportunity for neffy for its current or future indications. If our competitors develop technologies or product candidates more rapidly than us, or their technologies or product candidates are more effective or safer than ours, our ability to develop and successfully commercialize neffy may be adversely affected.


	•		We are dependent on international third-party licensees and assignees for the development and commercialization of neffy in several countries outside the United States. The failure of these third parties to meet their contractual, regulatory or other obligations could adversely affect our business.


	•		We may seek to enter into additional collaborations, licenses and other similar arrangements for neffy or any future product candidate and may not be successful in doing so, and even if we are, we may relinquish valuable rights and may not realize the benefits of such relationships.


	•		We currently have limited marketing, sales or distribution infrastructure. If we are unable to fully develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we may not be successful in commercializing our product candidates.


	•		The market for neffy and any future product candidates we may develop may be smaller than we expect.


	•		Any of our current and future product candidates for which we, or any current or future licensing and collaboration partners, obtain regulatory approval in the future will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If approved, neffy and any future product candidates could be subject to post-marketing restrictions or withdrawal from the market and we, or any current or future licensing and collaboration partners, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.


	•		Even if neffy or any future product candidate of ours receives regulatory approval, it may fail to achieve the degree of market acceptance by allergists, pediatricians and other physicians, patients, caregivers, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable.


	•		Our commercial success depends on our ability to obtain and maintain sufficient intellectual property protection for our product candidates and other proprietary technologies.


	•		Our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ARS Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and par value data)


	March 31, 2023			December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	87,862		$	210,518
Short-term investments		176,687			63,863
Prepaid expenses and other current assets		2,801			3,319
Total current assets		267,350			277,700
Right-of-use asset		398			445
Fixed assets, net		584			329
Other assets		2,860			2,961
Total assets	$	271,192		$	281,435
Liabilities, convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (including related party amounts of $307 and $16, respectively)	$	9,596		$	4,931
Lease liability, current		232			230
Contract liability, current		10			283
Total current liabilities		9,838			5,444
Lease liability, net of current portion		199			251
Contract liability, net of current portion		—			2,854
Total liabilities		10,037			8,549
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.0001 par value per share; 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.0001 par value per share; 200,000,000 shares authorized at March 31, 2023 and December 31, 2022; 94,448,028 and 93,943,316 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		9			9
Additional paid-in capital		352,977			349,408
Accumulated other comprehensive gain		68			407
Accumulated deficit		(91,899	)		(76,938	)
Total stockholders’ equity		261,155			272,886
Total liabilities, convertible preferred stock and stockholders’ equity	$	271,192		$	281,435

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

ARS Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended March 31,
	2023			2022
Revenue under collaboration agreements	$	20		$	663

Operating expenses:
Research and development (including related party amounts of $591 and $540, respectively)		6,552			5,423
General and administrative (including related party amounts of $337 and $165, respectively)		12,181			2,339
Total operating expenses		18,733			7,762
Loss from operations		(18,713	)		(7,099	)
Other income (expense), net		3,752			(151	)
Net loss	$	(14,961	)	$	(7,250	)
Change in unrealized gain on available-for-sale securities		(339	)		—
Comprehensive loss	$	(15,300	)	$	(7,250	)
Net loss per share, basic and diluted	$	(0.16	)	$	(0.24	)
Weighted-average shares outstanding used in computing net loss per share, basic and diluted		94,227,313			30,369,413

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

ARS Pharmaceuticals, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)


	Common Stock
	Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain			Accumulated Deficit			Total Stockholders’ Equity
Balance at December 31, 2022		93,943,316	$	9	$	349,408	$	407		$	(76,938	)	$	272,886
Exercise of common stock options		502,687		—		1,319		—			—			1,319
Restricted stock units released		2,025		—		—		—			—			—
Stock-based compensation		—		—		2,250		—			—			2,250
Net loss and comprehensive loss		—		—		—		(339	)		(14,961	)		(15,300	)
Balance at March 31, 2023		94,448,028	$	9	$	352,977	$	68		$	(91,899	)	$	261,155


	Series A Convertible Preferred Stock				Series B Convertible Preferred Stock				Series C Convertible Preferred Stock				Series D Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)
Balance at December 31, 2021		4,764,000	$	365		606,060	$	1,000		7,692,309	$	19,868		9,337,066	$	54,806		30,369,413	$	3	$	10,984	$	(42,256	)	$	(31,269	)
Stock-based compensation		—		—		—		—		—		—		—		—		—		—		264		—			264
Net loss and comprehensive loss		—		—		—		—		—		—		—		—		—		—		—		(7,250	)		(7,250	)
Balance at March 31, 2022		4,764,000	$	365		606,060	$	1,000		7,692,309	$	19,868		9,337,066	$	54,806		30,369,413	$	3	$	11,248	$	(49,506	)	$	(38,255	)

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

ARS Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(14,961	)	$	(7,250	)
Non-cash adjustments to reconcile net loss to net cash provided by (used) in operating activities:
Stock-based compensation expense		2,250			264
Change in fair value of warrant liability		—			(1	)
Depreciation and amortization		20			50
Amortization and accretion of short-term investments, net		(1,809	)		—
Changes in operating assets and liabilities:
Prepaid and other assets		445			92
Accounts payable and accrued liabilities (including related party amounts of $291 and $55, respectively)		4,756			546
Operating right-of-use assets and lease liabilities, net		(3	)		37
Contract liability		(3,127	)		(663	)
Net cash used in operating activities		(12,429	)		(6,925	)
Cash flows from investing activities:
Purchases of short-term investments, available-for-sale		(131,353	)		—
Maturities of short-term investments, available-for-sale		20,000			—
Purchase of property and equipment		(193	)		(21	)
Net cash used in investing activities		(111,546	)		(21	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		1,319			—
Repayment of bank note payable		—			(908	)
Net cash provided by (used in) financing activities		1,319			(908	)
Net change in cash and cash equivalents		(122,656	)		(7,854	)
Cash and cash equivalents at beginning of period		210,518			60,063
Cash and cash equivalents at end of period	$	87,862		$	52,209
Supplemental cash flow information:
Purchases of property and equipment included in accounts payable	$	91		$	21
Purchases of property and equipment reclassed from prepaid expenses and other current assets	$	174		$	—
Interest paid	$	—		$	114

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

ARS Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Business

Description of Business

ARS Pharmaceuticals, Inc. (“ARS” or the “Company”) is focused on the development of ARS-1 (brand name neffy®), a proprietary product candidate for the needle-free intranasal delivery of epinephrine for the emergency treatment of Type I allergic reactions including anaphylaxis. The Company incorporated in Delaware in January 2016 and is located in San Diego, California. The Company has a wholly owned subsidiary, ARS Pharmaceuticals Operations, Inc., incorporated in Delaware in August 2015, through which it conducts substantially all its operations. ARS Pharmaceuticals Operations, Inc. has a wholly owned subsidiary in Ireland, ARS Pharmaceuticals IRL, Limited, to facilitate the filing of regulatory approval for neffy in European countries.

Merger Transaction

On November 8, 2022 (the “Closing Date”), Silverback Therapeutics, Inc., a Delaware corporation (“Silverback”), now known as ARS Pharmaceuticals, Inc., completed its reverse merger (the “Merger”) with privately-held ARS Pharmaceuticals, Inc. (“ARS Pharma”), in accordance with the terms of the agreement and plan of merger and reorganization, dated July 21, 2022, as amended on August 11, 2022 and October 25, 2022 (the “Merger Agreement”), whereby Sabre Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and wholly-owned subsidiary of Silverback, merged into ARS Pharma, with ARS Pharma surviving as Silverback’s wholly-owned subsidiary. ARS Pharma was renamed ARS Subsidiary, Inc., and then subsequently renamed ARS Pharmaceuticals Operations, Inc.

At the effective time of the Merger (the “Effective Time”), each share of ARS Pharma common stock outstanding immediately prior to the Effective Time, after giving effect to the automatic conversion of all shares of preferred stock of ARS Pharma into shares of ARS Pharma common stock immediately prior to the Effective Time (excluding shares held as treasury stock by ARS Pharma or held or owned by Silverback, Merger Sub or any subsidiary of Silverback or ARS Pharma and dissenting shares), was automatically converted into the right to receive shares of Silverback common stock equal to the exchange ratio of 1.1819. At the completion of the Merger, the prior ARS Pharma equityholders owned 62% and the prior Silverback equityholders owned 38% of the combined company, in each case on a fully diluted basis using the treasury stock method and excluding out-of-money options of Silverback.

The Merger was accounted for as a reverse recapitalization, with ARS Pharma being treated as the acquirer for accounting purposes. Pursuant to the Merger Agreement, Silverback changed its name to ARS Pharmaceuticals, Inc., and changed its corporate ticker symbol on the Nasdaq Global Market to “SPRY”. See discussions of the transactions in connection with the Merger at Note 3- Merger and Related Transactions.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $91.9 million as of March 31, 2023. The Company had cash, cash equivalents, and short-term investments of $264.5 million as of March 31, 2023 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily with proceeds from the Merger, the issuance of convertible preferred stock, payments earned under collaboration agreements and bank debt. The Company’s currently available cash, cash equivalents, and short-term investments as of March 31, 2023 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date the financial statements are issued.

From August 5, 2015 (inception) through March 31, 2023, the Company has devoted substantially all of its efforts to developing intellectual property and conducting product development and clinical trials, raising capital, and building infrastructure. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. If the Company does not successfully commercialize any product candidates for which it receives regulatory approval, it will be unable to generate recurring product revenue or achieve profitability. Management expects operating expenses to increase for the foreseeable future and there can be no assurance that the Company will ever achieve profitability, or if achieved, that it will be sustained on a continuing basis.

The novel coronavirus-2019 (“COVID-19”) epidemic and geopolitical events have resulted in a significant disruption of global financial markets. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and further disruptions to, and volatility in, the credit and financial markets in the United States, including recent bank failures, and worldwide resulting from a resurgence of COVID-19, future health epidemics or pandemics, geopolitical actions or other macroeconomic factors. If such further disruption occurs, the Company could experience an inability to access additional capital. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, and future prospects.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). The Company’s financial statements are presented on a condensed consolidated basis, which include the accounts of ARS Pharmaceuticals, Inc., ARS Pharmaceuticals Operations, Inc. and ARS Pharmaceuticals IRL, Limited. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s functional and reporting currency is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. All adjustments considered necessary for a fair presentation have been included.

Since ARS Pharma was determined to be the accounting acquirer in connection with the Merger, for periods prior to the Merger the condensed consolidated financial statements were prepared on a stand-alone basis for ARS Pharma and did not include the combined entities activity or financial position. For periods subsequent to the Merger, the condensed consolidated financial statements include Silverback’s activity and Silverback’s assets and liabilities at their acquisition date fair value. Historical share and per share figures of ARS Pharma have been retroactively restated based on the exchange ratio in the Merger of 1.1819.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, are unaudited. The balance sheet as of December 31, 2022 was derived from the audited financial statements as of and for the year ended December 31, 2022. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2022, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2023, the condensed consolidated results of its operations for the three months ended March 31, 2023 and 2022, and its cash flows for the three months ended March 31, 2023 and 2022. The financial data and other information disclosed in these notes related to the three months ended March 31, 2023 and 2022 are also unaudited. The condensed consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or any other period.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements relate to revenue recognized for its collaboration agreements, accruals for research and development expenses and valuation of equity awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Cash and Cash Equivalents

Cash and cash equivalents include cash readily available in checking and money market mutual funds. The Company considers all highly liquid investments with remaining maturities when purchased of 90 days or less to be cash equivalents.

Investments

The Company invests excess cash in investment grade intermediate-term fixed income securities. These investments are included in short-term investments on the balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive loss. Realized gains and losses on the sale of these securities are recognized in net loss.

Fair Value of Financial Instruments

Cash, cash equivalents, and short-term investments are carried at fair value. The carrying amounts of all prepaid expenses and other current assets, accounts payable, accrued liabilities, and contract liability, are considered to be representative of their respective fair values because of the short-term nature of those instruments.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and limits its exposure to cash risk by placing its cash with high credit quality financial institutions.

The Company reviews its financial instruments portfolio on a quarterly basis to determine if any unrealized losses have resulted from a credit loss or other factors. As part of the review, management considers factors such as historical experience, market data, issuer-specific factors, and current economic conditions. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years. Repair and maintenance costs are charged to expense as incurred.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value. The Company has not recognized any impairment losses from inception through March 31, 2023.

Leases

Effective January 1, 2021, the Company early adopted ASC No. 2016-02, Leases (Topic 842) (“ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”) asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The lease liability is calculated by using the present value of all lease payments, with the present value determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment as well as a review of peer companies. Variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

Revenue Recognition

Our revenues generally consist of licenses and research services under license and collaboration agreements. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation(s). At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identify those that are performance obligations. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Research and Development Costs

Research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct our clinical studies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates for clinical trials and other allocated expenses.

Payments for research and development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying condensed consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. The Company uses judgments and estimates to determine the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statements of operations and expensed as incurred since recoverability of such expenditures is uncertain.

License Fees

Costs incurred to acquire technology licenses and milestone payments made on existing agreements are charged to research and development expense or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use.

Acquired in-process research and development expense

Acquired in-process research and development expense (“IPR&D”), is expensed on the acquisition date if there is no alternative future use. Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration becomes payable. Milestone payments made to third parties subsequent to regulatory approval will be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product.

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company recognizes expense for awards subject to performance-based milestones over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss typically consists of the change in unrealized gain/loss on available-for-sale securities.

Segment Reporting

Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker for purposes of making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.

Net Loss Per Common Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, convertible preferred stock, stock options, and preferred stock warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.

The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been anti-dilutive. Historical share figures have been retroactively restated based on the exchange ratio of 1.1819.


	Three Months Ended March 31,
	2023		2022
Convertible preferred stock		—		26,473,899
Warrants to purchase convertible preferred stock		—		45,456
Warrants to purchase common stock		45,456		—
Common stock options granted and outstanding		15,584,419		5,375,291
Total		15,629,875		31,894,646

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. This standard was effective for the Company beginning January 1, 2023. The adoption of this new standard did not have a material impact on the Company's condensed consolidated financial statements.

3. Merger and Related Transactions

As described in Note 1- Nature of Business, ARS Pharma merged with Silverback on November 8, 2022. The Merger was accounted for as a reverse recapitalization under U.S. GAAP. ARS Pharma was considered the accounting acquirer for financial reporting purposes. This determination was based on the facts that, immediately following the Merger: (i) ARS Pharma stockholders own a substantial majority of the voting rights of the combined organization; (ii) ARS Pharma has designated a majority (eight of eleven) of the initial members of the board of directors of the combined organization; and (iii) ARS Pharma’s senior management holds all key positions in senior management of the combined organization. The transaction was accounted for as a reverse recapitalization because on the effective date of the Merger, the pre-combination assets of Silverback were primarily cash and other non-operating assets. Additionally, the Company concluded that the in-process research and development (“IPR&D”) assets that remained as of the combination were not significant when compared to the cash and investments obtained through the transaction.

Under reverse recapitalization accounting, the assets and liabilities of Silverback were recorded at their fair value, which approximated book value due to the short-term nature of the instruments. No goodwill or intangible assets were recognized.

Under the terms of the Merger Agreement, immediately prior to the effective time of the Merger, each share of ARS Pharma’s preferred stock was converted into one share of ARS Pharma’s common stock.

As the accounting acquirer, ARS Pharma is deemed to have assumed all of Silverback’s outstanding and unexercised stock options. The assumed options continue to be governed by the terms of the 2016 and 2020 Equity Incentive Plans of Silverback (as discussed more in Note 10- Stock-Based Compensation) under which the options were originally granted.

As part of the reverse recapitalization, ARS Pharma obtained $262.3 million in cash, cash equivalents and short-term investments, net of transaction costs. ARS Pharma also obtained prepaids and other current assets of approximately $4.4 million and assumed payables and accruals of approximately $12.0 million. ARS Pharma also obtained $1.1 million in IPR&D assets that have no alternative future use. The fair value attributable to these assets was recorded as research and development expense in the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2022. ARS Pharma also incurred transaction costs of approximately $2.1 million and this amount was recorded as a reduction to additional paid-in capital in the consolidated statement of convertible preferred stock and stockholders’ equity (deficit) for the year ended December 31, 2022 filed with the SEC on March 23, 2023 in the Company’s Annual Report on Form 10-K.

4. Fair Value Measurements

The Company categorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance that establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


			Level 1- Quoted prices (unadjusted) in active markets for identical assets or liabilities;


			Level 2- Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and


			Level 3- Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The following table identifies the Company’s assets that were measured at fair value on a recurring basis (in thousands):


March 31, 2023	Level		Amortized Cost		Gross unrealized gains		Gross unrealized losses			Estimated Fair Value
Cash and cash equivalents - Money market mutual funds		1	$	71,867	$	—	$	—		$	71,867
Cash and cash equivalents - U.S. Treasury securities		2		14,966		3		—			14,969
Short-term investments - U.S. Treasury securities		2		176,622		73		(8	)		176,687
Total			$	263,455	$	76	$	(8	)	$	263,523
December 31, 2022
Cash and cash equivalents - Money market mutual funds		1	$	209,273	$	—	$	—		$	209,273
Short-term investments - U.S. Treasury securities		2		63,456		407		—			63,863
Total			$	272,729	$	407	$	—		$	273,136

There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented. During the three months ended March 31, 2023, the Company purchased $131.4 million in short-term investments.

The Company’s short-term investments portfolio contains investments in U.S. Treasury securities that have an effective maturity date that is less than one year from the respective balance sheet date. The Company's cash and cash equivalents consists of U.S. Treasury securities and money market mutual funds that have remaining maturities when purchased of 90 days or less.

During the three months ended March 31, 2023, the Company recorded $0.1 million in net unrealized holding gains to accumulated other comprehensive gain, and reclassified $0.3 million from accumulated other comprehensive gain to other income. Management determined that the gross unrealized losses on the Company’s available-for-sale securities as of March 31, 2023 were primarily attributable to current economic and market conditions and not credit risk. As of March 31, 2023 and December 31, 2022, no allowance for credit losses was recorded. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell any investments prior to recovery of their amortized cost basis.

As of March 31, 2023 and December 31, 2022, the Company did not have any liabilities that were measured at fair value on a recurring basis.

5. Balance Sheet Details

Prepaid expenses and other current assets consisted of the following (in thousands):


	March 31, 2023	December 31, 2022
Prepaid insurance