Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section titled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biopharmaceutical company dedicated to the identification, development and commercialization of differentiated medicines to address the unmet medical needs of patients with cancers. We seek to utilize our team’s deep drug development experience to maximize the potential of our lead product candidate, firmonertinib, and advance a pipeline of novel therapeutics, such as next-generation antibody drug conjugates, including ARR-217 (MRG007) through approval and commercialization in patients suffering from cancer, with an initial focus on solid tumors. Firmonertinib is currently being evaluated in multiple clinical trials across a range of EGFRm in NSCLC. We are conducting a pivotal Phase 3 clinical trial of firmonertinib in treatment naive, or first-line, patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations and a pivotal Phase 3 clinical trial of
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firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with PACC mutations. We are also conducting a Phase 1 clinical trial of ARR-217 in patients with unresectable locally advanced or metastatic solid tumors.
We received Breakthrough Therapy Designation for firmonertinib for first line EGFRm NSCLC with exon 20 insertion from the FDA in October 2023, and Orphan Drug Designation for treatment of NSCLC with EGFRm or HER2 mutations or HER4 mutations in February 2024. A product candidate can receive BTD if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for development although BTD may not result in a faster development process, review or approval and does not increase the likelihood that the product candidate will ultimately receive FDA approval for any indication.
In 2021, we licensed from Allist the right to develop and commercialize firmonertinib worldwide, with the exception of greater China, which includes mainland China, Hong Kong, Macau and Taiwan. Firmonertinib is an investigational, novel, EGFR mutant-selective TKI that we are developing for the treatment of NSCLC patients across a broader set of EGFRm than are currently served by approved EGFR TKIs. Firmonertinib is currently only approved and commercially distributed by Allist in China as a first-line therapy to treat classical EGFRm NSCLC. The FDA has not approved firmonertinib for any use. We selected firmonertinib for global development against nonclassical, or uncommon, mutations based on preliminary reductions in tumor size observed in seven out of ten patients with EGFR exon 20 insertion mutations treated with firmonertinib in the ongoing Phase 1b clinical trial, the FAVOUR trial, conducted by Allist in China, and preclinical activity in PACC mutations, each a subtype of uncommon mutation. In a subsequent interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations who were administered a 240 mg once-daily dose of firmonertinib, 79% of patients (n=22 out of 28 patients) were observed to experience a reduction in tumor size of at least 30%. In a final analysis from the Phase 1B FURTHER trial of firmonertinib, which included a cohort of EGFRm NSCLC with PACC mutations, we observed 16.0 months mPFS with firmonertinib 240 mg in first-line, cORR 68.2% (n=15 out of 22 1L patients at 240 mg) and DOR 14.6 months, and confirmed CNS responses with firmonertinib including CRs.
As one of the most prevalent cancers in the world, lung cancer imposes a significant global burden on human health, and EGFRm NSCLC represents a significant proportion of those affected. Despite progress in the therapeutic landscape for EGFRm NSCLC, many patients, particularly those with uncommon mutations, such as exon 20 insertions or PACC mutations, are underserved by existing treatments. In an interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients (n=22 out of 28 patients) who were administered a 240 mg once-daily dose of firmonertinib were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by RECIST 1.1 criteria. This measurement of reduction is the threshold in this trial for a partial response and for inclusion in determination of the ORR, which is the primary endpoint of this trial. In the same interim data readout, those 79% of patients were observed to experience a 15.2 month median DOR. Interim results may not be indicative of final results; however, we believe these interim clinical results underscore firmonertinib’s potential in patients whose tumors contain an uncommon EGFRm.
We have entered into the Allist License Agreement, pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Allist to develop and commercialize any product containing firmonertinib or any of its salts or derivatives as an active ingredient of a product, which is led by a joint collaboration committee, comprising of representatives from both Allist and us. Under the Allist License Agreement, we are obligated to pay Allist milestone payments up to an aggregate of $765.0 million upon the achievement of certain development, regulatory and sales milestone events as set forth in the Allist License Agreement. During the year ended December 31, 2025, we incurred $5.0 million in clinical milestones to Allist. We are also obligated under the Allist License Agreement to pay Allist tiered royalties based on net sales of Licensed Products (as defined in the Allist License Agreement). See “Business — Licenses, Partnerships and Collaborations — Allist Agreements.”
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We have entered into the Lepu Biopharma Agreement, pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Lepu Biopharma to develop and commercialize any product containing ARR-217 or the antibody component of ARR-217. Further, we are obligated to pay Lepu Biopharma milestone payments up to an aggregate of approximately $1.17 billion upon the achievement of certain development, regulatory and sales milestone events as set forth in the Lepu Biopharma Agreement, as defined herein. We are also obligated under the Lepu Biopharma Agreement to pay Lepu Biopharma tiered royalties based on net sales of Licensed Products, as defined herein. See “Business — Licenses, Partnerships and Collaborations — Lepu Biopharma Agreement”.
Since our inception in April 2021, we have devoted substantially all of our resources to organizing and staffing our company, acquiring the rights to develop firmonertinib, ARR-217, and clinical development of firmonertinib, business planning, raising capital, identifying potential product candidates, enhancing our intellectual property portfolio and undertaking research and clinical and preclinical studies for our development programs. We do not have any products approved for sale and have not generated any revenue from product sales or otherwise. We have funded our operations to date primarily through the private placement of convertible preferred stock and through our initial public offering of common stock in January 2024, our “at-the-market” offering, and our underwritten public offering of common stock and pre-funded warrants to purchase common stock in July 2025.
We have incurred significant operating losses since our inception and have not yet generated any revenue. Our net losses were $166.3 million and $80.5 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of $404.6 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies, clinical trials and our expenditures on other research and development activities. We expect to continue to incur losses for the foreseeable future. We anticipate these losses will increase substantially as we:
● advance our product candidates through clinical trials;
● acquire or in-license additional product candidates;
● advance our preclinical programs to clinical trials;
● further invest in our pipeline;
● further support our external partners’ manufacturing capabilities;
● seek regulatory approval for our product candidates;
● pursue commercialization of our product candidates;
● maintain, expand, protect and defend our intellectual property portfolio;
In addition, if we obtain regulatory approval for firmonertinib or any product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or
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future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Key Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
To date, our research and development expenses have been related primarily to the development of firmonertinib, preclinical studies and other clinical activities related to our portfolio. Research and development costs are expensed as incurred and payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized when the goods or services are received.
Research and development costs include:
● license fees and research funding; and
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our clinical trials for firmonertinib, preclinical and toxicology studies and costs related to manufacturing materials for clinical and preclinical studies. A significant majority of our direct research and development costs have been related to firmonertinib. We deploy our personnel resources across all of our research and development activities.
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of firmonertinib and the identification and development of new product candidates. We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future clinical development costs may vary significantly based on factors such as:
● per patient trial costs;
● the number of patients needed to determine a recommended dose;
● the number of trials required for approval;
● the number of sites included in the trials;
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● the countries in which the trials are conducted;
● the length of time required to enroll eligible patients;
● the number of patients that participate in the trials;
● the number of doses that patients receive;
● the drop-out or discontinuation rates of patients;
● potential additional safety monitoring requested by regulatory agencies;
● the duration of patient participation in the trials and follow-up;
● the phase of development of the product candidate; and
● the efficacy and safety profile of the product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, payroll taxes, employee benefits and stock-based compensation expenses for those individuals in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and, if any product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Interest and Investment Income
Interest and investment income consists of interest earned on our cash, cash equivalents and short-term investmentsand the accretion of premiums and amortization of discounts on marketable securities.
Results of Operations
Comparison of the Years Ended December 31, 2025 and 2024
The following table summarizes our results of operations for the years ended December 31, 2025 and 2024:
Year Ended December 31,
(in thousands) 2025 2024 Change
Operating expenses:
Research and Development
We track outsourced clinical and preclinical costs and other external research and development costs associated with our lead product candidate, firmonertinib, and other early-stage programs. We do not track internal research and
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development costs by product candidate. The following table summarizes our research and development expenses for the years ended December 31, 2025 and 2024:
Year Ended December 31,
(in thousands) 2025 2024 Change
Firmonertinib:
Research and development expenses were $153.4 million and $79.0 million for the years ended December 31, 2025 and 2024, respectively. The increase of $74.3 million was primarily due to an increase of $44.5 million in preclinical discovery work, and a $13.1 million increase due to higher personnel-related costs due to increased headcount. Cost increases related to early-stage programs were largely due to a $40.0 million one-time up front payment pursuant to our collaboration with Lepu. Costs related to firmonertinib increased $16.7 million as a result of increased costs related to our FURVENT Phase 3 clinical trial of $14.6 million, $4.4 million for general firmonertinib costs, and $0.1 million for our FAVOUR trial, offset by a decrease of $2.4 million in costs related to our FURTHER Phase 1 clinical trial.
General and Administrative
General and administrative expenses were $24.2 million and $15.3 million for the years ended December 31, 2025 and 2024, respectively. The increase of $8.9 million was due primarily to increases of $7.3 million in personnel-related expenses, $1.8 million in professional services and infrastructure costs, offset by $0.2 million in general corporate expenses.
Interest and Investment Income
Interest and investment income was $11.2 million and $13.8 million for the years ended December 31, 2025 and 2024, respectively. The decrease is due to lower rates of return on lower invested balances year-over-year.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through the private placement of convertible preferred stock our initial public offering of common stock, our “at-the-market” offering, and our underwritten public offering of common stock and pre-funded warrants to purchase common stock in July 2025. We have raised gross proceeds of $305.0 million from the issuance of convertible preferred stock since our inception through December 31, 2025. Additionally, in the first quarter of 2024, we completed our initial public offering of 11,180,555 shares of our common stock at a price to the public of $18.00 per share, including the exercise in full by the underwriters of their option to purchase 1,458,333 additional shares of our common stock. Including the option exercise, our aggregate net proceeds from the offering were $183.2 million, net of underwriting discounts, commissions and offering costs. As of December 31, 2025, we had cash and cash equivalents, and short and long-term investments of $312.8 million in the aggregate.
On February 3, 2025, we filed an automatic shelf registration statement on Form S-3ASR (File No. 333-284661) with the SEC. The shelf registration statement consists of (i) a base prospectus pursuant to which we may offer and sell, from time to time, shares of our common stock, shares of our preferred stock, various series of debt securities, warrants, rights, and/or units to purchase any of such securities in one or more registered offerings, and (ii) a prospectus supplement pursuant to which we may offer and sell, from time to time, up to $250 million of shares of common stock in “at-the-market” offerings. During the year ended December 31, 2025, we sold 5,560,266 shares of common stock
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pursuant to our Open Market Sale AgreementSM with Jefferies LLC (ATM Program) for total proceeds of $122.2 million, net of commissions and other expenses. As of December 31, 2025, we have approximately $123.3 million remaining for future issuances of common stock pursuant to the ATM Program. There has been no material change in the planned use of proceeds as described in the shelf registration statement. None of the offering expenses were paid or payable, directly, or indirectly, to our directors, officers, or persons owning 10% or more of any class of equity securities or to our affiliates.
In May 2025, we entered into a $75 million loan and security agreement with Silicon Valley Bank (Loan Agreement), a division of First Citizens Bank & Trust Company. The credit facility provides the right, but not the obligation, to draw up to $75 million of capital, of which $40 million will be available if certain conditions and milestones are met. In March 2026, we entered into an amendment of the Loan Agreement in which such conditions and milestones were amended. No amounts have been drawn on this facility as of the date of this report.
On July 3, 2025, we closed an underwritten public offering (the July 2025 Offering) in which we issued and sold an aggregate of 3,059,615 shares of our common stock, including the exercise in full of the underwriters’ option to purchase 576,923 additional shares of common stock, at a public offering price of $19.50 per share, and, in lieu of shares of common stock to certain investors, pre-funded warrants to purchase up to 1,363,469 shares of common stock at a public offering price of $19.4999 per pre-funded warrant, which represents the per share public offering price for the shares less the $0.0001 per share exercise price for each pre-funded warrant. The proceeds to us, net of underwriting discounts, commissions, and other expenses, were $80.5 million.
Future Funding Requirements
We plan to continue to fund our operating expenses and capital expenditure requirements through additional public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. Debt or equity financing or collaborations and partnerships with other entities may not be available on a timely basis, on acceptable terms, or at all. In addition, we may be required to scale back or discontinue the advancement of product candidates, reduce headcount or reduce other operating expenses. This could have an adverse impact on our ability to achieve certain of our planned objectives, and thus, materially harm our business. Our ability to successfully transition to profitability will depend upon obtaining additional financing and achieving a level of product sales adequate to support our cost structure. We cannot be assured that we will ever be profitable or generate positive cash flows from operating activities.
We believe that our existing cash and cash equivalents and short and long-term investments will be sufficient to meet our anticipated cash requirements through at least twelve months from the issuance date of these financial statements. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
Our future capital requirements will depend on many factors, including:
● the number and characteristics of product candidates that we pursue;
● the outcome, timing and costs of seeking regulatory approvals;
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● the emergence of competing therapies and other adverse market developments;
● the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
Net cash (used in) provided by:
Net decrease in cash and cash equivalents $ (28,753) $ (76,096)
Operating Activities
Net cash used in operating activities was $160.6 million for the year ended December 31, 2025 reflecting our net loss of $166.3 million, $3.0 million of amortization and accretion of discounts and premiums, and a $3.8 million net change in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities. These were offset by $12.5 million in stock-based compensation.
Net cash used in operating activities was $70.2 million for the year ended December 31, 2024 reflecting our net loss of $80.5 million that was offset by $3.2 million in stock-based compensation and a $7.1 million net change in our
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operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 included $272.9 million of purchases of short and long-term investments, offset by $201.7 million of maturities of short-term investments.
Net cash used in investing activities for the year ended December 31, 2024 included $194.2 million of purchases of short and long-term investments, offset by $1.7 million of maturities of investments.
Financing Activities
Net cash provided by financing activities was $203.1 million for the year ended December 31, 2025, due to $80.5 million of net proceeds from our July 2025 offering and $122.2 million in net proceeds from the issuance of shares under the “at-the-market” program. There were also $0.5 million of proceeds from the exercise of stock options.
Net cash provided by financing activities was $186.6 million for the year ended December 31, 2024, due to $186.0 million of net proceeds from our initial public offering in January 2024, in addition to $0.6 million in proceeds from the exercise of stock options.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2025 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments Due by Period
(in thousands)
Operating lease obligations $ 14 $ 14 $ — $ — $ —
Total $ 14 $ 14 $ — $ — $ —
As of December 31, 2025, except for the operating lease, we did not have any long-term obligations, capital lease obligations, purchase obligation or long-term liabilities. We enter into contracts in the normal course of business with third-party CROs and clinical trial sites for our clinical trials, and with supply vendors for other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts. Amounts related to contingent milestone payments under our license and collaboration agreements are not yet considered contractual obligations, and not included in the table above, as they are contingent on the successful achievement of certain clinical, regulatory and commercial milestones.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development and stock-based compensation expenses. 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.
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While our significant accounting policies are described in more detail in Note 3 to our accompanying financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the preparation of our financial statements.
Research and Development Accruals
Research and development expenses consist primarily of costs incurred in connection with the development of our lead product candidate. We expense research and development costs as incurred.
We accrue expenses for pre-clinical and clinical studies and activities performed by third parties based upon estimates of the proportion of work completed over the term of the individual trial and patient enrollment rates in accordance with agreements with third parties. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal clinical personnel and external service providers as to the progress or stage of completion of activities or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.
We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Non-refundable advance payments for goods and services, including fees for manufacturing and distribution of clinical and pre-clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Milestone payments within our licensing and collaboration arrangements will be recognized when achievement of the milestone is deemed probable to occur. To the extent products are commercialized and future economic benefit has been established, commercial milestones that become probable are capitalized and amortized over the estimated remaining useful life of the intellectual property. In addition, we will accrue royalty expense and sublicense non-royalty payments, as applicable, for the amount we are obligated to pay, with adjustments as sales are made.
Stock-Based Compensation Expense
We maintain a stock-based compensation plan as a long-term incentive for employees and non-employee consultants. The plan allows for the issuance of incentive stock options and non-qualified stock options.
We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period, which is the vesting period of the awards. Our stock-based compensation expense is based upon the grant date fair value of stock options estimated using the Black-Scholes option pricing model.
Estimating the fair value of stock options as of the grant date using the Black-Scholes option pricing model is affected by input assumptions which consider a number of variables. The input assumption relating to the fair value of our common stock for grants made prior to our initial public offering was subjective and required judgment to develop.
JOBS Act and Emerging Growth Company Status
As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our initial public offering, (ii) the last day of the fiscal year in which we have
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total annual gross revenue of at least $1.235 billion, (iii) the day on which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 3 to our accompanying financial statements appearing elsewhere in this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our cash and cash equivalents consist of cash held in an interest-bearing savings account and money market account. As a result, we believe that our exposure to interest rate risk is not significant, and a hypothetical 1.0% change in market interest rates during any of the periods presented would not have had a material impact on the total value of our portfolio.
Foreign Currency
We do not regularly incur any material expenses with vendors outside the United States or that are denominated in currencies other than the U.S. dollar. We may incur such expenses in the future at which point exchange rate fluctuations might adversely affect our expenses, results of operations, financial position and cash flows. To date, exchange rate fluctuations have not had a material effect on our results of operations.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe inflation has had a material effect on our results of operations during the periods presented and do not anticipate a material impact going forward.
Item 8. Financial Statements and Supplementary Data
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ARRIVENT BIOPHARMA, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185) F-3
Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 F-7
Notes to Financial Statements F-8
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ArriVent BioPharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of ArriVent BioPharma, Inc. (the "Company") as of December 31, 2025, and the related statement of operations and comprehensive loss, of convertible preferred stock and stockholders' equity (deficit) and of cash flows for the year then ended, including the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 of these financial statements 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 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 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 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 financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 5, 2026
We have served as the Company’s auditor since 2025.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
ArriVent BioPharma, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheet of ArriVent BioPharma, Inc. (the Company) as of December 31, 2024, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 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 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 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 financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2023 to 2025.
Boston, Massachusetts
March 3, 2025
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ARRIVENT BIOPHARMA, INC.
BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 20,076 8,116
Long-term investments — 47,683
Right of use assets – operating leases 13 154
Deferred offering costs 69 —
Liabilities and Stockholders’ Equity
Current liabilities:
Operating lease liabilities 14 162
Operating lease liabilities, net of current amount — 14
Commitments and contingencies (Note 7)
Stockholders’ equity:
Accumulated other comprehensive income (loss) 14 (211)
Total liabilities and stockholders’ equity $ 333,169 $ 274,942
See accompanying notes to financial statements.
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ARRIVENT BIOPHARMA, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
Year Ended December 31,
Operating expenses:
Interest and investment income 11,226 13,820
Unrealized gain (loss) on marketable securities 225 (211)
Total other comprehensive gain (loss) 225 (211)
Share information:
See accompanying notes to financial statements.
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ARRIVENT BIOPHARMA, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share and per share data)
Series A Series B Additional Accumulated
Exercise of stock options — — — — 213,424 — 631 — — 631
Stock-based compensation expense — — — — — — 3,208 — — 3,208
Net loss — — — — — — — — (80,488) (80,488)
Exercise of stock options — — — — 125,605 — 502 — — 502
Stock-based compensation expense — — — — — — 12,520 — — 12,520
Net loss — — — — — — — — (166,308) (166,308)
See accompanying notes to financial statements.
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ARRIVENT BIOPHARMA, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31,
Cash flows from operating activities:
Stock-based compensation expense 12,520 3,208
Amortization/Accretion of bond discounts/premiums (3,026) —
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (12,561) 1,464
Other assets — (20)
Accounts payable 2,141 (751)
Operating lease liabilities (21) (2)
Net cash used in operating activities (160,588) (70,212)
Cash flows from investing activities:
Purchase of short-term and long-term investments (272,934) (194,164)
Net cash used in investing activities (71,228) (192,465)
Cash flows from financing activities:
Proceeds from the exercise of stock options 502 631
Payment of deferred financing costs (70) —
Net cash provided by financing activities 203,063 186,581
Net decrease in cash and cash equivalents (28,753) (76,096)
Cash and cash equivalents at beginning of the year 74,293 150,389
Cash and cash equivalents at end of the year $ 45,540 $ 74,293
Supplemental disclosures of non-cash financing and investing activities
See accompanying notes to financial statements.
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(1) Background
ArriVent BioPharma, Inc., a Delaware corporation (the “Company”), founded on April 14, 2021, is a clinical-stage biopharmaceutical company focused on identifying, licensing and globalizing top biopharma innovations from around the world to deliver important medicines to patients. In June 2021, the Company entered into a license agreement with Shanghai Allist Pharmaceuticals Co. Ltd. (“Allist”) which granted the Company an exclusive license under certain intellectual property owned or controlled by Allist to develop, manufacture and commercialize any product containing firmonertinib or any of its derivatives as an active ingredient, for all uses, in all countries and territories other than greater China, which includes mainland China, Hong Kong, Macau and Taiwan (See Note 11). The Company’s lead development candidate, firmonertinib, is a third-generation tyrosine kinase inhibitor currently being evaluated in multiple clinical trials across a range of epidermal growth factor receptor mutations in non-small cell lung cancer (“NSCLC”), many for which there are limited treatment options.
On January 30, 2024, the Company completed the closing of its initial public offering of 9,722,222 shares of common stock at a price of $18.00 per share. Additionally, the underwriters exercised their option to purchase an additional 1,458,333 shares of common stock at a price of $18.00 per share. The shares of common stock began trading on The Nasdaq Global Market on January 26, 2024, under the symbol “AVBP”. The Company received net proceeds of $183.2 million, after deducting underwriting discounts and commissions and other offering expenses. In addition, as a result of the closing of the Company’s initial public offering, the Company’s Series A and Series B convertible preferred stock converted into 19,567,306 shares of common stock in January 2024.
(2) Development-Stage Risks and Liquidity
The Company has incurred losses since inception and has an accumulated deficit of $404.6 million as of December 31, 2025. The Company has concluded that the aggregate balance of cash and cash equivalents and marketable securities of $312.8 million as of December 31, 2025 are sufficient to sustain planned operations through at least twelve months from the issuance date of these financial statements.
The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales from its product candidates currently in development; as a result, additional capital will be needed to fund its future operating and capital requirements. There can be no assurance that the Company will be able to raise sufficient additional capital on acceptable terms, if at all. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, the Company’s financial condition or results of operations may be materially adversely affected.
The Company is subject to those risks associated with any specialty biotechnology company that has substantial expenditures for research and development. In addition, geopolitical tensions, volatility of capital markets, and other adverse macroeconomic events, including those due to inflationary pressures, changing interest rates, bank instability and the ability of the U.S. government to manage federal debt limits, as well as the potential impact of other health crises on the global financial markets, may reduce the Company's ability to access capital, which could negatively affect its liquidity.
(3) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any references in these notes to applicable guidance are meant to refer to GAAP as found in Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).
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(b) Use of Estimates
The preparation of financial statements in conformity with 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 financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from such estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.
Significant areas that require management’s estimates include the fair value of the Company’s common stock prior to its initial public offering, and accrued research and development expenses.
(c) Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Management believes that the carrying amounts of cash equivalents and accounts payable approximate fair value due to the short-term nature of those instruments.
The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 during the years ended December 31, 2025 and 2024.
(d) Cash equivalents
The Company considers all highly liquid investment instruments with a remaining maturity when purchased of three months or less to be cash equivalents. Investments qualifying as cash equivalents consist of money market funds, including money market funds held in a sweep account. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. The amount of cash equivalents included in cash and cash equivalents was approximately $40.5 million and $69.3 million at December 31, 2025 and 2024, respectively.
(e) Investments
The Company classifies all of its investments as available-for-sale based upon its intent with regard to such investments. The Company classifies investments as short-term when their remaining contractual maturities are one year or less from the balance sheet date, and as long-term when the investment has a remaining contractual maturity of more than one year from the balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensive income (loss). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest and investment income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities, are included in interest and investment income.
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The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest and investment income. To determine whether an other-than-temporary impairment exists, the Company considers whether it has the ability and intent to hold the investment until a market price recovery, and whether evidence indicating the recoverability of the cost of the investment outweighs evidence to the contrary.
(f) Concentration of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and short and long-term investments. The Company maintains its balances at high quality, accredited financial institutions and, accordingly, it believes such funds are subject to minimal credit risk. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on these balances. The Company has no financial instruments with off-balance sheet risk of loss.
(g) Leases
The Company determines whether an arrangement is or contains a lease, its classification, and its term at the lease commencement date. Leases with a term greater than one year will be recognized on the balance sheet as right-of-use (“ROU”) assets, current lease liabilities, and if applicable, long-term lease liabilities. The Company has elected certain practical expedients permitted under the transition guidance to not record short-term leases (terms less than 12 months). Lease liabilities and the corresponding ROU assets are recorded based on the present values of lease payments over the lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Payments for non-lease components or that are variable in nature that do not depend on a rate or index are not included in the lease liability and are typically expensed as incurred. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability using revised inputs as of the reassessment date, and adjust the ROU assets. Lease expense is recognized on a straight-line basis over the expected lease term for operating-classified leases.
(h) Research and Development Costs
Research and development costs are recorded as expense as incurred and principally consist of contract research organization costs as well as personnel costs, and amounts paid to third parties for up-front and milestone payments made under license and collaboration agreements.
When third-party service providers’ billing terms do not coincide with the Company’s period-end, the Company is required to make estimates of its obligations to those third parties, including clinical trial costs, contractual services costs and costs for supply of its drug candidates, incurred in a given accounting period and record accruals at the end of the period. The Company bases its estimates on the completion status of the research and development programs and the associated estimate of unbilled costs.
(i) Stock-Based Compensation Expense
The Company measures stock-based awards, including stock options, at their grant-date fair value and records compensation expense over the requisite service period, which is the vesting period of the awards. The Company accounts for forfeitures as they occur.
Estimating the fair value of stock options requires the use of subjective assumptions, including the fair value of the Company’s common stock (prior to its initial public offering in January 2024), the expected term of the option and expected stock price volatility. The Company uses the Black-Scholes option-pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock options represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and
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management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The fair value of the Company’s common stock, prior to its initial public offering, was estimated by the Company’s board of directors, with input from management considering the most recently available third-party valuation of the Company’s common stock. Subsequent to its initial public offering on January 26, 2024, the fair value of common stock is based on the closing market price of common stock on the date of grant. The expected term of stock options for employees is estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting date and the contractual term of the option. The contractual term is used as the expected term for stock options granted to non-employees. For stock price volatility, the Company uses the implied volatility of its own share trading activity, in addition to comparable public companies as a basis for the expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected term of the option. The expected dividend yield is zero given the Company does not expect to pay dividends for the foreseeable future.
(j) Net Loss per Share
Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Pre-funded warrants were included in the denominator as the exercise price is negligible and these warrants are fully vested and exercisable. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share since when a net loss exists, potentially dilutive securities are not included in the calculation as their impact is anti-dilutive. The Company’s convertible preferred stock entitled the holder to participate in dividends and earnings of the Company, and, if the Company had recognized net income, it would have used the two-class method to calculate earnings per share. The two-class method was not applicable during periods with a net loss, as the holders of the convertible preferred stock had no obligation to fund losses.
The following table sets forth the computation of net loss per share, basic and diluted (in thousands, except share and per share data):
Year Ended December 31,
Numerator:
Denominator:
Weighted-average shares of common stock outstanding 37,786,469 —
Weighted-average pre-funded warrants outstanding (1) 676,131 —
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The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:
December 31,
(k) Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not-to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company will recognize interest and penalties related to uncertain tax positions as a component of income tax expense (benefit).
(l) Accounting Pronouncements Recently Adopted
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard includes the requirement that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). It also requires that all entities disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) and requires that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. Lastly, this standard eliminates the requirement for all entities to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate of the range cannot be made. This standard is effective for the Company for the annual period beginning January 1, 2025. Early adoption and retrospective application is permitted. The Company adopted this standard on a prospective basis in the year ended December 31, 2025.
(m) Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.This standard requires
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an entity to disclose on an annual and interim basis, disaggregated information about specific income statement expense categories. It also requires an entity to include certain amounts that are already required to be disclosed under current GAAP in the same disclosure. Additionally, it requires an entity to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, and to disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. This standard is effective for the Company for the annual period beginning January 1, 2027 and interim periods beginning January 1, 2028. Early adoption is permitted. This standard can be applied prospectively for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that this standard may have on its financial statements.
(n) Reverse Stock Split
On January 23, 2024, the Company filed an amendment to its Certificate of Incorporation and effected a 15.21-for-1 reverse stock split of its issued and outstanding shares of common stock. All common stock share and per-share amounts presented in the financial statements and related notes have been retroactively adjusted to reflect the reverse stock split.
(o) License and Collaboration Agreements
The Company analyzes its license and collaborative agreements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, it accounts for those aspects of the arrangement within the scope of ASC 606, Revenue from Contracts with Customers. None of the license and collaboration agreements discussed in Note 11 represent transactions with customers.
If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, it recognizes costs incurred as a component of the related expense in the period incurred. The arrangements may also require the Company to make payments on achievement of certain milestones, including clinical, regulatory, and development milestones. Clinical, regulatory, and development milestones are recognized as research and development expense only when such milestones are deemed probable of being achieved.
(p) Other Comprehensive Income (Loss)
Other comprehensive income (loss) (“OCI”) consists of expenses, gains, and losses that are excluded from net income under GAAP. The Company’s OCI includes, when applicable, unrealized gains and losses on available-for-sale debt securities.
Unrealized gains and losses on available-for-sale debt securities are recorded net of tax in accumulated other comprehensive income (loss) (“AOCI”), a component of stockholders’ equity, until realized. Upon realization, these amounts are reclassified from AOCI into earnings.
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(4) Fair Value Measurements
The following tables show the Company’s cash equivalents and available-for-sale securities’ carrying amounts, fair values, and fair value hierarchy as of December 31, 2025 and 2024 (in thousands):
Cash balances were $5.0 million at each of December 31, 2025 and 2024. Money market funds are highly liquid investments. The pricing information on the Company’s money market funds are based on quoted prices in active markets. This approach results in a classification of these securities as Level 1 of the fair value hierarchy.
The Company’s investment portfolio includes many fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company applied other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, model processes were used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data.
As of December 31, 2025, $267.3 million of the Company’s fixed income securities have maturity dates within the next twelve months. All securities are considered available for sale. During the year ended December 31, 2025, the Company had proceeds from the sale of available-for-sale marketable securities of $18.9 million.
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
December 31,
Professional fees 3 233
Tax credit receivable — 500
Other 60 —
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(6) Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31,
Compensation and related expenses 6,545 4,163
Other accrued expenses 18 67
(7) Commitments and Contingencies
Leases
The Company has two operating leases that it subleases for its office space in California, one of which commenced in January 2024 with an original lease term through January 2026 (which ended in January 2026). The Company’s other lease has an initial lease term of less than twelve months; therefore, it does not recognize this lease as an operating lease on the balance sheet.
Operating lease expense was $0.2 million for each of the years ended December 31, 2025 and 2024. The Company’s remaining lease term and discount rate for its operating lease as of December 31, 2025 are 0.08 years and 10.0%, respectively.
Future maturities of operating lease liabilities were as follows as of December 31, 2025 (in thousands):
Fiscal year ending:
Total future minimum payments 14
Less imputed interest —
Present value of lease liabilities $ 14
Cash paid for rent expense recorded during the years ended December 31, 2025 and 2024 was $0.2 million and $0.2 million, respectively.
Purchase Commitments
The Company enters into contracts in the normal course of business with contract research organizations, contract manufacturing organizations, universities, and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. These contracts generally do not contain minimum purchase commitments and are cancellable by the Company upon prior written notice although, purchase orders for clinical materials are generally non-cancellable. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of the Company’s service providers, up to the date of cancellation or upon completion of a manufacturing run.
Employee Benefit Plan
The Company maintains a 401(k) plan for employees. The 401(k) plan qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) plan, participating employees may defer a portion of their pre-tax earnings. The Company contributes 100% of employee salary deferral contributions up to 4% of pay for
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each payroll period. The Company contributions to the 401(k) plan during the years ended December 31, 2025 and 2024, were $0.7 million and $0.5 million, respectively.
Contingencies
Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
(8) Convertible Preferred Stock and Common Stock
Convertible Preferred Stock
In June 2021, the Company sold 90,000,000 shares of Series A convertible preferred stock (“Series A”) at an original issuance price of $1.00 per share. In February 2022, the Company sold 60,000,000 shares of Series A at an original issuance price of $1.00 per share. In December 2022, the Company sold 104,761,894 shares of Series B convertible preferred stock (“Series B”) at an original issuance price of $1.05 per share. In March 2023, the Company sold 42,857,140 shares of Series B at an original issuance price of $1.05 per share. The Series A and Series B stock were converted to common stock at the Company’s January 2024 initial public offering.
Classification of Convertible Preferred Stock
Prior to their conversion into common stock, the Series A and Series B were classified outside of stockholders’ equity (deficit) because the holders of such shares had redemption rights in the event of a Deemed Liquidation Event that was not solely within the control of the Company. Because the occurrence of a Deemed Liquidation Event was never considered probable, the carrying values of the Convertible Preferred Stock were not accreted to their redemption values.
Common Stock
The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. Unless required by law, there shall be no cumulative voting. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment of all preferential amounts required to be paid to any holders of shares of Convertible Preferred Stock, the remaining funds and assets available for distribution to the stockholders of the Company will be distributed among the holders of shares of common stock, pro rata based on the number of shares of common stock held by each such holder.
“At-the-Market” Offering
On February 3, 2025, the Company filed an automatic shelf registration statement on Form S-3ASR with the SEC pursuant to which the Company registered for sale an indeterminate amount of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine, which is referred to as the “2025 WKSI Shelf”. The 2025 WKSI Shelf includes a prospectus covering up to an aggregate of $250.0 million of shares of common stock that the Company is able to issue and sell from time to time, through Jefferies LLC (“Jefferies”), acting as its sales agent, pursuant to the Open Market Sale AgreementSM, dated February 3, 2025 (the “Sales Agreement”), for its “at-the-market” equity program.
Under the Sales Agreement, Jefferies may sell shares of the Company’s common stock by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act of 1933, as amended, subject to the terms of the Sales Agreement.
During the year ended December 31, 2025, the Company sold 5,560,266 shares of common stock pursuant to the Sales Agreement for total proceeds of $122.2 million, net of commissions and other expenses. As of December 31, 2025, the Company has approximately $123.3 million remaining for future issuances of common stock pursuant to the Sales Agreement.
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July Public Offering
On July 3, 2025, the Company closed an underwritten public offering in which the Company issued and sold an aggregate of 3,059,615 shares of its common stock, including the exercise in full of the underwriters’ option to purchase 576,923 additional shares of common stock, at a public offering price of $19.50 per share, and, in lieu of shares of common stock to certain investors, pre-funded warrants to purchase up to 1,363,469 shares of common stock at a public offering price of $19.4999 per pre-funded warrant, which represents the per share public offering price for the shares less the $0.0001 per share exercise price for each pre-funded warrant. The pre-funded warrants were recorded as a component of shareholders’ equity within additional paid-in-capital and have no expiration date. As of December 31, 2025, none of the pre-funded warrants have been exercised. The proceeds to the Company, net of underwriting discounts, commissions, and other expenses were $80.5 million.
The pre-funded warrants are exercisable at any time after their original issuance. A holder of pre-funded warrants may not exercise the pre-funded warrant if the holder, together with its affiliates, would beneficially own more than 4.99%, or, at the election of such holder upon issuance, 9.99%, of the number of shares of common stock outstanding or more than 4.99%, or, at the election of such holder upon issuance, 9.99%, of the combined voting power of the Company’s securities outstanding immediately after giving effect to such exercise. A holder of pre-funded warrants may increase or decrease this percentage to any other percentage not exceeding 19.99%, in the case of an increase, upon 61 days’ prior notice to the Company. As of December 31, 2025, there have been no exercises of pre-funded warrants since their issuance.
(9) Stock-based Compensation
In June 2021, the Company adopted the 2021 Employee, Director and Consultant Equity Incentive Plan (as amended, the “2021 Plan”), that authorized the Company to grant up to 803,564 shares of common stock via stock-based compensation awards. In 2022, the Company amended the 2021 Plan and increased the total number of shares authorized under the 2021 Plan to 2,748,818. In January 2024, the Company adopted the 2024 Employee, Director and Consultant Equity Incentive Plan (the “2024 Plan”) that authorized the Company to grant up to 3,900,000 shares of common stock plus any remaining ungranted or forfeited shares from the 2021 Plan. As of December 31, 2025, there were 3,504,507 shares available to be granted under the 2024 Plan. The Company’s stock options vest based on the terms in the awards agreements and generally vest over four years. The Company recorded stock-based compensation expense in the following expense categories in its accompanying statements of operations and comprehensive loss (in thousands):
Year Ended December 31,
Research and development $ 5,387 $ 1,328
General and administrative 7,133 1,880
The following is a summary of stock options activity:
Weighted
Weighted average
average remaining Aggregate
exercise contractual Intrinsic Value
Options price term (years) (in thousands)
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The weighted-average grant-date fair value of options granted in 2025 and 2024 were $20.47 and $7.52 per share, respectively. The fair value was estimated using the Black-Scholes option-pricing model based on the following assumptions:
Year Ended
December 31,
Expected term 5.5 - 6.1 years 5.5 - 6.1 years
Expected dividend yield — —
Unrecognized compensation cost for awards not vested as of December 31, 2025 was $37.6 million and will be expensed over a weighted-average period of 2.7 years.
(10) Income Taxes
The Company accounts for income taxes under ASC 740. The Company has incurred losses since inception and has not recognized any current or deferred income tax expense for the year ended December 31, 2025. It is more likely than not that the Company’s deferred tax assets will not be realized. Accordingly, a full valuation allowance has been recorded against the deferred tax assets. A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows (in thousands):
Year Ended December 31, 2025
US Dollars ($) Rate
Tax at U.S. federal rate $ (34,927) 21.0 %
Nontaxable/Nondeductible items
Stock Compensation 1,076 (0.6)
Tax Credits
Research and Development Credit (1,989) 1.1
Changes in Valuation Allowances 35,840 (21.5)
Effective tax rate $ — — %
Although state income taxes are net zero due to the Company's valuation allowance, Pennsylvania and Maryland made up the majority (greater than 50 percent) of the tax effect in this category. There were no cash tax payments made or refunds received for the year ended December 31, 2025. A reconciliation of the provision for income taxes to the
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amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes before the adoption of ASU 2023-09 is as follows:
Year Ended December 31,
Tax at U.S. federal rate 21.0 %
State income taxes 4.9
Other permanent differences —
Transaction costs 1.1
Rate change (0.8)
Research and development credit 4.5
Valuation allowance (30.7)
Total provision — %
Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse.
Significant components of the Company’s deferred tax assets and liabilities consisted of the following (in thousands):
December 31,
Deferred tax assets
Research and development credit 9,051 7,062
Capitalized research and development 43,805 34,591
Total deferred tax assets — 39
Deferred tax liabilities
Right of use asset — (39)
Total deferred tax liabilities — (39)
Net deferred tax assets and liabilities $ — $ —
The Company records a valuation allowance against its net deferred tax asset when it is not more likely than not that such assets will be realized. The realization of deferred tax assets depends upon the Company’s ability to generate future taxable income or other tax planning strategies available in the relevant taxing jurisdiction. In evaluating the realizability of its deferred tax assets, Management must determine whether there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future losses, Management has determined that the deferred tax assets do not meet the more-likely-than-not threshold for realizability. As a result, the Company recorded a valuation allowance against its net deferred tax assets as of December 31, 2025. The valuation allowance increased by $40.4 million and $24.7 million during the year ended December 31, 2025 and 2024, respectively due to the current year pre-tax losses and research and development tax credits.
As of December 31, 2025 and 2024, the Company had federal net operating loss (“NOL”) carryforwards of $138.5 million and $67.4 million, which will be carried forward indefinitely to offset future taxable income, subject to an 80 percent limitation of taxable income annually. In addition, as of December 31, 2025 and 2024, state NOLs exist of approximately $121.7 million and $58.8 million subject to various carryforward periods with the first state NOLs beginning to expire in 2043. The Company also had research and development tax credit carryforwards of approximately
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$9.1 million and $7.1 million as of December 31, 2025 and 2024. The research credit carryforward will begin to expire in 2041. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and credits to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in ownership by one or more “5% shareholders” (as defined under U.S. income tax laws) that exceeds 50 percentage points over a rolling three-year period. Similar rules apply under state tax laws. The Company has not determined if it has experienced Section 382 ownership changes in the past and if a portion of the NOL and tax credit carryforwards are subject to an annual limitation under Section 382. In addition, the Company may experience ownership changes in the future as a result of subsequent shifts in stock ownership, some of which may be outside of our control.
As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s financial statements. The Company is currently subject to U.S. Federal and state tax examination. As a result of tax attribute carryforwards, all U.S. federal and state tax periods from the Company’s inception in 2021 through 2025 remain open. The Company does not have a reserve for uncertain tax positions.
(11) License and Collaboration Agreements
Allist
In June 2021, the Company entered into a Global Technology Transfer and License Agreement with Allist (“Allist Agreement”). Pursuant to the Allist Agreement, the Company was granted an exclusive license under certain intellectual property to develop, manufacture and commercialize certain licensed products in the field in the licensed territory. Upon execution of the Allist Agreement, the Company paid Allist a non-refundable cash payment of $40.0 million and issued 1,276,250 shares of its common stock. The upfront payment and the fair value of the common stock issued was recorded to research and development expense in 2021.
Upon the achievement of certain clinical, regulatory and commercial milestones using the licensed technology, the Company is obligated to make future milestone payments to Allist of up to $105.0 million in clinical and regulatory milestones and up to $655.0 million in commercial milestones. Furthermore, royalties, ranging from high single digit to low mid-teen percentages will be payable to Allist on net sales of licensed products in licensed territories.
In connection with the Allist Agreement, in December 2021, the parties also entered into a Joint Clinical Collaboration Agreement (“Clinical Collaboration”) to define the framework under which the parties will cooperate and share costs related to global clinical studies to be conducted jointly by the Company and Allist. During the years ended December 31, 2025 and 2024, the Company incurred $0.6 million and $0.9 million, respectively, in cost reimbursements to Allist under the Clinical Collaboration which have been recorded as research and development expense. The Company also received cost reimbursements from Allist of $1.4 million and $0.3 million for the years ended December 31, 2025 and 2024, respectively, which has been recorded as a reduction of research and development expenses. The Company incurred $5.0 million in clinical milestone payments to Allist during the year ended December 31, 2025. During the year ended December 31, 2025, no additional milestones were met, achieved, or were probable of achievement.
Alphamab
In June 2024, the Company entered into a collaboration agreement with Jiangsu Alphamab Biopharmaceuticals Co., Ltd. (“Alphamab”) to discover, develop and commercialize novel antibody drug conjugates (“ADCs”) for the treatment of cancers (“Alphamab Agreement”).
Under the Alphamab Agreement, both companies seek to leverage Alphamab’s proprietary linker-payload platform and glycan-conjugation technology to identify novel ADCs for oncology indications. The Alphamab Agreement gives
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the Company exclusive rights to develop and commercialize ADCs globally, except greater China, which includes mainland China, Hong Kong, Macau and Taiwan where Alphamab retains the right to develop and commercialize the ADCs.
The terms of the Alphamab Agreement include combined upfront and potential milestone payments to Alphamab of up to $201.5 million based on the achievement of certain regulatory and development milestones, and up to $414.0 million based on the achievement of certain commercial milestones. In addition, Alphamab is entitled to receive tiered sales royalties, ranging from low single digit to mid-single digit percentages, from the Company for net sales of each ADC product.
The upfront payment was recorded to research and development expense during the year ended December 31, 2024. During the years ended December 31, 2025 and 2024, the Company paid $4.6 million and $0.2 million in cost reimbursements, respectively, to Alphamab under the Alphamab Agreement. $1.7 million of these payments were expensed in the year ended December 31, 2025, also as research and development. Finally, during the year ended December 31, 2025, the Company paid $1.2 million upon the approval of a target pair selection, which was also included in research and development expense. During the year ended December 31, 2025, no additional milestones were met, achieved, or were probable of achievement.
Aarvik
In December 2021, the Company entered into a Research Collaboration Agreement, as amended, effective June 30, 2023 (the “Aarvik Collaboration Agreement”), with Aarvik Pharmaceuticals, Inc. (“Aarvik”), under which the Company is required to pay Aarvik up to $3.1 million on statements of work (“SOWs”) and an initiation fee of $0.3 million. After the completion of the SOWs, the Company has an exclusive option to license the Aarvik intellectual property, and the option to acquire certain of Aarvik’s intellectual property, after which it is the Company’s sole responsibility to research, develop, manufacture and commercialize any applicable compound and product in the field and territory. In August 2024, the Company paid $1.0 million to exercise that option, and as a result is now obligated to pay up to $18.0 million per product upon the achievement of certain clinical and regulatory milestone events and up to $80.0 million per product in commercial milestones. Additionally, the Company is obligated to pay Aarvik royalties in the mid-single digits based on net sales of licensed products.
On August 9, 2024, the Company entered into an amendment and restatement of the Aarvik Collaboration Agreement (the “Amended and Restated Aarvik Collaboration Agreement”). Under the Amended and Restated Aarvik Collaboration Agreement, Aarvik granted the Company an exclusive option to obtain exclusive rights to certain of Aarvik’s intellectual property for the research, development, manufacture, use, commercialization, or other exploitation of the ADCs related to (i) the two agreed targets to which the compounds being developed under the collaboration bind, which is referred to as the Target Pair, and (ii) the acquisition of exclusive rights to certain intellectual property generated during the collaboration. The Company has not yet selected the indication or indications that it would pursue in the collaboration and anticipates doing so in connection with the identification of a lead candidate for IND-enabling activities. Under the Amended and Restated Aarvik Collaboration Agreement, the Company has paid Aarvik a collaboration initiation fee and research fees as provided in the SOWs in an aggregate amount of $4.9 million.
The Company incurred $0.5 million and $2.3 million in research and development expenses related to the Aarvik SOWs during the years ended December 31, 2025 and 2024, respectively. No milestones have been met or achieved, or are probable of achievement, since the inception of the Aarvik Collaboration Agreement.
Lepu
On January 21, 2025, the Company entered into an Exclusive License Agreement (the “Lepu Biopharma Agreement”) with Lepu Biopharma Co., Ltd. (“Lepu”), pursuant to which Lepu granted the Company a right to develop and commercialize ARR-217, an antibody drug conjugate for gastrointestinal cancers outside Greater China.
Under the Lepu Biopharma Agreement, Lepu granted to the Company: (i) an exclusive, royalty-bearing, sublicensable license under certain intellectual property owned or controlled by Lepu, to develop, manufacture and
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commercialize any product containing ARR-217 for all uses in all countries and territories other than Greater China (as defined in the Lepu Biopharma Agreement) (the “ArriVent Territory”); and (ii) a non-exclusive license under certain intellectual property controlled by Lepu to develop, manufacture and commercialize any product containing ARR-217 for use in oncology in the ArriVent Territory. Under the Lepu Biopharma Agreement, the Company paid Lepu a one-time upfront payment of $40 million and, during the three months ended June 30, 2025, the Company paid $1.0 million to Lepu for the achievement of the first developmental milestone under the Lepu Biopharma Agreement as it became probable of achievement during the second quarter. Lepu is eligible to receive a potential near-term clinical milestone payment for $6.0 million in cash. The upfront payment was included in research and development expenses. Finally, Lepu is eligible to receive payments of up to $0.3 billion in development and regulatory milestones, and up to $0.89 billion in commercial milestones, and tiered royalties in high single-digit to low-teen percentages on net sales in the ArriVent Territory.
Other than the milestone payment of $1.0 million recorded in the second quarter of 2025, no milestones have been met or achieved, or are probable of achievement, since the inception of the Lepu Biopharma Agreement. During year ended December 31, 2025, the Company paid $1.7 million in research and development expenses related to the Lepu Biopharma Agreement.
(12) Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company has one reportable segment: life science. The life science segment is engaged in identifying, licensing and globalizing top biopharma innovations from around the world to deliver important medicines to patients. The Company’s chief operating decision maker (“CODM”) is the chief executive officer.