10-Q
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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, 2024

OR

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 6, 2024 there were 96,895,256 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

7

 

Condensed Consolidated Balance Sheets

7

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

8

 

Condensed Consolidated Statements of Stockholders’ Equity

9

 

Condensed Consolidated Statements of Cash Flows

10

 

Notes to Unaudited Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

 

 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

89

Item 5.

Other Information

90

Item 6.

Exhibits

91

2


 

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 expected timing for reporting data;

 

the design and potential benefits of neffy;

our expectations regarding the U.S. Food and Drug Administration’s (“FDA”) review of our New Drug Application (“NDA”) for neffy and the anticipated Prescription Drug User Fee Act (“PDUFA”) target action date;

our expectations regarding the timing for the European Medicines Agency’s (“EMA”) Committee for Medicinal Products for Human Use (“CHMP”) review of our Marketing Authorization Application (“MAA”) for neffy, including the CHMP’s expected opinion date;

our plans to submit a supplemental NDA to the FDA and a post approval variation to the EMA for 1.0 mg neffy and the timing thereof;

our plans to submit regulatory filings for neffy in Japan, China, Australia and New Zealand 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;

our expected use of the remaining net proceeds from the Silverback Therapeutics, Inc. (“Silverback”) initial public offering; and

 

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

 

3


 

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. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements. 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.

4


 

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.

5


 

Our commercial success depends on our ability to obtain and maintain sufficient intellectual property protection for neffy or any of our future product candidates and other proprietary technologies.

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

 

6


 

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, 2024

 

 

December 31, 2023

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,006

 

 

$

70,971

 

Short-term investments

 

 

167,626

 

 

 

157,389

 

Prepaid expenses and other current assets

 

 

2,609

 

 

 

3,366

 

Total current assets

 

 

226,241

 

 

 

231,726

 

Right-of-use asset

 

 

198

 

 

 

250

 

Fixed assets, net

 

 

616

 

 

 

574

 

Other assets

 

 

528

 

 

 

638

 

Total assets

 

$

227,583

 

 

$

233,188

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities (including related party amounts of $280 and $178, respectively)

 

$

3,498

 

 

$

2,154

 

Lease liability, current

 

 

217

 

 

 

237

 

Total current liabilities

 

 

3,715

 

 

 

2,391

 

Lease liability, net of current portion

 

 

 

 

 

37

 

Total liabilities

 

 

3,715

 

 

 

2,428

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.0001 par value per share; 200,000,000 shares authorized at March 31, 2024 and December 31, 2023; 96,574,049 and 96,414,963 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

365,577

 

 

 

362,004

 

Accumulated other comprehensive (loss) gain, net

 

 

(124

)

 

 

49

 

Accumulated deficit

 

 

(141,595

)

 

 

(131,303

)

Total stockholders’ equity

 

 

223,868

 

 

 

230,760

 

Total liabilities and stockholders’ equity

 

$

227,583

 

 

$

233,188

 

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

7


 

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,

 

 

 

2024

 

 

2023

 

Revenue under collaboration agreements

 

$

 

 

$

20

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development (including related party amounts of $726 and $591, respectively)

 

 

5,234

 

 

 

6,552

 

General and administrative (including related party amounts of $93 and $337, respectively)

 

 

7,958

 

 

 

12,181

 

Total operating expenses

 

 

13,192

 

 

 

18,733

 

Loss from operations

 

 

(13,192

)

 

 

(18,713

)

Other income, net

 

 

2,900

 

 

 

3,752

 

Net loss

 

$

(10,292

)

 

$

(14,961

)

Change in unrealized gains and losses on available-for-sale securities

 

 

(173

)

 

 

(339

)

Comprehensive loss

 

$

(10,465

)

 

$

(15,300

)

Net loss per share, basic and diluted

 

$

(0.11

)

 

$

(0.16

)

Weighted-average shares outstanding used in computing net loss per share, basic and diluted

 

 

96,486,480

 

 

 

94,227,313

 

 

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

8


 

ARS Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Additional Paid-in Capital

 

Accumulated Other Comprehensive (Loss) Gain, Net

 

Accumulated Deficit

 

Total Stockholders’ Equity

 

Balance at December 31, 2023

 

 

96,414,963

 

$

10

 

$

362,004

 

$

49

 

$

(131,303

)

$

230,760

 

Exercise of common stock options and release of restricted stock units

 

 

159,086

 

 

 

 

258

 

 

 

 

 

 

258

 

Stock-based compensation

 

 

 

 

 

 

3,315

 

 

 

 

 

 

3,315

 

Net loss and comprehensive loss

 

 

 

 

 

 

 

 

(173

)

 

(10,292

)

 

(10,465

)

Balance at March 31, 2024

 

 

96,574,049

 

$

10

 

$

365,577

 

$

(124

)

$

(141,595

)

$

223,868

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Additional Paid-in Capital

 

Accumulated Other Comprehensive Gain, Net

 

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 and release of restricted stock units

 

 

504,712

 

 

 

 

1,319

 

 

 

 

 

 

1,319

 

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

 

 

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

9


 

ARS Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(10,292

)

 

$

(14,961

)

Non-cash adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

3,315

 

 

 

2,250

 

Depreciation

 

 

11

 

 

 

20

 

Amortization and accretion, net

 

 

(1,980

)

 

 

(1,809

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid and other assets

 

 

867

 

 

 

445

 

Donation of equipment

 

 

30

 

 

 

 

Accounts payable and accrued liabilities (including related party amounts of $102 and $291, respectively)

 

 

1,344

 

 

 

4,756

 

Operating right-of-use assets and lease liabilities, net

 

 

(5

)

 

 

(3

)

Contract liability

 

 

 

 

 

(3,127

)

Net cash used in operating activities

 

 

(6,710

)

 

 

(12,429

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of short-term investments, available-for-sale

 

 

(63,430

)

 

 

(131,353

)

Maturities of short-term investments, available-for-sale

 

 

55,000

 

 

 

20,000

 

Purchase of property and equipment

 

 

(83

)

 

 

(193

)

Net cash used in investing activities

 

 

(8,513

)

 

 

(111,546

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of common stock options

 

 

258

 

 

 

1,319

 

Net cash provided by financing activities

 

 

258

 

 

 

1,319

 

Net change in cash and cash equivalents

 

 

(14,965

)

 

 

(122,656

)

Cash and cash equivalents at beginning of period

 

 

70,971

 

 

 

210,518

 

Cash and cash equivalents at end of period

 

$

56,006

 

 

$

87,862

 

Supplemental cash flow information:

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

 

 

$

91

 

Purchases of property and equipment reclassed from prepaid expenses and other current assets

 

$

 

 

$

174

 

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

10


 

 

ARS Pharmaceuticals, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Business

Description of Business

ARS Pharmaceuticals, Inc. (“ARS”, “ARS Pharma” 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.

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 $141.6 million as of March 31, 2024. The Company had cash, cash equivalents, and short-term investments of $223.6 million as of March 31, 2024 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily with proceeds from the merger with Silverback in November 2022 (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, 2024 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date these financial statements are issued.

From August 5, 2015 (inception) through March 31, 2024, the Company has devoted substantially all of its efforts to developing intellectual property, 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 Company’s ability to raise additional capital may be adversely impacted should the global economic conditions worsen or as a result of further disruptions to, and volatility in, the credit and financial markets in the United States, including bank failures, 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 in the condensed consolidated statements of operations and comprehensive loss. All adjustments considered necessary for a fair presentation have been included.

11


 

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023, are unaudited. The balance sheet as of December 31, 2023 was derived from the audited financial statements as of and for the year ended December 31, 2023. 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, 2023, 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, 2024, the condensed consolidated results of its operations for the three months ended March 31, 2024 and 2023, and its cash flows for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in these notes related to the three months ended March 31, 2024 and 2023 are also unaudited. The condensed consolidated results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024 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 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) gain, net. Realized gains and losses on the sale of 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.

12


 

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, 2024.

Leases

The Company determines the initial classification and measurement of its right-of-use (“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.

13


 

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. In the event that stock-based awards are granted in contemplation of or shortly before a planned release of material non-public information, and such information is expected to result in a material increase in the share price of our common stock, the Company may consider whether an adjustment to the observable market price is required when estimating the grant date fair value.

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 gains and losses 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, stock options, warrants, and unvested restricted stock units, 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.

14


 

The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been anti-dilutive.

 

 

As of March 31,

 

 

 

2024

 

 

2023

 

Warrants to purchase common stock

 

 

45,456

 

 

 

45,456

 

Common stock options granted and outstanding

 

 

14,398,501

 

 

 

15,584,419

 

Unvested restricted stock units

 

 

2,763

 

 

 

7,107

 

Estimated shares to be purchased under the ESPP

 

 

26,856

 

 

 

9,867

 

Total

 

 

14,473,576

 

 

 

15,646,849

 

 

Recently Issued Accounting Pronouncements — Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (ASU 2023-07), which requires issuers to make additional disclosures with respect to segment expenses, including required disclosure on an annual and interim basis for significant segment expenses and other segment items. ASU 2023-07 also permits the disclosure of more than one measure of a segment’s profit or loss. ASU 2023-07 is effective for the Company as of January 1, 2024 for annual periods and as of January 1, 2025 for interim periods. The Company is evaluating the expected impact of ASU 2023-07 on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (ASU 2023-09), which requires issuers to make additional disclosures on an annual basis related to specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis, disclose additional information about income taxes paid as well as other disaggregated disclosures. ASU 2023-09 is effective for the Company as of January 1, 2025 for annual periods. The Company is evaluating the expected impact of ASU 2023-09 on the consolidated financial statements and related disclosures.

3. 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, 2024

Level

 

 

Amortized Cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Estimated Fair Value

 

Cash and cash equivalents - Money market mutual funds

 

1

 

 

$

54,961

 

 

$

 

 

$

 

 

$

54,961

 

Short-term investments - U.S. Treasury securities

 

2

 

 

 

167,750

 

 

 

 

 

 

(124

)

 

 

167,626

 

Total

 

 

 

$

222,711

 

 

$

 

 

$

(124

)

 

$

222,587

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - Money market mutual funds

 

1

 

 

$

69,938

 

 

$

 

 

$

 

 

$

69,938

 

Short-term investments - U.S. Treasury securities

 

2

 

 

 

157,340

 

 

 

61

 

 

 

(12

)

 

 

157,389

 

Total

 

 

 

$

227,278

 

 

$

61

 

 

$

(12

)

 

$

227,327

 

 

15


 

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, 2024, the Company purchased $63.4 million in short-term investments and there was $55.0 million in maturities of short-term investments. During the three months ended March 31, 2023, the Company purchased $131.4 million in short-term investments and there was $20.0 million in maturities of 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 money market mutual fund holdings are highly liquid and invest primarily in cash and U.S. Treasury securities.

There was a $0.2 million unrealized loss on available-for-sale securities for the three months ended March 31, 2024 and a $0.1 million unrealized gain on available-for-sale securities for the three months ended March 31, 2023. Management determined that the gross unrealized losses on the Company’s available-for-sale securities as of March 31, 2024 were primarily attributable to current economic and market conditions and not credit risk. As of March 31, 2024 and December 31, 2023, 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 its amortized cost basis, which is expected to be at maturity.

 

Accrued interest on the Company's available-for-sale securities was $0.6 million as of March 31, 2024 and is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

As of March 31, 2024 and December 31, 2023, the Company did not have any liabilities that were measured at fair value on a recurring basis.

4. Balance Sheet Details

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

 

 

March 31, 2024

 

 

December 31, 2023

 

Prepaid insurance

 

$

688

 

 

$

904

 

Interest receivable

 

 

618

 

 

 

686

 

Prepaid development costs

 

 

538

 

 

 

380

 

Prepaid expenses

 

 

465

 

 

 

1,124

 

Capitalized software implementation costs

 

 

233

 

 

 

163

 

Other

 

 

67

 

 

 

109

 

Total

 

$

2,609

 

 

$

3,366

 

Property and equipment consisted of the following (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Equipment

 

$

748

 

 

$

695

 

Less accumulated depreciation

 

 

(132

)

 

 

(121

)

Total

 

$

616

 

 

$

574

 

Depreciation expense was immaterial for each of the three months ended March 31, 2024 and 2023.

Other long-term assets consisted of the following (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Capitalized software implementation costs

 

$

528

 

 

$

617

 

Security deposit

 

 

 

 

 

21

 

Total

 

$

528

 

 

$

638

 

 

16


 

Accounts payable and accrued liabilities consisted of the following (in thousands):

 

 

March 31, 2024

 

 

December 31, 2023

 

Accrued compensation

 

$

1,066

 

 

$

315

 

Accounts payable

 

 

839

 

 

 

759

 

Accrued clinical expenses

 

 

578

 

 

 

515

 

Accrued legal and professional fees

 

 

509

 

 

 

174

 

Accrued development expenses

 

 

212

 

 

 

190

 

Accrued pre-commercialization marketing related expenses

 

 

79

 

 

 

42

 

Accrued tax expenses

 

 

47

 

 

 

4

 

Other

 

 

168

 

 

 

155

 

Total

 

$

3,498

 

 

$

2,154

 

 

5. Collaboration and Out-Licensing

The Company has entered into collaboration and licensing agreements to license certain rights to neffy to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; payment for clinical and commercial supply and royalties or a transfer price on the net sales of licensed products.

Licenses of Intellectual Property. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from non-refundable, up-front payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If the license is not a distinct performance obligation, the Company evaluates the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments. At the inception of each arrangement that includes clinical, regulatory or commercial milestone payments, the Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within the Company’s control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized when the underlying performance obligation has been transferred to the customer.

Research and Development Revenues. For arrangements that contain research and development commitments, any arrangement consideration allocated to the research and development work is recognized as the underlying services are performed over the research and development term.

Clinical and Commercial Supply. Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. The Company has not earned revenues for clinical or commercial supply sales as of March 31, 2024.

Royalty/Transfer Price Revenues. For arrangements that include sales-based royalties or transfer price, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company has not received any royalty or transfer price revenues as of March 31, 2024.

17


 

Alfresa Agreement

In March 2020, the Company signed a Letter of Intent (“LOI”) with Alfresa Pharma Corporation (“Alfresa”) for the right to negotiate a definitive agreement for the exclusive license and sublicensable right to develop, register, import, manufacture and commercialize neffy in Japan in exchange for an upfront payment of $2.0 million. In April 2020, the Company entered into a Collaboration and License Agreement for the rights pursuant to the LOI. Under the agreement, the Company delivered a license to the neffy technology and completed a certain clinical study and for the manufacturing of development and commercial drug supply. The parties agreed to share the cost of any additional clinical studies required for approval of neffy in Japan. Alfresa is solely responsible for regulatory and commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use in Japan. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue until the later of (i) expiration of the last-to-expire patent in Japan; or (ii) 10 years after the commercial sale of neffy in Japan.

In addition to the $2.0 million received under the LOI, the Company is eligible to receive up to $13.0 million of milestone payments upon achievement of certain clinical and regulatory milestones. Further, the Company is eligible to receive a negotiable transfer price expected to be in the low double-digit percentage on net sales subject to the regulatory approval to commercialize neffy in Japan. In July 2020, the Company earned a $5.0 million milestone payment upon the completion of a clinical milestone in Japan.

At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy and research and development services, both of which have been completed. The Company determined the initial transaction price to be $7.0 million, which includes a clinical milestone as it was deemed not probable of significant reversal at the inception of the agreement. Due to the uncertainty in the achievement of the regulatory and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. The Company recognized no revenue and less than $0.1 million in revenue for the three months ended March 31, 2024 and 2023, respectively. There was no contract liability as of March 31, 2024.

Recordati Agreement

In September 2020, the Company entered into a License and Supply Agreement (the “Recordati Agreement”) with Recordati Ireland, Ltd. (“Recordati”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in Europe and certain European Free Trade Association, Russia/the Commonwealth of Independent States, Middle East and African countries (the “Recordati Territory”).

Under the terms of the Recordati Agreement, the Company received an upfront payment of $11.8 million and a regulatory milestone payment of $6.0 million during 2020.

At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy in the defined territory and the research and development services. The Company determined the initial transaction price to be the $11.8 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, at inception of the contract, the variable consideration associated with future milestone payments was fully constrained and excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. In November 2020, the Company earned a regulatory milestone of $6.0 million.

On February 22, 2023, the Company and Recordati entered into a termination agreement (the “Termination Agreement”), pursuant to which, among other things, the Company and Recordati agreed to terminate the Recordati Agreement. Pursuant to the Termination Agreement, the Company reacquired all of the Recordati rights, paid Recordati a one-time upfront payment of €3.0 million, and has agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of €2.0 million, (ii) a milestone payment of €5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to €5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory.

18


 

The Company determined that the Recordati rights at the time of entering into the Termination Agreement had no alternative future use and therefore recorded the €3.0 million upfront payment to Recordati as an IPR&D expense presented within research and development expense. The Termination Agreement ended the Company’s performance obligations pursuant to the Recordati Agreement and consequently the existing contract liability of $3.1 million previously received from Recordati was recorded against IPR&D expense presented within research and development expense. Accordingly, no revenue was recognized in each of the three months ended March 31, 2024 and 2023.

Pediatrix Agreement

In March 2021, the Company entered into a Collaboration and Distribution Agreement with Pediatrix Therapeutics, Inc. (“Pediatrix”) for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in the People’s Republic of China, Taiwan, Macau, and Hong Kong. Under the agreement, Pediatrix is responsible, at its sole cost and expense, for all ongoing development work that is necessary for or otherwise supports regulatory approval in the defined territory, including all clinical trials, and activities related to post approval commitments and commercialization tests. In addition, Pediatrix is responsible for commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use. The Company is responsible for the manufacturing of product for clinical studies as well as commercial supply, all at a negotiated transfer price. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue as long as Pediatrix has commercial sales of neffy in the region, or 10 years after the first commercial sale.

Under the terms of the agreement, the Company received an upfront payment of $3.0 million. In addition, the Company is eligible to receive up to $84.0 million of milestone payments upon achievement of certain regulatory and commercial sales milestones. Subject to regulatory approval, the Company will earn tiered royalties in the low double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Pediatrix.

At the commencement of this collaboration, the Company identified performance obligations related to the delivery of the license for neffy in the defined territory and manufacturing of product for clinical studies and commercial supply. The Company concluded that the license was distinct from potential supply obligation. The supply provisions are effectively options granted to Pediatrix to purchase future goods and would only constitute a performance obligation if they contain a material right. The Company determined the option to purchase the clinical and commercial supply was not at a significantly discounted price and does not represent a material right, therefore does not constitute a performance obligation. The Company determined the initial transaction price to be the $3.0 million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be re-assessed at each reporting period. The Company recognized revenue of the full $3.0 million during the year ended December 31, 2021.

 


 

 

 

 

19


 

6. Commitments and Contingencies

Leases

In October 2021, the Company entered into a 38-month noncancelable lease for its current headquarters location consisting of 4,047 rentable square feet of office space in San Diego, California. Under the terms of the agreement, there is no option to extend the lease, and the Company is subject to additional charges for common area maintenance and other costs. Monthly rental payments due under the lease commenced on December 6, 2021 and escalate through the lease term. The Company prepaid the first month’s rent upon execution of the lease, and the lease agreement provided full rent abatement for the second and third months of the rental term. As of March 31, 2024, the remaining lease term of the Company’s operating lease was 11 months, and the discount rate on the Company’s operating lease was 8%. As there was not an implicit rate within the lease, the discount rate was determined by using a set of peer companies incremental borrowing rates. The Company’s operating lease expense was $0.1 million for each of the three months ended March 31, 2024 and 2023. The Company’s variable lease expense was immaterial for each of the three months ended March 31, 2024 and 2023. Cash paid for amounts included in the measurement of lease liabilities was $0.1 million for each of the three months ended March 31, 2024 and 2023.

As of March 31, 2024, future minimum noncancelable operating lease payments are as follows (in thousands):

Year ended December 31,

 

Amount

 

2024

 

$

245

 

2025

 

 

42

 

Total lease payments

 

 

287

 

Less imputed interest

 

 

(70

)

Lease liability

 

 

217

 

Less current portion of lease liability

 

 

(217

)

Lease liability, net of current portion

 

$

 

Contingencies

From time to time, the Company may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.

On August 12, 2021, Amphastar Pharmaceuticals, Inc. (“Amphastar”) filed a Petition for Inter Partes Review with the United States Patent and Trademark Office (“USPTO”), seeking to invalidate claims 1-20 of United States Patent No. 10,682,414 (the “‘414 patent”). The ‘414 patent issued on June 16, 2020 and is entitled “Intranasal Epinephrine Formulations and Methods for the Treatment of Disease.” The claims of the ‘414 patent are directed to methods of treating a type-1 hypersensitivity reaction, including anaphylaxis, using an aqueous nasal spray pharmaceutical formulation containing epinephrine or a salt thereof in a single dose. On February 9, 2023, the USPTO issued a Final Written Decision finding claims 3-6 and 18-20, which encompass the Company’s neffy product candidate, patentable, and claims 1-2 and 7-17 unpatentable. On April 12, 2023, Amphastar filed a notice of appeal with the United States Court of Appeals for the Federal Circuit. On May 15, 2023, the Company filed a motion to dismiss for lack of standing, which will be heard along with the merits of the case. Briefing on the merits is expected to be completed in the second quarter of 2024, and a decision from the Federal Circuit is expected by mid-2025. The results of any appeal proceedings are inherently unpredictable and uncertain, and could result in the Federal Circuit finding some or all of claims 1-20 of the ‘414 patent to be invalid or unenforceable.

On July 24, 2023, Aera A/S, an IP consultancy firm in Denmark representing an unidentified opponent, filed a notice of opposition with the European Patent Office (the “EPO”) in respect of EP 3678649 (the “EP ‘649 Patent”), which is a patent directed to a nasal spray formulation of epinephrine, and uses thereof. We filed a response to the notice of opposition on December 15, 2023, and we will continue to vigorously defend the EP ‘649 Patent. The results of any notice of opposition are inherently unpredictable and uncertain, and could result in the EPO finding the patent to be invalid or unenforceable.

Regardless of the outcome, involvement in legal proceedings may have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. The Company cannot predict the outcome of these suits, and failure by the Company to obtain favorable resolutions could have a material adverse effect on its business, results of operations, and financial condition. The Company’s chances of success on the merits of these suits are still uncertain and any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of March 31, 2024.

20


 

Except as described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or other body pending or, to the knowledge of the Company’s executive officers, threatened against or affecting the Company, the Company’s common stock, any of its subsidiaries or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 

7. In-Licensing and Supply

License Agreement with Aegis

In June 2018, the Company entered into a License Agreement (the “Aegis Agreement”) with Aegis Therapeutics, LLC (“Aegis”). Under the Aegis Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable, rights to certain proprietary Aegis technology, patent rights and know-how to develop and commercialize epinephrine products. The Company utilizes this technology for the development of its lead product candidate, neffy. As consideration for the license, the Company paid an upfront license fee of $50,000, which was recorded in research and development expenses in the condensed consolidated statement of operations.

The Company is required to make aggregate milestone payments of up to $20.0 million upon achievement of certain regulatory and commercial milestones. The regulatory milestone payments under the Aegis Agreement will be recognized as research and development expense upon completion of the required events, as the triggering events are not considered to be probable until they are achieved. The Company made a $0.5 million milestone payment to Aegis upon the achievement of a regulatory milestone during 2019, and a $1.0 million payment to Aegis upon the FDA’s acceptance of the Company’s NDA submission for neffy, which occurred in the third quarter of 2022. The Company may be required to pay royalties based on annual net product sales in the low to mid-single digits on its or its sublicensees’ net sales of the Licensed Products (as defined in the Aegis Agreement) on a country-by-country and product-by-product basis.

The Company is responsible for reimbursing Aegis for patent costs incurred in connection with prosecuting and maintaining patent rights that are specific to epinephrine or epinephrine products. There were no expenses recognized in connection with legal patent fees for each of the three months ended March 31, 2024 and 2023.

The Company may terminate the Aegis Agreement with 30 days written notice or either party may terminate the Aegis Agreement for certain breaches of the Aegis Agreement. Unless terminated earlier by either or both parties, the term of the Aegis Agreement will continue until the final expiration of all royalty obligations under the Aegis Agreement.

In conjunction with the Aegis Agreement, the Company also entered into a Supply Agreement (the “Supply Agreement”) with Aegis that allows the Company to purchase materials for preclinical, development and commercial use at predetermined prices. The Company may elect to have Aegis supply minimum quantities but there are no minimum or maximum purchase obligations under the Supply Agreement unless this election is made. The parties may terminate the Supply Agreement at any time by mutual agreement. In addition, the parties may terminate the Supply Agreement in the event of certain breaches of the Supply Agreement or upon the earlier of the expiration or termination of the Aegis Agreement or June 2028. The Supply Agreement term may be extended by mutual written agreement. Under the Supply Agreement, no expense and $0.1 million in expense was recognized in the three months ended March 31, 2024 and 2023, respectively.

Manufacturing Agreement with Renaissance

In September 2020, the Company entered into a manufacturing agreement with Renaissance Lakewood, LLC (“Renaissance”), which was subsequently amended in July 2023 (the “Renaissance Agreement”). Pursuant to the Renaissance Agreement, Renaissance agreed to manufacture for, and provide to the Company, neffy nasal unit dose sprays (“Renaissance Products”). The Company is obligated to provide Renaissance with certain supplies to manufacture the Renaissance Products and to purchase from Renaissance a mid double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the E.U., and a high double-digit percentage of the Company’s annual aggregate Renaissance Product requirements in the U.S. The Renaissance Agreement contains conventional commercial pharmaceutical manufacturing provisions including certain minimum purchase amounts to be determined in the future based on forecast needs and minimum batch size projections. The Company may also request Renaissance to perform certain services related to the Renaissance Product, for which the Company will pay reasonable compensation to Renaissance.

21


 

The initial term of the Renaissance Agreement commenced on September 9, 2020 and continues (a) for Renaissance Product designated for commercial sale in the U.S. until the earlier of the fifth anniversary of the (i) target U.S. launch date and (ii) the initial U.S. launch date (“U.S. Initial Term”), and (b) for Renaissance Product designated for commercial sale in the E.U. and other countries, the earlier of the fifth anniversary of (i) the target E.U. launch date and (ii) the initial E.U. launch date (“E.U. Initial Term”), in each case unless earlier terminated by one of the parties. The U.S. Initial Term and E.U. Initial Term automatically renew for successive two-year terms (“Renewal Term”). Either party may elect not to renew the U.S. Renewal Term and/or the E.U. Renewal Term by providing the requisite prior notice to the other party. Either party may terminate the Renaissance Agreement (1) for uncured material breach of the other party, (2) upon notice for insolvency-related events of the other party that are not discharged within a defined time period, (3) on a product-by-product basis if the manufacture, distribution or sale would materially contravene any applicable law, (4) by providing the requisite notice if (a) the Company has not submitted a regulatory filing for any Renaissance Product in the U.S. on or before June 30, 2022, (b) the authorization and approval to distribute or sell Renaissance Product in the U.S. is not granted on or before the target U.S. launch date, (c) the authorization and approval representing more than a targeted number of units of Renaissance Product sold in the U.S. during the last calendar year is withdrawn by the FDA, or (d) the Company decided in its sole discretion to cease commercializing the Renaissance Product in the U.S., (5) in the case of a force majeure event that continues for six months or more, or (6) a violation by the other party of trade control or anti-corruption laws.

 

8. Common Stock and Stockholders’ Equity

Authorized Shares

The Company’s current Amended and Restated Certificate of Incorporation authorizes 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.

Common Stock

Common stock reserved for future issuance consisted of the following:

 

March 31,
2024

 

 

December 31,
2023

 

Common stock options granted and outstanding

 

14,398,501

 

 

 

11,493,481

 

Restricted stock units granted and outstanding

 

2,763

 

 

 

4,144

 

Common stock reserved for future awards or option grants

 

7,978,889

 

 

 

6,220,866

 

Warrants to purchase common stock

 

45,456

 

 

 

45,456

 

Total

 

22,425,609

 

 

 

17,763,947

 

 

9. Stock-Based Compensation

Stock-based compensation expense recognized for all equity awards has been reported in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development expense

 

$

911

 

 

$

608

 

General and administrative expense

 

 

2,404

 

 

 

1,642

 

Total stock-based compensation expense

 

$

3,315

 

 

$

2,250

 

As of March 31, 2024, the total unrecognized stock-based compensation expense related to outstanding employee options was $32.8 million, which is expected to be recognized over a remaining weighted-average period of approximately 2.73 years.

There were 4,144 restricted stock units outstanding as of December 31, 2023 and 2,763 restricted stock units outstanding as of March 31, 2024.

22


 

Equity Incentive Plans

In September 2018, ARS Pharma adopted the 2018 Equity Incentive Plan. As a result of the Merger, on November 8, 2022 ARS Pharma assumed Silverbacks 2016 and 2020 Equity Incentive Plans, and Employee Stock Purchase Plan (“ESPP”). There were no shares of common stock purchased under the ESPP during each of the three months ended March 31, 2024 and 2023.

As of March 31, 2024, the 2016 and 2020 Equity Incentive Plans authorized a total of 20,839,408 shares, of which 7,681,544 shares are available for future grant, and 9,000,878 shares are outstanding. As of March 31, 2024, the 2018 Equity Incentive Plan authorized a total of 6,634,333 shares, of which 297,345 shares are available for future grant, and 5,400,386 shares are outstanding. The Company does not intend to grant future stock options or other equity awards under the 2016 or 2018 Equity Incentive Plans.

Stock Options

Stock options granted under the Company’s equity incentive plans expire no later than 10 years from the date of grant and generally vest over a four-year period, with vesting either occurring at a rate of 25% at the end of the first year and thereafter in 36 equal monthly installments or on a monthly basis. In the case of awards granted to our non-employee board members, vesting generally occurs on a monthly basis over three years or in full on an annual basis. The Company issues new shares of common stock upon the exercise of stock options.

A summary of the Company’s stock option activity for the three months ended March 31, 2024 is as follows:

 

 

Shares
Subject to
Options
Outstanding

 

 

Weighted-
Average
Exercise
Price

 

 

Weighted-
Average
Remaining
Contractual
Life (Years)

 

 

Aggregate
Intrinsic
Value (in thousands)

 

Outstanding at December 31, 2023

 

 

11,493,481

 

 

$

3.86

 

 

 

 

 

 

 

Granted

 

 

3,069,625

 

 

$

5.58

 

 

 

 

 

 

 

Exercised

 

 

(157,705

)

 

$

1.63

 

 

 

 

 

 

 

Forfeited

 

 

(6,900

)

 

$

24.64

 

 

 

 

 

 

 

Outstanding at March 31, 2024

 

 

14,398,501

 

 

$

5.41

 

 

 

8.12

 

 

$

77,539

 

Exercisable at March 31, 2024

 

 

8,224,862

 

 

$

4.35

 

 

 

7.24

 

 

$

56,520

 

The exercisable shares subject to options outstanding at March 31, 2024 in the table above include vested and early exercisable awards. The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company’s common stock for all options that were in-the-money at March 31, 2024. The aggregate intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $1.0 million and $2.4 million, respectively.

The weighted-average grant date fair value per share of option grants for the three months ended March 31, 2024 and 2023 was $4.36 and $6.50, respectively. The total fair value of shares vested during the three months ended March 31, 2024 and 2023 was $6.0 million and $0.7 million, respectively.

The fair value of stock options granted was estimated using a Black-Scholes option-pricing model (“Black-Scholes”) with the following weighted-average assumptions:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Expected term (in years)

 

 

6.1

 

 

 

6.1

 

Expected volatility

 

 

94.2

%

 

 

95.3

%

Risk-free interest rate

 

 

3.9

%

 

 

3.9

%

Expected dividend yield

 

 

 

 

 

 

 

23


 

The fair value of stock options was determined using the Black-Scholes assumptions below. Each of these inputs is subjective and generally requires significant judgment.

Fair Value of Common Stock. The fair market value of the Company's common stock is based on its closing price as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded.

Expected Term. The expected term represents the period that the options granted are expected to be outstanding. The expected term of stock options issued is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Expected Volatility. Given the Company’s limited historical stock price volatility data, the Company derived the expected volatility from the average historical volatilities over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Company has limited trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options.

Expected Dividend Yield. The Company has never paid dividends on its common stock and does not anticipate paying any dividends in the foreseeable future. Therefore, the Company uses an expected dividend yield of zero.

 

10. Employee Benefit Plans

In June 2022, the Company adopted a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company’s U.S. employees. The plan allows eligible employees to defer, at the employee’s discretion, pretax compensation up to the Internal Revenue Service (the “IRS”) annual limits. The Company matches up to 5% of an employee’s pay that they contribute to the plan, subject to IRS limitations. Expenses associated with the Company’s matching contribution totaled $0.1 million for each of the three months ended March 31, 2024 and 2023.

 

11. Related-Party Transactions

In September 2015, the Company entered into a consulting agreement, superseded in July 2022, for regulatory and development services with Pacific-Link Regulatory Consulting, Inc., an entity owned by the President/Chief Executive Officer/director and his spouse, the Chief Medical Officer of the Company. The Company incurred consulting expense related to this agreement totaling $0.7 million and $0.6 million during the three months ended March 31, 2024 and 2023, respectively.

In September 2018, the Company entered into a consulting agreement with Marlinspike Group, LLC (“Marlinspike Group”) to provide management, business consulting services and business development support. The managing member of Marlinspike Group is the Chair of the Board of Directors of the Company and one of its stockholders. The Company incurred expenses related to this agreement totaling $0.1 million for each of the three months ended March 31, 2024 and 2023.

In April 2021, the Company entered into a consulting agreement, as amended in April 2022, with a member of the Board of Directors of the Company for general advice and assistance with the development of its current and future product candidates. As compensation for the consulting services the Company granted the member of the Board of Directors 590,950 stock options that vest over a four-year period. The Company incurred less than $0.1 million in stock-based compensation expense related to this agreement for each of the three months ended March 31, 2024 and 2023.

24


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and related notes thereto included in “Item 1. Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q and the audited financial statements and related notes thereto as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), on March 21, 2024. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section above entitled “Forward Looking Statements.” As a result of many factors, including those factors set forth in the under the caption “Item 1A. Risk Factors” of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Quarterly Report to gain an understanding of the various factors that could cause actual results to differ materially from our forward-looking statements.

Overview

We are a biopharmaceutical company 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. neffy is a proprietary composition of epinephrine with an innovative absorption enhancer called Intravail®, which allows neffy to provide intranasal delivery of epinephrine.

We believe neffy’s “no needle, no injection” approach will address a significant unmet need in the use of epinephrine, which is currently approved only in injectable formulations for the emergency treatment of Type I allergic reactions. There are approximately 40 million people in the United States who experience Type I allergic reactions. Of this group, approximately 20 million people have been diagnosed and experienced severe Type I allergic reactions that may lead to anaphylaxis, but only 3.2 million currently have an active epinephrine autoinjector prescription, and of those, only half consistently carry their prescribed autoinjector with them due to the many drawbacks of these devices. In aggregate, we estimate that 90% of patients prescribed an epinephrine device are not achieving an optimal treatment outcome today. These drawbacks include the use of needles in the devices, which can result in patient and caregiver injury as well as hesitation and delays in administration due principally to apprehension and pain of needles, allowing the allergic reaction to progress in severity leading to symptoms that seriously impact patient quality of life, to potential need for emergency services and/or hospitalizations, and to life-threatening symptoms or events. Intra-muscular injections also are subject to dosing errors and risk of accidental blood vessel injections, which can cause a significant spike in the intravascular delivery of epinephrine potentially leading to serious cardiovascular complications or events. We believe neffy’s “no needle, no injection” delivery that eliminates apprehension, pain and safety concerns, small size allowing for ease of portability, ease of use, and high reliability provide it with a user-friendly profile that will increase prescriptions for epinephrine and make it more likely for patients and caregivers to administer epinephrine sooner, achieve more rapid symptom relief and prevent the allergic reaction from progressing to a level of severity that could lead to hospitalization or even death.

Data from our studies of neffy demonstrated nasally delivered epinephrine reached blood levels comparable to those of already approved epinephrine injectable products, and produced statistically significant responses compared to injection on pharmacodynamic surrogates for efficacy even one minute after dosing with neffy.

Following the acceptance of our NDA in October 2022 for review by the FDA, on May 11, 2023, the FDA held a virtual meeting of its Pulmonary-Allergy Drugs Advisory Committee (“PADAC”). At that meeting, on the question of whether the data from our neffy pharmacokinetic (“PK”)/pharmacodynamic (“PD”) results support a favorable benefit-risk assessment in adults for the emergency treatment of Type I allergic reactions including anaphylaxis, the PADAC voted 16 (yes) and 6 (no). On the question of whether the neffy PK/PD results support a favorable benefit-risk assessment in children ≥30 kg for the emergency treatment of Type I allergic reactions including anaphylaxis, the PADAC voted 17 (yes) and 5 (no). Although the FDA considers the recommendations of the PADAC, the recommendation by the PADAC is non-binding.

25


 

On September 19, 2023, the FDA issued a Complete Response Letter (“CRL”) for our NDA requesting completion of a PK/PD study assessing repeat doses of neffy compared to repeat doses of epinephrine injection product under allergen-induced allergic rhinitis. This request came after the favorable benefit-risk assessment of the PADAC to approve neffy without need for additional studies. In addition, we had aligned with the FDA in May 2023, and re-confirmed in August 2023 to conduct this repeat-dose study under allergen-induced allergic rhinitis study as a post-marketing requirement as informative for labeling. The CRL also requested additional information on nitrosamine impurities to be tested based on new draft guidance issued in August 2023 after the neffy NDA submission. Our testing, based on methods in the older guidance, did not detect any nitrosamines above or close to the recommended acceptable daily intake limit for chronic exposure. neffy is for acute use.

We held a type A meeting with the FDA to discuss the contents of the CRL on October 24, 2023. The FDA reiterated that no other information is required beyond the contents of the CRL. The FDA also confirmed that the previously agreed design for the repeat-dose clinical study to evaluate the similarity of twice dosing injection and twice dosing neffy under allergen-induced allergic rhinitis will generate the necessary data to answer its outstanding questions regarding neffy. In addition, the neffy CRL response submission was classified as Class 2, with an action expected within six months of receipt date.

We reported topline data in February 2024 from this additional repeat dose study requested by the FDA, and submitted our response to the FDA’s CRL in April 2024, with an anticipated PDUFA target action date of October 2, 2024. We have also completed the additional nitrosamine testing based on the new draft guidance issued by the FDA in August 2023, and no measurable levels of nitrosamines were detected. If approved, we believe neffy will be the first “no needle, no injection” marketed epinephrine product for the emergency treatment of type I allergic reactions.

Our marketing authorization application (“MAA”) for neffy is also under review by the European Medicines Agency (“EMA”). In April 2024, we submitted a response to the CHMP for our MAA for neffy. A decision from the CHMP is expected in the second quarter of 2024.

We reported positive topline results demonstrating statistically significant and clinically meaningful improvements in treatment-refractory chronic urticaria patients at the American Academy of Allergy and Immunology medical conference in February 2024, and anticipate initiating a Phase 2 clinical trial in the outpatient urticaria setting in the second half of 2024, followed by the potential initiation of a single pivotal efficacy study in 2025.

Since our inception in 2015 as ARS Pharmaceuticals, Inc., we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, performing research and development activities, pre-commercial activities, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any product sales. We have funded our operations primarily with proceeds from the Merger (as more fully described below), private placement of convertible preferred stock, licensing, supply and distribution arrangements with our commercialization partners, and bank debt. From inception to March 31, 2024, we have raised $262.3 million in cash, cash equivalents and short-term investments, net of transaction costs, from the Merger; net proceeds of $76.3 million from the issuance of convertible preferred and common stock; $27.8 million from our collaboration, licensing, supply and distribution arrangements; and $10.0 million from bank debt. As of March 31, 2024, we had cash, cash equivalents, and short-term investments of $223.6 million.

We have incurred net losses from operations since our inception. Our net losses were $10.3 million and $15.0 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 we had an accumulated deficit of $141.6 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, our expenditures on other development activities, the cost for regulatory filings, expenses for pre-commercial activities to establish sales, marketing and distribution capabilities for our product candidates, and our ability to earn potential regulatory and commercial milestones under our collaboration arrangements. We expect our expenses and operating losses will increase substantially as our product candidate, neffy potentially is approved by the FDA and we commence commercialization efforts, any future product candidates advance through clinical trials, and we expand our clinical, regulatory, quality, manufacturing and pre-commercial sales and marketing capabilities. If we obtain marketing approval for any of our product candidates, we will incur significant commercialization expenses for marketing, sales, manufacturing and distribution activities, and added expenditures to expand our operational, financial and management systems and increase personnel to support these operations.

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We do not expect to generate any revenues from product sales unless and until we successfully obtain regulatory approval for one or more product candidates, if ever. Until such time, if ever, as we can generate substantial product revenue, we may finance our operations through our existing cash, cash equivalents, short-term investments, equity offerings, debt financings and other capital sources which may include collaborations, strategic alliances, marketing, distribution or licensing arrangements or other arrangements with third parties. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. In addition, any future debt agreements may limit our ability to enter into certain debt financings without the consent of the lenders thereunder. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and may require us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We do not own or operate manufacturing facilities. We currently rely on third-party manufacturers and suppliers for neffy, and we expect to continue to do so to meet our nonclinical, clinical and any commercial activities. Our third-party manufacturers are required to manufacture our product candidates under cGMP requirements and other applicable laws and regulations.

Recordati Termination Agreement

In September 2020, we entered into a license and supply agreement (the “Recordati License and Supply Agreement”) with Recordati Ireland, Ltd (“Recordati”). Pursuant to the Recordati License and Supply Agreement, we granted Recordati an exclusive, royalty-bearing, sublicensable license under our patents relating to neffy to (i) perform Recordati’s development activities on the epinephrine compositions (“Recordati Licensed Compositions”) and related products (“Recordati Licensed Products”) for commercialization in the EU, United Kingdom, and certain countries in the Middle East, Africa and Eurasia (the “Recordati Territory”), (ii) manufacture (or have manufactured) the Recordati Licensed Products for commercialization in the Recordati Territory, (iii) file and hold regulatory approvals for the Licensed Products in the Recordati Territory, and (iv) commercialize the Recordati Licensed Products in the Recordati Territory (collectively, the “Recordati Rights”).

On February 22, 2023, we entered into the Termination Agreement with Recordati, pursuant to which, among other things, we and Recordati agreed to terminate the Recordati License and Supply Agreement. Pursuant to the Termination Agreement, we reacquired all of the Recordati Rights, paid Recordati a one-time upfront payment of €3.0 million, and have agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of €2.0 million, (ii) a milestone payment of €5.0 million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to €5.0 million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory.

Financial Overview

Revenues

To date, we have not generated any revenues from the commercial sale of any products, and we may not generate revenues from the commercial sale of any products. We have signed collaboration and license agreements including supply and distribution for neffy in Japan and China. We have signed a license and distribution agreement including supply for neffy in Australia and New Zealand. The terms of these agreements may include payment to us of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; clinical development fees; and royalties or a transfer price on net sales of licensed products if neffy receives marketing approval in these regions. In addition, we previously entered into the Recordati License and Supply Agreement, which was terminated in February 2023. We expect revenues to fluctuate in future periods based on our ability to meet various regulatory milestones, and contingent on successfully obtaining regulatory approval for neffy in the US and the licensed regions, US product sales, commercial milestones, royalties or transfer price earned from our partner’s net sales and the supply of commercial product as set forth in the agreements described earlier.

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Research and Development Expenses

To date, our research and development expenses have been related primarily to clinical development, process development and manufacturing costs of our product candidate. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

salaries, payroll taxes, benefits and stock-based compensation charges for personnel engaged in research and development efforts;

external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants and other third-party organizations to conduct our clinical studies and development activities;

costs related to manufacturing our product candidates for clinical trials and process validation studies, including fees paid to third-party manufacturers;

costs related to compliance with regulatory requirements and regulatory filings; and

indirect expenses including insurance and facility-related expenses.

Our external research and development expenses for our clinical stage product candidate consist primarily of fees, materials and other costs paid to CROs, CMOs, consultant and contractors. Our clinical, regulatory, manufacturing, and non-clinical development costs for the periods presented below reflect an allocation of expenses associated with personnel costs, equity-based compensation expense, and indirect costs incurred in support of overall research and development, such as facilities-related costs.

We expect our research and development expenses to decrease in 2024 compared to 2023 based on our planned clinical development and manufacturing activities, as we plan to transition to commercialization efforts for the potential launch of our first product in the second half of 2024. However, the timing for regulatory approvals is outside our control, may be delayed and is uncertain. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and the manufacturing costs of our product candidates due to the inherently unpredictable nature of clinical development and manufacturing activities. Clinical development and manufacturing timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast to what degree our licensing, supply and distribution arrangements would affect our development plans and capital requirements.

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The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include:

per patient trial costs;

the number of patients that participate in the trials;

the number of sites included in the trials;

the countries in which the trials are conducted;

the length of time required to enroll eligible patients;

the number of doses that patients receive;

the drop-out or discontinuation rates of patients;

potential additional safety monitoring or other studies requested by regulatory agencies;

the efficacy and safety profile of our product candidates;

the cost to seek regulatory approvals for any product candidates that successfully complete clinical trials;

the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;

maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates;

 

establishing or maintaining commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;

 

significant and changing government regulation and regulatory guidance;

the impact of any business interruptions to our operations or to those of the third parties with whom we work; and

the extent to which we establish additional strategic collaborations or other arrangements.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. The process of conducting the necessary clinical research and manufacturing to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates or any future candidates may be affected by a variety of factors. We may never succeed in achieving regulatory approval for our product candidates or any future candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates’ or any future candidates’ development, which could increase our research and development expenses.

General and Administrative

General and administrative expenses consist primarily of salaries, benefits, equity-based compensation for personnel in executive, finance, business development, sales and marketing and other corporate administrative functions. General and administrative expenses also include pre-commercial launch activities, legal fees incurred relating to corporate and patent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, market research costs, and insurance costs.

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We expect that our general and administrative expenses will remain consistent in 2024 compared to 2023. Pre-commercial launch activities related to neffy have been substantially paused, however if neffy receives marketing approval, we will add sales and marketing personnel, infrastructure and programs to support commercialization activities. We expect to continue to incur audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, board of director fees, investor relations costs associated with operating as a public company, patent costs and defense, and general and administrative personnel.

Other Income, net

Other income, net consists primarily of interest income from our cash, cash equivalents, and short-term investments, and net amortization and accretion associated with our short-term investments.

Results of Operations

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

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands, except percentages):

 

 

 

Three Months Ended March 31,

 

 

Dollar

 

 

%

 

 

 

2024

 

 

2023

 

 

Change

 

 

Change

 

Revenue under collaboration agreements

 

$

 

 

$

20

 

 

$

(20

)

 

 

(100

%)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development(1)

 

 

5,234

 

 

 

6,552

 

 

 

(1,318

)

 

 

(20

)

General and administrative(1)

 

 

7,958

 

 

 

12,181

 

 

 

(4,223

)

 

 

(35

)

Total operating expenses