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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-38560
______________________________________
AADI BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in its Charter)
______________________________________
Delaware61-1547850
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
17383 Sunset Boulevard Suite A250
Pacific Palisades, California
90272
(Address of principal executive offices)(Zip Code)
(424) 744-8055
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
______________________________________
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, $0.0001 par value per shareAADIThe 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 x No o
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
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 fileroAccelerated filero
Non-accelerated filer
x
Smaller reporting companyx
Emerging growth company
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 4, 2023, the registrant had 24,519,860 shares of common stock, $0.0001 par value per share, outstanding.


Table of Contents
Table of Contents
Page
Item 1A.


Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
AADI BIOSCIENCE, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data and par value)
(Unaudited)
June 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$68,162 $39,019 
Short-term investments66,727 133,541 
Accounts receivable, net3,676 1,862 
Inventory3,457 1,861 
Prepaid expenses and other current assets2,901 3,746 
Total current assets144,923 180,029 
Property and equipment, net3,005 508 
Operating lease right-of-use assets1,349 1,522 
Other assets1,951 2,178 
Total assets$151,228 $184,237 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$2,898 $3,519 
Accrued liabilities9,685 14,922 
Operating lease liabilities, current portion413 394 
Total current liabilities12,996 18,835 
Operating lease liabilities, net of current portion1,056 1,267 
Due to licensor (Note 8)5,757 5,757 
Total liabilities19,809 25,859 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares
issued and outstanding as of June 30, 2023 and December 31, 2022
  
Common stock, $0.0001 par value; 300,000,000 shares authorized; 24,519,860
and 24,435,007 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
2 2 
Additional paid-in capital367,853 361,689 
Accumulated other comprehensive loss(44)(115)
Accumulated deficit(236,392)(203,198)
Total stockholders’ equity131,419 158,378 
Total liabilities and stockholders’ equity$151,228 $184,237 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents
AADI BIOSCIENCE, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share data and earnings per share amounts)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenue
Product sales, net$6,202 $3,437 $12,069 $5,744 
Total revenue6,202 3,437 12,069 5,744 
Operating expenses    
Selling, general and administrative11,776 10,006 22,983 19,154 
Research and development13,315 7,726 24,271 14,519 
Cost of goods sold656 341 1,185 520 
Impairment of acquired contract intangible asset 3,724  3,724 
Total operating expenses25,747 21,797 48,439 37,917 
Loss from operations(19,545)(18,360)(36,370)(32,173)
Other income (expense)
Foreign exchange loss(3) (3) 
Interest income1,635 158 3,295 171 
Interest expense(58)(58)(116)(115)
Total other income (expense), net1,574 100 3,176 56 
Loss before income tax expense(17,971)(18,260)(33,194)(32,117)
Income tax expense (9) (9)
Net loss $(17,971)$(18,269)$(33,194)$(32,126)
Other comprehensive loss:
Change in unrealized loss on short-term investments(12) 71  
Comprehensive loss$(17,983)$(18,269)$(33,123)$(32,126)
Net loss per share, basic and diluted$(0.67)$(0.87)$(1.23)$(1.53)
Weighted average number of common shares outstanding, basic and diluted26,879,089 20,970,459 26,878,672 20,942,804 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents
AADI BIOSCIENCE, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, including share amounts)
(Unaudited)
For the Three and Six Months Ended June 30, 2023
Stockholders' Equity
Common StockAdditional Paid-In
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
SharesPar Value
Balance at December 31, 202224,435 $2 $361,689 $(115)$(203,198)$158,378 
Share-based compensation expense— — 2,740 — — 2,740 
Issuance of common stock upon exercise of stock options2 — 8 — — 8 
Change in unrealized gain (loss) on investments, net of tax— — — 83 — 83 
Net loss— — — — (15,223)(15,223)
Balance at March 31, 202324,437 $2 $364,437 $(32)$(218,421)$145,986 
Share-based compensation expense— — 3,054 — — 3,054 
Issuance of common stock upon exercise of stock options34 — 68 — — 68 
Issuance of shares under the employee stock purchase plan49 — 294 — — 294 
Change in unrealized gain (loss) on investments, net of tax— — — (12)— (12)
Net loss— — — — (17,971)(17,971)
Balance at June 30, 202324,520 $2 $367,853 $(44)$(236,392)$131,419 

For the Three and Six Months Ended June 30, 2022
Stockholders' Equity
Common StockAdditional Paid-In
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total
SharesPar Value
Balance at December 31, 202120,895 $2 $279,089 $ $(142,685)$136,406 
Share-based compensation expense— — 1,781 — — 1,781 
Issuance of common stock upon exercise of warrants7 — 54 — — 54 
Issuance of common stock upon exercise of stock options40 — 244 — — 244 
Net loss— — — — (13,857)(13,857)
Balance at March 31, 202220,942 $2 $281,168 $ $(156,542)$124,628 
Share-based compensation expense— — 2,235 — — 2,235 
Issuance of common stock upon exercise of stock options75 136 — — 136 
Net loss— — — — (18,269)(18,269)
Balance at June 30, 202221,017 $2 $283,539 $ $(174,811)$108,730 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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AADI BIOSCIENCE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended June 30,
20232022
Cash flows from operating activities:
Net loss$(33,194)$(32,126)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of acquired contract intangible asset 3,724 
Share-based compensation expense5,794 4,016 
Amortization of premiums and discounts on short-term investments, net(2,062) 
Non-cash interest expense58 115 
Non-cash lease expense231 157 
Depreciation and amortization expense81 101 
Changes in operating assets and liabilities:
Accounts receivable(1,814)(2,063)
Inventory(1,362)(727)
Prepaid expenses and other current assets845 (524)
Other non-current assets275 284 
Operating lease liabilities(250)(90)
Accounts payable and accrued liabilities(6,670)(3,111)
Other liabilities 109 
Net cash used in operating activities(38,068)(30,135)
Cash flows from investing activities:
Purchases of property and equipment(2,058)(264)
Purchase of short-term investments(23,052) 
Maturity of short-term investments92,000  
Net cash provided by (used in) investing activities66,890 (264)
Cash flows from financing activities:
Issuance of common stock upon exercise of stock options76 380 
Proceeds from issuance of common stock under employee stock purchase plan294  
Issuance of common stock upon exercise of warrants 54 
Deferred offering costs paid for financing(49)(223)
Net cash provided by financing activities321 211 
Net increase (decrease) in cash, cash equivalents and restricted cash29,143 (30,188)
Cash, cash equivalents and restricted cash, beginning of year39,083 148,989 
Cash, cash equivalents and restricted cash, end of period$68,226 $118,801 
Supplemental disclosure of cash flow information:
Interest paid during the period$115 $115 
Taxes paid during the period$ $9 
Supplemental disclosure of non-cash activities:
Deferred transaction costs included in accounts payable and accrued liabilities$ $75 
Accrued property and equipment$519 $51 
Operating lease liability arising from obtaining right-of-use asset$ $1,210 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of Organization and Operations
Aadi Bioscience, Inc. (together with its subsidiaries, the “Company” or “Aadi”) is a biopharmaceutical company focused on developing and commercializing precision therapies for genetically defined cancers with alterations in mTOR pathway genes. Aadi’s lead drug product, FYARRO®, is a form of sirolimus bound to albumin. Sirolimus is a potent inhibitor of the mTOR biological pathway, the activation of which pathway can promote tumor growth, and inhibits downstream signaling from mTOR. In November 2021, the U.S. Food and Drug Administration (the “FDA”) approved FYARRO sirolimus protein-bound particles for injectable suspension (albumin-bound) for the treatment of adult patients with locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumor (PEComa). On February 22, 2022, Aadi launched FYARRO in the United States for treatment of advanced malignant PEComa. FYARRO is licensed to Aadi by Abraxis BioScience, LLC, a wholly owned subsidiary of Celgene Corporation, which is a wholly owned subsidiary of Bristol Myers Squibb Company (“BMS”).
The Company’s historical operations have consisted principally of performing research and development activities and raising capital. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding before sustainable revenues and profit from operations are achieved.
Liquidity
Since inception, the Company has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations and has only recently begun to realize revenues from its planned principal operations commencing with the commercial sale of FYARRO.
The Company has experienced net losses since its inception and expects to continue to incur net losses into the foreseeable future. The Company had an accumulated deficit of $236.4 million as of June 30, 2023. For the three months ended June 30, 2023 and 2022, the Company had a net loss of $18.0 million and $18.3 million, respectively. For the six months ended June 30, 2023 and 2022, the Company had a net loss of $33.2 million and $32.1 million, respectively. To date, these operating losses have been funded primarily from outside sources of invested capital through the issuance of convertible promissory notes, grant funding, the sale of securities, and proceeds from license agreements.
The Company had cash, cash equivalents and short-term investments of $134.9 million at June 30, 2023. Management believes the Company’s current cash, cash equivalents and short-term investments will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report. If the Company is unable to achieve and maintain profitability, it will need additional financing to support its continuing operations and pursue its strategic objectives. Additional financing may be achieved through a combination of equity offerings and debt financings. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all.
On March 17, 2022, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may offer and sell, from time to time at the Company’s sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through Cowen as its sales agent for an at-the-marketing-offering. Any sales under the Sales Agreement may result in dilution to existing shareholders. As of June 30, 2023, no shares of common stock had been sold under this Sales Agreement.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements, and the related disclosures, have been prepared in accordance with GAAP and SEC regulations and, in the opinion of management include all adjustments necessary for a fair presentation of the results of operations, financial position, changes in stockholders’ equity and cash flows for each period presented. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). All adjustments are of a normal recurring nature. The Company’s condensed consolidated financial statements are stated in U.S. dollars. Certain prior year amounts have been reclassified to conform to the current year presentation.
Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, the accompanying unaudited interim financial statements should be
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read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2023.
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, including unrealized gains and losses on short-term investments. Comprehensive loss has been reflected in the condensed consolidated statements of operations and comprehensive loss for all periods presented.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company has identified its Chief Executive Officer as the chief operating decision maker and the Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing proprietary therapeutics. All the assets and operations of the Company’s sole operating and reportable segment are located in the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management 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. In the opinion of management, all adjustments that are considered necessary for fair presentation have been included. The most significant estimates in the Company’s condensed consolidated financial statements relate to gross-to-net accruals, share-based compensation expense and accrued research and development costs. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and investments in money market funds, United States government treasury bills, commercial paper, corporate bonds, and government agency debt securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. While the Company has not experienced any losses in such deposits, the recent failure of Silicon Valley Bank, at which the Company holds cash and cash equivalents in multiple accounts, exposed the Company to credit risk prior to the resolution by the Federal Deposit Insurance Corporation in a manner that fully protected all depositors. The Company has not experienced any losses on deposits since inception.
The Company’s accounts receivable is derived from customers located in the United States. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses on customers’ accounts when deemed necessary. The Company does not typically require collateral from its customers. Credit losses historically have not been material. The Company continuously monitors customer payments and maintains an allowance for credit losses based on its assessment of various factors including historical experience, age of the receivable balances, and other current economic conditions or other factors that may affect customers’ ability to pay.
Customer Concentration
For the three months ended June 30, 2023 and 2022, two customers represented 55% and 45%, and 47% and 50% of the Company's revenue, respectively.
For the six months ended June 30, 2023 and 2022, two customers represented 53% and 46%, and 47% and 51% of the Company’s revenue, respectively.
Additionally, two customers accounted for 78% and 22% of net accounts receivable as of June 30, 2023.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid marketable securities purchased with original maturities of three months or less at the time of purchase date to be cash equivalents. As of June 30, 2023 and December 31, 2022, cash and cash equivalents including money market investments totaled $67.0 million and $32.0 million, respectively. Restricted cash consists of a letter of credit secured by restricted cash in connection with one of the Company's office leases described in Note 7, and is included in other assets on the condensed consolidated balance sheets.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets (in thousands):
June 30, 2023December 31, 2022
Cash and cash equivalents$68,162 $39,019 
Restricted cash, non-current64 64 
Total cash, cash equivalents and restricted cash $68,226 $39,083 
Fair Value of Financial Instruments
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an 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 accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs, such as quoted prices in active markets
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions which reflect those that a market participant would use
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
In determining the fair value of its financial instruments, the Company considers the source of observable market data inputs, liquidity of the instrument, the credit risk of the counterparty to the contract, and its risk of nonperformance. In the case fair value is not observable, for the items subject to fair value measurements, the Company applies valuation techniques deemed the most appropriate under the GAAP guidance based on the nature of the assets and liabilities being measured.
The carrying amounts of cash equivalents, accounts receivable, prepaid expenses and other current assets, and accounts payable are reasonable estimates of their fair value because of the short maturity of these items.
Short-Term Investments
The Company invests in various types of securities, including United States government treasury bills, commercial paper, corporate debt securities, and government agency bonds. The Company classifies its investments as available-for-sale and records them at fair value based upon market prices at period end. Unrealized gains and losses that are deemed temporary in nature are recorded in accumulated other comprehensive loss as a separate component of stockholders' equity. Dividend and interest income are recognized when earned. The Company recognizes purchase premiums and discounts as interest income using the interest method over the terms of the securities. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of investments sold. The Company classifies short-term investments with remaining maturities greater than one year as current assets because such short-term investments are available to fund the Company’s current operations.
At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the decline in fair value below amortized cost is a result of credit losses or other factors, whether the Company expects to recover the amortized cost of the security, the Company's intent to sell and if it is more likely than not that the Company will be required to sell the securities before the recovery of amortized cost. The Company records changes in allowance for expected credit loss in other income (expense). There have been no allowance for expected credit losses recorded during any of the periods presented. See Note 4 for further information.
Accounts Receivable, Net
Accounts receivable are recorded net of customer allowances for chargebacks and allowance for credit losses. Allowance for chargebacks is based on contractual terms. The Company estimates the allowance for credit losses based on existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances and credit loss. Receivables are recorded to an allowance for credit loss when it is probable that amounts will not be collected based on
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terms of the customer contracts. As of June 30, 2023 and December 31, 2022, recorded customer allowances for chargebacks were $1.2 million and $0.1 million, respectively. There were no allowances for credit losses and no receivables were written off for the periods ended June 30, 2023 and December 31, 2022, respectively.
Inventory
Inventory is stated at the lower of cost or estimated net realizable value. The Company uses actual costing methodology determined on a first-in, first-out method. The Company capitalizes inventory costs associated with its products based upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed.
Details of inventory are presented as follows (in thousands):
June 30, 2023December 31, 2022
Raw materials$2,453 $944 
Work in process  
Finished goods1,004 917 
Total $3,457 $1,861 
Property and Equipment, Net
Property and equipment, consisting of computers, furniture and fixtures, office equipment, construction in process and leasehold improvements are stated at cost, less accumulated depreciation. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, generally three to five years. Such costs are periodically reviewed for recoverability when impairment indicators are present.
Details of property and equipment are presented as follows (in thousands):
June 30, 2023December 31, 2022
Computers and software$405 $338 
Construction in process2,589 77 
Furniture and fixtures65 65 
Leasehold improvements129 129 
Total$3,188 $609 
Accumulated depreciation(183)(101)
Property and equipment, net$3,005 $508 
Leases
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company records the associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit rate or a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company does not recognize assets or liabilities for leases with lease terms of less than 12 months.
The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: (i) the lease has a purchase option that is reasonably certain of being exercised, (ii) the present value of the future cash flows is substantially all of the fair market value of the underlying asset, (iii) the lease term is for a significant portion of the remaining economic life of the underlying asset, (iv) the title to the underlying asset transfers at the end of the lease term, or (v) if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease liabilities with a term greater than one year and their corresponding right-of-use assets are recognized at the commencement date of the lease based on the present value of lease payments over the expected lease term.
Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate
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incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. For finance leases, depreciation expense is recognized for the leased asset acquired and interest expense is recognized related to the portion of the financing in the condensed consolidated statements of operations and comprehensive loss. For operating leases, lease cost is recognized on a straight-line basis over the lease term and variable lease payments are recognized as operating expense in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the space leased by the Company. The Company has elected the practical expedient to not separate between lease and non-lease components.
Commitments and Contingencies
The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range. The Company has not recorded any such liabilities as of June 30, 2023 and December 31, 2022.
Revenue Recognition and Related Allowances
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Product Net Sales
FYARRO was approved by the FDA in November 2021. On February 22, 2022, the Company launched sales of FYARRO to specialty distributors (“SDs”) and a specialty pharmacy (“SP”). The Company recognizes product sales when the SDs and SP obtain control of the product. Product sales are recorded at the net sales price, which includes provisions for the following allowances which are reflected either as a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:
Distribution Fees: Distribution fees include distribution service fees paid to the SDs and SP based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”). Distribution fees are recorded as an offset to product sales based on contractual terms at the time revenue from the sale is recognized.
Rebates: Allowance for rebates includes mandated discounts under the Medicaid Drug Rebate Program and TRICARE program. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements. The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants. The Company’s estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect product sales in the period of adjustment.
Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs and SP at a discounted price. The SDs and SP charge back to the Company the difference between the price initially paid by the SDs and SP and the discounted price paid to the SDs and SP by these entities. If actual future chargebacks vary from these estimates, the Company may need to adjust prior period accruals, which would affect product sales in the period of adjustment.
Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirement. Co-payment assistance is accrued at the time of product sale to SDs and SP based on estimated patient participation and average co-pay benefit to be paid per a claim. The Company estimated amounts are compared to
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actual program participation and co-pay amounts paid using data provided by third-party administrators. If actual amounts differ from the original estimates the assumptions being applied are updated and adjustment for prior period accruals will be adjusted in the current period.
Product Returns: Consistent with industry practice, the Company offers the SDs and SP limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SDs and SP and has the ability to control the amount of product that is sold to the SDs and SP the Company’s estimate of future potential product returns is based on the on-hand channel inventory data and sell-through data obtained from the SDs and SP. In arriving at its estimate, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.
The total amount deducted from gross product sales for the allowances described above for the three months ended June 30, 2023, and 2022, was $1.1 million and $0.6 million, respectively, and for the six months ended June 30, 2023 and 2022 was $2.1 million and $1.0 million, respectively.
The following table sets forth the changes in the accrued revenue allowances (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Balance at Beginning of Period$1,916 $407 $1,434 $ 
Provision for Current Period Sales1,094 607 2,130 1,014 
Payments(1,083)(189)(1,637)(189)
Balance at June 30, 2023$1,927 $825 $1,927 $825 
Research and Development
Research and development expenses consist of costs incurred in performing research and development activities, including salaries and benefits, materials and supplies, preclinical expenses, share-based compensation expense, contract services, and other external development expenses. The Company records research and development activities conducted by third-party service providers, which include work related to preclinical studies, clinical trials, and contract manufacturing activities, to research and development expense as incurred. The Company is required to estimate the amount of services provided but not yet invoiced and include these expenses in accrued expenses on the condensed consolidated balance sheets and within research and development expenses in the condensed consolidated statements of operations and comprehensive loss. These expenses are a significant component of the Company’s research and development expenses and require significant estimates and judgments. The Company accrues for these expenses based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. As actual expenses become known, the Company adjusts its accrued expenses.
Share-Based Compensation
The Company recognizes all share-based payments to employees, including grants of employee stock options in the condensed consolidated statements of operations and comprehensive loss based on their fair values. All of the Company’s share-based awards, to employees, non-employees, officers, and directors, are subject only to service-based vesting conditions. The Company estimates the fair value of its share-based awards using the Black-Scholes option pricing model, which requires the input of assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. Options granted during the year have a maximum contractual term of ten years. Forfeitures are recognized and accounted for as they occur.
Due to the historical lack of a public market for the trading of the Company’s securities and a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. The Company believes the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of the Company.
The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted to employees, officers, and directors using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period, to calculate the expected term, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees, and utilizes the contractual term for options granted to non-employees. The expected term is applied
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to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock options. Compensation expense related to awards to employees is calculated on a straight-line basis by recognizing the grant date fair value over the associated service period of the award, which is generally the vesting term.
Employee Stock Purchase Plan
Stock-based compensation expense for employee stock purchases under the Company’s 2021 Employee Stock Purchase Plan (the “2021 ESPP”) is recorded at the estimated fair value of the purchase as of the plan enrollment date and is recognized as an expense on a straight-line basis over the applicable six-month 2021 ESPP offering period. 
Income Taxes
Income taxes have been accounted for using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if, based upon the weight of all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. The Company recognizes interest and penalties related to uncertain tax positions, if any exist, in income tax expense.
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Basic and diluted weighted average shares of common stock outstanding for the three and six months ended June 30, 2023, includes the weighted average effect of 2,426,493 Pre-Funded Warrants (as defined below), which were issued in September 2022, for the purchase of shares of common stock, for which the remaining unfunded exercise price is $0.0001 per share.
Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include outstanding stock options and warrants have been excluded from the computation of diluted net loss per share as they would be anti-dilutive.
The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive (in thousands):
Six Months Ended June 30,
20232022
Options to purchase common stock4,085 2,737 
Warrants to purchase common stock29 29 
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options” (Subtopic 470-20) and “Derivatives and Hedging – Contracts in Entity’s Own Equity” (Subtopic 815-40). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either a partial retrospective or fully retrospective method of transition. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years for smaller reporting companies. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the Company’s consolidated financial statements.
In 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model which will be based on an estimate of current expected credit loss; and (ii)
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provides for recording credit losses on available-for-sale debt securities through an allowance account. The standard also requires certain incremental disclosures. Subsequently, the FASB issued several ASUs to clarify, improve, or defer the adoption of ASU 2016-13. The Company adopted ASU 2016-13 beginning in January 2023. The Company determined that the adoption of this standard did not result in a material impact to the condensed consolidated financial statements.
3. Fair Value Measurement
The following table sets forth the recurring fair value of the Company’s financial assets and liabilities, allocated into the Level 1, Level 2 and Level 3 hierarchy that were measured at fair value on a recurring basis (in thousands):
Fair Value Measurements as of June 30, 2023
Level 1Level 2Level 3Total
Assets:
Money market funds (1)$66,999 $ $ $66,999 
U.S. government treasury bills25,338   25,338 
Commercial paper 21,356  21,356 
Corporate bonds 4,313  4,313 
Government agency 15,720  15,720 
Total financial assets$92,337 $41,389 $ $133,726 
Fair Value Measurements as of December 31, 2022
Level 1Level 2Level 3Total
Assets:
Money market funds (1)$32,035 $ $ $32,035 
U.S. government treasury bills70,708   70,708 
Commercial paper 53,296  53,296 
Corporate bonds 4,250  4,250 
Government agency 5,287  5,287 
Total financial assets$102,743 $62,833 $ $165,576 
(1)Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.
As of June 30, 2023, net unrealized loss on investments was $44,000. All marketable securities had a contractual maturity of less than one year as of June 30, 2023.
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4. Short-Term Investments and Cash Equivalents
The following table summarizes the Company's short-term investments (in thousands):
As of June 30, 2023
Maturity (In Years)Amortized CostUnrealized GainsUnrealized LossesFair Value
Money market funds$66,999 $ $ $66,999 
U.S. government treasury billsLess than 125,364  (26)25,338 
Commercial paperLess than 121,356   21,356 
Corporate bondsLess than 14,317  (4)4,313 
Government agencyLess than 115,734  (14)15,720 
Total $133,770 $ $(44)$133,726 
As of December 31, 2022
Maturity (In Years)Amortized CostUnrealized GainsUnrealized LossesFair Value
Money market funds$32,035 $ $ $32,035 
U.S. government treasury billsLess than 170,812 4 (108)70,708 
Commercial paperLess than 153,296   53,296 
Corporate bondsLess than 14,276  (26)4,250 
Government agencyLess than 15,272 15  5,287 
Total $165,691 $19 $(134)$165,576 
5. Intangible Asset
On August 26, 2021, the Company closed its reverse merger pursuant to which the Company’s wholly-owned subsidiary merged with and into Aadi Subsidiary, Inc. (formerly Aadi Bioscience, Inc.) (“Private Aadi”), with Private Aadi surviving as a wholly owned subsidiary of the Company (the “Merger”). The Company recorded a long-lived contract intangible asset as a result of the Merger, related to the license agreement, dated June 24, 2018, with Gossamer Bio, Inc. (“Gossamer”), as amended (the “Gossamer License Agreement”), which was assumed in the Merger. In accordance with GAAP, for asset acquisitions, the excess purchase price over the fair value of the acquired assets and liabilities was ascribed to the acquired contract intangible asset. Due to the significant excess purchase price being allocated over the fair value of the acquired contract intangible asset, the Company determined that an indicator of impairment was present. The contract intangible asset was assessed for recoverability using an undiscounted cash flow model, which resulted in undiscounted cash flows below the carrying amount. At the effective time of the Merger, the Company recognized an impairment of $74.2 million to bring the carrying amount of the contract intangible asset down to its estimated fair value of $3.9 million. The fair value estimate of the intangible asset related to contingent cash flows expected from the out-licensing arrangement, of which 90% of any future net cash proceeds will be remitted to each holder of common stock of the Company’s predecessor, Aerpio, as of immediately prior to the closing of the Merger and paid through the contingent value rights (“CVRs”) pursuant to a Contingent Value Rights Agreement, dated as of August 26, 2021 (the “CVR Agreement”). The useful life of the intangible asset was estimated to be approximately 14.3 years.
On April 25, 2022, the Company received a formal notice of termination from Gossamer for the Gossamer License Agreement, relating to Gossamer’s GB004 product candidate, a legacy product candidate of Aerpio, after Gossamer announced that its Phase 2 SHIFT-UC clinical trial studying GB004 in patients with mild-to-moderate active ulcerative colitis did not meet the primary or secondary endpoints at week 12 and the study was being terminated for lack of treatment benefit. The Gossamer License Agreement terminated effective July 24, 2022. Based on the termination of the Gossamer License Agreement, the Company fully impaired the intangible asset, $3.7 million, of which the Gossamer License Agreement is the underlying asset, during the year ended December 31, 2022.
There was no amortization expense for the three and six months ended June 30, 2023. Amortization expense was $19,000 and $87,000 for the three and six months ended June 30, 2022.
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The following table shows the amortization expense and impairment of the finite lived intangible asset for the six months ended June 30, 2022 (in thousands):
June 30,
2022
Intangible asset, December 31, 2021$3,811 
Less amortization(87)
Impairment of contract intangible(3,724)
Intangible asset, net$ 
6. Accrued Liabilities
Details of accrued liabilities are presented as follows (in thousands):
June 30,
2023
December 31,
2022
Accrued professional fees$1,942 $1,814 
Accrued salaries and payroll1,428 1,299 
Accrued bonus2,781 5,463 
Accrued clinical669 2,399 
Accrued contract manufacturing1,501 405 
Advanced customer payments 1,571 
Accrued other - sales related745 1,435 
Accrued other619 536 
Total accrued liabilities$9,685 $14,922 
7. Operating Lease
In April 2019, the Company entered into a twenty-eight month facility lease agreement for office space in Pacific Palisades, California (the “Pacific Palisades Lease”). The Pacific Palisades Lease commenced on May 1, 2019, included four months of rent abatement and a rent escalation clause and was set to expire on August 31, 2021. In August 2021, the Company exercised its option to extend the term of the Pacific Palisades Lease for an additional three-year period and entered into an amendment to the lease agreement (the “Pacific Palisades Lease Amendment”). Pursuant to the Pacific Palisades Lease Amendment, the Company and the landlord agreed to extend the term for an additional period of three (3) years and six (6) months, until February 28, 2025, with an option to renew for an additional three (3) years in accordance with the terms of the Pacific Palisades Lease. Included in the Pacific Palisades Lease Amendment were nine months of rent abatement and a rent escalation clause.
In April 2022, the Company entered into a lease agreement for office space in Morristown, New Jersey (the “Morristown Lease”). The Morristown Lease has a term of seventy-three months, unless terminated sooner, and includes rent abatement for the first three months and the forty-seventh and forty-eighth calendar months after lease commencement. Included in the Morristown Lease are fixed rent escalations of approximately 2% on each anniversary year of the lease term.
The following table summarizes information related to the Company’s lease (in thousands):
June 30, 2023December 31, 2022
Assets:
Operating lease right-of-use assets$1,349 $1,522 
Liabilities:
Operating lease liabilities, current$413 $394 
Operating lease liabilities, non-current1,056 1,267 
Total operating lease liabilities$1,469 $1,661 
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Rent expense for the three and six months ended June 30, 2023 and 2022 is presented on the following table (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Operating leases rent expense$115 $107 $231 $157 
Cash paid for leases and included in operating cash flows for the six months ended June 30, 2023 and 2022 is presented on the following table (in thousands):
Six Months Ended June 30,
20232022
Cash paid included in operating cash flows$250 $90 
The future minimum lease payments required under the operating lease as of June 30, 2023, are summarized below (in thousands):
Future Minimum Lease Payments:
2023$252 
2024512 
2025320 
2026231 
2027280 
   Thereafter109 
Total minimum lease payments$1,704 
Less: amount representing interest(235)
Present value of operating lease liabilities$1,469 
Less: operating lease liabilities, current(413)
Operating lease liabilities, non-current$1,056 
Remaining lease term (in years)4.13
Incremental borrowing rate7.49 %
8. License Agreements
Bristol Myers Squibb Company License Agreement
On April 9, 2014, the Company entered into a license agreement (as amended the “BMS License Agreement”) with BMS for exclusive rights for certain patents and a non-exclusive license for certain technology and know-how pertaining to FYARRO.
The BMS License Agreement will remain in effect from the effective date of April 9, 2014 until expiration of all milestone and royalty payment obligations under the agreement, unless terminated by either of the parties upon giving an advance notice as specified in the BMS License Agreement. Under the terms of the BMS License Agreement, BMS agreed to supply the Company with licensed products of FYARRO necessary for clinical or non-clinical development.
Under the terms of the BMS License Agreement, BMS is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees. During the three months ended June 30, 2023 and 2022, royalties on net product sales were $0.5 million and $0.2 million, respectively. During the six months ended June 30, 2023 and 2022, royalties on net product sales were $0.9 million and $0.4 million, respectively. No payments related to development milestones were paid during the three and six months ended June 30, 2023 or 2022.
On August 30, 2021, the Company and BMS entered into Amendment No. 1 (the “Amendment”) to the BMS License Agreement related to certain intellectual property rights of BMS pertaining to the compound known as FYARRO. Under the terms of the Amendment, the Company paid BMS $5.8 million representing 50% of the previously outstanding payment obligation under the terms of the BMS License Agreement, following the effective time of the 2021 private investment in public equity financing (the “2021 PIPE Financing”). Pursuant to the terms of the Amendment, the remaining previously outstanding payment obligation of $5.8 million, is due on the third anniversary of the effective time of the 2021 PIPE Financing, or August 26, 2024 plus any accrued and unpaid interest due thereon (the “Balloon Payment”). The
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Balloon Payment shall accrue interest, beginning August 26, 2021 until paid in full, at a rate equal to 4.00% per annum based on the weighted average amount outstanding during the applicable calendar quarter, and interest is payable quarterly in arrears. In addition, the parties agreed to amend the royalty rates payable to BMS based on net sales of products subject to the BMS License Agreement.
EOC License Agreement
On December 8, 2020, the Company entered into a license agreement (“EOC License Agreement”) with EOC Pharma (Hong Kong) Limited (“EOC”) under which the Company received $14.0 million in January 2021 in non-refundable upfront consideration as partial payment for the rights and licenses granted to EOC by the Company for the further development and commercialization of FYARRO in the People’s Republic of China, Hong Kong Special Administration Region, Macao Special Administrative Region and Taiwan (the “Licensed Territory”). In accordance with the BMS License Agreement, the Company is required to pay 20% of all sublicense fees to BMS.
On June 27, 2022, the Company received written notice from EOC that EOC elected to terminate the EOC License Agreement, effective immediately, due to alleged material breaches by the Company under such agreement. The Company disagrees with, and continues to dispute, EOC’s allegations of material breach and does not believe that EOC had a right to terminate the EOC License Agreement for material breach, and accordingly believes that the termination of the EOC License Agreement is a termination for convenience. EOC had the right to terminate the agreement for convenience upon 120 days advance written notice. The Company waived such notice period in connection with EOC's termination notice and, as a result, the EOC License Agreement was terminated effective June 27, 2022. Either party had the right to terminate the EOC License Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement.
The Company assessed the EOC License Agreement and concluded that EOC was a customer and identified the license of ABI-009 provided to EOC as the sole performance obligation. The $14.0 million upfront payment received from EOC is non-refundable and non-creditable and is considered fixed consideration. The Company recognized revenue of $14.0 million in December 2020 when the EOC License Agreement was signed, and the $14.0 million upfront payment was received in January 2021.
The potential milestone payments and royalty payments under the EOC License Agreement were considered variable consideration and were constrained with respect to revenue recognition notification from EOC that the milestone and royalty payments had been achieved.
The Company was eligible to receive an additional $257.0 million in the aggregate upon achievement of certain development, regulatory, and sales milestones, as well as tiered royalties on net sales in the Licensed Territory. Under the terms of the EOC License Agreement, EOC was obligated to fund all research, development, regulatory, marketing and commercialization activities in the defined Licensed Territory. The Company earned $1.0 million in milestone revenue upon achievement of the FDA approval milestone on November 22, 2021. EOC paid the $1.0 million milestone payment in December 2021. In accordance with the BMS License Agreement, 20% of the $1.0 million payment, or $0.2 million was accrued at December 21, 2021, and paid in January 2022.
9. Stockholders’ Equity (Deficit)
Preferred Stock
As of June 30, 2023 and December 31, 2022, under the Company’s certificate of incorporation, as amended and restated, the Company has 10,000,000 shares of preferred stock, par value $0.0001 per share, in authorized capital with no shares outstanding.
Common Stock and Pre-Funded Warrants
As of June 30, 2023 and December 31, 2022, the Company had 300,000,000 shares of authorized common stock, par value of $0.0001 per share under the Company's certificate of incorporation, as amended and restated. As of June 30, 2023 and December 31, 2022, the shares of common stock outstanding were 24,519,860 and 24,435,007, respectively.
In March 2022, the Company entered into a Sales Agreement (the "Sales Agreement") with Cowen and Company LLC (“Cowen”), with respect to an “at the market offering” program pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of common stock having aggregate gross proceeds of up to $75.0 million through Cowen as its sales agent. The Company will pay Cowen 3.0% of the aggregate gross proceeds from each sale of shares of common stock under the Sales Agreement. As of June 30, 2023, no shares of common stock had been sold pursuant to the Sales Agreement.
On September 22, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) for a private investment in public equity financing (the “2022 PIPE Financing”) with certain investors (the “2022 PIPE
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Investors”) for the sale by the Company of (i) 3,373,526 shares of the Company’s common stock for a price of $12.50 per share and (ii) pre-funded warrants to purchase an aggregate of 2,426,493 shares of the Company's common stock (the "Pre-Funded Warrants") at a purchase price of $12.4999 per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable at an exercise price of $0.0001 and will be exercisable until exercised in full. The 2022 PIPE Financing closed on September 26, 2022. Aggregated net proceeds, after deducting certain expenses incurred of $0.3 million related to the issuance of the shares were $72.2 million.
On September 22, 2022, the Company and the 2022 PIPE Investors entered into a Registration Rights Agreement (the “2022 PIPE Registration Rights Agreement”) providing for the registration for resale of the securities sold under the Purchase Agreement, including the shares issuable upon the exercise of the Pre-Funded Warrants, that are not then registered on an effective registration statement, pursuant to a registration statement filed with the SEC. The Pre-Funded Warrants meet the criteria to be classified within stockholders’ equity. As of June 30, 2023, all Pre-Funded Warrants are still outstanding.
Dividends
The holders of common stock are entitled to receive cash dividends, if and when declared by the board of directors of the Company (the “board of directors”). Since the Company’s inception, no cash dividends have been declared or paid to the holders of common stock.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Company, the holders of common stock are entitled to share ratably in the Company’s assets.
Voting
The holders of common stock are entitled to one vote at all meetings of stockholders for each share of common stock held by such stockholder as of the record date.
10. Share-Based Compensation
2014 Plan (as amended and restated in February 2017, the “Private Aadi Plan”)
In connection with the Merger, the Company assumed the Private Aadi Plan, which was amended and restated in February 2017, and the issued and outstanding stock options under the Private Aadi Plan (the Private Aadi common stock underlying the awards was adjusted for shares of the Company’s common stock pursuant to the Merger Agreement). The Private Aadi Plan allowed for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock unit awards and other stock awards. In connection with the closing of the Merger and the adoption of the 2021 Plan (as defined below), no further awards will be issued under the Private Aadi Plan.
The options that are granted from the Private Aadi Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their date of grant. The Private Aadi Plan stock options generally vest over a four-year term.
2011 Plan and 2017 Plan
In connection with the closing of the Merger, the Company assumed the Aerpio 2011 Equity Incentive Plan (the “2011 Plan”) and the Aerpio 2017 Stock Option and Incentive Plan (the “2017 Plan,” and together with the 2011 Plan, the “Prior Plans”). No new awards will be granted under the Prior Plans effective as of the closing of the Merger and adoption of the 2021 Plan (as defined below).
2021 Plan
At the closing of the Merger, the Company adopted the Aadi Bioscience, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which permits the award of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance grants to employees, members of the board of directors, and outside consultants.
Subject to the adjustment provisions contained in the 2021 Plan and the evergreen provision described below, a total of 2,070,784 shares of common stock were initially reserved for issuance pursuant to the 2021 Plan. In addition, the shares reserved for issuance under the 2021 Plan include any shares of common stock (i) subject to awards of stock options or other awards granted under the Prior Plans that expire or otherwise terminate without having been exercised in full and shares of common stock granted under the Prior Plans that are forfeited or repurchased by the Company, and (ii) any shares of common stock subject to stock options or similar awards granted under the Private Aadi Plan that were assumed in the Merger (provided that the maximum number of shares that may be added to the 2021 Plan pursuant to this sentence is 764,154 shares).
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The number of shares available for issuance under the 2021 Plan will include an annual increase, or the evergreen feature, on the first day of each of the Company’s fiscal years, beginning with the Company’s fiscal year 2022, equal to the least of:
2,070,784 shares of common stock;
a number of shares equal to 4% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or
such number of shares as the board of directors or its designated committee may determine.
As a result of the evergreen increase, a total of 977,400 shares were added to the 2021 Plan on January 1, 2023.
Shares issuable under the 2021 Plan are authorized, but unissued, or reacquired shares of common stock. If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited to or repurchased by the combined company due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated).
As of June 30, 2023, 262,454, 99,025 and 3,723,886 shares were outstanding under the Private Aadi Plan, 2017 Plan and 2021 Plan, respectively. As of June 30, 2023, no shares were outstanding under the 2011 Plan.
The following table summarizes the stock option activity during the six months ended June 30, 2023:
Stock
Option
Shares
Weighted Average
Exercise
Price
Weighted Average
Remaining
Contractual
Term (in Years)
Aggregate
Intrinsic
Value (in thousands)
Outstanding, January 1, 20232,990,423 $19.28 8.59$2,849 
Granted1,680,709 9.01 
Exercised(35,633)2.12 
Expired/cancelled(550,133)21.04 
Outstanding as of June 30, 20234,085,366 $15.50 8.66$960 
Options exercisable as of June 30, 20231,131,691 $17.40 7.31$895 
Vested and expected to vest as of June 30, 20234,085,366 $15.50 8.66$960 

As of June 30, 2023, the aggregate intrinsic value of options outstanding was $1.0 million. For the six months ended June 30, 2023, and 2022, the weighted-average grant-date fair value of options granted was $6.07 and $12.08 per share, respectively.
As of June 30, 2023, there was $25.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.6 years.
The total intrinsic value of the options exercised during the three months ended June 30, 2023, and 2022, was $0.2 million and $1.0 million, respectively. The total intrinsic value of the options exercised during the six months ended June 30, 2023 and 2022 was $0.2 million and $1.5 million, respectively.
As of June 30, 2023, and December 31, 2022, 700,584 and 853,760 shares were reserved for issuance under the 2021 Plan, respectively.
Compensation Expense Summary
The Company recognized the following compensation cost related to employee and non-employee share-based compensation activity for the periods presented (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Selling, general and administrative$1,846 $1,551 $3,486 $2,652 
Research and development1,208 684 2,308 1,364 
Total$3,054 $2,235 $5,794 $4,016 
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The Company uses the Black-Scholes option pricing model to determine the estimated fair value for share-based awards. Option pricing and models require the input of various assumptions, including the option’s expected life, expected dividend yield, price volatility and risk-free interest rate of the underlying stock.
The calculation was based on the following assumptions:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Weighted average grant date fair value (per share)$6.07$12.08$7.95$12.08
Risk-free interest rate
3.47% - 3.85%
2.53% - 3.38%
3.42% - 4.17%
1.46% - 3.38%
Expected volatility
91.54% - 99.29%
85.91% - 87.06%
89.94% - 99.29%
85.91% - 87.06%
Expected term (in years)
5.50 - 6.08
5.50 - 6.08
5.50 - 6.08
5.50 - 6.08
Expected dividend yield
Merger Warrants to Purchase Common Stock
The Company had warrants outstanding for the purchase of 29,167 shares of the Company’s common stock at both June 30, 2023, and December 31, 2022. These warrants were assumed in the Merger and were issued by Aerpio in October 2019, for the purchase of 40,000 shares (after taking into account the reverse stock split of the Company’s common stock at a ratio of 15:1 effected on August 26, 2021 immediately prior to the closing of the Merger (the "Reverse Stock Split")) of the Company’s common stock at an exercise price of $7.29 per share (after taking into account the Reverse Stock Split). These warrants were fully vested as of the date of the Merger and expire on October 24, 2024. No warrants were exercised during the six months ended June 30, 2023. At the grant date, the fair value of these awards was determined using a Black-Scholes option pricing model.
The number of shares and the exercise price shall be adjusted for standard anti-dilution events such as stock splits, combinations, reorganizations, or issue shares as part of a stock dividend. The warrants meet the criteria to be classified within stockholders’ equity.
11. Employee Stock Purchase Plan
On August 17, 2021, a special meeting of the Company’s stockholders was held to approve the Merger and related matters, at which the Company's stockholders considered and approved the Company’s 2021 ESPP which permits participants to contribute up to 15% of their eligible compensation during defined rolling six-month offering periods to purchase the Company's common stock. The purchase price of the shares will be 85% of the lower of the fair market value of the Company's common stock on the first day of trading of the offering period or on the applicable purchase date. Upon approval of the 2021 ESPP by the stockholders, Aerpio’s Amended and Restated 2017 Employee Stock Purchase Plan terminated.
An aggregate of 519,563 shares of common stock was initially reserved for issuance under the 2021 ESPP. The number of shares of common stock available for issuance under the 2021 ESPP is increased on the first day of each fiscal year beginning with the 2022 fiscal year in an amount equal to the least of (i) 310,617 shares of common stock, (ii) one percent (1%) of the outstanding shares of all classes of common stock on the last day of the immediately preceding fiscal year, or (iii) an amount to be determined by the board of directors or its designated committee no later than the last day of the immediately preceding fiscal year. On January 1, 2023, 244,350 shares of common stock were added to the 2021 ESPP. Shares of common stock issuable under the 2021 ESPP will be authorized, but unissued, or reacquired shares of common stock. If the Company’s capital structure changes because of a stock dividend, stock split or similar event, the number of shares that can be issued under the 2021 ESPP will be appropriately adjusted. The Company opened enrollment into the ESPP in May 2022.
The Company uses the Black-Scholes model to determine the estimated fair value for purchases under the 2021 ESPP. Black-Scholes models require the input of various assumptions, including the expected life, expected dividend yield, price volatility and risk-free interest rate of the underlying stock.
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The calculation was based on the following assumptions:
Three and Six Months Ended June 30, 2023Three and Six Months Ended June 30, 2022
Strike price (per share)
$5.98 - $11.40
$11.66
Risk-free interest rate
4.40% - 5.24%
1.54%
Expected volatility
105.68% - 176.11%
92.59%
Expected term (in years)0.50.5
Expected dividend yield
As of June 30, 2023, and December 31, 2022, 687,491 and 492,361 shares of common stock were available for issuance under the 2021 ESPP, respectively. The Company had an outstanding liability of $50,000 and $0.1 million as of June 30, 2023, and December 31, 2022, respectively, which will be recognized over six months. For the six months ended June 30, 2023 and December 31, 2022, 49,220 and 27,202 shares were issued under the 2021 ESPP, respectively.
12. Income Taxes
The Company recorded no income tax expense for the three and six months ended June 30, 2023 and $9,000 for the three and six months ended June 30, 2022. The Company continues to maintain a full valuation allowance.
13. Commitments and Contingencies
Litigation
From time to time, the Company could be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of Commerce’s International Court of Arbitration against the Company. In the Request for Arbitration, EOC claims that the Company breached certain provisions of the EOC License Agreement, including failing to provide certain manufacturing information to EOC. As a result, EOC is seeking monetary damages. The arbitration process is ongoing. The Company intends to defend itself vigorously in this matter and pursue all relief to which the Company is entitled. The Company is unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of June 30, 2023. See Note 8 for more information about the EOC License Agreement and its termination.
Purchase Commitments
The Company has ongoing contracts with vendors for clinical trials and contract manufacturing. These contracts are generally cancellable, with notice, at the Company’s option. The Company recorded accrued expenses of $2.2 million and $2.8 million for expenditures incurred by clinical and contract manufacturing vendors as of June 30, 2023, and December 31, 2022, respectively.
At June 30, 2023, the Company was party to a Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as amended effective as of August 1, 2022 (the "Fresenius Agreement"), with Fresenius Kabi that contains specific activities including non-cancellable commitments, minimum purchase commitments, and binding annual forecasts. As of June 30, 2023, there were non-cancellable purchase commitments under the Fresenius Agreement related to the purchase of inventory for $2.1 million to be paid in 2023.
Mirati Collaboration
In October 2022, the Company entered into a collaboration and supply agreement with Mirati Therapeutics, Inc. (“Mirati”) to evaluate the combination of Mirati’s adagrasib, a KRASG12C selective inhibitor, and FYARRO in KRASG12C mutant non-small cell lung cancer (NSCLC) and other solid tumors. Under the terms of the agreement, Mirati will be responsible for sponsoring and operating the Phase 1/2 study and the Company will supply study drug and jointly share the cost of the study.
The primary objective of this multi-center, single-arm, open-label Phase 1/2 trial is to determine the optimal dose and recommended Phase 2 dose for the combination of adagrasib and FYARRO in patients with KRASG12C mutant solid tumors. In addition, the study will investigate the safety, tolerability and efficacy of adagrasib and FYARRO in combination in patients both with and without prior exposure to a KRASG12C inhibitor. The trial will build on preclinical data showing enhanced anti-tumor efficacy with the combination of adagrasib and FYARRO relative to either agent alone.
For the three and six months ended June 30, 2023, the Company incurred $0.2 million and $0.5 million in expenses related to the Mirati collaboration.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains express or implied forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or 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. Forward-looking statements in this Quarterly Report include, but are not limited to, statements about:
our ability to maintain regulatory approval for FYARRO® in advanced malignant perivascular epithelioid cell tumors (“PEComa”), or to obtain and maintain regulatory approval for FYARRO in additional indications, or any other product candidates we may develop in the future, and any related restrictions, limitations or warnings in the label of an approved product candidate;
our plans and potential for success relating to commercializing FYARRO, or any other product candidate that we may develop, if approved;
our plans related to the further development and manufacturing of FYARRO;
the timing, scope or likelihood of regulatory filings and approvals for FYARRO for advanced malignant PEComa in foreign jurisdictions and any additional indications we may pursue and any other product candidates we may develop in the future;
our commercialization, marketing and manufacturing capabilities and strategy;
the pricing and reimbursement of FYARRO and any other product candidates we may develop in the future, if approved;
the rate and degree of market acceptance of FYARRO and any other product candidates we may develop in the future, if approved;
the timing, progress and results of preclinical studies and clinical trials for our programs and product candidates, including the impact of the COVID-19 pandemic, the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;
our ability to recruit and enroll suitable patients in our clinical trials;
the expectations regarding the beneficial characteristics, safety, efficacy and therapeutic effects of FYARRO and any other product candidates that we may develop in the future;
our ability to develop and advance product candidates into, and successfully complete, clinical studies;
the implementation of our business model and our strategic plans for our business;
our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;
our ability to contract with and rely on third parties to assist in conducting our clinical trials and manufacturing FYARRO and any other product candidates we may develop in the future;
the size and growth potential of the markets for FYARRO and any other product candidates we may develop in the future, if approved, and our ability to serve those markets, either alone or in partnership with others;
our ability to obtain funding for our operations, including funding necessary to commercialize FYARRO and to complete further development, approval and, if approved, commercialization of FYARRO in additional indications and any other product candidates we may develop in the future;
the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;
the potential for our business development efforts to maximize the potential value of our portfolio;
our ability to compete with other companies currently marketing or engaged in the development of treatments for the indications that we are pursuing for FYARRO and any other product candidates we may develop in the future;
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our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
our financial performance;
the legal proceedings related to the termination of the EOC License Agreement;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and
other factors including but not limited to those detailed under the section entitled “Risk Factors.”
Forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions, and projections about the business and future financial results of the pharmaceutical industry, and other legal, regulatory and economic developments. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “intend,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “continue,” “likely,” and similar expressions (including their use in the negative) intended to identify forward-looking statements although not all forward-looking statements contain these identifying words. Actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including, but not limited to, those described in Part II, Item 1A (Risk Factors) of this Quarterly Report.
You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The forward-looking statements in this Quarterly Report represent our views as of the date of this Quarterly Report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes to those statements thereto appearing elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ending December 31, 2022 filed with the SEC on March 29, 2023. Some of the information contained in this discussion and analysis including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risk, uncertainties and assumptions. Our actual results could differ materially from those discussed in our forward-looking statements for many reasons, including those risks. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. You should read this Quarterly Report completely, including Part II, Item 1A (Risk Factors) of this Quarterly Report and the “Cautionary Statement Regarding Forward-Looking Statements” sections of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by our forward-looking statements contained in the following discussion and analysis. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
References in the following discussion to we, our, us, or Aadi refer to Aadi Bioscience, Inc. and its subsidiaries.
Throughout this document we refer to FYARRO (nab-sirolimus, sirolimus protein-bound particles for injectable suspension (albumin-bound)) as FYARRO in the context of commercialization for the treatment of advanced malignant perivascular epithelioid cell tumor (PEComa), investigational use, our clinical trials, regulatory matters such as orphan drug designation, our license agreement with Bristol Myers Squibb Company and collaboration agreement with Mirati Therapeutics, Inc., all further discussed throughout this document.

Overview
We are a biopharmaceutical company focused on developing and commercializing precision therapies for genetically defined cancers with alterations in mTOR pathway genes. Our lead drug product, FYARRO®, is a form of sirolimus bound to albumin. Sirolimus is a potent inhibitor of the mTOR biological pathway, the activation of which pathway can promote tumor growth. We believe our approach to utilizing albumin bound sirolimus has the potential to produce transformational therapies to cancer patients with mTOR pathway driver alterations where other mTOR inhibitors have not or cannot be effectively exploited due to problems of pharmacology, effective drug delivery, safety, or effective targeting to the disease site.
In November 2021, the U.S. Food and Drug Administration (the “FDA”) approved FYARRO sirolimus protein-bound particles for injectable suspension (albumin-bound) for the treatment of adult patients with locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumor (“PEComa”). On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa and recognized net product sales of $6.2 million and $12.1 million for the three and six months ended June 30, 2023, respectively. See “Results of Consolidated Operations” for further discussion of our results.
In addition to advanced malignant PEComa, based on exploratory data from our completed Phase 2 registrational study, Advanced Malignant PEComa Trial (“AMPECT”), and our expanded access program for FYARRO, we have initiated a registration-directed tumor-agnostic Phase 2 study (“PRECISION1”) of FYARRO in patients with malignant solid tumors with alterations of the Tuberous Sclerosis Complex 1 and 2 (“TSC1 & TSC2”) genes. We have completed a Type B meeting with the FDA in which we discussed the trial design and the PRECISION1 trial was opened for enrollment in the United States during the first quarter of 2022, with dosing of our first patient in March 2022. Based on initial information from the PRECISION1 trial, enrollment is well-balanced, the trial is accruing relatively evenly between the TSC1 and TSC2 arms, and more than 15 discrete tumor types have been enrolled. A pre-planned interim analysis on 40 patients with appropriate follow-up is expected before the end of 2023.
Recent Developments
New Clinical Indications. On August 9, 2023, we announced the expansion of our FYARRO pipeline through the further investigation of mTOR pathway inhibition in endometrial cancer and neuroendocrine tumors (NETs). As part of our continued evaluation of potential new clinical programs for FYARRO, either as a single agent or in combination with other targeted therapies, we selected these new clinical indications based on preclinical data supporting these programs, which we believe are promising, and the prospect of providing enhanced therapeutic benefit in these indications with meaningful patient populations and high unmet needs.
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In the fourth quarter of 2023, we expect to initiate a Phase 2 open-label, multi-institutional study to evaluate the efficacy and safety of the combination of FYARRO with letrozole for the treatment of advanced or recurrent endometrioid-type endometrial cancer (EEC) and a Phase 2 multicenter, open-label, single-arm trial to evaluate adult patients with functional or non-functional, well-differentiated, locally advanced unresectable or metastatic NETs of the GI tract, lung, or pancreas who have received no more than two prior lines of therapy.
First Patient Dosing Under Mirati Collaboration. In October 2022, we entered into a collaboration and supply agreement with Mirati Therapeutics, Inc. (“Mirati”) to evaluate the combination of Mirati’s adagrasib, a KRASG12C selective inhibitor, and FYARRO in KRASG12C mutant non-small cell lung cancer (NSCLC) and other solid tumors. In August 2023, we announced that the first patient dosing occurred in the Phase 1/2 trial. See "Mirati Collaboration" below for more information about the Mirati Collaboration.
BMS License Agreement
We have exclusive rights for certain patents and a non-exclusive license for certain technology and know-how pertaining to ABI-009 (which we refer to as FYARRO) pursuant to an amended and restated license agreement, dated November 15, 2019, as amended August 31, 2021 (the “BMS License Agreement”) with Abraxis BioScience, LLC, a wholly owned subsidiary of Celgene Corporation, which is a wholly owned subsidiary of Bristol Myers Squibb Company ("BMS"). Under the BMS License Agreement, BMS is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees. During the three months ended June 30, 2023 and 2022, royalties on net product sales were $0.5 million and $0.2 million, respectively under the terms of this agreement. During the six months ended June 30, 2023 and 2022, royalties on net product sales were $0.9 million and $0.4 million, respectively under the terms of this agreement. No development payments related to milestones under this agreement were paid during the three and six months ended June 30, 2023. See Note 8 to the condensed consolidated financial statements for more information about the BMS License Agreement.
Under the terms of the August 2021 amendment to the BMS License Agreement, we paid BMS $5.8 million, representing 50% of the previously outstanding payment obligation under the agreement, following the effective time of our 2021 private investment in public equity (PIPE) Financing ("2021 PIPE Financing") that occurred in connection with the closing of the reverse merger of Aerpio Pharmaceuticals, Inc. whereby Aspen Merger Subsidiary, Inc., our wholly-owned subsidiary (“Merger Sub”), merged with and into Aadi Subsidiary, Inc. (formerly known as Aadi Bioscience, Inc. (“Private Aadi”)), with Private Aadi surviving as our wholly-owned subsidiary (the “Merger”). Pursuant to the terms of the amendment, the remaining portion of the previously outstanding payment obligation ($5.8 million), which is recorded on our condensed consolidated balance sheets as due to licensor, is due on the third anniversary of the effective time of such 2021 PIPE Financing (i.e., August 26, 2024), plus any accrued and unpaid interest due thereon.
EOC License Agreement
In December 2020, we entered into the EOC License Agreement with EOC under which we received $14.0 million in January 2021 in non-refundable upfront consideration as partial payment for the rights and licenses granted to EOC by us for the further development and commercialization of FYARRO in the People’s Republic of China, Hong Kong Special Administration Region, Macao Special Administrative Region and Taiwan (the “Licensed Territory”).
In accordance with the BMS License Agreement, we are required to pay 20% of all sublicense fees to BMS. As such, we recognized $2.8 million of license expense in the fourth quarter of 2020 and had a corresponding $2.8 million sublicense payable to BMS as of December 31, 2020, which was paid in 2021.
During the fourth quarter of 2021, we recognized license revenue and received $1.0 million from EOC for achieving the FDA approval milestone in November 2021. In accordance with the BMS License Agreement, we recognized $0.2 million of license expense in the fourth quarter of 2021 and had a corresponding $0.2 million sublicense payable to BMS as of December 31, 2021, which was paid in 2022.
On June 27, 2022, we received written notice from EOC that EOC has elected to terminate the EOC License Agreement, effective immediately. On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of Commerce’s International Court of Arbitration against us. The arbitration process is ongoing. We intend to defend ourselves vigorously in this matter and pursue all relief to which we are entitled. We are unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of June 30, 2023. See Notes 8 and 13 to the condensed consolidated financial statements for more information about the EOC License Agreement, its termination and pending arbitration.
Mirati Collaboration
In October 2022, we entered into a collaboration and supply agreement with Mirati to evaluate the combination of Mirati’s adagrasib, a KRASG12C selective inhibitor, and FYARRO in KRASG12C mutant non-small cell lung cancer (NSCLC) and
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other solid tumors. Under the terms of the agreement, Mirati will be responsible for sponsoring and operating the Phase 1/2 study and we will supply study drug and jointly share the cost of the study.
The primary objective of this multi-center, single-arm, open-label Phase 1/2 trial is to determine the optimal dose and recommended Phase 2 dose for the combination of adagrasib and FYARRO in patients with KRASG12C-mutant solid tumors. In addition, the study will investigate the safety, tolerability and efficacy of adagrasib and FYARRO in combination in patients both with and without prior exposure to a KRASG12C inhibitor. The trial will build on preclinical data showing enhanced anti-tumor efficacy with the combination of adagrasib and FYARRO relative to either agent alone. In August 2023, we announced that the first patient dosing occurred in the Phase 1/2 trial.
Impact of Negative Global or National Events
Businesses have been and will continue to be impacted by a number of challenging global and national events and circumstances that continue to evolve, including the recent turmoil in the global banking system, public health epidemics, such as the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, and geopolitical instability, including the conflicts in Eastern Europe and in other countries. The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances. For example, as the COVID-19 pandemic developed, we took numerous steps to help ensure the health and safety of our employees. While we have resumed normal operations, any resurgence of the COVID-19 pandemic may cause us to reinstitute certain measures to protect employee safety, including staggered work hours or reduced in-person staffing, that could result in additional disruption and/or delays in our ability to conduct development activities.
We have been and continue to actively monitor our supply chain in light of these challenging global and national events and circumstances, including our third-party materials suppliers. We experienced some supply disruptions due to the COVID-19 pandemic, including closures at certain chip manufacturers, which led to extended lead times for FYARRO and diversion of certain lab materials needed to support COVID-19 relief efforts. While certain of these disruptions have been resolved since the start of the COVID-19 pandemic, we are continuing to monitor our supply chain and contingency planning is ongoing with our partners to reduce the possibility of an interruption to our development activities or the availability of necessary materials.
The ultimate impact of these global and national events and circumstances, either individually or in aggregate, is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to mitigate potentially negative impacts to our business. For example, during the COVID-19 pandemic, our clinical trials have been, and may continue to be, affected by the closure of offices, lack of resources or closure of borders, among other measures being put in place around the world and we made certain modifications to employee travel, with masking and vaccination requirements in our offices, and with our employees working remotely fully or intermittently. Any inability to travel and conduct face-to-face meetings, as well as constraints surrounding hospital infrastructure and staff, can also make it more difficult to enroll and maintain patients in ongoing or planned clinical trials. We will continue to actively monitor the rapidly evolving situation related to these global and national events, and may take further actions to mitigate potential negative impacts to our business, and that may alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which these global or national events and circumstances may affect our future business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain. We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows in the remainder of fiscal year 2023.
Key Trends and Factors Affecting Comparability Between Periods
Commercial sale of FYARRO was launched on February 22, 2022, for the treatment of patients with advanced malignant PEComa. We recorded net product sales of $6.2 million and $12.1 million during the three and six months ended June 30, 2023, respectively.
We have built a cross-functional commercial team consisting of marketing, market access and commercial operations and will continue to strategically build our sales and our commercial infrastructure with capabilities designed to scale when necessary to support future commercial launches. Expenses related to our commercialization of FYARRO, including personnel expenses, sales support, and marketing are included in selling, general and administrative expenses for the three and six months ended June 30, 2023. We expect these
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expenses will continue to increase, as compared to prior periods, with the ongoing commercialization of FYARRO and preparation for potential future launches.
We continue to build out our research and development team and we expect our research and development costs will increase in 2023, as compared to 2022, as a result of significant expenses related to the PRECISION1 trial which was open to enrollment during the year ended December 31, 2022, with the first patient dosed in March 2022. We also expect our research and development costs to increase in 2023 and in future periods, as compared to 2022, based on anticipated expenses related to the two new clinical programs for FYARRO described under "Recent Developments - New Clinical Indications" above.
As a public company our expenses have increased from when we were a privately held company, including (i) costs to comply with the rules and regulations of the SEC and those of the Nasdaq Capital Market (“Nasdaq”), (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities, and (v) other administrative and professional services.
Liquidity and Capital Resources
As of June 30, 2023, we had $134.9 million of cash, cash equivalents and short-term investments. Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into 2025. We have incurred net losses in each year since inception and as of June 30, 2023, we had an accumulated deficit of $236.4 million. These losses have resulted principally from costs incurred in connection with research and development activities, selling, general and administrative costs associated with our operations, and costs associated with the Merger. We expect to continue to incur significant expenses and operating losses for the foreseeable future due to the cost of research and development, including conducting preclinical and clinical trials and identifying and designing product candidates, the regulatory approval process for FYARRO outside the United States and in additional indications and any other product candidates we may develop in the future and the commercial launch of FYARRO.
Basis of Presentation
The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the condensed consolidated balance sheets and condensed consolidated statements of operations and comprehensive loss presented herein. The following discussion and analysis are based on our condensed consolidated financial statements contained in this Quarterly Report, which we have prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). You should read the discussion and analysis together with such condensed consolidated financial statements and the related notes thereto.
Components of Condensed Consolidated Statements of Operations and Comprehensive Loss
Revenue
Product Sales, Net
FYARRO was approved by the FDA in November 2021. On February 22, 2022, we launched sales of FYARRO to specialty distributors (“SD”s) and a specialty pharmacy (“SP”). We recognize product sales when the SDs and SP obtain control of the product, which occurs upon delivery. Product sales are recorded at the net sales price, which includes provisions for the following allowances which are reflected either as a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:
Distribution Fees: Distribution fees include distribution service fees paid to the SDs and SP based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”). Distribution fees are recorded as an offset to product sales based on contractual terms at the time the sale is recognized.
Rebates: Allowance for rebates include mandated discounts under the Medicaid Drug Rebate Program and TRICARE program. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements. The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants. Our estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.
Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs and SP at a discounted price. The SDs and SP charge back to us the difference between the price initially paid by the SDs and SP and the discounted price paid to the SDs and SP by these entities. If
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actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.
Co-Payment Assistance: We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued at the time of product sale to the SDs and SP based on estimated patient participation and average co-pay benefit to be paid per a claim. Our estimated amounts are compared to actual program participation and co-pay amounts paid using data provided by third-party administrators. If actual amounts differ from the original estimates the assumptions being applied are updated and adjustment for prior period accruals will be adjusted in the current period.
Product Returns: Consistent with industry practice, we offer the SDs and SP limited product return rights for damages, shipment errors, and expiring product, provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. We do not allow product returns for product that has been dispensed to a patient. As we receive inventory reports from the SDs and SP and have the ability to control the amount of product that is sold to the SDs and SP, we estimate future potential product returns based on the on-hand channel inventory data and sell-through data obtained from the SDs and SP. In arriving at our estimate, we also consider historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.
Operating Expenses
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, business development, sales and marketing, and other corporate functions. Other general and administrative expenses include professional fees for legal, auditing, tax and business consulting services, insurance costs, intellectual property and patent costs, facility costs and travel costs. We expect that selling, general and administrative expenses will increase in the future as we expand our operating activities. Additionally, we have incurred, and expect to continue to incur, significant additional expenses associated with being a public company that we did not incur as a privately held company, including (i) costs to comply with the rules and regulations of the SEC and those of Nasdaq, (ii) legal, accounting and other professional services, (iii) insurance, (iv) investor relations activities and (v) other administrative and professional services.
Research and Development Expenses
Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of: (i) employee related costs, including salaries, benefits and share-based compensation expense for employees engaged in scientific research and development functions; (ii) third-party contract costs relating to research, formulation, manufacturing, nonclinical studies and clinical trial activities; (iii) external costs of outside consultants who assist with technology development, regulatory affairs, clinical development and quality assurance; (iv) payments made under our third-party licensing agreements; and (v) allocated facility-related costs.
Costs for certain activities, such as manufacturing, nonclinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators. Research and development activities are central to our business. We expect to increase our investment in research and development in order to advance FYARRO in additional indications through clinical trials. As a result, we expect that our research and development expenses will increase substantially in the foreseeable future as we continue to invest in research and development activities, pursue clinical development of FYARRO in additional indications and any other product candidates we may develop in the future and expand our product candidate pipeline.
The process of commercialization and conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, to the extent that our product candidates continue to advance into clinical trials, including larger and later-stage clinical trials, our expenses will increase substantially and may become more variable.
Cost of Goods Sold
Cost of goods sold consist primarily of royalties paid to BMS, costs incurred on sales of FYARRO and costs to manufacture and prepare the product for sales subsequent to the FDA approval in November 2021. Costs incurred prior to the FDA approval were expensed when incurred.
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Impairment of Acquired Contract Intangible Asset
Impairment of acquired contract intangible asset relates to a write down of the acquired contract intangible asset to fair value. During the three and six months ended June 30, 2022, we recognized an impairment of $3.7 million to fully impair the contract intangible asset based on Gossamer's termination of the license agreement, dated June 24, 2018, with Gossamer Bio, Inc. (“Gossamer”), as amended (the “Gossamer License Agreement”) as a result of Gossamer not meeting its primary or secondary endpoint in the UC-SHIFT clinical trial.
Other Income (Expense), Net
Other income, net consists of the change in fair value of convertible promissory notes and interest expense related to such notes. These expenses are partially offset by interest income earned on cash, cash equivalents and short-term investments, and gain on extinguishment of debt.
Income Tax Expense
During the three and six months ended June 30, 2023, we recognized no income tax expense on the condensed consolidated statements of operations and comprehensive loss. For the three and six months ended June 30, 2022, we recognized $9,000 of income tax expense on the condensed consolidated statements of operations and comprehensive loss. Since our formation in 2011, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or our earned tax credits, due to our uncertainty of realizing a benefit from those items.
Results of Operations:
The following table presents the results of operations for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenue
Product sales, net$6,202 $3,437 $12,069 $5,744 
Total revenue6,202 3,437 12,069 5,744 
Operating expenses
Selling, general and administrative11,776 10,006 22,983 19,154 
Research and development13,315 7,726 24,271 14,519 
Cost of goods sold656 341 1,185 520 
Impairment of acquired contract intangible asset— 3,724 — 3,724 
Total operating expenses25,747 21,797 48,439 37,917 
Loss from operations(19,545)(18,360)(36,370)(32,173)
Other income (expense), net1,574 100 3,176 56 
Loss before income tax expense(17,971)(18,260)(33,194)(32,117)
Income tax expense— (9)— (9)
Net loss $(17,971)$(18,269)$(33,194)$(32,126)
Comparison of the Six Months Ended June 30, 2023 and 2022
Product Sales, Net
Our product sales, net consist of sales of FYARRO since its launch in the United States on February 22, 2022. Product sales, net for the three and six months ended June 30, 2023 were $6.2 million and $12.1 million, respectively. For the three and six months ended June 30, 2022, product sales, net were $3.4 million and $5.7 million, respectively.
Operating Expenses
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2023 and 2022 were $11.8 million and $10.0 million, respectively. The $1.8 million increase was primarily driven by $0.4 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, $0.5 million of marketing expense, and $1.6 million of legal and other related expenses, offset by a decrease of $0.7 million of consulting expenses and insurance.

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Selling, general and administrative expenses for the six months ended June 30, 2023 and 2022 were $23.0 million and $19.2 million, respectively. The $3.8 million increase was driven by $2.0 million of personnel expenses related to increased headcount, incentive bonuses and share-based compensation, $0.8 million of marketing expense, and $2.3 million of legal, marketing, and other related expenses, offset by a decrease of $1.3 million of consulting expenses and insurance.
Research and Development Expenses
The following table presents our research and development expenses for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Personnel expenses$6,616 $4,727 $12,434 $8,284 
Consultants1,153 1,387 2,530 2,533 
External clinical development3,703 1,308 6,464 3,074 
Clinical drug product manufacturing1,751 223 2,504 510 
Other expenses92 81 339 118 
Total research and development expenses$13,315 $7,726 $24,271 $14,519 
Research and development expenses for the three months ended June 30, 2023 and 2022 were $13.3 million and $7.7 million, respectively. The $5.6 million increase was primarily driven by a $1.7 million increase in headcount, consultants, and other expenses, $2.4 million of clinical development expenses related to the PRECISION1 trial, and $1.5 million in clinical drug product manufacturing.
Research and development expenses for the six months ended June 30, 2023 and 2022 were $24.3 million and $14.5 million, respectively. The $9.8 million increase was primarily driven by a $4.4 million increase in headcount, consultants, and other expenses, $3.4 million of clinical development expenses related to the PRECISION1 trial, and $2.0 million in clinical drug product manufacturing.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2023 and 2022 was $0.7 million and $0.3 million, respectively. Cost of goods sold for the six months ended June 30, 2023 and 2022 was $1.2 million and $0.5 million, respectively. The increase of cost goods sold is primarily driven by royalties incurred on product sold.
Impairment of Acquired Contract Intangible Asset
During the three and six months ended June 30, 2022, we recorded a $3.7 million impairment charge to reduce the carrying value of the intangible asset to its fair value of zero, based on a formal notice of termination we received on April 25, 2022 (the “Notice of Termination”) from Gossamer for the Gossamer License Agreement. The Gossamer License Agreement terminated effective July 24, 2022.
Based on the Notice of Termination, we fully impaired the intangible asset during the three and six months ended June 30, 2022, as the Gossamer License Agreement is the sole underlying asset. In connection with the termination of the Gossamer License Agreement, the CVR Agreement, pursuant to which the CVRs were issued to legacy holders of common stock of Aerpio immediately prior to the Merger (as defined in Note 1 to the condensed consolidated financial statements), automatically terminated in accordance with its terms and the CVRs were automatically cancelled and forfeited without any consideration or payment, in each case effective July 24, 2022.
Other Income (Expense), Net
Other income, net for the three months ended June 30, 2023 was $1.6 million, compared to other income, net of $0.1 million for the three months ended June 30, 2022. The change was primarily driven by higher interest rates on short-term investments held during the three months ended June 30, 2023, compared to the three months ended June 30, 2022.
Other income, net for the six months ended June 30, 2023 was $3.2 million, compared to other income, net of $0.1 million for the six months ended June 30, 2022. The change was primarily driven by higher interest rates on short-term investments held during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

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Liquidity and Capital Resources
Overview
As of June 30, 2023 we had $134.9 million of cash, cash equivalents and short-term investments. Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into 2025.
We have incurred net losses in each year since inception and as of June 30, 2023, we had an accumulated deficit of $236.4 million. Our net losses were $18.0 million and $18.3 million for the three months ended June 30, 2023 and 2022, respectively, and $33.2 million and $32.1 million for the six months ended June 30, 2023 and 2022, respectively. These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses for the foreseeable future due to the cost of research and development, including conducting preclinical studies and clinical trials, identifying and designing product candidates, the regulatory approval process for FYARRO outside the United States and in additional indications and any other product candidates we may develop in the future, and the commercial launch of FYARRO. We expect our expenses, and the potential for losses, to increase substantially as we conduct clinical trials of FYARRO in additional indications and seek to expand our pipeline.
From inception through June 30, 2023, we received funding of $25.4 million from our initial seed financing and the sale of Series A convertible preferred stock, $9.1 million from the issuance of convertible promissory notes, $145.4 million, net from the 2021 PIPE Financing in connection with the Merger, $29.7 million of cash assumed in the Merger, and $72.2 million, net from a private investment in public equity financing (the “2022 PIPE Financing”) with certain investors (the “2022 PIPE Investors”).
On March 17, 2022, we entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), with respect to an “at the market offering” pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock having aggregate gross proceeds of up to $75.0 million through Cowen as our sales agent. Under the Sales Agreement, we will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitations on the number or dollar value of shares that may be sold in any one trading day and any minimum price below which sales may not be made. We will pay Cowen 3.0% of the aggregate gross proceeds from each sale of shares of common stock under the Sales Agreement. As of June 30, 2023, no shares of common stock had been sold under the Sales Agreement.
The shares of our common stock to be offered and sold under the Sales Agreement will be issued and sold pursuant to our shelf registration statement on the Form S-3 (File No. 333-255129), which was filed with the SEC on April 8, 2021, and which became effective on April 15, 2021. We filed a prospectus supplement with the SEC on March 21, 2022 in connection with the offer and sale of the shares pursuant to the Sales Agreement.
The shelf registration statement allows us to sell from time to time up to $150.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for our own account in one or more offerings. The shelf registration statement is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.
On September 22, 2022, the Company entered into the Purchase Agreement for the 2022 PIPE Financing with the 2022 PIPE Investors for the sale of 3,373,526 shares of our common stock for a price of $12.50 per share and Pre-Funded Warrants to purchase an aggregate of 2,426,493 shares of our common stock, at a purchase price of $12.4999 per Pre-Funded Warrant. The Pre-Funded Warrants are exercisable at an exercise price of $0.0001 and will be exercisable until exercised in full. The 2022 PIPE Financing closed on September 26, 2022. Aggregated net proceeds, after deducting certain expenses incurred of $0.3 million related to the issuance of the shares were $72.2 million.
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The following table presents our cash flows for the periods indicated (in thousands):
Six Months Ended June 30,
20232022
Net cash used in operating activities$(38,068)$(30,135)
Net cash provided by (used in) investing activities66,890 (264)
Net cash provided by financing activities321 211 
Net increase (decrease) in cash, cash equivalents and restricted cash$29,143 $(30,188)
Operating Activities
Our cash used in operating activities primarily results from our net loss adjusted for non-cash expenses, changes in working capital components, amounts due to contract research organizations to conduct our clinical programs and employee-related expenditures for research and development and general and administrative activities. Our cash flows from operating activities will continue to be affected by spending to advance and support FYARRO in additional indications in the clinic and other operating and general administrative activities, including operating as a public company.
For the six months ended June 30, 2023, cash used in operating activities was $38.1 million and resulted from (i) our net loss of $33.2 million, and (ii) $9.0 million net decrease in our working capital accounts, primarily driven by an increase in accounts receivable, prepaid expenses, inventory, accounts payable and accrued expenses, and decrease in other non-current assets; offset by net non-cash adjustments totaling $4.1 million, which was primarily related share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.
For the six months ended June 30, 2022, cash used in operating activities was $30.1 million and resulted from (i) our net loss of $32.1 million, and (ii) $6.1 million net decrease in our working capital accounts, primarily driven by an increase in accounts receivable and inventory related to the commercial launch of FYARRO in February 2022 and a decrease in accounts payable and accrued expenses; offset by non-cash adjustments totaling $8.1 million primarily related to the impairment of the contract intangible asset, share based compensation, depreciation and amortization.
Investing Activities
Cash provided by investing activities for the six months ended June 30, 2023 was $66.9 million and related to purchases of fixed assets of $2.1 million and short-term investments of $23.1 million, offset by maturities of short-term investments of $92.0 million.
Cash used in investing activities for the six months ended June 30, 2022 was $0.3 million and related to purchases of fixed assets.
Financing Activities
Cash provided by financing activities for the six months ended June 30, 2023 was $0.3 million and related to the purchase of common stock under the employee purchases plan and exercise of stock options offset by financing costs related to the Sales Agreement.
Cash provided by financing activities for the six months ended June 30, 2022 was $0.2 million and related to the exercise of stock options and warrants offset by financing costs related to the Sales Agreement.
Contractual Obligations and Commitments 
In April 2022, we entered into a lease for 10,615 square feet of office space in Morristown, New Jersey. The term of the lease is seventy-three months unless terminated sooner.
In August 2021, we entered into an amendment to extend the lease of our 2,760 square feet of office space in Pacific Palisades, California. We exercised an option, under our prior lease agreement, to extend the term of the lease for an additional three-year period. Included in the renewal were nine months of rent abatement and a rent escalation clause.
Rent expense is being recorded on a straight-line basis. Rent expense related to the Pacific Palisades and Morristown leases was $0.1 million for each of the three months ended June 30, 2023 and 2022, $0.2 million for each of the three and six months ended June 30, 2023 and 2022. See Note 7 to the condensed consolidated financial statements for details related to future lease payments.
In January 2022, we entered into a Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as amended effective as of August 1, 2022 (the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”), pursuant to which Fresenius Kabi will manufacture FYARRO for us and we will purchase FYARRO as a finished drug
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product from Fresenius Kabi, on a purchase order basis. The Fresenius Agreement contains specific activities such as non-cancellable commitments, minimum purchase commitments, or binding annual forecasts. Under the Fresenius Agreement, which is effective through March 31, 2024 (or such later date as may be agreed between the parties in writing), we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.
We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage clinical trial activities and manufacturing companies to manufacture the drug product used in the clinical trials. The scope of the services under these research and development contracts can be modified and the contracts cancelled by us upon written notice. In the event of a cancellation, we would be liable for the cost and expenses incurred to date as well as any close out costs of the service arrangement.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in acc