Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with all of the other information included in this Annual Report on Form 10-K, including the consolidated financial statements and the related notes thereto and “Risk Factors”. This section of this Annual Report on Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
During 2025, we transitioned from a clinical-stage company to a commercial-stage company following the FDA approval and launch of PALSONIFY for the treatment of acromegaly in September 2025. As a result, our results of operations for the year ended December 31, 2025 reflect our initial period of commercial activity, including the generation of product revenue, commercialization-related costs, and continued investment in our research and development programs.
This management’s discussion and analysis of financial condition and results of operations focuses on the key factors affecting our financial performance during this transition period, including initial product revenue net of gross-to-net adjustments, commercialization and operating expenses, collaboration and license revenue, and changes in liquidity and capital resources. Comparisons of our results for the year ended December 31, 2025 to prior periods should be viewed in the context of this shift to commercial operations.
We ended 2025 with a strong liquidity position, further strengthened by an underwritten public offering completed in January 2026, which provides capital to support our ongoing commercialization and development activities. See “Liquidity and Capital Resources” below.
As a newly commercial-stage company, we expect product revenue to increase as we continue to expand commercialization efforts for PALSONIFY. However, given the early stage of commercialization, we do not expect product revenue to be sufficient to offset operating expenses in the near term. We also expect operating expenses to increase as we continue to invest in commercialization, clinical development, and other research and development activities. Accordingly, we expect to continue to incur net losses for the foreseeable future.
Recent Developments
PALSONIFY
•On September 25, 2025, the FDA approved PALSONIFY as the first and only once-daily oral somatostatin receptor ligand for the treatment of adults with acromegaly who had an inadequate response to surgery and/or for whom surgery is not an option. We generated net product revenue of $5.4 million related to the PALSONIFY sales during the three months ended December 31, 2025.
•2025 key metrics reflecting uptake from patients and healthcare providers, as well as payer feedback:
•More than 200 enrollment forms received, including 22 from U.S.-based open-label extension participants.
•Over 125 unique PALSONIFY prescribers, 50% of whom are from the community setting and 50% are from the pituitary treatment center setting.
•Approximately half of newly filled bottles were reimbursed without need for Quickstart bridge supplies.
•12-month duration of most prior authorizations with approximately half of newly filled bottles reimbursed.
Paltusotine
•The first patient was enrolled in the Phase 3 study of paltusotine for CS in November 2025.
•In February 2026, the CHMP of the EMA adopted a positive opinion, recommending the marketing authorization of PALSONIFY for the medical treatment of adult patients with acromegaly. The CHMP opinion will be reviewed by the EC, consistent with a timeline for a potential decision in the first half of 2026.
Atumelnant
•In January 2025, we reported positive results from the first three cohorts of the Phase 2 TouCAHn open-label study of atumelnant in CAH. In January 2026, we provided an update, including data on the fourth cohort of the
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Phase 2 TouCAHn study and data from the separate OLE study. Participants in all four cohorts were eligible to enroll in the OLE.
•In May 2025, we announced the design of our Phase 3 CALM-CAH study. The firstparticipant in the CALM-CAH study wasrandomized in December 2025.
•In August 2025, we announced our pediatric trial design in CAH, BALANCE-CAH. BALANCE-CAH is designed as an operationally seamless Phase 2/3 study. The first participant in the BALANCE-CAH study was dosed in January 2026.
•We expect to initiate an operationally seamless Phase 2/3 study of atumelnant in ADCS (EQUILIBRIUM-ADCS) in the first half of 2026.
CRN09682
•In April 2025, we received IND clearance for CRN09682, the first candidate from the NDC platform. In November 2025, the first patient received CRN09682 in the dose escalation phase of a Phase 1/2 study.
For other product candidate updates, see “Business Overview.”
Equity Offerings
On January 8, 2026, the Company completed an underwritten public offering of 8,763,000 shares of its common stock at a price to the public of $45.95 per share, which included 1,143,000 shares of common stock issued pursuant to the underwriters' option to purchase additional shares. Net proceeds from the offering were approximately $380.0 million, after underwriting discounts and commissions and other offering costs. After the completion of this public offering, the Company had approximately $1.4 billion in cash, cash equivalents, and investment securities.
Financial Operations Overview
During the year ended December 31, 2025, our financial results changed as we commercialized PALSONIFY following the FDA approval in September 2025 and the launch of PALSONIFY in the fourth quarter of 2025. As a result, our results now include product revenue for the first time, alongside collaboration and license revenue that historically represented our primary sources of revenue. Product revenue during 2025 reflects a partial year of commercialization and is subject to gross-to-net adjustments customary in the U.S. pharmaceutical market.
Our cost structure also evolved during 2025 as we incurred cost of product revenue and expanded our commercial infrastructure to support the launch of PALSONIFY. These changes resulted in increased operating expenses, including commercialization-related selling, general and administrative expenses, while we continued to invest in manufacturing readiness and supply chain activities necessary to support ongoing commercial operations.
While commercialization efforts expanded during 2025, research and development expenses increased as we progressed clinical development programs and supported earlier-stage research initiatives to advance our pipeline of product candidates.
Critical Accounting Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those listed below. We base our estimates on historical experience, known trends and events, information received from third parties and various other factors that we believe are reasonable under the circumstances at the time the estimates are made, 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. There were no material differences between estimates and actual results for the years presented in the accompanying consolidated financial statements.
Our significant accounting policies are described in more detail in Note 2 to the consolidated financial statements. We believe the following accounting estimates to be most critical to the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with
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our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Costs incurred under contracts with CROs that conduct and manage our clinical trials are also included in research and development expenses. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Clinical trial activities are accrued and expensed based on estimates of the period in which services and efforts are expended by CROs and other third parties. Estimates are determined by reviewing cost information provided by CROs, other third-party vendors and internal clinical personnel, and contractual arrangements with CROs and the scope of work to be performed. If the amounts that we are obligated to pay under our clinical trial agreements are modified (for instance, because of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Revenue Recognition - Gross-to-Net Adjustments
Product revenue is recorded with each sale at wholesale acquisition cost, net of variable consideration and consideration payable to third parties associated with distribution of product. We utilize the expected value method when estimating the amount of variable consideration to include in the transaction price. Variable consideration is included in the transaction price only to the extent it is probable that a significant revenue reversal will not occur. These amounts include government rebates, chargebacks, distribution service fees, co-payment assistance and return reserve, which are collectively referred to as “Gross-to-Net Adjustments.” We must make significant judgments to determine the estimates for Gross-to-Net Adjustments. These estimates are reassessed each reporting period.
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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 (in thousands):
Year Ended December 31, $Change %Change
Revenue:
Product revenue, net $ 5,420 $ — $ 5,420 N/M
Operating expenses:
Cost of product revenue 1,076 — 1,076 N/M
Income tax expense 180 — 180 N/M
Loss on equity method investment — (470) 470 N/M
N/M - percentage not meaningful
Revenue
Revenue during the year ended December 31, 2025 relates to PALSONIFY net product revenue and our partnership with SKK. We have recognized net product sales in the U.S. since the commercial launch of PALSONIFY in October 2025. We expect product revenue to increase in future periods as we continue with the commercial launch of PALSONIFY.
Revenue during the year ended December 31, 2024 relate to our partnership with SKK. The increase in collaboration and license revenue is attributable to the timing of the revenue recognition for the data exchange performance obligation under the SKK License.
Cost of product revenue
The following table summarizes our cost of product revenue for the year ended December 31, 2025 (in thousands):
Year Ended
Cost of product revenue:
Commercial manufacturing readiness and supplier qualification costs $ 826
Packaging, distribution, and other fulfillment costs 250
Total cost of product revenue $ 1,076
Cost of product revenue for the year ended December 31, 2025 reflects commercial manufacturing readiness and supplier qualification costs incurred following regulatory approval of PALSONIFY and packaging, distribution, and other fulfillment-related costs. Product sales during 2025 were largely derived from inventory manufactured prior to regulatory approval of PALSONIFY, which had a zero cost basis as the related manufacturing costs were previously expensed as research and development in accordance with U.S. GAAP. As a result, cost of product revenue during this initial
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commercialization period was not directly correlated with product revenue and does not reflect the Company’s expected cost structure for future periods.
For the quarter and year ended December 31, 2025, the cost of product revenue would have increased by less than $0.1 million if we included previously expensed inventories.
Research and development expenses
Research and development expenses consist of costs incurred to support the discovery, preclinical development and clinical development of PALSONIFY and our product candidates. These expenses include personnel-related costs for employees engaged in research and development activities, external costs incurred under agreements with contract research organizations, investigative sites and consultants, costs to manufacture drug supply for preclinical studies and clinical trials, regulatory compliance costs, laboratory supplies, and allocated facility and overhead expenses.
Research and development expenses are expensed as incurred. Costs incurred to manufacture PALSONIFY prior to FDA approval were recorded as research and development expenses, resulting in zero-cost inventory upon approval.
Research and development expenses are driven by the scope, timing and progress of our clinical trials, including trial design, patient enrollment rates, trial duration, manufacturing requirements and regulatory activities. As a result, research and development spending may vary from period to period based on these factors and our strategic prioritization of programs.
We expect research and development expenses to increase as we continue to advance our pipeline and conduct ongoing and planned clinical and preclinical studies. However, the timing, duration and costs of these activities are subject to the inherent uncertainty associated with pharmaceutical research and development.
The following table summarizes our primary external and internal research and development expenses for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31, $Change %Change
External research and development expenses:
Other external research and development 55 37 18 49 %
Internal expenses:
The increase in the majority of the categories above for the year ended December 31, 2025 since the corresponding prior year is as a result of the advancement of our clinical programs and preclinical portfolio.
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The following table summarizes our research and development expenses by program for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31, $Change %Change
The increase in research and development expenses of programs for the year ended December 31, 2025 as compared to the prior year was primarily due to clinical, manufacturing, and outside services costs related to paltusotine and atumelnant and increased investment across other research and development programs.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of salaries and employee-related costs, including stock-based compensation, for personnel in commercial, finance, legal, human resources, information technology, and other corporate and administrative functions. Other significant components include sales and marketing expenses, facility-related costs, legal fees related to intellectual property and corporate matters, professional fees for accounting and consulting services, insurance costs, and commercial planning activities.
Selling, general and administrative expenses also include costs associated with operating as a public company, including audit, legal, regulatory and tax-related services required for compliance with SEC and exchange listing requirements, director and officer insurance premiums, corporate communications, investor relations activities, and corporate strategy and business development efforts.
We expect selling, general and administrative expenses to increase as we continue to support the commercialization of PALSONIFY, expand our commercial and administrative infrastructure, and advance our research and development activities, including the potential commercialization of additional product candidates if approved and expanding into additional markets beyond the U.S.
The following table summarizes our selling, general and administrative expenses for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31, $Change %Change
The increase in selling, general and administrative expenses for the year ended December 31, 2025 as compared to the prior year was primarily due to the increase in personnel expenses, including stock-based compensation, and professional services to support our growth, including the commercial launch of PALSONIFY.
Other income
Other income, net was $51.6 million and $40.9 million for the years ended December 31, 2025 and 2024, respectively. The increase was primarily due to income generated by our investment securities as a result of higher average invested balances and prevailing interest rates.
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Loss on equity method investment
Loss on equity method investment was zero and $0.5 million for years ended December 31, 2025 and 2024, respectively. The loss recognized in 2024 reflected our share of Radionetics’ net loss, which resulted in the investment asset being written down to zero.
Income taxes
Income tax expense was $0.2 million for the year ended December 31, 2025, compared to no income tax expense or benefit for the year ended December 31, 2024. The amount is not considered material.
Liquidity and Capital Resources
Our financial condition is summarized as follows (in thousands):
We have funded our operations through equity financings, supplemented by license, collaboration and initial product revenue. As of December 31, 2025, we had cash, cash equivalents and investment securities of $1.0 billion. On January 8, 2026, the Company completed an underwritten public offering of 8,763,000 shares of its common stock for net proceeds of approximately $380.0 million, after underwriting discounts, commissions and other offering costs. Immediately after the completion of this offering, our cash, cash equivalents and investment securities was approximately $1.4 billion.
Based on our current and anticipated level of operations, we believe that our existing capital resources, together with income generated by our investment securities and product revenue, will be sufficient to satisfy our current and projected funding requirements for at least the next twelve months. However, our forecast of the period 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 use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•the type, number, scope, progress, results, costs and timing of our preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;
•our ability to generate revenue through product sales of PALSONIFY and other potential product candidates once approved, if ever, and future licensing arrangements;
•the costs, timing and outcome of regulatory review of our product candidates;
•the costs associated with hiring additional personnel and consultants as our preclinical, clinical and commercial activities increase;
•the costs of and our ability to obtain clinical and commercial supplies for our current product candidates and any other product candidates we may identify and develop;
•the costs and timing of manufacturing for our product candidates, including commercial manufacturing;
•the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
•our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company with a commercial pharmaceutical product, including enhanced internal controls over financial reporting, government price reporting and establishing and maintaining an effective compliance program;
•the costs and timing of establishing or securing sales and marketing capabilities for any additional product candidates that are approved;
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•our ability to achieve sufficient market acceptance, adequate coverage and reimbursement from third-party payers and adequate market share and revenue for any approved products;
•the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
•costs associated with any products or technologies that we may in-license or acquire;
•the funding of any co-development arrangements we enter into; and
•general economic, industry and market conditions or other events or factors, many of which are beyond our control, such as the impact of any natural disasters, including related to climate change, or public health emergencies, inflation, interest rates, actual or anticipated bank failures, and international military or geopolitical conflicts, including between Russia and Ukraine and in the Middle East.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through our substantial existing capital resources, equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. 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. In addition, our ability to access financing on the terms we anticipate, or at all, may be impacted by volatility in global credit and financial markets, including as a result of inflation, rising interest rates, fluctuation in the value of the U.S. dollar and the effects, if any, of evolving international trade policies and government actions relating to tariffs. Debt financing and preferred 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, licenses, and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or 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.
Equity Offerings
On March 1, 2024, we completed a private placement of 8,333,334 shares of its common stock at a price of $42.00 per share (the "Private Placement"). Net proceeds from the Private Placement were approximately $335.5 million, after offering costs of approximately $14.5 million.
On October 10, 2024, we completed an underwritten public offering of 11,500,000 shares of its common stock at a price to the public of $50.00 per share, which included 1,500,000 shares of common stock issued pursuant to the underwriters' option to purchase additional shares. Net proceeds from the offering were approximately $542.8 million, after underwriting discounts and commissions and other offering costs of approximately $32.2 million.
On January 8, 2026, we completed an underwritten public offering of 8,763,000 shares of its common stock at a price to the public of $45.95 per share, which included 1,143,000 shares of common stock issued pursuant to the underwriters' option to purchase additional shares. Net proceeds from the offering were approximately $380.0 million, after underwriting discounts and commissions and other offering costs.
ATM Offerings
In August 2019, we entered into the 2019 Sales Agreement with the Sales Agents, under which we could, from time to time, sell up to $150.0 million of shares of our common stock through the Sales Agents pursuant to the 2019 ATM Offering. The 2019 ATM Offering was terminated upon the filing of our Registration Statement on Form S-3ASR on June 21, 2024.
On June 21, 2024, we entered the 2024 Sales Agreement with the Sales Agents, under which we may, from time to time, sell up to $350.0 million of shares of our common stock through the Sales Agents pursuant to the 2024 ATM Offering. We are not obligated to, and we cannot provide any assurances that we will continue to, make any sales of the shares under the 2024 Sales Agreement. The 2024 Sales Agreement may be terminated by either Sales Agent (with respect to itself) or us at any time upon 10 days’ notice to the other parties, or by either Sales Agent, with respect to itself, at any time in certain circumstances, including the occurrence of a material adverse change. We will pay the Sales Agents a commission for their services in acting as agent in the sale of common stock in an amount equal to 3% of the gross sales price per share sold.
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During the year ended December 31, 2024, the Company issued 1,223,775 shares of common stock for net proceeds of approximately $43.4 million and 928,912 shares of common stock for net proceeds of approximately $48.3 million, pursuant to the 2019 ATM Offering and the 2024 ATM Offering, respectively.
During the three months and year ended December 31, 2025 and the three months ended December 31, 2024, no shares of common stock were sold pursuant to the 2024 Sales Agreement.
Cash Flows
We have incurred cumulative net losses and negative cash flows from operations since our inception and expect to continue to incur net losses for the foreseeable future. As of December 31, 2025, we had an accumulated deficit of $1.4 billion and cash, cash equivalents and investment securities of $1.0 billion.
The following table provides information regarding our cash flows for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31, $Change %Change
Cash Flows from Operating Activities
Cash used in operating activities is driven by personnel costs; clinical, manufacturing, and facility expenses; sales and marketing activities; and general and administrative support, partially offset by revenue generated from net product sales of PALSONIFY and our collaboration and license revenue. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we increase spending on personnel, commercial activities, and research and development as our business grows.
The year‐over‐year net increase in cash used in operating activities is driven by expenditures related to supporting the Company's commercial growth, the advancement of our clinical programs, and the progression of our preclinical portfolio.
Cash Flows from Investing Activities
Cash flows from investing activities are driven by fluctuations in the timing of purchases and maturities of investments and, to a lesser extent, purchases of property and equipment. The year‐over‐year change in cash flows from investing activities is mainly attributable to differences in the mix and timing of investment purchases and maturities.
Cash Flows from Financing Activities
Net cash provided by financing activities consists of net proceeds from the sale of common stock, exercises of stock options, and shares issued under the ESPP. The year‐over‐year decrease in cash provided by financing activities is attributable to the net proceeds received from the sale of common stock in 2024, compared to none in 2025, as well as a net decrease in proceeds from stock option exercises and shares issued under the ESPP.
Common Stock and Common Stock Equivalents
As of February 13, 2026, outstanding shares of common stock were 104.7 million, outstanding stock options were 13.3 million, unvested restricted stock units were 2.3 million, and shares expected to be purchased under the ESPP, were 0.7 million.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our cash, cash equivalents and investment securities consist of cash held in readily available checking and money market accounts as well as short-term debt securities. We are exposed to market risk related to fluctuations in interest rates and market prices. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden hypothetical 10% change in market interest rates would not be expected to have a material impact on our financial condition or results of operations.
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Foreign Currency
We conduct a portion of our business in currencies other than our U.S. dollar functional currency. These transactions give rise to cash flows and monetary assets and liabilities that are denominated in currencies other than the U.S. dollar; the value of these amounts are exposed to changes in currency exchange rates from the time the transactions are originated until the time the cash settlement is converted into U.S. dollars.
We contract with vendors, CROs and investigational sites in several foreign countries, including countries in South America, Europe and the Asia Pacific. As such, we have exposure to fluctuations in foreign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk. Additionally, our subsidiaries expose us to foreign currency exchange risk. We believe this exposure to be immaterial and, to date, we have not incurred any material adverse effects from foreign currency changes on these contracts. As of December 31, 2025, the impact of a theoretical 10% change in the exchange rate would not result in a material gain or loss.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and the report of our independent registered accounting firm required pursuant to this item are incorporated by reference herein from the applicable information included in Item 15 of this Report and are presented beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2025 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2025, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal controls
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over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As of December 31, 2025, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on this assessment, our management concluded that, as of December 31, 2025, our internal control over financial reporting was effective based on those criteria.
BDO USA, P.C., the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, was engaged to attest to and report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, as stated in its report below.
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Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Crinetics Pharmaceuticals, Inc.
San Diego, California
Opinion on Internal Control over Financial Reporting
We have audited Crinetics Pharmaceuticals, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated February 26, 2026, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with 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 internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, P.C.
San Diego, California
February 26, 2026
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Item 9B. Other Information
Rule 10b5-1 Trading Plans
During the three months ended December 31, 2025, the following members of our Board of Directors and/or officers adopted, modified, or terminated a trading arrangement that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c):
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission in connection with our 2026 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2025, under the headings “Election of Directors,” “Corporate Governance,” “Our Executive Officers,” and, if applicable, “Delinquent Section 16(a) Reports,” and is incorporated herein by reference.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our website at www.crinetics.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company consistent with the highest standards of business ethics and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (i) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future.
Item 11. Executive Compensation.
Information required by this item will be contained in our Definitive Proxy Statement under the heading “Executive Compensation and Other Information,” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required by this item will be contained in our Definitive Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.
Information required by Item 201(d) of Regulation S-K will be contained in our Definitive Proxy Statement under the heading “Executive Compensation and Other Information” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item will be contained in our Definitive Proxy Statement under the headings “Certain Relationships and Related Person Transactions,” “Board Independence” and “Committees of the Board of Directors” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by this item will be contained in our Definitive Proxy Statement under the heading “Independent Registered Public Accountants’ Fees,” and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)Documents filed as a part of this Report:
(1)Financial Statements.
The financial statements of Crinetics Pharmaceuticals, Inc., together with the reports thereon of BDO USA, P.C., an independent registered public accounting firm, are included in this Annual Report on Form 10-K.
(2)Financial Statement Schedules.
All schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
(3)Exhibits.
A list of exhibits to this Annual Report on Form 10-K is set forth on the Exhibit Index immediately preceding the signature page and is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
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CRINETICS PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets F-4
Consolidated Statements of Operations and Comprehensive Loss F-5
Consolidated Statements of Stockholders’ Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
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Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Crinetics Pharmaceuticals, Inc.
San Diego, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Crinetics Pharmaceuticals, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 26, 2026 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accrued Clinical Trial Costs
As described in Notes 2 and 5 to the consolidated financial statements, the expenses and accrual for clinical trial activities are determined based on management’s estimates of when services are provided by contract research organizations (“CROs”) and other third parties. Estimates are determined by reviewing cost information provided by CROs, other third-party vendors, and internal clinical personnel, and the scope of work to be performed from contractual arrangements with CROs. As of December 31, 2025, the Company recorded $7.4 million in accrued clinical trial costs, which was included in accounts payable and accrued expenses on the consolidated balance sheets.
We identified the estimation of accrued clinical trial costs as a critical audit matter. Management’s judgment was required to estimate the progress of services and the associated costs incurred, which were used to determine the accrued liabilities for clinical trial expenses. Auditing accrued clinical trial costs was especially challenging due to the nature and extent of audit effort required to address the matter.
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The primary procedures we performed to address this critical audit matter included:
•Testing management’s process for estimating accrued clinical trial costs by: (i) obtaining and inspecting certain agreements and related amendments and (ii) confirming total clinical trial costs incurred and total amounts billed with certain third-party vendors.
•Testing the completeness of the Company’s accrued clinical trial costs by: (i) evaluating internal materials and publicly available information (such as press releases and public databases that track clinical trials) and (ii) testing invoices received after year-end from certain third-party vendors.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2016.
San Diego, California
February 26, 2026
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CRINETICS PHARMACEUTICALS, INC.
Consolidated Balance Sheets
(In thousands, except per share amounts)
ASSETS
CURRENT ASSETS
Restricted cash — 500
Trade accounts receivable, net 592 —
Prepaid expenses and other current assets 17,839 20,819
Restricted cash, net of current portion 800 800
Prepaid expenses and other assets, net of current portion 22,327 2,829
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 41,770 $ 21,469
Accrued compensation and related expenses 35,578 28,887
Operating lease liabilities, non-current 42,052 44,570
Deferred revenue, non-current 3,810 4,704
Other non-current liabilities 3,240 829
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive income 1,865 963
Stock held in trust (112) —
See the accompanying notes to these consolidated financial statements.
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CRINETICS PHARMACEUTICALS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
Year ended December 31,
Revenue:
Product revenue, net $ 5,420 $ — $ —
Operating expenses:
Cost of product revenue 1,076 — —
Other income (expense):
Income tax expense 180 — —
Loss on equity method investment — (470) (5,198)
Net loss per share:
Net loss per share - basic and diluted $ (4.95) $ (3.69) $ (3.69)
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities $ 1,074 $ (14) $ 4,908
Unrealized loss on foreign currency (172) — —
Total other comprehensive income (loss) 902 (14) 4,908
See the accompanying notes to these consolidated financial statements.
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CRINETICS PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands)
Shares
Issuance of common stock upon vesting of restricted stock units 81 — — — — —
Stock issued under Employee Stock Purchase Plan 147 2,291 — — — 2,291
Issuance of common stock upon vesting of restricted stock units 249 — — — — —
Stock issued under Employee Stock Purchase Plan 222 4,224 — — — 4,224
Comprehensive loss — — (14) — — (14)
Issuance of common stock upon vesting of restricted stock units 415 — — — — —
Stock issued under Employee Stock Purchase Plan 206 5,219 — — — 5,219
Stock held in trust under deferred compensation plan — 112 — — (112) —
Comprehensive income — — 902 — — 902
See the accompanying notes to these consolidated financial statements.
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CRINETICS PHARMACEUTICALS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net loss to net cash used in operating activities:
Noncash license revenue — — (2,000)
Loss on equity method investment — 470 5,198
Loss on disposal of property and equipment 50 51 6
Changes in operating assets and liabilities:
Trade accounts receivable (592) — —
Inventory (2,022) — —
Operating lease liabilities (3,181) (6) (546)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Radionetics preferred stock — — (5,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of commissions — 985,030 369,560
Offering costs related to issuance of common stock — (14,982) (541)
Exchange rate changes on cash, cash equivalents and restricted cash (106) — —
COMPONENTS OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
NON-CASH INVESTING AND FINANCING ACTIVITIES
Private company shares received under licensing arrangements $ — $ — $ 2,000
Exercise of Radionetics Warrant $ — $ — $ 668
Stock options exercised receivable $ 10 $ 76 $ 166
Receivable for common stock issuances $ — $ — $ 87
Accrued financing costs $ — $ — $ 26
Stock held in trust $ 112 $ — $ —
Amounts accrued for purchases of property and equipment $ 389 $ 180 $ 872
Right-of-use asset obtained in exchange for lease obligations $ — $ — $ 46,273
Leasehold improvements paid by the lessor $ — $ — $ 2,925
See the accompanying notes to these consolidated financial statements.
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CRINETICS PHARMACEUTICALS
Notes to Consolidated Financial Statements
(Unless otherwise indicated, all amounts are presented in thousands, except per share amounts)
1. Organization and Basis of Presentation
Description of Business
Crinetics Pharmaceuticals Inc. (the “Company”) is a pharmaceutical company committed to transforming the treatment of endocrine diseases and endocrine-related tumors through science rooted in patient needs. The Company is focused on discovering, developing, and commercializing novel therapies, with core expertise in targeting G protein coupled receptors with small molecules that have specifically tailored pharmacology and properties.
The Company’s lead product, PALSONIFYTM (paltusotine), is the first once-daily, oral treatment approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of adults with acromegaly who had an inadequate response to surgery and/or for whom surgery is not an option. Paltusotine is also in clinical development for carcinoid syndrome associated with neuroendocrine tumors (“NETs”). Our pipeline of disclosed programs includes late-stage investigational candidate atumelnant, which is currently in development for congenital adrenal hyperplasia and ACTH-dependent Cushing’s syndrome, and CRN09682, a nonpeptide drug conjugate candidate that is being developed to treat somatostatin receptor type 2 (“SST2”) expressing NETs and other SST2 expressing solid tumors. Additional discovery programs address a variety of endocrine conditions such as NETs, Graves’ disease (including Graves’ hyperthyroidism and Graves’ orbitopathy, or Thyroid Eye Disease), polycystic kidney disease, hyperparathyroidism, diabetes, obesity, and GPCR-targeted oncology indications.
Liquidity
From inception, the Company has devoted substantially all of its efforts to drug discovery and development, conducting preclinical studies and clinical trials, and building the infrastructure necessary for commercial operations. The Company has a limited operating history and the sales and income potential of the Company’s business and market are unproven. While the Company has received FDA approval for its lead product, the Company may continue to incur substantial operating losses even as it generates revenue from PALSONIFY, and a successful transition to attaining profitable operations is dependent upon achieving a level of revenue adequate to support the Company’s cost structure.
The Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $1.4 billion as of December 31, 2025. As of December 31, 2025, the Company had $1.0 billion in cash, cash equivalents and investment securities, which the Company believes is sufficient to meet its funding requirements for at least the next 12 months.
On January 8, 2026, the Company completed an underwritten public offering of 8,763,000 shares of its common stock for net proceeds of approximately $380.0 million, after underwriting discounts, commissions and other offering costs.
The Company’s future long-term liquidity requirements will be substantial and will depend on many factors, including the Company’s ability to effectively commercialize PALSONIFY and other product candidates. The Company expects to continue to incur net losses for the foreseeable future and may need to raise substantial additional capital to accomplish its business objectives over the next several years. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of its existing capital resources, product sales, equity offerings, debt financings or other sources, including potential collaborations, licenses and other similar arrangements. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and prospects. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the Company's accounts and those of its wholly-owned subsidiaries, and have been prepared inconformity with U.S. generally accepted accounting principles (“GAAP”). All intercompany transactions have been eliminated.
Reclassifications
Certain prior period amounts within the consolidated statements of cash flows have been reclassified to conform to the current period presentation. These reclassifications had no effect on the net change in cash.
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Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to accrual of research and development expenses, valuation of stock-based awards, fair values of financial instruments, inventory valuation, revenue recognition, and the assumptions underlying the determination of the estimated incremental borrowing rate for the determination of the Company's operating lease right-of-use assets.
Estimates are based on current facts, historical experiences and/or on forecasts, including information received from third parties and various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Investment in Radionetics
In October 2021, the Company, together with other investors, announced the formation of Radionetics Oncology, Inc. ("Radionetics").
The Company first analyzes its investment in another entity to determine if the entity is a variable interest entity (“VIE”) and if so, whether the Company is the primary beneficiary requiring consolidation. An entity is considered a VIE if (1) the entity does not have enough equity to finance its own activities without additional support, (2) the entity’s at-risk equity holders lack the characteristics of a controlling financial interest, or (3) the entity is structured with non-substantive voting rights. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE that potentially could be significant to the VIE. Variable interests in a VIE can be contractual, ownership, or other financial interests. The Company re-assesses its investment upon reconsideration events to determine whether the Company is the primary beneficiary of the VIE, in which case the Company would consolidate the VIE.
When it is determined that the Company is not the primary beneficiary but has the ability to exercise significant influence over the VIE, the Company accounts for the unconsolidated investment under the equity method of accounting.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
•Level 1: Observable inputs such as quoted prices in active markets;
•Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions about risk and the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The carrying amounts of the Company’s current financial assets, restricted cash and current financial liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash held in readily available checking and money market accounts, as well as short-term debt securities with maturities of three months or less when purchased. Restricted cash represents cash held as collateral for the Company’s lease and is reported as an asset in the accompanying consolidated balance sheets. Cash is considered a Level 1 investment.
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Investment Securities
The Company’s investments in debt securities are classified as available-for-sale and carried at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss in the accompanying consolidated balance sheets. Investments are classified as short-term based on contractual maturity or the Company’s ability and intent to liquidate the investments within the next twelve months.
The Company elected to exclude accrued interest from both the fair value and amortized costs basis of available-for-sale when assessing credit losses and to write-off any uncollectible accrued interest receivable as a reversal of interest income. Accrued interest receivable is recorded in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
Realized gains and losses are determined using the specific identification method and are included in other income (expense), net. Interest income is recognized when earned.
At each reporting date, the Company evaluates available‐for‐sale debt securities in an unrealized loss position to determine whether losses should be recognized in earnings. The Company first assesses whether it intends to sell, or is more likely than not required to sell, the security before recovery of its amortized cost. If so, the amortized cost is written down to fair value through net loss. For securities not meeting these criteria, the Company evaluates whether the decline in fair value is due to credit losses, considering factors such as severity of impairment, interest rate changes, credit ratings, and expected recovery. Credit‐related unrealized losses are recorded as an allowance in interest income. No impairments or credit losses were recognized during the periods presented.
Trade Accounts Receivable and Allowance
Trade accounts receivable arise from the product sales and represent amounts due from customers, which include a specialty distributor and specialty pharmacies. Trade accounts receivable are recorded at the invoiced amount and are non-interest bearing. Trade accounts receivable are presented net of reserves for distribution service fees and chargebacks.
The Company evaluates the collectability of trade accounts receivable on a regular basis, by reviewing the financial condition and payment history of its customers, the age of customer accounts, and general economic factors or events expected to affect future collections. An allowance for credit losses is recorded when a receivable is deemed to be uncollectible. The Company recorded no allowance for credit losses as of December 31, 2025.
Inventories
Inventories consist of raw materials, work in process, and finished goods held for sale and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Inventory valuation reserves are established, as a reduction to the cost basis of the asset, for excess, obsolete, or unsaleable inventory, as appropriate. The Company capitalizes inventory costs related to products when future economic benefit is considered probable and the related costs are expected to be recoverable. If the criteria for capitalizing inventory are not met, such costs are expensed as research and development. As a result, inventory on hand at the time of regulatory approval may have a zero cost basis.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, investment securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institution in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.
The Company, through a 3PL, distributes PALSONIFY in the U.S. to its customers, The Company is subject to credit risk related to its accounts receivable from product sales, which are due from the specialty distributor and specialty pharmacies. These customers distribute products to a broad range of downstream channels, and the Company has not experienced material credit losses to date.
Leases
The Company determines whether an arrangement contains a lease at contract inception. Operating lease right‐of‐use (“ROU”) assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the expected lease term, which includes renewal or termination options the Company is reasonably certain to exercise. Short-term leases with an initial term of twelve months or less are not recorded on the balance sheets.
The lease term includes renewal options that the Company is reasonably assured to exercise. Lease liabilities are measured using the Company’s incremental borrowing rate when the implicit rate is not readily determinable.
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Lease expense is recognized on a straight-line basis over the lease term. Variable lease costs are expensed as incurred. The Company accounts for lease and non-lease components as a single lease component.
Lease modifications are evaluated to determine whether they represent a separate contract. Modifications that are not separate contracts result in remeasurement of the lease liability using updated terms and the Company’s revised incremental borrowing rate, with a corresponding adjustment to the ROU asset.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation, and depreciated on a straight-line basis over their estimated useful lives. Estimated useful lives are generally as follows:
•Lab equipment: three to five years;
•Office equipment: three to five years; and
•Computer equipment and software: three years.
Leasehold improvements are amortized over the shorter of the estimated useful life of the improvement or the remaining lease term. Repairs and maintenance costs are expensed as incurred, while expenditures that materially extend the useful lives of assets are capitalized.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized when the carrying amount of the asset group exceeds the sum of the undiscounted future cash flows expected to result from its use and eventual disposition. If an asset group is determined to be impaired, the impairment loss is measured as the excess of the carrying amount over its fair value.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan that provides directors and certain employees the ability to defer receipt of current cash compensation and vested restricted stock units until a later date. The assets are held in the Rabbi Trust and participants have the option to invest their cash deferrals in a fixed income investment, a defined set of mutual funds, and, with respect to deferrals of restricted stock units, in Company common stock. The Company has made an accounting policy election to assess instruments held in the Rabbi Trust at the instrument level. The assets of the Rabbi Trust are subject to the claims of creditors in the event that the Company becomes insolvent.
The deferred compensation liability related to cash deferrals is included in other liabilities in the Company’s consolidated balance sheets and the deferred compensation asset related to cash deferrals is included in prepaid expenses and other assets, net of current portion in the Company’s consolidated balance sheets. Changes in this liability balance are recorded to expense and reflected within operating expenses of the Company's consolidated statements of operations and comprehensive loss. Changes in the fair value of these assets are recorded within other income (expense) in the consolidated statements of operations and comprehensive loss.
Investments in shares of the Company's common stock are included as stock held in trust, in the Company’s consolidated balance sheets. The participant's deferred compensation liability attributable to the participants' investments in shares of the Company's common stock are included within common stock and paid-in capital in the Company’s consolidated balance sheets.
Revenue Recognition
The Company's revenue consist of product sales of PALSONIFY and revenue derived from its collaborative and licensing arrangements. The Company recognizes revenue when, or as, the control of the promised goods or services are transferred to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied. At contract inception, the Company assesses the goods or services promised within each contract, assesses whether each promised good or service is distinct and identifies those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied. In revenue arrangements involving third parties, the Company recognizes revenue as the principal when it maintains control of the product or service until it is transferred to our customer; under other circumstances, the Company recognizes revenue as an agent in the sales transaction. Determining whether the Company has control requires judgment over certain considerations, which generally
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include whether the Company is responsible for the fulfillment of the underlying products or services, whether it has inventory risk before fulfillment is completed, and if it has discretion to establish prices over the products or services. The Company evaluates whether it is the principal or the agent in revenue arrangements involving third parties should there be changes impacting control in transferring related goods or services to customers.
Product Sales
The Company, through a 3PL, distributes PALSONIFY in the U.S. to its customers, who then sell the product to other end-user customers. The Company maintains control throughout the sales transactions as the principal and recognizes revenue when control of the product transfers, generally upon delivery, to its customers in an amount that reflects the consideration received or expected to be received. Payment terms with customers are within approximately two months from invoice date.
The Company sells PALSONIFY at Wholesale Acquisition Cost ("WAC") and calculates product revenue net of variable consideration and consideration payable to third parties associated with distribution of product. The Company utilizes the expected value method when estimating the amount of variable consideration to include in the transaction price. Variable consideration is included in the transaction price only to the extent it is probable that a significant revenue reversal will not occur. These amounts include government rebates, chargebacks, distribution service fees, co-payment assistance and return reserve, which are collectively referred to as “Gross-to-Net Adjustments.” Because all product sales commissions relate to contracts with a benefit period of less than one year, the Company expenses these commissions as incurred. Commissions are recorded in selling, general and administrative expenses in the consolidated statements of operations.
The Company must make significant judgments to determine the estimate for certain Gross-to-Net Adjustments. The specific considerations that the Company uses in estimating the amounts related to Gross-to-Net Adjustments are as follows:
Government Rebates
Government rebates represent estimated obligations to government agencies under the Medicaid Drug Rebate Program, Medicare Part D program. Government rebates represent estimated obligations to government agencies and are recorded based on the Company's best estimates, which consider a variety of factors, including payer mix and discount terms. These estimated rebates are recorded as accrued liabilities at the time the related product revenue is recognized.
Chargebacks
Chargebacks relate to the Company's estimated obligations resulting from contractual commitments to sell products to qualified entities at prices lower than the list prices that the Company charges. The Company estimates the chargebacks that it expects to be obligated to provide based upon the terms of the applicable arrangements and the forecasted business mix. These estimated chargebacks are recorded as contra trade accounts receivable at the time the related product revenue is recognized.
Distribution Service Fees
The Company pays distribution service fees to its customers for services related to the distribution of PALSONIFY. These fees are contractually fixed as a percentage of WAC and are calculated at the time of sale based on the quantity of product purchased. The Company records these fees as contra trade accounts receivable at the time the related product revenue is recognized.
Copay Assistance
The Company offers co-payment assistance programs to commercially insured patients whose insurance plans require a co-payment at the time a prescription is filled. The Company estimates the cost of co-payment assistance based on estimated utilization, contractual program terms, and other relevant factors, including forecasted business mix. Co-payment programs estimates are included in accounts payable and accrued expenses on the consolidated balance sheets.
Return Reserve
The Company permits the return of product within a specified number of months prior to and after its expiration date, as well as returns resulting from incorrect shipments or damaged or defective product, which the Company expects to be rare. The Company estimates expected product returns based on current experience and expectations. Expected product returns are accounted for as variable consideration and recorded as a reduction of product revenue in the period the related sales are recognized. A refund liability for expected returns is included in accrued expenses on the consolidated balance sheets. The Company will adjust its estimates in future periods if actual experience or expectations change.
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Collaborative and Licensing Arrangements
The Company has entered into licensing and collaboration agreements that mainly include the following: (i) upfront considerations; (ii) payments associated with achieving certain milestones; and (iii) royalties based on specified percentages of net product sales, if any.
At the inception of an arrangement, the Company evaluates whether the arrangement falls within ASC 808, Collaborative Arrangements, and/or ASC 606, Revenue from Contracts with Customers, and identifies the distinct performance obligations. Judgment is applied in determining whether the Company acts as principal or agent, whether licenses are functional or symbolic, and whether obligations are satisfied over time or at a point in time.
Milestone payments that are within the Company’s control are included in the transaction price when it is probable that significant revenue reversal will not occur. Milestones outside the Company’s control, such as regulatory approvals, are recognized when achieved. Sales-based royalties and milestone payments related to sales are recognized when the related sale occurs or the associated performance obligation is satisfied.
Transaction prices are allocated to performance obligations based on their estimated standalone selling prices. For obligations satisfied over time, the Company generally uses an input method, such as cost-to-cost, to measure progress, updating estimates each reporting period as necessary. Significant judgments include estimating costs, probabilities of success, development timelines, and other assumptions used to determine standalone selling prices and progress towards completion.
Cost of Product Revenue
Cost of product revenue consists of the purchase costs for finished products from third-party manufacturers, freight and handling from the Company’s 3PL logistics service provider, and certain salary-related and stock-based compensation expenses for employees involved in manufacturing, quality control, and supply chain activities.
Manufacturing costs incurred for inventory produced prior to regulatory approval, for which there is no alternative future use, are expensed as research and development in the period incurred. As a result, inventory manufactured prior to regulatory approval that is subsequently approved and sold has a zero cost basis and does not result in cost of product revenue upon sale.
Cost of product revenue also reflects any write-downs or reserve adjustments for the Company’s inventories and commercial manufacturing readiness and supplier qualification costs incurred for approved products, where activities relate to commercialization rather than research and development.
Research and Development Expenses
Research and development (“R&D”) expenses consist of personnel-related costs, including salaries, benefits, payroll taxes, and stock-based compensation for employees engaged in R&D activities, as well as costs for third-party research and development services, laboratory supplies, clinical materials, and allocated facilities and depreciation costs. R&D expenses are expensed as incurred.
Costs incurred under contracts with contract research organizations (“CROs”) and other third parties that conduct and manage the Company’s clinical trials are included in R&D expenses and are accrued based on estimates of services performed to date. Estimates are determined by reviewing cost information provided by CROs, other third-party vendors, and internal clinical personnel, and the scope of work to be performed from contractual arrangements with CROs. Payments made in advance of the receipt of goods or services to be used in R&D activities are recorded as prepaid expenses and expensed as the related goods or services are received.
Advertising Expenses
Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs for the year ended December 31, 2025 were approximately $16.9 million. Advertising costs for the years ended December 31, 2024 and 2023 were not significant to the Company's consolidated financial statements.
Stock-Based Compensation
Stock-based compensation expense represents the estimated grant date fair value of the Company’s equity awards, consisting of stock options, restricted stock units and shares issued under the Company’s Employee Stock Purchase Plan (“ESPP”), recognized over the requisite service period of such awards (usually the vesting period) on a straight-line basis and recognizes forfeitures as they occur. The Company estimates the fair value of all stock option grants and the ESPP using the Black-Scholes option pricing model.
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The key assumptions used in determining the fair value of stock options grants and ESPP, and the Company’s rationale, were as follows:
(i) Expected term - the expected term for stock options represents the period that the stock options are expected to be outstanding and has been estimated using the simplified method, due to limited historical exercise behavior. The expected term using the simplified method is an average of the contractual option term and its vesting period; the expected term for awards granted under the ESPP represents the term the awards are expected to be outstanding;
(ii) Expected volatility - the expected volatility assumption for stock-based awards granted is based on the historical volatility of the Company's common stock;
(iii) Risk-free interest rate - the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities that approximate the expected terms of awards; and
(iv) Expected dividend yield - the expected dividend yield assumption is zero as the Company has never paid dividends and has no present intention to do so in the future.
Restricted stock units are valued using the closing sale price of the Company's common stock on the date of grant.
Income Taxes
The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the periods in which the temporary differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions using a two-step approach under which tax positions are recognized when it is more likely than not that the position will be sustained upon examination, and measured as the largest amount of tax benefit that is more than 50% likely to be realized upon settlement. Interest and penalties related to uncertain tax positions are recognized within income tax expense.
Recently Adopted Accounting Pronouncements
ASU 2023-09
In December 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted this standard in the current period retrospectively for all periods presented (see Note 12).
Recent Accounting Pronouncements Not Yet Adopted
ASU 2024-03
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 (“ASU 2024-03”), which requires disaggregated disclosure of income statement expenses for public business entities (“PBEs”). The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for all PBEs for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its consolidated financial statements and accompanying notes.
ASU 2025-03
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity (“ASU 2025-03”), which provides guidance for identifying the accounting acquirer in business combinations in which the legal acquiree is a VIE that meets the definition of a business. Under the ASU, the acquirer is determined using the factors in Accounting Standards Codification 805, Business Combinations (“ASC 805”) rather than assuming the primary beneficiary is the acquirer. ASU 2025‐03 is effective for fiscal years beginning after December 15, 2026, and interim periods within those years, with early
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adoption permitted. The Company is currently evaluating the impact of this guidance on the presentation of its consolidated financial statements and accompanying notes.
3. Investment Securities
The Company reports its available-for-sale investment securities at their estimated fair values. The following is a summary of the available-for-sale investment securities held by the Company as of December 31, 2025 and 2024:
Available-for-sale investment securities:
As of December 31, 2025 and 2024, available-for-sale investment securities by contractual maturity were as follows:
AmortizedCost FairMarketValue AmortizedCost FairMarketValue
Available-for-sale investment securities:
The following is a summary of the available-for-sale investment securities by length of time in a net loss position as of December 31, 2025 and 2024:
Less Than 12 Months Less Than 12 Months
FairMarketValue GrossUnrealizedLosses FairMarketValue GrossUnrealizedLosses
Available-for-sale investment securities:
U.S. government obligations — — 19,953 (35)
As of December 31, 2025 and 2024, all available-for-sale investment securities in a continuous unrealized loss position had been in a loss position for less than 12 months.
The Company reviewed its investment holdings as of December 31, 2025 and 2024 and determined that the decrease in fair value is attributable to changes in interest rates and not credit quality, and as the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. Therefore, there were no allowances for credit losses as of December 31, 2025 and 2024. During the years ended December 31, 2025, 2024, and 2023, the realized net gains (losses) recognized in the accompanying statements of operations and comprehensive loss were not significant.
Accrued interest receivable on available-for-sale securities was $7.8 million and $8.3 million at December 31, 2025 and 2024, respectively. The Company did not write off any accrued interest receivable in any of the periods presented in the consolidated financial statements.
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4. Fair Value Measurements
Fair value measurements may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.
Financial assets measured at fair value on a recurring basis as of December 31, 2025 and 2024 were as follows:
Level 1 Level 2 Level 3 Total
Cash equivalents:
Investment securities:
Other non-current assets:
Deferred compensation plan (1) 3,249 — — 3,249
Level 1 Level 2 Level 3 Total
Cash equivalents:
Corporate debt securities — 5,314 — 5,314
Investment securities:
Other non-current assets:
Deferred compensation plan (1) 829 — — 829
(1) Consists of mutual fund investments held in the Rabbi Trust related to the Company's non-qualified deferred compensation plan.
There were no transfers into or out of Level 3 during the years ended December 31, 2025 and 2024.
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5. Balance Sheet Details
Inventory consisted of the following:
Raw materials $ — $ —
Work in process 2,004 —
Finished goods 18 —
Inventory balances as of December 31, 2025 reflect the capitalization of PALSONIFY manufacturing costs following the regulatory approval in September 2025. PALSONIFY inventory produced prior to approval was expensed as research and development.
There were no write-downs of inventory for the year ended December 31, 2025.
Prepaid expenses and other assets consisted of the following:
Deferred compensation plan 3,249 829
Prepaid research and development costs 2,901 714
Total prepaid expenses and other assets 40,166 23,648
Less prepaid expenses and other current assets (17,839) (20,819)
Prepaid expenses and other assets, net of current portion $ 22,327 $ 2,829
Property and equipment, net consisted of the following:
Computers and software 60 60
Less accumulated depreciation and amortization (7,952) (7,732)
Depreciation and amortization expense was $3.9 million, $2.8 million and $1.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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Accounts payable and accrued expenses consisted of the following:
Accrued research and development costs 4,506 6,067
Accrued outside services and professional fees 4,430 5,572
6. Operating Leases
The Company's lease obligations consist of an operating lease for its headquarters in San Diego, California, entered into in 2022 (the “2022 Lease”). The Company's prior operating lease for a facility in San Diego, California, entered into in 2018, expired in August 2025.
Under the terms of the 2022 Lease, the Company's expected future monthly minimum lease payments of $0.5 million, with six months of rent abatement in the first year, start on the earlier of (i) the date which is ten (10) months after substantial completion of demolition work, or (ii) the date of the substantial completion of improvements and first occupancy for business purposes, and the term expires on the date immediately preceding the one hundred thirty-seventh (137th) monthly anniversary of this lease payment start date. Lease payments are subject to annual 3% increases. The Company is also responsible for certain operating expenses and taxes during the term of the 2022 Lease. The 2022 Lease provides the Company with specified tenant improvement and landlord work allowances. The Company has (i) two options to extend the term of the 2022 Lease for an additional period of 5 years each, and (ii) a right of first offer on adjacent space to the new facility, subject to the terms and conditions of the 2022 Lease. The 2022 Lease commenced in 2023 when the building was ready and available for its intended use. As of the date of the recording of the 2022 Lease, the Company is not reasonably certain that these options will be exercised.
The Company’s estimated incremental fully collateralized borrowing rate of 8.6% was used in its present value calculation as the 2022 Lease does not have a stated rate and the implicit rate was not readily determinable. The rate was determined using a synthetic credit rating analysis.
Under the terms of the 2018 Lease and 2022 Lease, the Company provided the lessors with irrevocable letters of credit in the amounts of $0.5 million and $0.8 million, respectively, the latter of which is included in restricted cash and restricted cash, net of current portion in the accompanying consolidated balance sheets. The $0.5 million letter of credit related to the 2018 Lease, which was included in restricted cash in the accompanying consolidated balance sheet as of December 31, 2024, was released as of December 31, 2025. The lessor of the 2022 Lease is entitled to draw on the $0.8 million letter of credit in the event of any default by the Company under the terms of the lease.
As of December 31, 2025, the Company's future minimum payments under non-cancellable operating leases, were as follows:
Year ending December 31, MinimumPayments
Total future minimum lease payments 71,979
Less imputed interest (23,438)
Total operating lease liabilities 48,541
Less operating lease liabilities, current (6,489)
Operating lease liabilities, non-current $ 42,052
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Operating lease cost was $8.4 million, $8.5 million, and $3.3 million for each of the years ended December 31, 2025, 2024 and 2023, respectively. Short-term lease expenses for the years ended December 31, 2025, 2024 and 2023 were not significant.
Remaining lease terms and discount rates for the Company's operating leases are as follows:
Weighted-average remaining lease term (years) 9.3 years 10.1 years
Weighted-average discount rate 8.6% 8.6%
(1) Reflects only the Company's 2022 Lease as the 2018 Lease expired in August 2025.
Supplemental cash flow information related to leases was as follows:
Year Ended December 31,
Operating cash flow used for operating leases $ 7,468 $ 4,491 $ 1,616
7. Commitments and Contingencies
Litigation
From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position or results of operations.
8. Revenue Recognition
Product Revenue
Following the regulatory approval in September 2025, the Company launched PALSONIFY and began recognizing product revenue in the United States from the sales to specialty distributors and specialty pharmacies.
The following table summarizes customers that represented 10% or greater of our consolidated gross product revenue for the year ended December 31, 2025:
Year Ended
Customer A 58 %
Customer B 42 %
Sanwa Kagaku Kenkyusho Co., Ltd
On February 25, 2022, the Company and Sanwa Kagaku Kenkyusho Co., Ltd. ("SKK"), entered into a license agreement (the “SKK License”) whereby the Company granted SKK an exclusive license to develop and commercialize paltusotine in Japan.
Under the SKK License, SKK has the right to receive data obtained by the Company through certain paltusotine studies. The Company assessed the SKK License and concluded that SKK is a customer within the agreement. SKK will assume all costs associated with clinical trials and regulatory applications associated with these processes in Japan. Further, the Company retains all rights to develop and commercialize the product outside Japan. The Company also granted SKK the right to purchase supply of paltusotine for clinical and commercial requirements at cost plus a pre-negotiated percentage which was a market rate and therefore not a material right.
In exchange, the Company received a $13.0 million nonrefundable, upfront payment and will be eligible to receive up to an additional $25.5 million in milestone payments related to the achievement of certain development, regulatory and commercial goals. In addition, upon market approval of paltusotine in Japan, the Company will be eligible to receive certain sales-based royalties.
Initially, the Company determined that the transaction price amounted to the upfront payment of $13.0 million. The Company determined that its performance obligations under the SKK License consist of the license and data exchange.
The control of the license was transferred to SKK at the inception of the contract and the Company does not have an ongoing performance obligation to support or maintain the licensed intellectual property. Revenue allocated to the data exchange obligation is recognized over time using the cost-to-cost measure as this method represents a faithful depiction of
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progress toward certain ongoing paltusotine studies and related data transfer. Revenue is recognized on a gross basis as the Company is the principal. As there have been no sales of paltusotine in Japan to date, no sales-based milestones or royalties were recognized to date. Further, using the most-likely-method, the other developmental milestone payments are considered fully constrained.
During the year ended December 31, 2024, the Company achieved a $1.0 million milestone for the first indication of the development milestones. In 2024, the Company updated its estimated transaction price to $14.0 million and recorded a cumulative catch-up adjustment of $0.4 million.
Deferred revenue consisted of the following:
Year Ended December 31,
During the years ended December 31, 2025, 2024, and 2023, $1.8 million, $0.9 million, and $1.5 million, respectively, of the $14.0 million estimated transaction price was recognized as revenue in the accompanying consolidated statements of operations and comprehensive loss. Deferred revenue are expected to be recognized over the duration of certain paltusotine studies conducted by the Company.
On June 14, 2022, the Company and SKK, entered into a clinical supply agreement (the "SKK Clinical Supply Agreement") whereby the Company is responsible for manufacturing and supplying certain materials to SKK for specified activities under the SKK License. During the years ended December 31, 2025, 2024 and 2023, the Company recognized $0.4 million, $0.1 million, and $0.4 million respectively, of revenue from the SKK Clinical Supply Agreement in the accompanying consolidated statements of operations and comprehensive loss.
Cellular Longevity, Inc., doing business as Loyal
On March 24, 2023, the Company and Cellular Longevity Inc., doing business as Loyal ("Loyal") entered into a license agreement (the “Loyal License”) whereby the Company granted Loyal an exclusive license to develop and commercialize CRN01941, a somatostatin receptor type 2 agonist, for veterinary use. In exchange the Company received a $0.1 million nonrefundable, upfront payment and Loyal preferred stock valued at approximately $2.0 million. The Company may also earn single-digit sales-based royalties if the product is approved.
No revenue was recognized during the year ended December 31, 2025 and 2024. During the year ended December 31, 2023, the Company recognized $2.1 million of revenue from the Loyal License at the inception of the contract in the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2025, the shares of Loyal preferred stock issued and to be issued to the Company valued at $2.0 million is included in other assets in the accompanying consolidated balance sheets. The Loyal preferred stock does not have a readily determinable fair value and is recorded at cost less impairment.
9. Stockholders’ Equity
Stock Offerings