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Item 7.Management’s Discussion and Analysis of the Results of Operations

Forward-Looking Statements

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,”“anticipate,”“estimate,”“may,”“will,”“should,”“intend,”“believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see the section of this report titled "Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Form 10-K.

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-K. We undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Overview

Avenue Therapeutics, Inc. (“Avenue” or the “Company”) is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Our product candidates include AJ201 for the treatment of spinal and bulbar muscular atrophy (“SBMA”, also known as Kennedy’s Disease), an intravenous formulation of tramadol (“IV tramadol”), a schedule IV opioid for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders.

Our net loss for the years ended December 31, 2023 and 2022 was approximately $10.5 million and $3.6 million, respectively. As of December 31, 2023, we had an accumulated deficit of approximately $90.9 million. Substantially all our net losses resulted from costs incurred for licenses acquired, research and development, and general and administrative purposes.

We expect to continue to incur research and development costs and general and administration costs and incur operating losses for at least the next several years as we continue the development of our product candidates.

We intend to obtain additional capital through the sale of debt or equity securities or other arrangements to fund our operations, research and development activity or regulatory approval activity; however, there can be no assurance that we will be able to raise the necessary capital under acceptable terms, if at all. The sale of additional equity or securities convertible into or exercisable for equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of our common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. We may also seek financing through strategic partnerships for some or all of our portfolio assets. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

We are a majority-controlled subsidiary of Fortress. For related party transactions, see Note 4 to our audited consolidated financial statements included herein.

Avenue Therapeutics, Inc. was incorporated in Delaware on February 9, 2015. Our executive offices are located at 1111 Kane Concourse, Suite 301, Bay Harbor Islands, FL 33154. Our telephone number is (781) 652-4500, and our email address is info@avenuetx.com.

AJ201

In February 2023, we announced that we entered into a license agreement (the “AnnJi License Agreement”) with AnnJi Pharmaceutical Co., Ltd. (“AnnJi”) whereby we obtained an exclusive license from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the United States (“U.S.”) for the treatment of SBMA.

Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidate, we paid an initial cash license fee of $3.0 million, of which $2.0 million was paid on April 27, 2023 and $1.0 million was paid on September 8, 2023. We are also obligated to make additional payments over the course of the AnnJi License Agreement including reimbursement payments of up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial.

In connection with the signing of the AnnJi License Agreement, we issued 831,618 shares of our common stock to AnnJi (the “First Tranche Shares”) in March 2023, and an additional 276,652 shares of our common stock in September 2023 upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial (the “Second Tranche Shares” and, together with the First Tranche Shares, the “Consideration Shares”). The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. We will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi. In connection with the execution of the AnnJi License Agreement, we agreed to file a registration statement to register the resale of the Consideration Shares. We filed such registration statement on Form S-3 on June 16, 2023, and the registration statement was subsequently declared effective by the SEC on June 27, 2023.

In July 2023, we announced the first patient was dosed in the Phase 1b/2a trial of AJ201 for the treatment of SBMA. The 12-week, multicenter, randomized, double-blind trial is expected to enroll approximately 25 patients, randomly assigned to AJ201 (600mg/day) or placebo. The primary endpoint of the study is to assess safety and tolerability of AJ201 in subjects with clinically and genetically defined SBMA. Secondary endpoints include pharmacodynamic data measuring change from baseline in mutant androgen receptor protein levels in skeletal muscle and changes in the fat and muscle composition as seen on MRI scans. Further details on the study can be found using the ClinicalTrials.gov identifier NCT05517603. Information on clinicaltrials.gov does not constitute part of this Annual Report on Form 10-K.

In January 2024, we announced the completion of enrollment for the Phase 1b/2a trial with topline data anticipated in the second quarter of 2024.

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IV Tramadol

As more fully described in the Business section above, in February 2022, we had our Advisory Committee meeting with the U.S. Food and Drug Administration ("FDA") regarding IV tramadol. In the final part of the public meeting, the Advisory Committee voted yes or no on the following question: “Has the Applicant submitted adequate information to support the position that the benefits of their product outweigh the risks for the management of acute pain severe enough to require an opioid analgesic in an inpatient setting?” The results were 8 yes votes and 14 no votes. In March 2022, we received an Appeal Denied Letter from the OND in response to the FDRR. In August 2022, we participated in a Type A Meeting with the FDA Division of Anesthesia, Analgesia, and Addiction Products (“DAAAP”) regarding a briefing document submitted that presented a study design we believed would have the potential to address the comments and deficiencies noted in the Appeal Denial Letter. The meeting on August 9, 2022 was a collaborative discussion on the study design and potential path forward. We incorporated the FDA’s suggestions from the meeting minutes and submitted a detailed study protocol.

We participated in a Type C meeting with the FDA in March 2023 to discuss a proposed study protocol to assess the risk of respiratory depression related to opioid stacking on IV tramadol relative to an approved opioid analgesic. We announced in April 2023 that we received official meeting minutes from the Type C meeting with the FDA. The Type C meeting minutes indicate that we are in agreement with the FDA on a majority of the proposed protocol items and are in active discussion about remaining open items. The minutes indicate that the FDA also agrees that a successful study will support the submission of a complete response to the second Complete Response Letter for IV tramadol pending final agreement on a statistical analysis plan and a full review of the submitted data in the complete response as well as concurrence from the DAAAP.

In January 2024, we announced that we reached final agreement with the FDA on the Phase 3 safety study protocol and statistical analysis approach, including the primary endpoint. The final non-inferiority study is designed to assess the risk of opioid-induced respiratory depression related to opioid stacking on IV tramadol compared to IV morphine. The study will randomize approximately 300 post bunionectomy patients to IV tramadol or IV morphine for pain relief administered during a 48-hour post-operative period. Of note, this study design was used in the first of two Phase 3 trials. In a Phase 3 safety study to be conducted, patients will have access to IV hydromorphone, a Schedule II opioid, for rescue of breakthrough pain. The primary endpoint is a composite of elements indicative of respiratory depression.

We plan to initiate the study as soon as possible, subject to having the necessary financing.

BAER-101

On May 11, 2022, we entered into a stock contribution agreement (the “Contribution Agreement”) with Fortress, pursuant to which Fortress agreed to transfer ownership of 100% of its shares (common and preferred) in Baergic to us. The acquisition was completed on November 8, 2022 and as a result, Baergic is currently a majority-controlled and owned private subsidiary company of Avenue.

Baergic is a clinical-stage pharmaceutical company founded in December 2019 that focuses on the development of pharmaceutical products for the treatment of neurologic disorders. Baergic’s pipeline currently consists of a single compound, BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator (“PAM”). BAER-101 (formerly known as AZD7325) was originally developed by AstraZeneca and has been studied in clinical trials involving over 700 patients.

In August 2023, we reported preclinical data for BAER-101 from an in vivo evaluation in SynapCell’s Genetic Absence Epilepsy Rate from the Strasbourg (“GAERS”) model of absence epilepsy. The GAERS model mimics behavioral, electrophysiological and pharmacological features of human absence seizures and has shown to be an early informative indicator of efficacy in anti-seizure drug development. In the model, BAER-101 demonstrated full suppression of seizure activity with a minimal effective dose of 0.3 mg/kg administered orally. The data were subsequently presented at the American Epilepsy Society (“AES”) 2023 Annual Meeting in December 2023 and at the American Society for Experimental Neurotherapeutics (“ASENT”) 2024 Annual Meeting in March 2024. The data were also published in Drug Development Research in February 2024.

Under the Contribution Agreement, Fortress also agreed to assign to us certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement. Consummation of the transactions contemplated by the Contribution Agreement was subject to the satisfaction of certain conditions precedent, including, inter alia: (i) the closing of an equity financing by the Company resulting in gross proceeds of no less than $7.5 million, (ii) the agreement by minority Avenue shareholder InvaGen Pharmaceuticals Inc. (“InvaGen”) to (A) have 100% of its shares in us repurchased by us and (B) terminate certain of the agreements to which it was party with us and/or Fortress in connection with InvaGen’s 2019 equity investment in us, which eliminated certain negative consent rights of InvaGen over us and restored certain rights and privileges of Fortress in us; and (iii) the sustained listing of our common stock on Nasdaq.

The Baergic transaction expands our development portfolio within neurologic diseases. Evaluation and negotiation of the Contribution Agreement was overseen, and execution of the Contribution Agreement was approved, by special committees at the Avenue and Fortress levels, both of which exclusively comprised independent and disinterested directors of the respective companies’ boards.

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Other Recent Developments

Nasdaq Deficiency Letters

On May 19, 2023, we received a deficiency letter (the “First Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (the “Nasdaq”) notifying us that we were not in compliance with Nasdaq Listing Rule 5550(b)(1), the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market (the “Stockholders’ Equity Requirement”). In accordance with Nasdaq rules, we were provided 45 calendar days, or until July 3, 2023, to submit a plan to regain compliance (the “Compliance Plan”). We submitted our Compliance Plan and, on July 17, 2023, the Staff granted our request for an extension through November 15, 2023 to regain compliance with the Stockholders’ Equity Requirement. We were unable to demonstrate compliance with the Stockholders’ Equity Requirement by that date, and, on November 20, 2023, the Staff formally notified us that it would move to delist our securities from Nasdaq unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). We submitted the request for a hearing before the Panel (the “Hearing”), which request stayed any further action by Nasdaq pending completion of the Hearing and the expiration of any extension that may be granted by the Panel to the Company.

Also as previously disclosed, on September 27, 2023, we received a second deficiency letter (the “Second Letter”) from the Staff stating that the bid price of our common stock had closed below $1.00 per share for 30 consecutive business days and, as such, we were not in compliance with Nasdaq Listing Rule 5550(a)(2), the minimum bid price requirement for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were afforded a 180-calendar day grace period, through March 25, 2024, to regain compliance with the Bid Price Requirement.

The Hearing before the Panel was held on February 15, 2024 and, by decision dated March 11, 2024, the Panel granted the Company's request for an extension through May 20, 2024 to demonstrate compliance with the Stockholders' Equity Requirement and Bid Price Requirement. In order to timely evidence compliance with the Bid Price Requirement in particular, we must evidence a closing bid price of at least $1.00 per share for a minimum of 10, though generally not more than 20, consecutive business days by May 20, 2024. The Company is considering all options available to it to regain compliance with the Stockholders’ equity Requirement and the Big Price Requirement; however, there can be no assurance that we will be able to do so.

Authorized Share Increase

On January 9, 2024, stockholders holding a majority of the outstanding voting power of the Company executed and delivered to the Board of Directors of the Company a written consent approving, among other items, an increase in the number of shares of common stock, par value $0.0001 per share, authorized under the Company’s Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), from 75,000,000 to 200,000,000 (the “Authorized Shares Increase”). On February 20, 2024, the Company filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State for the State of Delaware effectuating the Authorized Shares Increase.

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Action by Written Consent of Stockholders to Effect Reverse Stock Split

Effective March 6, 2024, the holders of a majority of the voting power of the capital stock of the Company executed a written consent approving a grant of discretionary authority to the board of directors of the Company to, without further stockholder approval, effect a reverse stock split of the Company's issued and outstanding common stock within a range of between 1-for-30 and 1-for-75 (with the board of directors being authorized to determinate the exact ratio) (the "Reverse Stock Split") by filing an amendment (the "Reverse Split Amendment") to the Company's Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The written consent was signed by the holders of 3,133,886 shares of the Company’s common stock and 250,000 shares of the Company’s Class A Preferred Stock. Each share of common stock entitles the holder thereof to one vote on all matters submitted to stockholders and each share of Class A Preferred Stock has the voting power of 1.1 times (A) the number of outstanding shares of common stock plus (B) the whole shares of Company common stock into which the outstanding shares of Class A Preferred Stock are convertible, divided by the number of outstanding shares of Class A Preferred Stock, or 194.8 votes per share as of March 6, 2024. Accordingly, the holders of approximately 56% of the voting power of the Company’s capital stock as of March 6, 2024 signed the written consent approving the Reverse Stock Split and the Reverse Split Amendment. The board of directors also approved the Reverse Stock Split and the Reverse Split Amendment.

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Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our audited consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Research and Development

Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on our behalf will be expensed as services are rendered or when the milestone is achieved. Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use.

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Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.

Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by us require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price for the licenses acquired are reflected as research and development.

Stock-Based Compensation

We expense stock-based compensation to employees, consultants and board members over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based award expense is recognized over the requisite service period for each separately vesting tranche of the award.

The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

Warrant Liabilities

We have issued freestanding warrants to purchase shares of our common stock in connection with financing activities. Our outstanding common stock warrants issued in connection with the equity financings completed in 2022 and January 2023 are each classified as liabilities in the consolidated balance sheet as they contain terms for redemption of the underlying security that are outside our control. We use the Black-Scholes option pricing model to value warrants, which requires management to estimate inputs including expected volatility and expected term, and is most significantly impacted by our common stock price. We have also used the Monte Carlo option pricing model to initially value the warrants issued in 2022. These inputs are inherently subjective and require significant analysis and judgment to develop. The fair value of all warrants is re-measured at each financial reporting date with any changes in fair value being recognized in change in fair value of warrant liabilities, a component of other income (expense), in the consolidated statements of operations and comprehensive income (loss). We will continue to re-measure the fair value of the warrant liabilities until exercise or expiration of the related warrant.

Income Taxes

No income tax expense or benefit was recognized in the accompanying audited consolidated financial statements. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.

Recently Adopted Accounting Standards

See Note 2 to our audited consolidated financial statements included herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.

Smaller Reporting Company Status

We are a “smaller reporting company,” meaning that either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K, have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

​

​ For The Years Ended

​ December 31, Change

Operating expenses:

Research and development - licenses acquired 4,230 — 4,230 N/A

​ ​ ​

Change in fair value of warrant liabilities (4,258 ) (5,580 ) 1,322 -24 %

​ ​ ​

Net loss attributable to non-controlling interests (111 ) (51 ) (60 ) 118 %

N/A - not applicable or not meaningful ​

Research and Development Expenses

For the years ended December 31, 2023 and 2022, research and development expenses were $6.1 million and $2.7 million, respectively. The $3.4 million increase primarily reflects an increase of $4.7 million in clinical trial expenses, $0.2 million in Fortress-Avenue Master Services Agreement ("MSA") fees and $0.1 million in IV tramadol supply expenses, offset by a decrease of $1.0 million in advisory committee preparation and costs, $0.5 million in compensation costs and $0.1 million in non-cash stock compensation costs.

For the years ended December 31, 2023 and 2022 research and development - licenses acquired expenses were $4.2 million and $0, respectively. The increase of $4.2 million is due to the AnnJi $3.0 million upfront payment and $1.2 million fair value of the Consideration Shares.

We expect our research and development activities to continue at an elevated level as we attempt to gain regulatory approval for IV tramadol and pursue continued development of AJ201 and BAER-101, reflecting costs associated with the following:

● employee-related expenses;

● the cost of acquiring and manufacturing clinical trial materials; and

● costs associated with non-clinical activities, and regulatory approvals.

General and Administrative Expenses

General and administrative expenses consist principally of professional fees for legal and consulting services, market research, personnel-related costs, public company reporting related costs and other general operating expenses not otherwise included in research and development expenses. We expect our general and administrative costs to continue as we seek potential regulatory approval and potential commercialization of our product candidates.

For the years ended December 31, 2023 and 2022, general and administrative expenses were $4.2 million and $5.3 million, respectively. The $1.1 million decrease primarily reflects a decrease of $2.0 million in expenses related to the repurchase of shares held by InvaGen in 2022, offset by increased expense of $0.3 million in non-cash stock compensation costs, $0.2 million in MSA fees, $0.2 million in consulting and professional fees, $0.1 million in personnel costs and $0.1 million in travel and entertainment costs.

Interest Income

Interest income was $0.1 million and $20 thousand for the years ended December 31, 2023 and 2022, respectively. The increase in interest income was due to increased interest rates on our cash and cash equivalents.

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Financing costs – warrant liabilities

Financing costs of our warrant liabilities reflect an allocation of total financing costs associated with the public offering in October 2022 and registered direct offering and private placement in January 2023 (the "January 2023 Registered Direct Offering and Private Placement"), on the basis of the fair value of the warrant liabilities as compared to the total proceeds received by us in such offerings.

Change in fair value of warrant liabilities

Change in the estimated fair value of warrant liabilities is comprised of the fair value remeasurement of the liabilities associated with the October 2022 Public Offering and January 2023 Registered Direct Offering and Private Placement. We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. The approach requires management to estimate inputs including expected volatility and expected term and is most significantly impacted by the volatility of the Company's common stock price.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. The fair value of the warrants was estimated using a Monte Carlo simulation approach in 2022 and using the Black-Scholes Model in 2023. (see Note 8 to our audited consolidated financial statements included herein).

Liquidity and Capital Resources

At December 31, 2023, we had $1.8 million in cash and cash equivalents as compared to $6.7 million at December 31, 2022. To date, we have funded our operations primarily with proceeds from various public and private offerings of our common and preferred stock. We expect that our expenses will increase substantially for the foreseeable future as we continue to execute on our product development plan and seek opportunities to license or acquire additional products. We will require additional financing to carry out our business plan and implement our strategy, and continue to analyze various alternatives, including potentially obtaining lines of credit, debt or equity financings, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product candidates or marketing territories. Without additional capital, we do not expect our cash will be sufficient to fund our projected operating requirements or allow us to fund our operating plan past the third quarter of 2024. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure.

Cash Flows for the Years Ended December 31, 2023 and 2022

​

​ For The Years Ended

​ December 31,

Total cash and cash equivalents (used in)/provided by:

Operating activities $ (9,451 ) $ (7,596 )

Investing activities (3,000 ) —

Net increase/(decrease) in cash and cash equivalents $ (4,925 ) $ 2,945

​

Operating Activities

Net cash and cash equivalents used in operating activities was approximately $9.5 million for the year ended December 31, 2023, primarily comprised of our $10.5 million net loss, $4.3 million reduction in fair value of the warrant liability and $0.3 million change in operating assets and liabilities, partially offset by an increase in our non-cash charges of $5.6 million. Increases in our non-cash charges consisted primarily of the $3.0 million AJ201 license payment, $1.2 million in share issuance costs for licenses acquired, $0.9 million in share-based compensation, $0.4 million of common shares issuable, and $0.1 million for shares issued to Fortress.

Net cash and cash equivalents used in operating activities was approximately $7.6 million for the year ended December 31, 2022, primarily comprised of our $3.6 million net loss and decrease in operating assets and liabilities of $0.5 million, partially offset by non-cash charges of $0.4 million in share-based compensation.

Investing Activities

Net cash used in investing activities was approximately $3.0 million for the year ended December 31, 2023 comprised of the $3.0 million license payment related to AJ201. There was no investing activity in 2022.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $7.5 million, primarily related to $3.8 million in proceeds from the sale of our securities in the November 2023 Public Offering, $3.1 million in proceeds from the sale of our securities in the January 2023 Registered Direct Offering and Private Placement, and $0.6 million in proceeds from the sale of our securities in the September 2023 Private Placement.

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Net cash provided by financing activities for the year ended December 31, 2022 was $10.5 million, primarily related to $11.5 million in proceeds from the sale of our securities in our underwritten public offering in October 2022 and $0.1 million proceeds from exercises of warrants, partially offset by the $1.1 million repurchase of shares of our common stock from InvaGen.

Sources of Liquidity

January 2023 Registered Direct Offering and Private Placement

On January 27, 2023, we entered into a Securities Purchase Agreement (the “January 2023 Registered Purchase Agreement”) with a single institutional accredited investor, pursuant to which we agreed to issue and sell (i) 448,000 shares (the “January 2023 Shares”) of our common stock at a price per share of $1.55 and (ii) pre-funded warrants (the “January 2023 Pre-funded Warrants”) to purchase 1,492,299 shares of common stock, at a price per January 2023 Pre-funded Warrant equal to the price per January 2023 Share, less $0.001 (the “January 2023 Registered Direct Offering”). The January 2023 Pre-funded Warrants had an exercise price of $0.001 per share, became exercisable upon issuance and have been fully exercised.

On January 27, 2023, we also entered into a Securities Purchase Agreement (the “January 2023 PIPE Purchase Agreement”) with the same institutional accredited investor for a private placement offering (“January 2023 Private Placement”) of warrants (the “January 2023 PIPE Warrants”) to purchase 1,940,299 shares of common stock. Pursuant to the January 2023 PIPE Purchase Agreement, we agreed to issue and sell the January 2023 PIPE Warrants at an offering price of $0.125 per January 2023 PIPE Warrant to purchase one share of common stock. The January 2023 PIPE Warrants have an exercise price of $1.55 per share (subject to adjustment as set forth in the January 2023 PIPE Warrants), are exercisable six months after issuance and will expire three years from the date on which the January 2023 PIPE Warrants become exercisable. The January 2023 PIPE Warrants contain standard anti-dilution adjustments to the exercise price including for share splits, share dividends, rights offerings and pro rata distributions. The January 2023 Private Placement closed on January 31, 2023, concurrently with the January 2023 Registered Direct Offering.

We received net proceeds from the January 2023 Registered Direct Offering and Private Placement of $2.8 million, after deducting underwriting discounts, commissions and offering expenses before giving effect to any warrant exercises.

In connection with the January 2023 PIPE Purchase Agreement, we entered into a registration rights agreement (the “January 2023 Registration Rights Agreement”) with the investor. We filed such registration statement on Form S-1 in April 2023, and the registration statement was subsequently declared effective by the SEC in May 2023. As described in more detail below an in Note 10 to our audited consolidated financial statements included herein, we entered into an inducement offer letter agreement with the same institutional accredited investor who agreed exercise the January 2023 PIPE Warrants at a reduced exercise price of $0.3006 per share in January 2024.

September 2023 Private Placement

On September 8, 2023, we entered into an unwritten agreement with Fortress and Dr. Lindsay A. Rosenwald, a director on the board of directors of the Company (Dr. Rosenwald and Fortress, together, the “Private Placement Investors”), pursuant to which we agreed to issue and sell 767,085 shares (the “September 2023 Private Placement Shares”) of our common stock, for an aggregate purchase price of approximately $0.6 million in a private placement transaction (the “September 2023 Private Placement”). The September 2023 Private Placement Shares were purchased by the September 2023 Private Placement Investors at a price per share of $0.717, which was the “consolidated closing bid price” of the common stock on Nasdaq as of September 7, 2023, in compliance with Nasdaq Listing Rule 5365(c). The net proceeds to us from the September 2023 Private Placement, after deducting offering expenses, were approximately $0.6 million. We did not incur any underwriting or placement agent fees associated with the September 2023 Private Placement.

In connection with the September 2023 Private Placement, we entered into a registration rights letter agreement (the “Registration Rights Letter Agreement”) with the Private Placement Investors. Pursuant to the Registration Rights Letter Agreement, we will be required to file, on or prior to September 8, 2024 (the “Private Placement Filing Date”), a resale registration statement (the “Private Placement Resale Registration Statement”) with the SEC to register the resale of the September 2023 Private Placement Shares.

November 2023 Public Offering

On October 31, 2023, we entered into a Placement Agency Agreement (the “November 2023 Placement Agency Agreement”) with Maxim Group LLC and Lake Street Capital, LLC as placement agents (together, the “November 2023 Placement Agents”) related to the our public offering (the “November 2023 Offering”) of 16,633,400 units (each consisting of either (A) one share of the our common stock, par value $0.0001 per share, a Series A warrant (“November 2023 Series A Warrant”) to purchase one share of common stock and a Series B warrant (“November 2023 Series B Warrant” and, collectively with the Series A Warrants, “November 2023 Warrants”) to purchase one share of common stock (such units, the “November 2023 Common Units”) or (B) one pre-funded warrant to purchase one share of our common stock (the “November 2023 Pre-funded Warrants”), a November 2023 Series A Warrant and a November 2023 Series B Warrant (such units, the “November 2023 Pre-funded Units” and together with the common stock, the November 2023 Warrants, the November 2023 Common Units and the November 2023 Pre-funded Warrants, the “November 2023 Securities”)). Under the terms of the November 2023 Placement Agency Agreement, the Placement Agents acted as our exclusive placement agents to solicit offers to purchase the November 2023 Securities on a “best efforts” basis. We also entered into a securities purchase agreement, dated as of October 31, 2023 (the “November 2023 Securities Purchase Agreement”), with certain institutional investors buying November 2023 Securities in the November 2023 Offering. In the November 2023 Offering, 3,853,400 November 2023 Common Units were sold at a price of $0.3006 per unit and the 12,780,000 November 2023 Pre-Funded Units were sold at a price of $0.3005.

The November 2023 Series A Warrants became immediately exercisable upon issuance at a price of $0.3006 per share for a period of five years after the issuance date. The November 2023 Series B Warrants became immediately exercisable upon issuance at a price of $0.3006 per share for a period of 18 months after the issuance date. The November 2023 Pre-funded Warrants became immediately exercisable upon issuance at a price of $0.0001 per share until exercised in full. The November 2023 Shares, the November 2023 Pre-funded Warrants and the November 2023 Warrants were immediately separable upon issuance and were issued separately. We consummated the transactions contemplated by the November 2023 Offering and the November 2023 Placement Agency Agreement on November 2, 2023.

We received net proceeds from the November 2023 Offering of approximately $3.8 million, after deducting the placement agent fees and offering expenses, before giving effect to any exercises of the November 2023 Warrants. As described in more detail below and in Note 10 to our audited consolidated financial statements included herein, we entered into an inducement offer letter agreement with certain investors in the November 2023 Offering who agreed to exercise certain outstanding November 2023 Warrants to purchase up to an aggregate of 14,600,000 shares of common stock at their exercise price of $0.3006 per share in January 2024.

January 2024 Warrant Inducement and Private Placement

On January 5, 2024, we entered into (i) an inducement offer letter agreement (the “January 2023 Investor Inducement Letter”) with a certain investor (the “January 2023 Investor”) in connection with certain outstanding January 2023 PIPE Warrants and (ii) an inducement offer letter agreement (the “November 2023 Investor Inducement Letter Agreement” and, together with the January 2023 Investor Inducement Letter, the “Inducement Letters”) with certain investors (the “November 2023 Investors” and, together with the January 2023 Investor, the “Holders”) in connection with certain outstanding November 2023 Warrants (and, together with the January 2023 Warrants, the “Existing Warrants”) to purchase up to an aggregate of 14,600,000 shares of common stock. The January 2023 Warrants had an exercise price of $1.55 per share, and the November 2023 Warrants had an exercise price of $0.3006 per share. Pursuant to the Inducement Letters, (i) the January 2023 Investor agreed to exercise its January 2023 Warrants for cash at a reduced exercise price of $0.3006 per share and (ii) the November 2023 Investors agreed to exercise their November 2023 Warrants for cash at the existing exercise price of $0.3006, in each case in consideration for our agreement to issue in a private placement (x) Series A Warrants to purchase up to 16,540,299 shares of common stock and (y) Series B Warrants to purchase up to 16,540,299 shares of common stock. The gross proceeds to us from the exercise of the warrants was approximately $5.0 million, before deducting placement agent fees and offering costs.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with licensors, CROs, contract manufacturing organizations (CMOs) and other third parties for the procurement of various products and services, including without limitation biopharmaceutical development, biologic assay development, commercialization, clinical and preclinical development, clinical trials management, pharmacovigilance and manufacturing and supply. These contracts typically do not contain minimum purchase commitments (although they may) and are generally terminable by us upon written notice. Payments due upon termination or cancelation/delay consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation; in certain cases, our contractual arrangements with CROs and CMOs include cancelation and/or delay fees and penalties.

We have obligations under various license agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory, and commercial milestones (such as clinical trial development, product approval by the FDA or other regulatory agencies, product launch, or product sales). These commitments include:

Under our license agreement with AnnJi, pursuant to which we licensed exclusive rights to the intellectual property underlying the AJ201 product candidate, we are required to make periodic payments based upon development, regulatory, and commercial milestones. The maximum Phase 1b/2a clinical development payments we are obligated to make are $10.8 million, of which $6.3 million is remaining as of December 31, 2023. Additional development, regulatory, and commercial milestone payments totaling $207.0 million may also be payable. Royalties are payable on net sales of products covered by the licensed intellectual property ranging from low-to-mid single digits.

Our subsidiary, Baergic, has entered into two license agreements with: (i) AstraZeneca AB to acquire an exclusive license to patent and related intellectual property rights pertaining to their proprietary compound and (ii) Cincinnati Children's Hospital Medical Center to acquire patent and related intellectual property rights pertaining to a program for neurological disorders. Development milestones totaling approximately $81.5 million in the aggregate are due upon achievement of such milestones, and commercial and sales-based milestone payments totaling approximately $151.0 million may be payable. Royalties are payable on net sales of products covered by the licensed intellectual property in the low to high single digits.

We entered into a license agreement with Revogenex, pursuant to which we received a worldwide exclusive license to make, market and sell IV tramadol. A regulatory milestone of $3.0 million is payable on approval high single-digit to low double-digit royalties are payable on net sales.

We entered into a share repurchase agreement with InvaGen, which requires us to pay InvaGen seven and a half (7.5%) of the proceeds of future financings, as defined in the agreement, up to $4 million in aggregate. As of December 31, 2023, we have paid $0.5 million towards this aggregate amount.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 8.Financial Statements and Supplementary Data.

The information required by this Item is set forth in our audited consolidated financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.

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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

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Item 9A.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. As of December 31, 2023, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2023, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, in Internal Control-Integrated Framework (2013). Our management has concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on these criteria.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Item 9B.Other Information

During the three months ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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Table of Contents

Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Not Applicable.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

The following table sets forth information regarding our directors, including their ages as of March 1, 2024:

Name Age Position Director Since

Jay Kranzler, M.D., PhD 66 Chairman of the Board of Directors 2017

Neil Herskowitz 67 Director 2015

Lindsay A. Rosenwald, M.D. 68 Director 2015

Curtis Oltmans 60 Director 2021

Alexandra MacLean, M.D. 57 Director 2023

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Information About our Directors

Jay Kranzler, M.D., PhD - Chairman

Dr. Kranzler, 66, joined our Board of Directors (“Board”) in February 2017 and was appointed Chairman in March 2023. Dr. Kranzler has been a Founder, Chief Executive Officer, Board Member, and Advisor to leading life science companies for over 30 years. He is currently Chairman and Chief Executive Officer of Urica Therapeutics, Inc., a clinical-stage biopharmaceutical company and subsidiary of Fortress Biotech, Inc. (“Fortress”), where he has served since October 2022. He is also currently a board member of multiple private companies, including Pastorus Inc., Navitas Pharma, and ImmunoBrain Checkpoint, each focused on the research and experimental development of therapeutics. Dr. Kranzler started his career at McKinsey & Company where he was instrumental in establishing that firm’s pharmaceutical practice. He was a founder of Perception Neuroscience (acquired by ATAI Life Sciences) and also served as CEO of Cytel Corporation, a company focused on the development of immunomodulatory drugs. Following Cytel, Dr. Kranzler became the CEO of Cypress Bioscience, where he was credited for the development of SavellaTM (milnacipran) for the treatment of fibromyalgia. Dr. Kranzler was also Vice President, Head of Worldwide External R&D Innovation and Strategic Investments at Pfizer. During his career, Dr. Kranzler has developed drugs, medical devices, as well as diagnostics, and is the inventor on multiple patents. Dr. Kranzler graduated from Yale University School of Medicine with MD and PhD degrees with a focus in psychopharmacology and he currently serves as an Adjunct Professor at the NYU Langone School of Medicine and Stern School of Business. We believe that Dr. Kranzler is qualified to serve on our Board due to his management experience, his service as an executive of biopharmaceutical companies and his knowledge of our business and industry.

Faith Charles

Faith L. Charles, 62, has been a corporate transactions and securities partner at the law firm of Thompson Hine, LLP since 2010. She leads Thompson Hine’s Life Sciences practice and co-heads the securities practice, advising public and emerging biotech and pharmaceutical companies in the U.S. and internationally. Ms. Charles negotiates complex private and public financing transactions, mergers and acquisitions, licensing transactions and strategic collaborations. She serves as outside counsel to a myriad of life sciences companies and is known in the industry as an astute business advisor, providing valuable insights into capital markets, corporate governance and strategic development. Since March 2021, Ms. Charles has served on the Board of Directors and various committees of Abeona Therapeutics Inc. (Nasdaq: ABEO), a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases whose common stock is listed on the Nasdaq. From 2018 until October 2021, Ms. Charles served on the Board of Directors and as a member of the Audit Committee and Chair of the Compensation Committee of Entera Bio Ltd. (Nasdaq: ENTX), a publicly-traded biotechnology company. She has served on the Board of Directors of Conduit Pharmaceuticals, Inc. (Nasdaq: CDT), a publicly traded disease agnostic life sciences company providing an efficient model for compound development, since September 2023, and as Chair of the Board of Directors of CNS Pharmaceuticals, Inc. (Nasdaq: CNSP), a publicly traded clinical stage pharmaceutical company developing anti-cancer drug candidates for the treatment of primary and metastatic cancers of the brain and central nervous system, since December 2022. Ms. Charles founded the Women in Bio Metro New York chapter and chaired the chapter for five years and served on the national board of Women in Bio. Ms. Charles is also a member of the board of Red Door Community (formerly Gilda’s Club New York City). She has been recognized as a Life Sciences Star by Euromoney’s LMG Life Sciences, has been named a BTI Client Service All-Star, and was named by Crain’s New York Business to the list of 2020 Notable Women in the Law. Ms. Charles holds a J.D. degree from The George Washington University Law School and a B.A. in Psychology from Barnard College, Columbia University. Ms. Charles is a graduate of Women in Bio’s Boardroom Ready Program, an Executive Education Program taught by The George Washington University School of Business. We believe that Ms. Charles is qualified to serve on our Board due to her expertise in legal matters relevant to our business, including in the life sciences industries.

Neil Herskowitz

Mr. Herskowitz, 67, joined our Board in August 2015 and has served as the Chairman of our Audit Committee since September 2016. Mr. Herskowitz has served as the managing member of the ReGen Group of companies, located in New York, since 1998, which include ReGen Capital Investments LLC and Riverside Claims Investments LLC. He has also served as the President of its affiliate, Riverside Claims LLC, since June 2004. Additionally, Mr. Herskowitz served as a Board member of National Holdings, Inc. from 2016 to 2019, and serves as a Board member of Mustang Bio, Inc. (Nasdaq: MBIO), Journey Medical Corporation (Nasdaq: DERM) and Checkpoint Therapeutics, Inc. (Nasdaq: CKPT), each of which are subsidiaries of Fortress. Mr. Herskowitz received a B.B.A. in Finance from Bernard M. Baruch College in 1978. The Board believes, based on Mr. Herskowitz’s over 15 years of Audit Committee and Board experience in the biotech industry, that Mr. Herskowitz is qualified to serve as a member of our Board and as the Chairman of our Audit Committee.

Alexandra MacLean, M.D.

Dr. MacLean, 57, joined our Board in March 2023 and has served as Chief Executive Officer of the Company since August 2022. She previously served as Entrepreneur in Residence at Fortress, (Nasdaq: FBIO), the Company’s parent company, from November 2021 through July 2022. She previously served as General Partner and Principal at TVM Capital GmbH, an international life sciences venture capital firm, from January 2020 through October 2021; as Head of Licensing and Business Development at Imbrium Therapeutics L.P., a clinical-stage biopharmaceutical company and a subsidiary of Purdue Pharma, L.P. (“Purdue”), from January 2019 through January 2020; and in various roles at Purdue, a privately held pharmaceutical company, from 2015 to January 2019. Prior to joining Purdue, she served at Plasma Surgical, a medical device company, from 2014 to 2015, and Covidien, a medical devices and supplies manufacturer later acquired by Medtronic plc (NYSE: MDT), from 2010 to 2013. She began her career in the pharmaceutical industry at Merck & Co. (NYSE: MRK), a pharmaceutical company, where she worked from 2008 to 2010. Dr. MacLean holds an M.D. degree from Columbia University, Vagelos College of Physicians and Surgeons, an MBA from the University of Colorado – Boulder, and an M.Phil. from the University of Cambridge in History of Science. She obtained a B.Sc. in Physiology from McGill University. The Board believes, based on Dr. MacLean’s pharmaceutical industry experience and medical training, that Dr. MacLean has the appropriate set of skills to serve as a member of the Board.

Curtis Oltmans

Mr. Oltmans, 60, joined our Board in April 2021 and is currently Chief Legal Officer of Fulcrum Therapeutics, Inc. (Nasdaq: FULC), where he has served since November 2020, and has over 30 years of experience in corporate law including senior management positions in legal departments at several leading pharmaceutical and biotechnology companies. Prior to Fulcrum Therapeutics, Inc, he served as Vice President, Head of Litigation at DaVita Kidney Care, Inc. where he was responsible for all litigation, workers’ compensation and employee safety matters. Prior to DaVita Kidney Care, Mr. Oltmans was Executive Vice President, General Counsel and Corporate Secretary at Array BioPharma, Inc. (Nasdaq: ARRY), where he oversaw all legal, corporate governance, patent and compliance matters. He previously served as Corporate Vice President and General Counsel for Novo Nordisk, Inc. (NYSE: NVO), North America. He was responsible for strategic support in areas including market access, government affairs, communications and product marketing. He has also served as Assistant General Counsel for Eli Lilly and Company after beginning his legal career supporting clients in pharmaceutical and medical device litigation matters. Mr. Oltmans has received a certification from the National Association of Corporate Directors for Oversight of Cybersecurity. He served on the Board of Trustees for the Mercer County Boy’s and Girl’s Club. Mr. Oltmans has completed the CERT National Association of Corporate Directors certificate for Cybersecurity Oversight. Mr. Oltmans received a B.A. in political science from the University of Nebraska and his J.D. from the University of Nebraska College of Law. Based on Mr. Oltmans’ pharmaceutical industry experience, the Board believes that Mr. Oltmans has the appropriate set of skills to serve as a member of the Board.

Lindsay A. Rosenwald, M.D.

Dr. Rosenwald, 68, has served on our Board since inception and served as our Executive Chairman of the Board until March 2023. Dr. Rosenwald has also served as Chairman, President and Chief Executive Officer of Fortress (Nasdaq: FBIO), the Company’s parent company, since December 2013, and as a member of Fortress’ board since October 2009. Additionally, Dr. Rosenwald serves as a member of the board of directors of each of Fortress’ private subsidiaries (and has so served in each case since company inception). He has served as the Chairman of Journey Medical Corporation (Nasdaq: DERM), a subsidiary of Fortress, since October 2014, a director of Mustang Bio, Inc. (Nasdaq: MBIO), a subsidiary of Fortress, since March 2015, and a director of Checkpoint Therapeutics, Inc. (Nasdaq: CKPT), a subsidiary of Fortress, since March 2015. From 1991 to 2008, Dr. Rosenwald served as the Chairman of Paramount BioCapital, Inc. The Board believes that Dr. Rosenwald’s extensive experience over the last 35 years in founding, capitalizing and managing numerous public and private biopharmaceutical companies qualifies him uniquely to serve on the Company’s Board. Dr. Rosenwald received his B.S. in finance from Pennsylvania State University and his M.D. from Temple University School of Medicine.

The following table sets forth information regarding our executive officers, including their ages as of March 1, 2024:

Name Age Position

Alexandra MacLean, M.D. 57 Chief Executive Officer

David Jin 33 Interim Chief Financial Officer and Chief Operating Officer

Information about our Executive Officers

Alexandra MacLean, M.D. — Chief Executive Officer

See Dr. MacLean's biography above in the section titled "Information About our Directors."

David Jin - Interim Chief Financial Officer and Chief Operating Officer

Mr. Jin, 33, has served as Interim Chief Financial Officer of the Company since May 2022 and as the Company’s Chief Operating Officer since March 2022. He previously served as the Interim Chief Executive Officer of the Company from March 2022 until August 2022. He also serves as Chief Financial Officer and Head of Corporate Development at Fortress (Nasdaq: FBIO), the Company’s parent company. Prior to beginning his service at Fortress, he was a member of the Private Equity group at Barings focused on control equity and asset-based investments in pharma and biotech. Before that, he was Director of Corporate Development at Sorrento Therapeutics, Inc., Vice President of Healthcare Investment Banking at FBR & Co., and began his career in management consulting at IMS Health (now IQVIA). Mr. Jin has a Bachelor of Science degree in Industrial Engineering & Management Sciences with a double-major in Mathematical Methods in the Social Sciences from Northwestern University.

Family Relationships

There are no family relationships between or among our directors and executive officers.

Board Leadership Structure

Our Bylaws provide that our Board shall consist of between one to nine directors, and such number of directors within this range may be determined from time to time by resolution of our Board or our stockholders. The Board most recently set the number of directors at six members.

The Board does not have a formal policy regarding the separation of the roles of Chief Executive Officer and Chairman, as the Board believes that it is in the best interests of the Company to make that determination based on the direction of the Company and the current membership of the Board. The Board has determined that at present having Dr. Kranzler serve as Chairman and Dr. MacLean serve as our Chief Executive Officer is in the best interest of the Company’s stockholders.

Role of Board in Risk Oversight

The Company has a risk management program overseen by our Chief Executive Officer and the Board. Dr. MacLean and management identify material risks and prioritize them for our Board. Our Board regularly reviews information regarding our credit, liquidity, operations, and compliance as well as the risks associated with each.

Board Committees

Our Board has established an Audit Committee and a Compensation Committee. The composition and responsibilities of each of the committees of our Board are described below.

Audit Committee

The Audit Committee currently consists of Neil Herskowitz, Curtis Oltmans, and Faith Charles. Mr. Herskowitz serves as the Chairperson of the Audit Committee.

The Audit Committee was formed on May 15, 2017 and held 4 meetings during the fiscal year ended December 31, 2023 and took action by unanimous written consent one time. The duties and responsibilities of the Audit Committee are set forth in the Charter of the Audit Committee which was recently reviewed by our Audit Committee and which is reviewed annually by our Audit Committee. A copy of the Charter of the Audit Committee is available on our website, located at www.avenuetx.com. Among other matters, the duties and responsibilities of the Audit Committee include reviewing and monitoring our financial statements and internal accounting procedures, the selection of our independent registered public accounting firm and consulting with and reviewing the services provided by our independent registered public accounting firm. Our Audit Committee has sole discretion over the retention, compensation, evaluation, and oversight of our independent registered public accounting firm.

The SEC and The Nasdaq Stock Market (“Nasdaq”) have established rules and regulations regarding the composition of audit committees and the qualifications of audit committee members. Our Board has examined the composition of our Audit Committee and the qualifications of our Audit Committee members in light of the current rules and regulations governing audit committees. Based upon this examination, our Board has determined that each member of our Audit Committee is independent and is otherwise qualified to be a member of our Audit Committee in accordance with the rules of the SEC and Nasdaq.

Additionally, the SEC requires that at least one member of the Audit Committee have a “heightened” level of financial and accounting sophistication. Such a person is known as the “audit committee financial expert” under the SEC’s rules. Our Board has determined that Mr. Herskowitz is an “audit committee financial expert,” as the SEC defines that term, and is an independent member of our Board and our Audit Committee. Please see Neil Herskowitz’s biography in the section titled “Information About our Directors” above for a description of his relevant experience.

Compensation Committee

The Compensation Committee was formed on May 15, 2017. The Compensation Committee held 2 meetings during the fiscal year ended December 31, 2023 and took action by unanimous written consent one time. The Compensation Committee currently consists of Neil Herskowitz and Curtis Oltmans, with Mr. Herskowitz serving as Chairperson. The duties and responsibilities of the Compensation Committee are set forth in the Charter of the Compensation Committee. A copy of the Charter of the Compensation Committee is available on our website, located at www.avenuetx.com, and is reviewed annually by the Compensation Committee. As discussed in its charter, among other things, the duties and responsibilities of the Compensation Committee include annually reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, reviewing and approving, or making recommendations to our Board with respect to, the compensation of our Chief Executive Officer and our other executive officers, overseeing an the evaluation of our senior executives, and overseeing and administering our cash and equity incentive plans. The Compensation Committee applies discretion in the determination of individual executive compensation packages to ensure compliance with the Company’s compensation philosophy. The Chief Executive Officer makes recommendations to the Compensation Committee with respect to the compensation packages for officers other than herself. The Compensation Committee may delegate its authority to grant awards to certain employees, and within specified parameters under the Avenue Therapeutics, Inc. 2015 Incentive Plan (the “2015 Plan”), to a special committee consisting of one or more directors who may but need not be officers of the Company. As of the date of this Annual Report on Form 10-K, however, the Compensation Committee had not delegated any such authority. The Board may engage a compensation consultant to conduct a review of its executive compensation programs in 2024. The Committee did not engage a compensation consultant in 2023.

Nasdaq has established rules and regulations regarding the composition of compensation committees and the qualifications of compensation committee members. As a controlled company, we are not required to have a compensation committee composed entirely of independent directors. However, our Board has examined the composition of our Compensation Committee and the qualifications of our Compensation Committee members in light of the current rules and regulations governing compensation committees. Based upon this examination, our Board has determined that each member of our Compensation Committee is independent and is otherwise qualified to be a member of our Compensation Committee in accordance with such rules.

Nominating Process

We do not currently have a nominating committee or any other committee serving a similar function. Director nominations are approved by a vote of a majority of our independent directors as required under the Nasdaq rules and regulations. Although we do not have a written charter in place to select director nominees, our Board has adopted resolutions regarding the director nomination process. We believe that the current process in place functions effectively to select director nominees who will be valuable members of our Board.

We identify potential nominees to serve as directors through a variety of business contacts, including current executive officers, directors, community leaders and stockholders. We may, to the extent the Board deems appropriate, retain a professional search firm and other advisors to identify potential nominees.

We will also consider candidates recommended by stockholders for nomination to our Board. A stockholder who wishes to recommend a candidate for nomination to our Board must submit such recommendation to our Corporate Secretary, David Jin, at our offices located at 1111 Kane Concourse, Suite 301, Bay Harbor Islands, Florida 33154. Any recommendation must be received not less than 50 calendar days nor more than 90 calendar days before the anniversary date of the previous year’s annual meeting. All stockholder recommendations of candidates for nomination for election to our Board must be in writing and must set forth the following: (i) the candidate’s name, age, business address, and other contact information, (ii) the number of shares of common stock, par value $0.0001 per share (“Common Stock”), beneficially owned by the candidate, (iii) a complete description of the candidate’s qualifications, experience, background and affiliations, as would be required to be disclosed in the proxy statement pursuant to Schedule 14A under the Exchange Act, (iv) a sworn or certified statement by the candidate in which he or she consents to being named in the proxy statement as a nominee and to serve as director if elected, and (v) the name and address of the stockholder(s) of record making such a recommendation.

Code of Business Conduct and Ethics

We have adopted a Code of Ethics (the “Code”), which applies to all of our directors, officers and employees. The Code includes guidelines dealing with the ethical handling of conflicts of interest, compliance with federal and state laws, financial reporting, and our proprietary information. The Code also contains procedures for dealing with and reporting violations of the Code. We have posted our Code on our website, located at www.avenuetx.com.

Item 11.Executive Compensation

Named Executive Officers

This section discusses the material components of the executive compensation program for our named executive officers ("NEOs").

The following table presents summary information regarding the total compensation that was awarded to, earned by or paid to our NEOs for services rendered during the years ended December 31, 2023 and 2022.

Summary Compensation Table

As determined in accordance with SEC rules, our “named executive officers” for purposes of this Annual Report on Form 10-K are the two individuals set forth below. The following table sets forth information concerning compensation paid by the Company to its named executive officers for services rendered to it in all capacities during the years ended December 31, 2023 and December 31, 2022.

Option Awards Non-equity Incentive Plan Compensation All Other Compensation

Interim Chief Financial Officer and Chief Operating Officer 2022 — — — — — —

(2) Reflects employer contributions to the 401(k) retirement plan.

Narrative Disclosure to Summary Compensation Table ​

Terms of Employment with Dr. MacLean

On August 1, 2022, the Board of Directors of the Company appointed Alexandra MacLean, M.D. to serve as the Company's Chief Executive Officer. Dr. MacLean is employed on an at-will basis and has no written contract of employment. Her salary was increased from $332,000 to $400,000 in October 2022 and Dr. MacLean is eligible for an annual discretionary bonus of 40%.

Terms of Employment with Mr. Jin

Mr. Jin is employed by the Company on an at-will basis and has no written contract of employment. He currently receives no salary and would be eligible for bonus only on a discretionary basis based upon corporate factors and individual performance as determined by the Board.

Equity Awards

The Compensation Committee has granted each of Dr. MacLean and Mr. Jin the following equity awards under our 2015 Incentive Plan. In 2023, Dr. MacLean received an award of 800,000 options, and Mr. Jin received an award of 250,000 options, each of which vests as described in Footnote 1 to the Outstanding Equity Awards Table below.

Outstanding Equity Awards at Fiscal Year-End

The following awards that were previously granted under our 2015 Plan were outstanding as of December 31, 2023:

(1) Represents options vesting annually in equal installments on August 1, 2023 - 2026.

(2) The closing sales price of the Company's common stock on June 29, 2023.

401(k) Plan

Our named executive officers are eligible to participate in a defined contribution retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees may defer eligible compensation on a pre-tax or after-tax (Roth) basis, up to the statutorily prescribed annual limits on contributions under the Code. Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participant's directions. We make matching contributions into the 401(k) plan on behalf of participants equal to 100% on participant contributions up to 4% of their compensation. Participants are immediately and fully vested in all contributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan (except for Roth contributions) and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan. Our Board may elect to adopt additional qualified or nonqualified benefit plans in the future, if it determines that doing so is in our best interest.

Clawback Policy

Pursuant to Nasdaq listing requirements, we have adopted a policy providing for the recovery of erroneously awarded incentive-based compensation received by executive officers employed by the Company or a subsidiary of the Company during an applicable recovery period (the “Clawback Policy”), effective as of October 2, 2023. Under the Clawback Policy, in the event that financial results upon which a cash or equity-based incentive award was based become the subject of a financial restatement that is required because of material non-compliance with financial reporting requirements, the Compensation Committee will conduct a review of awards covered by the Clawback Policy and recoup any erroneously awarded incentive-based compensation to ensure that the ultimate award reflects the financial results as restated. The Clawback Policy covers any cash or equity-based incentive compensation award that was paid, earned or granted to covered executive officers during the last completed three fiscal years immediately preceding the date on which the Company is required to prepare the accounting restatement.

Director Compensation Program

Our directors set compensation for non-employee directors on an annual basis in accordance with our 2015 Plan. Our non-employee directors received the following compensation for service to the Board during 2023:

Cash Compensation:

● $50,000 annual retainer;

● $10,000 additional annual retainer for the Chairman of the Board; and

● $10,000 additional annual retainer for the Audit Committee Chair.

Equity Compensation:

In addition, each non-employee director receives reimbursement for reasonable travel expenses incurred in attending meetings of our Board and meetings of committees of our Board.

Director Compensation Table

The following table sets forth the cash and other compensation we paid to the non-employee members of our Board for all services in all capacities during 2023.

As an employee director of the Company, Dr. MacLean does not receive compensation for her service as a director. Information regarding Dr. MacLean's compensation is provided above under "Summary Compensation Table" on page 63.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table sets forth the indicated information as of December 31, 2023 with respect to our equity compensation plans:

Equity compensation plan not approved by shareholders — — —

Our equity compensation plan consists of the 2015 Incentive Plan, as amended, which was approved by our stockholders. We do not have any equity compensation plans or arrangements that have not been approved by our stockholders.

Stock Ownership of Our Directors, Executive Officers, and 5% Beneficial Owners

The following table shows information, as of March 1, 2024 (the "Determination Date"), concerning the beneficial ownership of our Common Stock by:

● each of our current directors;

● each of our NEOs shown in our Summary Compensation Table; and

● all current directors and executive officers as a group.

As of the Determination Date, there were 44,260,667 shares of our Common Stock outstanding. Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options and warrants that are currently exercisable or exercisable within 60 days of the Determination Date. Shares of our Common Stock issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options and the percentage of any group of which the person is a member but are not deemed outstanding for computing the percentage of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Exchange Act. All share figures in the table below give effect to the 1-for-15 reverse stock split that became effective September 22, 2022.

Unless otherwise indicated, the address for each director and executive officer listed is: c/o Avenue Therapeutics, Inc., 1111 Kane Concourse, Suite 301, Bay Harbor Islands, Florida 33154.

Jay Kranzler, M.D., PhD, Chairman of the Board of Directors 8,911 33,333 *

Alexandra MacLean, M.D., Chief Executive Officer and Director — 200,000 *

Faith Charles, Director — 33,333 *

5% or Greater Stockholders:

Bay Harbor Islands, FL 33154

*Less than 1% of our common stock outstanding

For purposes of the above table, a person is deemed to be the beneficial owner of any shares of Common Stock (i) over which the person has or shares, directly or indirectly, voting or investment power, or (ii) of which the person has a right to acquire beneficial ownership at any time within 60 days after the date of this report. “Voting power” is the power to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares.

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Item 13.Certain Relationships and Related Transactions, and Director Independence

The written charter of the Audit Committee authorizes, and the Nasdaq listing rules require, the Audit Committee to review and approve related-party transactions. In reviewing related-party transactions, the Audit Committee applies the basic standard that transactions with affiliates should be made on terms no less favorable to the Company than could have been obtained from unaffiliated parties. Therefore, the Audit Committee reviews the benefits of the transactions, terms of the transactions and the terms available from unrelated third parties, as applicable. All transactions other than compensatory arrangements between the Company and its officers, directors, principal stockholders and their affiliates will be approved by the Audit Committee or a majority of the disinterested directors, and will continue to be on terms no less favorable to the Company than could be obtained from unaffiliated third parties.

The following is a summary of each transaction or series of similar transactions since January 1, 2022 to which the Company was or is a party and that:

Founders Agreement with Fortress

Fortress entered into a Founders Agreement with the Company in February 2015, pursuant to which Fortress assigned to the Company all of its rights and interest under Fortress’s license agreement with Revogenex Ireland Ltd. for IV tramadol (the “License Agreement”). As consideration therefor, the Company assumed $3.0 million in debt that Fortress had accumulated for expenses and costs of forming the Company and obtaining the IV tramadol license. This debt was repaid to Fortress in 2017. As additional consideration for the transfer of rights under the Founders Agreement, the Company also agreed to: (i) issue annually to Fortress, on the anniversary date of the Founders Agreement, shares of Common Stock equal to two and one half percent (2.5%) of the fully-diluted outstanding equity of the Company at the time of issuance (the “Annual Equity Fee”); (ii) pay an equity fee in shares of the Company Common Stock, payable within five (5) business days of the closing of any equity or debt financing for the Company or any of its respective subsidiaries that occurs after the effective date of the Founders Agreement and ending on the date when Fortress no longer has majority voting control in the Company’s voting equity, equal to two and one half percent (2.5%) of the gross amount of any such equity or debt financing (the “Financing Equity Fee”); and (iii) pay a cash fee equal to four and one half percent (4.5%) of the Company’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a change in control (as it is defined in the Founders Agreement), Fortress is to be paid a one-time change in control fee equal to five (5x) times the product of (x) net sales for the twelve (12) months immediately preceding the change in control and (y) four and one-half percent (4.5%).

On September 13, 2016, the Company entered into an Amended and Restated the Founders Agreement, (“A&R Founders Agreement”) with Fortress. The A&R Founders Agreement removed the Annual Equity Fee (though that mechanism was concurrently added as a feature of the Class A Preferred Stock, per the below) and added a term of 15 years, which upon expiration automatically renews for successive one-year periods unless terminated by Fortress or a Change in Control (as defined therein) occurs. Concurrently with the A&R Founders Agreement, the Company entered into an Exchange Agreement whereby the Company exchanged Fortress’ 153,333 Class A common shares for approximately 166,666 shares of Common Stock and 250,000 shares of Class A Preferred Stock. Pursuant to the terms of the Class A Preferred Stock held exclusively by Fortress, Fortress is entitled to cast, for each share of Class A Preferred Stock held by Fortress, the number of votes that is equal to 1.1 times a fraction, the numerator of which is the sum of (A) the aggregate number of shares of outstanding Common Stock and (B) the whole shares of Common Stock into which the shares of outstanding the Class A Preferred Stock are convertible and the denominator of which is the aggregate number of shares of outstanding Class A Preferred Stock. Thus, Fortress will at all times have voting control of us. Further, for a period of ten years from the date of the first issuance of shares of Class A Preferred Stock, the holders of record of the shares of Class A Preferred Stock (or other capital stock or securities issued upon conversion of or in exchange for the Class A Preferred Stock), exclusively and as a separate class, are entitled to appoint or elect the majority of our directors; however, the Company and Fortress waived application of this provision of the certificate of incorporation, and the holders of the Common Stock voted together with the holders of the Class A Preferred Stock for all directors at our most recent annual meeting of stockholders, with the holders of the Class A Preferred Stock utilizing the supervoting rights described above. In addition, the holders of the Class A Preferred Stock (currently, only Fortress) are entitled to receive the Annual Equity Fee.

Pursuant to the Founders Agreement, for the year ended December 31, 2023, we issued common stock to Fortress of 52,419 shares as a Financing Equity Fee. Additionally, we recorded a Financing Equity Fee of 415,718 shares of common stock and an Annual Equity Fee of 1,685,768 shares of common stock issuable to Fortress. We did not issue any shares of common stock to Fortress for the year ended December 31, 2022, and recorded a Financing Equity Fee of 90,909 shares of common stock and an Annual Equity Fee of 231,316 shares of common stock issuable to Fortress.

Management Services Agreement with Fortress

Effective as of February 17, 2015, Fortress entered into a Management Services Agreement (the “MSA”) with the Company to provide services to the Company pursuant to the terms of the MSA. Pursuant to the terms of the MSA, for an initial term of five (5) years (which initial term is subject to automatic five-year extensions unless terminated in certain cases), Fortress will render advisory and consulting services to the Company. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of the Company’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of the Company with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). The Company is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, the Company is not obligated to take or act upon any advice rendered from Fortress, and Fortress shall not be liable for any of the Company’s actions or inactions based upon Fortress’ guidance. Fortress and its affiliates have been contractually exempt from fiduciary duties to the Company relating to corporate opportunities. In consideration for the Services, the Company will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which the Company has net assets in excess of $100.0 million at the beginning of the calendar year.

In connection with the Company’s execution of that certain Stock Purchase and Merger Agreement, dated as of November 12, 2018, by and among, inter alia, the Company, Fortress and InvaGen Pharmaceuticals Inc. (“InvaGen”) (such Stock Purchase and Merger Agreement, the “SPMA”), Fortress agreed, under a separate Waiver and Termination Agreement (the “Waiver Agreement”) to contractually suspend: (i) all of its entitlements under the A&R Founders Agreement and the MSA and (ii) certain of its rights as a shareholder of the Class A Preferred Stock (including receipt of the Annual Equity Fee). The Waiver Agreement (together with all other extant SPMA-related agreements between the Company and InvaGen) was terminated in October 2022, meaning that all features of the A&R Founders Agreement, MSA and Class A Preferred Stock have been restored to full effect.

For the years ended December 31, 2023 and 2022, we had expenses related to the MSA of $500,000 and $83,333, respectively. From November 12, 2018 until October 2022, the MSA fee was waived under the terms of the Waiver Agreement between the Company, Fortress and InvaGen, which agreement has now terminated. Accordingly, payments under the MSA have resumed.

License Agreement with AnnJi Pharmaceutical

On February 28, 2023, we entered into a license agreement with AnnJi Pharmaceutical Co. Ltd., a Taiwanese company (“AnnJi”), whereby we obtained an exclusive license (the “License Agreement”) from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the U.S. for the treatment of spinal and bulbar muscular atrophy (“SBMA”), also known as Kennedy’s Disease. Under the License Agreement, in exchange for exclusive rights (as described below) to the intellectual property underlying the AJ201 product candidate, we paid an initial cash license fee of $3.0 million, of which $2.0 million was paid on April 27, 2023 and $1 million was paid on September 8, 2023. We are also obligated to issue shares of our Common Stock (described below) and make the following additional payments over the course of the License Agreement:

In connection with the signing of the License Agreement, we issued 831,618 shares of our Common Stock, to AnnJi (the “First Tranche Shares”), and then issued an additional 276,652 shares of our Common Stock (the “Second Tranche Shares”, and together with the First Tranche Shares, the “Consideration Shares”) upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial. The license provided under the License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. We will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi.

Acquisition of Baergic

In November 2022, we completed a Share Contribution Agreement, dated May 11, 2022 (the “Share Contribution Agreement”) with Fortress to acquire the shares in Baergic Bio, Inc. (“Baergic”), which is developing BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator (“PAM”). At the closing of the Share Contribution Agreement, Fortress transferred ownership of 100% of its shares (common and preferred) in Baergic, which was then a privately held subsidiary of Fortress. Under the Share Contribution Agreement, Fortress also agreed to assign to us certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement. As a result of the transaction, Baergic is a majority-controlled and owned subsidiary of the Company. We did not pay any cash or issue any securities to Fortress in consideration of its shares of Baergic.

September 2023 Private Placement

As discussed above, on September 8, 2023, we entered into an unwritten agreement with Fortress and Dr. Lindsay A. Rosenwald, a director on the board of directors of the Company. For additional information regarding this transaction, refer to the section above titled “September 2023 Private Placement."

Director Independence

The Company adheres to the corporate governance standards adopted by Nasdaq. Nasdaq rules require our Board to make an affirmative determination as to the independence of each director. Consistent with these rules, our Board undertook its annual review of director independence on March 13, 2024. During the review, our Board considered relationships and transactions during 2023, 2022 and since inception between each director or any member of his or her immediate family, on the one hand, and the Company and our subsidiaries and affiliates, on the other hand. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. Based on this review, our Board determined that Neil Herskowitz, Faith Charles, and Curtis Oltmans are independent under the criteria established by Nasdaq and our Board.

Fortress beneficially owns capital stock representing more than 50% of the voting power of our outstanding voting stock eligible to vote in the election of directors. As a result, we qualify as a “controlled company” and avail ourselves of certain “controlled company” exemptions under the Nasdaq corporate governance rules. As a controlled company, we are not required to have a majority of “independent directors” on our Board as defined under the Nasdaq rules, or have a compensation, nominating or governance committee composed entirely of independent directors. Despite qualifying as a controlled company, our Board nevertheless is comprised of a majority of independent directors, and we have a separately constituted Compensation Committee.

Item 14.Principal Accounting Fees and Services

Audit Fees

For the fiscal years ended December 31, 2023 and 2022, KPMG LLP billed us an aggregate of $649,500 and $347,000, respectively, in fees for the professional services rendered in connection with the audit of our annual financial statements included in our Annual Report on Form 10-K for such fiscal years, the reviews of our financial statements included in our Quarterly Reports on Form 10-Q during the four fiscal quarters of the fiscal year ended December 31, 2023.

For the fiscal year ended December 31, 2023, BDO USA, LLP (“BDO”) billed us an aggregate of $220,940 for professional services rendered in connection with consents and comfort letters. For the fiscal year ended December 31, 2022, BDO billed us an aggregate of $255,805 in fees for the professional services rendered in connection with the reviews of our financial statements included in our Quarterly Reports on Form 10-Q during the first three fiscal quarters of the fiscal year ended December 31, 2022 and other services provided in connection with registration statements.

Audit-Related Fees

During the fiscal years ended December 31, 2023 we incurred no costs from KPMG LLP for audit-related services reasonably related to the performance of the audits and reviews for that respective fiscal year.

During the fiscal year ended December 31, 2022 we incurred no costs from KPMG LLP or BDO for audit-related services reasonably related to the performance of the audits and reviews for the respective fiscal year.

Tax Fees

During the fiscal years ended December 31, 2023 and 2022, KPMG LLP billed us an aggregate of $36,543 and $21,250, respectively. for professional services fees rendered for tax compliance, tax advice, and tax planning services for the fiscal years ended December 31, 2023 and 2022.

During the fiscal years ended December 31, 2023 and 2022, we incurred no costs from BDO related to professional fees for tax compliance, tax advice and tax planning.

All Other Fees

During the fiscal years ended December 31, 2023 and 2022, we were not billed by KPMG LLP or BDO for any fees for services, other than those described above, rendered to us for those two fiscal years.

Pre-Approval of Services

Our Audit Committee has established a policy setting forth the procedures under which services provided by our independent registered public accounting firm will be pre-approved by our Audit Committee. The potential services that might be provided by our independent registered public accounting firm fall into two categories:

Services that our independent registered public accounting firm are prohibited from providing include such services as bookkeeping, certain human resources services, internal audit outsourcing, and investment or investment banking advice.

All proposed engagements of our independent registered public accounting firm, whether for audit services or permissible non-audit services, are pre-approved by the Audit Committee. We jointly prepare a schedule with our independent registered public accounting firm that outlines services which we reasonably expect we will need from our independent registered public accounting firm and categorize them according to the classifications described above. Each service identified is reviewed and approved or rejected by the Audit Committee.

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PART IV

Item 15.Exhibits and Consolidated Financial Statement Schedules

(a) Consolidated Financial Statements.

The following consolidated financial statements are filed as part of this report:

​

​ ​

Consolidated Financial Statements:

Consolidated Balance Sheets F-4

Consolidated Statements of Operations F-5

Consolidated Statements of Stockholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

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(b) Exhibits.

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Exhibit No. Description

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4.3 ​ Description of Securities of Avenue Therapeutics, Inc.*

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10.19 Consulting Agreement with Dr. Jay Kranzler, dated December 1, 2020.*

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21.1 ​ Subsidiaries of Avenue Therapeutics, Inc.*

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23.1 ​ Consent of Independent Registered Public Accounting Firm, KPMG LLP.

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97.1 Clawback Policy*

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* Filed herewith.

** Subject to a request for confidential treatment.

^ Furnished herewith.

# Management contract or compensatory plan.

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Item 16.Form 10-K Summary

None.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated Balance Sheets F-4

Consolidated Statements of Operations F-5

Consolidated Statements of Stockholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8 – F-21

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Table of Contents

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Avenue Therapeutics, Inc.:

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Avenue Therapeutics, Inc. and subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

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F-1

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of warrant liabilities

As discussed in Note 1 to the consolidated financial statements, the Company has issued freestanding warrants to purchase shares of its common stock in connection with financing activities and accounts for them in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreements. As discussed in Note 8, for issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance. The fair value of the warrants is re-measured at each financial reporting date. The outstanding October 2022 Warrants and January 2023 Warrants are classified as liabilities. The Black-Scholes model was used to value the October 2022 Warrants as of December 31, 2023, and the January 2023 Warrants at the time of issuance and as of December 31, 2023. Key inputs included the Company’s common stock price, risk-free interest rate, expected dividend yield, expected term in years, and expected volatility. At December 31, 2023, the Company recorded a warrant liability of $0.4 million related to the October 2022 Warrants. At January 31, 2023, the issuance date, and December 31, 2023, the Company recorded a warrant liability of $2.2 million and $0.2 million, respectively, related to the January 2023 Warrants.

We identified the evaluation of the fair value of the warrant liability for the October 2022 Warrants as of December 31, 2023 and for the January 2023 Warrants as of January 31, 2023 and as of December 31, 2023 as a critical audit matter. A high degree of auditor judgment and specialized skills and knowledge were required in the evaluation of the estimated fair values due to the degree of subjectivity associated with the expected volatility assumptions and their sensitivity to variation.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of an internal control over the Company’s warrant liability valuation process, including determination of the expected volatility assumptions. We involved valuation professionals with specialized skills and knowledge, who assisted in:

● developing an independent expectation of the volatility assumptions based on consideration of historical and implied share price volatility information

● developing an independent range of the fair value of the warrant liability for the October 2022 Warrants as of December 31, 2023 and for the January 2023 Warrants as of January 31, 2023 and December 31, 2023, using independently developed assumptions, including volatility

● comparing the independently developed ranges to the respective fair value of the warrant liability recorded by the Company for the October 2022 Warrants as of December 31, 2023 and for the January 2023 Warrants as of January 31, 2023 and as of December 31, 2023.

We have served as the Company’s auditor since 2022.

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New York, New York

March 18, 2024

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F-2

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F-3

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AVENUE THERAPEUTICS,INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

December 31, December 31,

ASSETS

Current assets:

Cash and cash equivalents $ 1,783 $ 6,708

Prepaid expenses and other current assets 67 137

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses $ 287 $ 949

Accounts payable and accrued expenses - related party 323 21

Commitments and Contingencies (Note 6)

Stockholders’ equity

Preferred stock ($0.0001 par value), 2,000,000 shares authorized

Common stock ($0.0001 par value)

Total stockholders’ equity attributed to the Company 1,582 3,905

Non-controlling interests (928 ) (639 )

Total stockholders’ equity 654 3,266

Total liabilities and stockholders’ equity $ 1,850 $ 6,845

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

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AVENUE THERAPEUTICS,INC.

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

For the Years Ended

December 31, December 31,

Operating expenses

Research and development - licenses acquired 4,230 —

Interest income (126 ) (20 )

Financing costs – warrant liabilities 332 1,160

Change in fair value of warrant liabilities (4,258 ) (5,580 )

Net loss attributable to non-controlling interests (111 ) (51 )

Net loss attributable to common stockholders $ (10,377 ) $ (3,552 )

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

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AVENUE THERAPEUTICS,INC.

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share amounts)

Shares Amount Shares Amount capital deficit Interests equity

Common shares issuable - Founders Agreement — — — — 526 — — 526

Fortress contribution of Baergic Inc — — — — (99 ) — — (99 )

Issuance of subsidiaries’ common shares for license expenses — — — — 4 — — 4

Non-controlling interest in subsidiaries — — — — 588 — (588 ) —

Net loss attributable to non-controlling interest — — — — — — (51 ) (51 )

Net loss attributable to common stockholders — — — — — (3,552 ) — (3,552 )

Share based compensation — — — — 906 — — 906

Issuance of common stock to Fortress — — 374,644 — 72 — — 72

Common shares issuable - Founders Agreement — — — — 371 — — 371

Issuance of common stock for license expense — — 1,108,270 — 1,230 — — 1,230

Issuance of subsidiaries' common stock for license expenses — — — — 6 — — 6

Shares issued in a private placement offering — — 767,085 — 550 — — 550

Non-controlling interest in subsidiaries — — — — 178 — (178 ) —

Net loss attributable to non-controlling interest — — — — — — (111 ) (111 )

Net loss attributable to common stockholders — — — — — (10,377 ) — (10,377 )

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

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AVENUE THERAPEUTICS,INC.

Consolidated Statements of Cash Flows

(In thousands)

For the Years Ended

Cash flows from operating activities:

Reconciliation of net loss to net cash used in operating activities:

Share based compensation 906 649

Change in fair value of warrant liability (4,258 ) (5,580 )

Common shares issuable - Founders Agreement 371 526

Issuance of common stock to Fortress 72 —

Issuance of common stock for licenses acquired 1,230 —

Research and development - licenses acquired 3,000 —

Issuance of subsidiaries’ common shares for license expenses 6 4

Changes in operating assets and liabilities:

Other receivables - related party — 90

Prepaid expenses and other current assets 70 (30 )

Accounts payable and accrued expenses (662 ) 385

Accounts payable and accrued expenses - related party 302 (37 )

Net cash and cash equivalents used in operating activities (9,451 ) (7,596 )

Cash flows from investing activities:

Purchase of research and development licenses (3,000 ) —

Net cash used in investing activities (3,000 ) —

Cash flows from financing activities:

Repurchase of common stock held by InvaGen — (1,104 )

Proceeds from exercise of warrants 1 148

Net cash provided by financing activities 7,526 10,541

Net change in cash and cash equivalents (4,925 ) 2,945

Cash and cash equivalents, beginning of period 6,708 3,763

Cash and cash equivalents, end of period $ 1,783 $ 6,708

Supplement disclosure of non-cash information:

Receipt of interest in Baergic from Fortress $ — $ 99

Unpaid offering costs $ — $ 14

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

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AVENUE THERAPEUTICS, INC

Notes to Consolidated Financial Statements

Note1 — Organization, Plan of Business Operations

Avenue Therapeutics, Inc. (the “Company” or “Avenue”) was incorporated in Delaware on February 9,2015, as a wholly owned subsidiary of Fortress Biotech, Inc. (“Fortress”) and completed its initial public offering in 2017. Avenue is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Avenue's current product candidates include AJ201 for the treatment of spinal and bulbar muscular atrophy ("SBMA", also known as Kennedy's Disease), intravenous tramadol ("IV tramadol") for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders.

Baergic

On May 11, 2022, the Company entered into a stock contribution agreement (the “Contribution Agreement”) with Fortress, pursuant to which Fortress agreed to transfer ownership of 100% of its shares (common and preferred) (the “Contributed Shares”) in Baergic Bio, Inc. ("Baergic") to the Company. Under the Contribution Agreement, Fortress also agreed to assign to Avenue certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement, by and between Fortress and Baergic, dated as of March 9, 2017, and Management Services Agreement, by and between Fortress and Baergic, dated as of March 9, 2017. Consummation of the transactions contemplated by the Contribution Agreement was subject to the satisfaction of certain conditions precedent, including, inter alia: (i) the closing of an equity financing by the Company resulting in gross proceeds of at least $7.5 million, (ii) the agreement by minority Avenue shareholder InvaGen Pharmaceuticals Inc. (“InvaGen”) to (A) have 100% of its shares in the Company repurchased by the Company and (B) terminate certain of the agreements to which it was party with the Company and/or Fortress in connection with InvaGen’s 2019 equity investment in the Company, which would eliminate certain negative consent rights of InvaGen over the Company and restore certain rights and privileges of Fortress in the Company; and (iii) the sustained listing of Avenue’s common stock on The Nasdaq Capital Market.

The transaction expanded Avenue’s development portfolio within neuroscience. Evaluation and negotiation of the Contribution Agreement was overseen, and execution of the Contribution Agreement was approved, by special committees at the Avenue and Fortress levels, both of which exclusively comprised independent and disinterested directors of the respective companies’ boards. See Note 4 below.

AJ201

On February 28, 2023, the Company entered into a license agreement with AnnJi Pharmaceutical Co. Ltd ("AnnJi"), whereby the Company obtained an exclusive license (the "AnnJi License Agreement") from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the U.S. for the treatment SBMA. The study aims to evaluate the safety and clinical response of AJ201 in patients suffering from SBMA. AJ201 has been granted Orphan Drug Designation (“ODD”) by the U.S. Food and Drug Administration ("FDA") for the indications of SBMA, Huntington’s Disease and Spinocerebellar Ataxia. The purchase and progress of the clinical development of AJ201 to treat SBMA further expands Avenue's portfolio within neurologic diseases.

Reverse Stock Split

On September 23, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect (i) the 1-for-15 reverse stock split of the Company’s shares of common stock (“Reverse Stock Split”) and (ii) the reduction in number of the Company’s authorized shares of common stock from 50,000,000 to 20,000,000. As a result of the Reverse Stock Split, every 15 shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted into one share of New Common Stock without any change in the par value per share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to a fraction of one share of New Common Stock as a result of the Reverse Stock Split instead received cash equal to such fraction multiplied by the closing sale price of Common Stock on The Nasdaq Capital Market on September 22, 2022, as adjusted for the Reverse Stock Split.

On February 2, 2023, following the approval of Avenue's Board of Directors and Avenue's stockholders at the Company’s 2022 annual meeting of stockholders, the Company filed an amendment to Avenue's Third Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 20,000,000 to 75,000,000 shares.

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

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Stock Purchase and Merger Agreement

In July 2022 the Company entered into a share repurchase agreement with InvaGen Pharmaceuticals Inc. ("InvaGen"). Upon the closing of a public offering in October 2022, InvaGen gave up all rights set forth in the stockholders agreement to which it was previously party and the Company repurchased the 388,888 common shares of the Company held by InvaGen. The excess of the consideration paid to InvaGen over the fair market value on the date of repurchase of $1.9 million was recognized in general and administrative expense for the year ended December 31, 2022 in the Consolidated Statement of Operations. Under the share repurchase agreement with InvaGen, the Company agreed to pay InvaGen seven and a half percent (7.5%) of the proceeds from future financings, up to $4 million. In connection with the closing of financings that occurred in 2023 and 2022, Avenue made payments totaling $0.5 million to InvaGen.

Liquidity and Capital Resources

October 2022 Public Offering

In October 2022, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Aegis Capital Corp., as underwriter (the “Underwriter”), related to the Company's underwritten public offering (the “October 2022 Offering”) of 2,652,065 units ( “October 2022 Units”) and 984,300 pre-funded units ( “October 2022 Pre-funded Units”). Each October 2022 Unit consisted of one share (a “October 2022 Share”) of Avenue's common stock, and one warrant to purchase one share of Avenue's common stock (each, a “October 2022 Warrant” and, collectively, the “October 2022 Warrants”), and each October 2022 Pre-funded Unit consisted of one pre-funded warrant to purchase one share of common stock (each, a “October 2022 Pre-funded Warrant” and collectively, the “October 2022 Pre-funded Warrants”) and one October 2022 Warrant. The October 2022 Units were sold at a price of $3.30 per unit, and the October 2022 Pre-Funded Units were sold at a price of $3.2999 ($3.30 less $0.0001, the exercise price of the October 2022 Pre-funded Warrants).

The October 2022 Warrants became immediately exercisable upon issuance and are exercisable for a period of five years after the issuance date. The October 2022 Shares, the October 2022 Pre-funded Warrants and the October 2022 Warrants were immediately separable upon issuance and were issued separately. The Underwriter was granted a 45-day option to purchase up to an aggregate of (i) 545,454 additional October 2022 Shares and/or October 2022 Pre-funded Units, representing 15% of the October 2022 Shares and October 2022 Pre-funded Warrants sold in the October 2022 Offering, and/or (ii) October 2022 Warrants to purchase 545,454 additional October 2022 Shares, representing 15% of the October 2022 Warrants sold in the October 2022 Offering, which it initially exercised, in part, electing to purchase 545,454 October 2022 Warrants at a purchase price of $0.01 per October 2022 Warrant. The Company consummated the transactions contemplated by the Offering and the Underwriting Agreement on October 11, 2022. Prior to the closing date of the Offering, investors in certain of the October 2022 Pre-funded Warrants, pursuant to the terms thereof, elected to exercise 949,900 October 2022 Pre-funded Warrants. Accordingly, at the closing, the Company issued 949,900 fewer October 2022 Pre-funded Warrants and, in lieu thereof, the corresponding 949,900 shares of common stock.

The Company received net proceeds from the October 2022 Offering of $10.3 million, after deducting underwriting discounts, commissions and offering expenses before giving effect to any warrant exercises.

January 2023 Registered Direct Offering and Private Placement

On January 27, 2023, the Company entered into a Securities Purchase Agreement (the “Registered Purchase Agreement”) with a single institutional accredited investor, pursuant to which the Company agreed to issue and sell (i) 448,000 shares (the “January 2023 Shares”) of Avenue's common stock at a price per January 2023 Share of $1.55, and (ii) pre-funded warrants (the “January 2023 Pre-funded Warrants”) to purchase 1,492,299 shares of common stock, at a price per January 2023 Pre-funded Warrant equal to the price per January 2023 Share, less $0.001 (the “January 2023 Registered Direct Offering”). The January 2023 Pre-funded Warrants had an exercise price of $0.001 per share, became exercisable upon issuance and have been fully exercised. As of December 31, 2023, the January 2023 Pre-Funded Warrants issued in the January 2023 Registered Direct Offering have been exercised.

On January 27, 2023, the Company also entered into a Securities Purchase Agreement (the “January 2023 PIPE Purchase Agreement”) with the same institutional accredited investor for a private placement offering ( “January 2023 Private Placement”) of warrants (the “January 2023 Warrants”) to purchase 1,940,299 shares of common stock. Pursuant to the January 2023 PIPE Purchase Agreement, the Company agreed to issue and sell the January 2023 Warrants at an offering price of $0.125 per January 2023 Warrant to purchase one share of common stock. The January 2023 Warrants have an exercise price of $1.55 per share (subject to adjustment as set forth in the January 2023 Warrants), became exercisable immediately after issuance and will expire three years from the date on which the January 2023 Warrants become exercisable. The January 2023 Private Placement closed on January 31, 2023, concurrently with the January 2023 Registered Direct Offering.

The Company received net proceeds from the January 2023 Registered Direct Offering and Private Placement of $2.8 million, after deducting underwriting discounts, commissions and offering expenses before giving effect to any warrant exercises.

In connection with the January 2023 PIPE Purchase Agreement, the Company entered into a registration rights agreement (the “January 2023 Registration Rights Agreement”) with the investor. The Company filed such registration statement on Form S-1 in April 2023, and the registration statement was subsequently declared effective by the SEC in May 2023. As described in more detail in Note 10 to these audited consolidated financial statements, the Company entered into an inducement offer letter agreement with the same institutional accredited investor who agreed to exercise the January 2023 Warrants issued in the January 2023 Private Placement at a reduced exercise price of $0.3006 per share in January 2024.

September 2023 Private Placement

On September 8, 2023, the Company entered into an unwritten agreement with Fortress and Dr. Lindsay A. Rosenwald, a director on the board of directors of the Company (Dr. Rosenwald and Fortress, together, the “September 2023 Investors”), pursuant to which the Company agreed to issue and sell 767,085 shares (the “September 2023 Shares”) of Avenue's common stock, par value $0.0001 per share, for an aggregate purchase price of approximately $0.6 million in a private placement transaction (the “September 2023 Private Placement”) exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations of the SEC thereunder. The shares were purchased by the Private Placement Investors at a price of $0.717 per share, which was the “consolidated closing bid price” of the common stock on The Nasdaq Capital Market as of September 7, 2023, in compliance with Nasdaq Listing Rule 5365(c). The net proceeds to the Company from the September 2023 Private Placement, after deducting offering expenses, were approximately $0.6 million. The Company did not incur any underwriting or placement agent fees associated with the September 2023 Private Placement.

In connection with the September 2023 Private Placement, the Company entered into a registration rights letter agreement (the “Registration Rights Letter Agreement”) with the Private Placement Investors. Pursuant to the Registration Rights Letter Agreement, the Company will be required to file, on or prior to September 8, 2024 (the “September 2023 Private Placement Filing Date”), a resale registration statement (the “September 2023 Private Placement Resale Registration Statement”) with the SEC to register the resale of the September 2023 Shares.

November 2023 Public Offering

On October 31, 2023, the Company entered into a Placement Agency Agreement (the “November 2023 Placement Agency Agreement”) with Maxim Group LLC and Lake Street Capital, LLC as placement agents (together, the “November 2023 Placement Agents”) related to the Company’s public offering (the “November 2023 Offering”) of 16,633,400 units (each consisting of either (A) one share of the Company’s common stock, par value $0.0001 per share ( “November 2023 Share”), a Series A warrant ( “November 2023 Series A Warrant”) to purchase one November 2023 Share and a Series B warrant ( “November 2023 Series B Warrant” and, collectively with the Series A Warrants, “November 2023 Warrants”) to purchase one November 2023 Share (such units, the “November 2023 Common Units”) or (B) one pre-funded warrant to purchase one November 2023 Share (the “November 2023 Pre-funded Warrants”), a November 2023 Series A Warrant and a November 2023 Series B Warrant (such units, the “November 2023 Pre-funded Units” and together with the November 2023 Shares, the November 2023 Warrants, the November 2023 Common Units and the November 2023 Pre-funded Warrants, the “November 2023 Securities”)). Under the terms of the November 2023 Placement Agency Agreement, the November 2023 Placement Agents acted as the Company’s exclusive placement agents to solicit offers to purchase the November 2023 Securities on a “best efforts” basis. The Company also entered into a securities purchase agreement, dated as of October 31, 2023 (the “November 2023 Securities Purchase Agreement”), with certain institutional investors buying November 2023 Securities in the November 2023 Offering. Pursuant to the November 2023 Offering, 3,853,400 November 2023 Common Units were sold at a price of $0.3006 per November 2023 Unit and the 12,780,000 November 2023 Pre-Funded Units were sold at a price of $0.3005. As of December 31, 2023, all of the November 2023 Pre-Funded Warrants issued in the November 2023 Offering have been exercised.

The November 2023 Series A Warrants became immediately exercisable upon issuance and are exercisable at a price of $0.3006 per share for a period of five years after the issuance date. The November 2023 Series B Warrants became immediately exercisable upon issuance and exercisable at a price of $0.3006 per share for a period of 18 months after the issuance date. The November 2023 Pre-funded Warrants became immediately exercisable upon issuance and are exercisable at a price of $0.0001 per share until exercised in full. The November 2023 Shares, the November 2023 Pre-funded Warrants and the November 2023 Warrants were immediately separable upon issuance and were issued separately. The Company consummated the transactions contemplated by the November 2023 Offering and the November 2023 Placement Agency Agreement on November 2, 2023. Upon the closing of the November 2023 Offering, the Company paid the November 2023 Placement Agents a cash transaction fee equal to 8% of the aggregate gross cash proceeds and reimbursed the November 2023 Placement Agents for certain out-of-pocket expenses incurred in connection with this November 2023 Offering.

The Company received net proceeds from the November 2023 Offering of approximately $3.8 million, after deducting the placement agent fees and offering expenses, and before giving effect to any exercises of the November 2023 Warrants. As described in more detail in Note 10, the Company entered into an inducement offer letter agreement with certain investors in the November 2023 Offering who agreed exercise certain outstanding November 2023 Warrants to purchase up to an aggregate of 14,600,000 shares of common stock at their exercise price of $0.3006 per share in January 2024.

Going Concern

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as described below, substantial doubt about the Company’s ability to continue as a going concern exists.

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The Company is not yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable. As of December 31, 2023, the Company had an accumulated deficit of $90.9 million. Due to uncertainties regarding future operations of the Company for an ongoing Phase 1b/2a trial of AJ201, a potential Phase 3 safety study for IV tramadol, and the expansion of the Company’s development portfolio within neuroscience with the consummation of the transaction with Baergic, the Company will need to secure additional funds through equity or debt offerings, or other potential sources, the timing of which is unknown at this time. The Company will require additional funds to cover operational expenses over the next 12 months. The Company cannot be certain that additional funding will be available to it on acceptable terms, or at all. These factors individually and collectively causes substantial doubt about the Company’s ability to continue as a going concern to exist within one year from the date of this report. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

Note2 — Significant Accounting Policies

Basis of Presentation & Principles of Consolidation

The Company’s consolidated financial statements have been prepared in conformity with U.S. GAAP, include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented and are stated in U.S. dollars. The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s subsidiary. All intercompany balances and transactions have been eliminated.

The accompanying consolidated financial statements include the accounts of the Company’s subsidiary, Baergic. Because the Company owns less than 100% of Baergic, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in Baergic by the respective non-controlling parties. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of its' subsidiary.

Segments

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 in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at December 31, 2023 and 2022 consisted of cash in institutions in the United States. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are currently adequately protected against credit risk. At times, portions of the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. As of December 31, 2023, the Company had not experienced losses on these accounts, and management believes the Company is not exposed to significant risk on such accounts. The Company’s cash equivalents and investments may comprise money market funds that are invested in U.S. Treasury obligations, corporate debt securities, U.S. Treasury obligations and government agency securities. Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

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Accounts Payable and Accrued Expenses – Related Party

In the normal course of business, Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as accounts payable and accrued expenses – related party and are recorded at the invoiced amount and reimbursed to Fortress in the normal course of business.

Research and Development

Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved.

Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.

Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and have no alternative future use. The licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price including any development milestone payments for the licenses acquired are reflected as research and development on the Company's consolidated statements of operations.

Contingencies

The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Warrant Liability

The Company has issued freestanding warrants to purchase shares of its common stock in connection with financing activities (Warrants as described in Note 8) and accounts for them in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreements. Warrants classified as liabilities are remeasured each period they are outstanding. Any resulting gain or loss related to the change in the fair value of the warrant liability is recognized in change in fair value of warrant liabilities, a component of other income (loss), in the consolidated statements of operations.

Fair Value Measurements

The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, 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 at the measurement date. 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 a liability.

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The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value 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 in its entirety requires management to make judgments and consider factors specific to the asset or liability.

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

Annual Stock Dividend

In September 2016, in connection with the adoption of the Amended and Restated Articles of Incorporation, the Company issued 250,000 Class A Preferred stock to Fortress. The Class A Preferred stock entitled the holder to a stock dividend equal to 2.5% of the fully-diluted outstanding equity of the Company on February 16 (the "Annual Stock Dividend”) to be paid on February 17 of each year. On June 13,2018, the Company’s Stockholders adopted an amendment to the Company’s Third Amended and Restated Certificate of Incorporation amending the record date to December 31 and the payment date going forward to January 1 of each year. Concurrently with the execution and delivery of the SPMA, the Company, InvaGen and Fortress entered into a waiver agreement (“the Waiver Agreement”), pursuant to which, among other things, Fortress irrevocably waived its right to receive dividends of the Company’s common shares under the terms of the Class A Preferred Stock and any fees, payments, reimbursements or other distributions under a certain management services agreement between the Company and Fortress and the Founders Agreement (as defined in the SPMA), for the period November 12,2018 to the termination of InvaGen’s rights under Section 4 of the Stockholders Agreement that was signed between the Company, certain stockholders of the Company, and InvaGen. As a result of the consummation of the Share Repurchase Agreement on October 31, 2022, the Waiver Agreement was terminated and the right to dividends of the Company’s Common Stock was restored. The Annual Stock Dividend terminates upon conversion of the Class A Preferred stock or a Change of Control as defined in the Third Amended and Restated Certificate of Incorporation.

Pursuant to the Third Amended and Restated Certificate of Incorporation, the Company issued 1,685,767 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully-diluted outstanding equity of the Company, on January 2, 2024. This was shown in the consolidated statements of stockholders’ equity at December 31, 2023, as part of additional paid-in capital. The Company recorded an expense of approximately $0.3 million in research and development related to these issuable shares during the year ended December 31, 2023. The Company issued 231,316 shares of common stock to Fortress for the Annual Stock Dividend on January 1, 2023. This was shown in the consolidated statements of stockholders' equity at December 31, 2022, as part of additional paid-in capital. The Company recorded an expense of approximately $0.3 million in research and development related to these issuable shares during the year ended December 31, 2022.