Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.12pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Real-time Form 4 intelligence. Smarter insider tracking.
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.12pp
Flat
Net-tone change vs last year's 10-K.
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No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
closing+17
bridge+13
default+3
loss+2
encumber+2
Positive rising
collaboration+5
gain+3
achievement+3
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MD&A (Item 7)
8,869 words
ITEM 7. MANAGEMENT’S Discussion and analysis o f financial condition and results of operationS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements.” As a result of many factors, including those factors set forth in the “Part I, Item 1A - Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in, projected or implied by the forward-looking statements contained in the following discussion and analysis. Our discussion and analysis of our financial condition and results of operations for 2025, 2024, and 2023 are discussed below.
Company Overview
We are a clinical-stage biopharmaceutical company developing novel, small-molecule product candidates designed to modulate the ribosome and promote readthrough of premature stop codons induced by nonsense mutations (“NMs”) to enable the production of full-length proteins. Targeting ribosome subunits provides a therapeutic approach to addressing a number of genetic diseases. According to the Human Gene Mutation Database, NMs account for approximately 10% to 12% of patients with a given genetic disease. There are over 7,000 inherited genetic diseases that collectively affect 350 million people worldwide. Our immediate focus is to advance the clinical development of our lead product candidate, exaluren, for the treatment of rare kidney diseases and, through our with Almirall, S.A. (“Almirall”), ZKN-013 for the treatment of rare skin diseases.
We conducted a proof-of-concept Phase 2a open-label monotherapy trial in the United Kingdom in three patients with autosomal recessive AS and a NM in the COL4A4 gene. All three patients showed a reduction in podocyte foot process effacement (“FPE”), which is the flattening and loss of specialized kidney cell structures that form the filtration barrier and attach to the podocytes and GBM, in transmission electron microscopy (“TEM”) images. FPE is a hallmark of kidney diseases including AS and the severity of FPE has historically been associated with time to kidney failure. TEM images of biopsy samples also showed an improvement in the GBM width in all treated patients. FPE was also measured as a 50% increase in the filtration slit density (“FSD”). These results were consistent with exaluren’s proposed mechanism of functional full-length protein restoration as reflected by improvements in GBM architecture and FPE observed in kidney biopsies. We plan to initiate a Phase 2b clinical trial in the first half of 2026 for exaluren in NMAS patients and anticipate topline data from the initial 16-week placebo-controlled part of the study by mid- 2027 with the final readout by the end of 2027.
Our pipeline also includes a preclinical program evaluating exaluren for the treatment of autosomal dominant polycystic kidney disease (“ADPKD”) in patients that have NMs (“nmADPKD”). ADPKD is the most common monogenic kidney disease based on genetic diagnosis, affecting approximately 160,000 to 200,000 patients in the United States. The PKD1 gene encodes polycystin-1 (“PC1”) and the PKD2 gene encodes polycystin-2 (“PC2”), these are proteins that regulate cell growth and fluid secretion in kidney tubules. Loss of functional PC1 or PC2 protein leads to uncontrolled cyst formation. Approximately 26% of ADPKD patients have NMs in the PKD1 and PKD2 genes resulting in a prevalence of approximately 40,000 to 50,000 patients in the United States. Patients experience hypertension, kidney stones, urinary tract infections, heart valve abnormalities, hematuria and increased probability of aortic aneurysm. Formation of these cysts eventually leads to nephromegaly (kidney enlargement) and end-stage renal disease. The only approved therapy for ADPKD, tolvaptan, does not address the underlying genetic cause and carries significant tolerability limitations. Preclinical organoid and cellular models have shown increased PC1 and PC2 gene expression following treatment with exaluren. We plan to initiate enrollment in a Phase 2 trial of exaluren for the treatment of nmADPKD in 2027 following protocol finalization and clearance of an Investigational New Drug application (“IND”) by the FDA. We anticipate topline data from this trial by mid-2028.
We are also developing ZKN-013, an oral ribosome modulating agent (“RMA”) with structural similarity to azithromycin that induces PTC readthrough. In March 2024, we entered into an exclusive global rights agreement with Almirall (the “Almirall License Agreement”) for Almirall to develop and commercialize ZKN-013 for the use in orphan dermatological diseases. Through this collaboration, we are developing ZKN-013 for the treatment of recessive dystrophic epidermolysis bullosa (“RDEB”) and junctional epidermolysis bullosa (“JEB”) with NMs. RDEB and JEB are rare skin diseases characterized by mutations in the Collagen VII (RDEB) and LAMB3 (JEB)
proteins. We estimate that there are approximately 4,000 patients with NMs in these diseases in the major markets of the United States, Japan and Western Europe. Patients with these diseases suffer from severe skin bruising, wounds and internal lesions resulting in increased risk of skin cancer and severe malnourishment. Under the Almirall License Agreement, we received an upfront payment of $3 million and a development milestone payment of $3 million in 2024. Almirall is responsible for development and commercialization of ZKN-013 and we are eligible to receive up to approximately $470.0 million in additional development, regulatory and commercial milestone payments as well as tiered royalties based on global sales. The agreement may be terminated under specified circumstances, including for convenience by Almirall, in which case rights may revert to us.
Results of Operations
For discussion of 2022 results and comparison with 2021 results, refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Comparison of the Years Ended December 31, 2025, 2024 and 2023
Dollar amounts in the following table are in thousands:
Year ended December 31,
$ Change
% Change
$ Change
% Change
License and service revenue:
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other (income) expense, net
Net loss
License and service revenue
License and service revenue for 2024 was $6.4 million, of which $3.0 million related to the achievement of a development milestone as a result of the Almirall License Agreement that was entered into in March 2024. There was no license and service revenue during the years ended December 31, 2025 and 2023. In March 2025, Almirall informed us of its decision to not exercise the option for continued research and development services under the Almirall License Agreement, as permitted within the Almirall License Agreement, thereby relieving us of our remaining responsibilities under the Almirall License Agreement. We remain eligible to receive additional payments throughout the potential development phases, including development and sales milestones of up to approximately $470.0 million and tiered royalties based on any potential future global sales. No further license and service revenue is expected from the Almirall License Agreement unless and until the development and sales milestones are achieved, and the timing of the achievement of the development and sales milestones is uncertain.
Research and development expenses
Research and development expenses were $3.1 million for the year ended December 31, 2025 compared to $3.6 million for the year ended December 31, 2024, a decrease of $0.5 million. The decrease was primarily related to a $0.8 million decrease in clinical trial expenses related primarily to Alport related activities, partially offset by a $0.2 million net increase in salaries and other personnel related costs, including a decrease in stock-based compensation expense of $0.1 million.
Research and development expenses were $3.6 million for the year ended December 31, 2024 compared to $8.6 million for the year ended December 31, 2023, a decrease of $5.0 million. The decrease was primarily related to a $1.0 million decrease in clinical trial expenses related primarily to Alport related activities, a $2.2 million decrease in salaries and other personnel related costs, including a decrease in stock compensation expense of $0.5 million, and a decrease of $1.8 million in expenses related to subcontractors, advisors, and lab supplies in connection with preclinical research and development activities.
General and administrative expenses
General and administrative expenses were $3.4 million for the year ended December 31, 2025 compared to $5.3 million for the year ended December 31, 2024, a decrease of $1.9 million. The decrease was primarily related to a $0.9 million decrease in expenses attributable to professional and consulting fees, including legal costs, a decrease in stock-based compensation expense of $0.2 million, and a $0.8 million decrease in facility and other general and administrative overhead costs.
General and administrative expenses were $5.3 million for the year ended December 31, 2024 compared to $8.7 million for the year ended December 31, 2023, a decrease of $3.4 million. The decrease was primarily related to a $0.1 million decrease in salaries and other personnel related costs, a decrease of $1.9 million in expenses attributable to professional and consulting fees, a decrease of $0.9 million in stock-based compensation expense, and a $0.5 million decrease in facility and other general and administrative overhead costs.
Other expense (income), net
Other income, net, was $0.4 million for the year ended December 31, 2025 compared to $0.7 million in other expense, net, for the year ended December 31, 2024, a change of $1.1 million. The change was primarily related to the $1.2 million gain on extinguishment of the CFF 2021 award, the $0.2 million gain on conversion of debt and a change of $0.1 million in the fair value of derivative liabilities, partially offset by a change of $0.4 million in the fair value of warrant liabilities.
Other expense, net, was $0.7 million for the year ended December 31, 2024 compared to $0.2 million in other income, net, for the year ended December 31, 2023, a change of $0.9 million. The change was primarily related to a change of $1.2 million in the fair value of warrant liabilities and a decrease of $0.3 million in the gain on sale of fixed assets, partially offset by a decrease in the loss on extinguishment of debt of $0.4 million and a decrease of $0.2 million in the loss on issuance of common stock.
Liquidity, Capital Resources and Going Concern
Since our inception, we have incurred significant operating losses. Our net losses were $6.0 million, $3.1 million and $17.1 million for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had an accumulated deficit of $300.6 million. To date, we have financed our operations primarily through the sale of equity, license and collaboration agreements, debt securities and, to a lesser extent, grants. We have devoted substantially all of our financial resources and efforts to research and development. We expect that it may be several years, if ever, before we receive regulatory approval and have a product candidate ready for commercialization. We expect to continue to incur significant expenses and operating losses for the foreseeable future due to, among other things, costs related to research, development of our product candidates, conducting preclinical studies and clinical trials, and our administrative organization. A successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support our cost structure. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses may increase if, and as, we:
advance exaluren and/or other product candidates further into clinical development;
experience delays in enrollment and completion of our clinical trials;
fund preclinical development of our research programs and advance candidates into clinical trials;
pursue regulatory authorization to conduct clinical trials of additional product candidates;
seek marketing approvals for our product candidates;
establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, regulatory, management and scientific personnel;
add operational, financial and management information systems and personnel;
acquire or in-license other product candidates and technologies; and
operate as a public company including costs associated with regaining and maintaining Nasdaq compliance.
We may never achieveprofitability, and unless and until we do, we will continue to need to raise additional cash to fund our operations. We believe that our cash and cash equivalents as of the date of this Annual Report,
including the $5.0 million received in February 2026 via the Coastlands Third Tranche Closing and the $2.0 million received in March 2026 from Domicilium, are not sufficient to maintain our current and planned operations for at least the next twelve months following the filing of this Annual Report. We will need to raise additional capital to finance our operations, which cannot be assured. We have concluded that these conditions, in aggregate, raise substantial doubt about our ability to continue as a going concern through one year after the date these consolidated financial statements are issued. Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2025, has also expressed substantial doubt about our ability to continue as a going concern. The financial statements included elsewhere in this Annual Report have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.
Management intends to fund future operations through private or public debt or equity financing transactions and may seek additional capital through arrangements with strategic partners or from other sources, including licensing arrangements. The availability of sufficient funding to alleviate the conditions that raise substantial doubt is not within management’s control and cannot be assessed as being probable of occurring. If we are unable to obtain adequate financing, we will evaluate alternatives which may include curtailing expenses contemplated by our current operating plan, and we may be required to delay, limit, reduce or terminate our product development efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, which may have a material adverse effect on our operations and future prospects.
As described elsewhere in this Annual Report, prior to this filing we did not file any quarterly or annual reports with the SEC since November 2023 as a result of a lack of funds. As described further below, in August 2025, we entered into a securities purchase agreement, as amended, for the offer and sale of up to $20 million of shares and/or pre-funded warrants. We have used the funds received so far to prepare the year-end consolidated financial statements for the years ended December 31, 2025, 2024, and 2023. A goal in this process is to regain compliance with our SEC filing obligations and uplist onto Nasdaq. We anticipate raising additional capital as part of this process.
2023 and 2024 Financing Activities
On September 30, 2021, we entered into a loan and security agreement (the “Hercules Loan Agreement”) with Hercules Capital, Inc., (“Hercules”). The Hercules Loan Agreement provided for term loans in an aggregate principal amount of up to $30.0 million, comprised of (i) a tranche 1 advance of $12.5 million (the “Tranche 1 Advance”), (ii) a tranche 2 advance of $7.5 million (the “Tranche 2 Advance”) and (iii) a tranche 3 advance of $10.0 million (the “Tranche 3 Advance”) (collectively, the “Term Loan Advances”). The Tranche 1 Advance under the Hercules Term Loan Agreement was funded on September 30, 2021. The Tranche 2 Advance was to be available at our election until August 15, 2022, subject to our achievement of certain milestone events relating to data from the clinical trials. We did not meet the requirements for the Tranche 2 Advance and such funding will, therefore, not be available to us. The Tranche 3 Advance was available subject to approval by the Hercules’ investment committee in its sole discretion up to April 1, 2023, and is also no longer available to us. The Hercules Loan Agreement included a prepayment charge and a charge equal to 6.55% of the original principal amount (the "End of Term Charge").
As security for its obligations, we granted Hercules a continuing security interest in substantially all of our assets, subject to certain customary exceptions, including for intellectual property.
Any outstanding principal on the Term Loan Advances will accrue interest at a floating rate equal to the greater of (i) 9.50% per annum and (ii) the sum of 6.25% plus the prime rate, as published in The Wall Street Journal .
On March 7, 2023, we entered into the first Hercules amendment (the "First Hercules Amendment") to repay $7.5 million of the $12.5 million in outstanding principal of the Hercules Term Loan, extend the interest only period until September 1, 2023, cancel the prepayment charge for the March principal repayment and any future early principal repayments, and reduce the minimum qualified cash balance plus accounts payable amount from $10.0 million to $2.25 million, effective as of March 7, 2023. In accordance with the First Hercules Amendment, we were required to make principal payments on the outstanding balance of the Term Loan Advances beginning on September 1, 2023, in 20 equal monthly installments, plus interest. Any amounts outstanding under the Term Loan Advances, if not repaid sooner, were initially due and payable on April 1, 2025 (but this date was later extended). The First Hercules Amendment also waived the End of Term Charge for the March 7, 2023 principal repayment.
On May 19, 2023, the Hercules Loan Agreement was amended (the "Second Hercules Amendment") to modify the definition of “Excluded Accounts” under the minimum qualified cash balance covenant to exclude additional accounts from the collateral and related obligations and, on November 10, 2023, the Hercules Loan
Agreement was amended (the "Third Hercules Amendment") to temporarily reduce the minimum qualified cash balance amount to $2.25 million for the period from November 15, 2023 through December 15, 2023, unless extended by Hercules under the Hercules Loan Agreement in its sole discretion. After such period, the minimum level of qualified cash reverted to $2.25 million plus the amount of accounts payable that had not been paid within 180 days.
On December 15, 2023, we entered into the fourth Hercules amendment (the "Fourth Hercules Amendment”) to provide for a temporary reduction in the minimum qualified cash balance amount to $1.05 million for the period from December 15, 2023 through and including January 25, 2024, unless extended by Hercules in its sole discretion. After the expiration of such period, the minimum level of qualified cash reverted to $1.05 million plus the amount of accounts payable that had not been paid within 180 days. As a condition of effectiveness of the Fourth Hercules Amendment, we repaid $1.0 million of the outstanding principal, reducing the remaining outstanding principal of Term Loan Advances to $3.1 million. In accordance with the Fourth Amendment, the End of Term Charge was required to be paid on the earliest to occur of (i) April 1, 2025, (ii) the date we prepaid the outstanding secured obligations (other than any inchoate indemnity obligations and any other obligation which, by their terms, are to survive the termination of the Hercules Loan Agreement) in full, or (iii) the date that the secured obligations became due by acceleration of the secured obligations during an event of default pursuant to the Hercules Loan Agreement. The End of Term Charge was waived for the December 15, 2023 principal repayment.
On January 9, 2024, we entered into the fifth Hercules amendment (the “Fifth Hercules Amendment”) to bifurcate the remaining outstanding principal of the Tranche 1 Advance, which was $2.9 million, into a “Tranche 1A Advance”, for $0.9 million, and a “Tranche 1B Advance”, for $2.0 million. On January 9, 2024, the Tranche 1B Advance was assigned to SD MF 4 LLC, a Delaware limited liability company (“Domicilium”) and such assignment, the (“Assignment Transaction”). The Fifth Hercules Amendment provided that, following the Assignment Transaction, we were not required to comply with the financial covenant to maintain a minimum qualified cash balance under either the Tranche 1A Advance or the Tranche 1B Advance. The Fifth Amendment also provided for the ability to pay interest in-kind for the Tranche 1B Advance, deferral of principal payments under the Tranche 1B Advance, and a reduction in the End of Term Charge to $0.5 million upon consummation of the Assignment Transaction.
In connection with the Fifth Hercules Amendment, and to effectuate the Assignment Transaction, on January 9, 2024, Domicilium entered into an Assignment and Assumption Agreement with Hercules, under which Hercules assigned to Domicilium the Tranche 1B Advance.
On January 9, 2024, in connection with the Fifth Hercules Amendment, we also entered into a securities purchase agreement (the "Domicilium Securities Purchase Agreement") with Domicilium. The Domicilium Securities Purchase Agreement provided for the issuance by us of: (i) 157,138 shares of our common stock, $0.01 par value per share; (ii) a pre-funded warrant (the “January 2024 Pre-Funded Warrant”) to purchase up to 471,508 shares of common stock; and (iii) a common stock warrant (the “January 2024 Common Stock Warrant” and, together with the January 2024 Pre-Funded Warrant, the “January 2024 Warrants”) to purchase up to 150,000 shares of common stock.
The shares of our common stock and the January 2024 Warrants (the “Equity Issuance”) were issued on a combined basis in consideration for Domicilium’s assumption of the Tranche 1B Advance. The exercise price of the January 2024 Pre-Funded Warrant is $0.01 per underlying share. The exercise price of the January 2024 Common Stock Warrant is $1.18 per underlying share. We did not receive any proceeds in connection with the Equity Issuance. The shares and the January 2024 Warrants (and the shares of common stock issuable upon the exercise of the January 2024 Warrants) were not offered and sold pursuant to a registration statement and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated thereunder.
On July 10, 2024, we entered into the sixth Hercules Amendment (the “Sixth Hercules Amendment”).
The Sixth Hercules Amendment provided for additional borrowings in an aggregate amount of $3.2 million (the “Domicilium Tranche 2 Advance”), which was provided in multiple borrowings between July 5, 2024 and July 15, 2024. The Domicilium Tranche 2 Advance principal and any accrued interest was to be repaid by us as described below pursuant to the Royalty and Revenue Sharing Agreement.
Additionally, Domicilium provided us with a bridge loan advance of $0.3 million on May 31, 2024. The bridge loan advance accrued interest at a floating rate equal to the greater of (i) 9.50% per annum and (ii) the sum of 6.25% plus the prime rate, as published in The Wall Street Journal . As of December 31, 2025, 2024 and 2023, the interest rate was 13.00%, 13.75% and 14.75%, respectively.
If a qualified financing, as defined in the Sixth Hercules Amendment, of at least $7.0 million occurred prior to April 1, 2025, each of the Tranche 1A lenders and Tranche 1B lenders, as defined in the Sixth Hercules Amendment, had the option to convert all or part of the debt relating to such advance into fully paid and nonassessable shares of our stock issued in such qualified financing at the same price per share equal to the price per share paid by the other cash purchasers of our stock sold in the qualified financing.
If a qualified financing occurred on or prior to April 1, 2025, then the mandatory conversion obligations (composed of all principal and interest accrued on the Bridge Loan Advance and Domicilium Tranche 2 Advance, but excluding $0.1 million of the Domicilium Tranche 2 Advance) shall automatically have been converted into fully paid and nonassessable shares of the Company's common stock issued in such qualified financing at the same price per share paid by the other cash purchasers in the qualified financing.
On July 10, 2024, as a condition of Domicilium’s entry into the Sixth Hercules Amendment and in consideration of the Domicilium Tranche 2 Advance, we and the borrowers entered into a Royalty and Revenue Sharing Agreement, as amended on March 2, 2026 (the “Royalty Agreement”) with Domicilium. Capitalized terms under this heading “Royalty and Revenue Sharing Agreement” not otherwise defined herein have the definitions ascribed to them in the Royalty Agreement.
Under the Royalty Agreement, we agreed to pay to Domicilium an amount equal to (i) (x) a low-mid-double-digit percentage of the Development and Launch Milestone Payments for the three next occurring Development and Launch Milestone Events (as defined in the Almirall License Agreement) minus (y) the amounts required to be paid by us pursuant to certain vendors as defined in the Royalty Agreement, and (ii) (x) a low-mid-double-digit percentage of (1) each subsequent Development and Launch Milestone Payment plus (2) any Priority Review Voucher Income (as defined in the Almirall License Agreement) realized by Eloxx, less (y) any amount of such Development and Launch Milestone Payments which are due to Harvard University pursuant to the Harvard License Agreement, provided the aggregate amount paid to Domicilium shall not exceed $53.0 million. Each Milestone Sharing Payment shall be applied as a repayment or prepayment, as applicable, of the Loans (as defined in the Amended Loan Agreement) (including all interest and fees thereon) owed to Domicilium, if any such Loans remain outstanding.
The Royalty Agreement provides for an amount based on a percentage of the aggregate of (without duplication) the net sales, royalties and any other income or revenue realized by us solely related to or arising from the exaluren compound or any exaluren product, calculated in accordance with U.S. GAAP (collectively, the “exaluren Revenue”) (the “exaluren Revenue-Based Payment”). The exaluren Revenue-Based Payment with respect to each fiscal quarter shall be less than one percent of exaluren Revenue during the applicable fiscal quarter. Commencing on the ZKN-013 royalty commencement date, we promise to pay to Domicilium an amount based on a percentage of the aggregate of (without duplication) the net sales, royalties and any other income or revenue realized by us solely related to or arising from the ZKN-013 compound, calculated in accordance with U.S. GAAP (collectively, the “ZKN-013 Revenue”). The ZKN-013 revenue-based payment with respect to each fiscal quarter shall be less than one percent of ZKN-013 Revenue during the applicable fiscal quarter.
Our loan agreements contain customary affirmative and negative covenants which, among other things, require us to maintain at all times a minimum qualified cash balance plus qualified accounts payable (defined as invoices that have not been paid within 180 days from the invoice date) and limit our ability to (i) incur additional indebtedness, (ii) pay dividends or make certain distributions, (iii) dispose of our assets, grant liens or encumber our assets or (iv) fundamentally alter the nature of our business. These covenants, which are subject to a number of exceptions and qualifications, have been amended, as discussed above. In addition, as discussed above, the Fifth Amendment provided that, following the Assignment Transaction, we were not required to comply with the financial covenant to maintain a minimum qualified cash balance under either the Tranche 1A Advance or the Tranche 1B Advance. We were in compliance with all debt covenants as of December 31, 2025.
Our loan agreements also contain customary events of default, including our failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or a breach of the covenants. Upon the occurrence of an event of default, the lenders may, among other things, accelerate our obligations under the loan agreements.
In December 2024, we entered into bridge loans with Domicilium for a total of $0.3 million. Interest on the bridge loans accrued at 3.0%. On January 3, 2025, we repaid the bridge loans, including accrued interest.
On May 12, 2025, Hercules resigned as agent under the Hercules Loan Agreement and assigned all of its rights, responsibilities, powers, privileges, duties and obligations in its capacity under the Hercules Loan Agreement to Domicilium.
During the year ended December 31, 2025, we entered into a number of non-interest-bearing bridge loans with Domicilium for a total of $3.4 million, including a bridge loan for $0.5 million with Domicilium following Domicilium's repayment to Hercules of the End of Term Charge. We received $2.9 million in cash during the year ended December 31, 2025 from these bridge loans. We recorded interest expense of $0.2 million representing imputed interest for the non-interest-bearing bridge loans during the year ended December 31, 2025. All of these bridge loans converted to pre-funded warrants to purchase shares of our common stock in September 2025. The imputed interest related to the non-interest-bearing bridge loans was not converted and we recorded a gain on debt conversion of $0.2 million as part of the September 2025 exchange of outstanding debt during the year ended December 31, 2025.
2025 PIPE Financing
On August 20, 2025, we entered into a securities purchase agreement (the "Coastlands Securities Purchase Agreement") with Coastlands Capital Partners LP (“Coastlands”). Upon the terms and subject to the conditions of the Coastlands Securities Purchase Agreement, we agreed to issue to Coastlands, and Coastlands agreed to purchase, severally and not jointly, an aggregate of up to $20.0 million of shares of our common stock, par value $0.01 per share, and/or pre-funded warrants to purchase shares of our common stock, in each case pursuant to the Coastlands Securities Purchase Agreement. On August 20, 2025, we also entered into a registration rights agreement with Coastlands pursuant to which we agreed to register shares sold pursuant to the Coastlands Securities Purchase Agreement.
On September 25, 2025, December 11, 2025, and February 20, 2026, the Coastlands Securities Purchase Agreement was amended. Per the amended Coastlands securities agreement, following the initial closing for an aggregate amount of $1.0 million of securities, which occurred on August 15, 2025 (the "Initial Coastlands Closing"), at any time prior to March 13, 2026, we may sell, on the same terms and conditions as those contained in the amended Coastlands Securities Purchase Agreement, up to $20.0 million of securities for cash consideration (the “New Money Investment”) and up to $9.5 million of securities in consideration of the conversion of obligations under the Loan and Security Agreement, dated as of September 30, 2021 (the "Hercules Loan Agreement"), as amended. In the aggregate, at all closings, $15.0 million of the New Money Investment shall be allocated to Coastlands. Up to $5.0 million of the New Money Investment shall be allocated to Domicilium or an affiliate thereof, provided that Domicilium shall only be entitled to the allocation if all obligations under the Hercules Loan Agreement, as amended, have been converted in full. The subsequent closing in which Coastlands purchased securities resulting in receipt by the Company of proceeds of not less than $5.0 million in the aggregate (including proceeds received in the Initial Coastlands Closing), which occurred on September 25, 2025, was referred to as the “Coastlands First Tranche Closing”, with the additional amount being $4.0 million and the additional securities being a pre-funded warrant to purchase up to 8,163,265 shares of our common stock at an exercise price of $0.01 per share, based on a purchase price of $0.49 per share of underlying common stock. The subsequent closing in which Coastlands purchases securities resulting in receipt by the Company of proceeds of not less than $10.0 million in the aggregate (including proceeds received in the Initial Coastlands Closing and the Coastlands First Tranche Closing), which occurred on December 12, 2025, was referred to as the “Coastlands Second Tranche Closing”, with the additional amount being $5.0 million and the additional securities being a pre-funded warrant to purchase up to 10,204,081 shares of our common stock at an exercise price of $0.01 per share, based on a purchase price of $0.49 per share of underlying common stock. The subsequent closing in which Coastlands purchases securities resulting in receipt by the Company of proceeds of not less than $15.0 million in the aggregate (including proceeds received in the Initial Coastlands Closing, the Coastlands First Tranche Closing and the Coastlands Second Tranche Closing), which occurred on February 26, 2026, shall be referred to as the “Coastlands Third Tranche Closing.”, with the additional amount being $5.0 million and the additional securities being a pre-funded warrant to purchase up to 10,204,081 shares of our common stock at an exercise price of $0.01 per share, based on a purchase price of $0.49 per share of underlying common stock. Through the date the consolidated financial statements were issued, we had received $15.0 million from Coastlands, in return for pre-funded warrants to purchase 30,612,243 shares of our common stock at an exercise price of $0.01 per share, based on a purchase price of $0.49 per share of underlying common stock.
On September 25, 2025, upon the Coastlands First Tranche Closing and in accordance with an agreement regarding loan conversions dated as of September 25, 2025, Domicilium exchanged $8.5 million of the $9.5 million in its outstanding debt, comprised of outstanding principal and accrued interest under the Hercules Loan Agreement, as amended, and outstanding bridge loans, in return for pre-funded warrants to purchase 17,341,986 shares of our common stock at an exercise price of $0.01 per share, based on a conversion price of $0.49 per share of underlying common stock. Domicilium has agreed to exchange the remaining $1.0 million of the Company's outstanding obligations under the Hercules Loan Agreement, as amended, in connection with the Coastlands Third Tranche Closing for shares of our common stock and/or pre-funded warrants. Provided the exchange of the remaining $1.0
million in its outstanding debt occurs, Domicilium agreed to waive any and all additional accrued and unpaid interest, which was less than $0.1 million as of December 31, 2025, related to the remaining $1.0 million.
Pursuant to the terms of the amended Coastlands securities agreement, each of Coastlands and Domicilium have the right to designate one member of our Board of Directors until immediately prior to the effectiveness of a registration statement on Form S-1. Further, until immediately prior to the effectiveness of a registration statement on Form S-1, without the consent of Coastlands and Domicilium we cannot: (i) amend, alter or repeal any provision of our certificate of incorporation or bylaws; (ii) increase or decrease the size of the Board of Directors or appoint or remove any member of the Board of Directors; (iii) issue any shares of Common Stock or securities convertible into shares of common stock (other than in connection with the exercise or vesting of outstanding securities); (iv) amend the compensation of any executive officer; (v) consummate a Liquidation Event (as defined in the Amended and Restated Certificate of Incorporation), or effect any other merger, statutory conversion, transfer, domestication continuance, liquidation, dissolution, or wind up the business affairs of the Company, or consolidation; (vi) sell, assign, license, pledge or encumber any material asset (including intellectual property); or (vii) incur any indebtedness (other than ordinary course credit or trade payables incurred in the ordinary course of business); provided, that Coastlands and Domicilium agree to consent to any act or transaction that is reasonably necessary to support an uplisting to Nasdaq, as reasonably determined by our Board of Directors.
As of December 31, 2025, 2024, and 2023, the carrying value of our debt consisted of $1.0 million, $6.7 million, and $3.9 million, respectively, less unamortized debt discounts as of December 31, 2025, 2024, and 2023 of zero, $0.2 million, and $0.1 million, respectively. The debt discounts were amortized as interest expense through the life of the debt. Interest expense relating to our debt for the years ended December 31, 2025, 2024 and 2023 was $1.0 million, $1.1 million and $1.2 million, respectively. Interest expense is calculated using the effective interest method and is inclusive of non-cash amortization of the debt discount.
Cystic Fibrosis Foundation
In March 2022, we entered into an agreement with the CFF, amending our prior funding award with CFF, for an award of up to $15.9 million to fund the ongoing global Phase 2 clinical development of exaluren in CF. We received an upfront payment of $7.0 million in March 2022 and an additional milestone payment of $1.5 million in September 2022 and $0.2 million in July 2023. In September 2022, the CFF determined not to continue funding the program and the remaining $7.4 million of the award will not be available to the Company. Upon the successful commercialization of exaluren delivered subcutaneously for the treatment of CF, we will pay the CFF royalties based on future sales. As of December 31, 2025, there is no remaining funding from the CFF related to any CFF agreement that the Company may receive.
Government Grants from the Israeli Innovation Authority (“IIA”)
To date, we have received research and development grants from the IIA totaling $2.6 million. No grants were received for the years ended December 31, 2025, 2024, and 2023.
Under the research and development agreements with the IIA and pursuant to applicable law, we are required to pay royalties at a low single-digit percentage on sales to end customers of product candidates developed with funds provided by the IIA, up to an amount equal to 100% of the IIA research and development grants received, plus interest. If we do not generate sales of product candidates developed with funds provided by the IIA, we are not obligated to pay royalties or repay the grants.
As of December 31, 2025, we have not commenced the payment obligation of the royalties and have a contingent obligation with respect to royalty-bearing participation received or accrued amounting to $2.8 million, including accrued interest.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Year ended December 31,
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by (used in) financing activities
Cash flows from operating activities
Our operating activities used cash of $6.3 million and $4.7 million for the years ended December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, our net loss of $6.0 million was adjusted for non-cash items and changes in working capital. Non-cash items included stock-based compensation expense of $0.2 million, debt discount amortization of $0.2 million, the non-cash extinguishment of advances from collaboration partners of $1.2 million (which reduced operating cash used), gain on debt conversion of $0.2 million, and the write-off of the fair value of derivative liabilities of $0.1 million. During the year ended December 31, 2024, our net loss was $3.1 million and the change in the fair value of warrant liabilities was $0.4 million, both of which were partially offset by non-cash charges primarily related to $0.5 million related to stock-based compensation expense, depreciation expense of less than $0.1 million, $0.1 million of amortization of right-of-use assets, and debt discount amortization of $0.5 million.
Our operating activities used cash of $4.7 million and $14.3 million for the years ended December 31, 2024 and 2023, respectively. For discussion of our cash used in operating activities during the year ended December 31, 2024, refer to the previous paragraph. During the year ended December 31, 2023, our net loss was $17.1 million and the change in the fair value of warrant liabilities was $1.6 million, both of which were partially offset by non-cash charges primarily related to $2.0 million of stock-based compensation expense, $0.1 million of depreciation expense, $0.7 million of amortization of right-of-use assets, loss on extinguishment of debt of $0.4 million, and debt discount amortization of $0.3 million.
Cash flows from investing activities
Cash provided by investing activities during each of the years ended December 31, 2025 and 2024 related to proceeds from the sale of property and equipment of less than $0.1 million. Cash provided by investing activities during the year ended December 31, 2023 related to proceeds from the sale of property and equipment of $0.3 million.
Cash flows from financing activities
Our financing activities provided cash of $11.0 million for the year ended December 31, 2025 compared to financing activities of $3.4 million for the year ended December 31, 2024. For the year ended December 31, 2025, net cash provided by financing activities consisted primarily of $2.9 million in proceeds from debt financing obligations and $9.7 million in proceeds, net, from the sale of pre-funded warrants, partially offset by repayments of term loan principal of $1.3 million and a payment of $0.3 million to collaboration partners. For the year ended December 31, 2024, net cash provided by financing activities consisted primarily of $3.7 million in proceeds from debt financing obligations and $0.4 million in proceeds from advances from collaboration partners, partially offset by repayments of term loan principal of $0.6 million.
Our financing activities provided cash of $3.4 million for the year ended December 31, 2024 compared to financing activities using cash of $4.1 million for the year ended December 31, 2023. For discussion of our cash provided by financing activities during the year ended December 31, 2024, refer to the previous paragraph. For the year ended December 31, 2023, net cash used in financing activities consisted primarily of repayments of term loan principal of $9.4 million, partially offset by proceeds from the sale of common stock through the At-the-Market Offering ("ATM"), net of issuance costs, of $3.2 million, proceeds from the issuance of common stock, pre-funded warrants and common stock warrants of $1.7 million, and proceeds from advances from collaboration partners of $0.4 million.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements and the notes thereto included elsewhere in this Annual Report, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these annual consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements appearing elsewhere in this Annual Report, we believe that the following accounting policies related to revenue recognition and accrued clinical trial costs and contract research liabilities are the most critical accounting policies for fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
Under ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606"), an entity recognizes revenue when or as its customer obtains control of distinct promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to the customer.
Under ASC 606, there is judgment involved in identifying the promised goods or services in the agreement, determining whether these are distinct in the context of the contract and determining if these represent a performance obligation to a customer. Additionally, we use judgment to determine whether rights to additional goods or services that are exercisable at a customer’s discretion provide a material right to the customer and if so, they are considered performance obligations. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract.
We estimate the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of potential payments and the likelihood that the payments will be received. We utilize either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration which is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.
Development milestones are assessed under the most likely amount method and are not constrained if it is probable that a significant revenue reversal will not occur. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue in the period of adjustment.
For revenue related to sales-based royalties received from licensees, including milestone payments based on the level of sales, where the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
We allocate the transaction price based on the estimated stand-alone selling price of each of the performance obligations. We must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in a contract with a customer. We utilize key assumptions to determine the stand-alone selling price for service obligations, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally, in determining the standalone selling price for material rights, we may reference comparable transactions, clinical trial success probabilities, and develop estimates of option exercise likelihood. Any variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts we would expect to receive for the satisfaction of each performance obligation.
The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Accrued Clinical Trial Costs and Contract Research Liabilities
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves identifying services which have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Given our current business, the primary area of uncertainty concerning accruals which could have a material effect on our operating results is with respect to service fees paid to contract manufacturers in conjunction with the production of clinical drug supplies, and to contract research organizations in connection with our preclinical research and clinical trials. In connection with all of the foregoing service fees, our estimates are most affected by our understanding of the status and timing of services provided. The majority of our service providers, including contract research organizations, invoice us in arrears for services performed. In the event that we do not identify some costs which have begun to be incurred, or we underestimate or overestimate the level of services performed or the costs of such services in a given period, our reported expenses for such period would be understated or overstated. We currently reflect the effects of any changes in estimates based on changes in facts and circumstances directly in our statement of operations in the period such change becomes known.
Our arrangements with contract research organizations in connection with clinical trials often provide for payment prior to commencing the project or based upon predetermined milestones throughout the period during which services are expected to be performed. We recognize expense relating to these arrangements based on the various services provided over the estimated time to completion. The date on which services commence, the level of services performed on or before a given date, and the cost of such services are often determined based on subjective judgments. We make these judgments based upon the facts and circumstances known to us based on the terms of the contract and our ongoing monitoring of service performance. We recognize the expenses associated with these arrangements based on our expectation of the timing of the performance of components under these arrangements by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial.
With respect to financial reporting periods presented in this Annual Report, the timing of our actual costs incurred have not differed materially from our estimated timing of such costs. In light of the foregoing, we do not believe our practices for estimating future expenses and making judgments concerning the accrual of expenses are reasonably likely to change in the future.
Off-Balance Sheet Arrangements
As of December 31, 2025, 2024 and 2023, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURE ABOUT MARKET RISK
Not required pursuant to the scaled disclosure requirements available to smaller reporting companies, as defined in Item 10(f)(1) of Regulation S-K
ITEM 8. Financial Statement s and Supplementary Data
The consolidated financial statements and supplementary data required by this Item are set forth indicated in Item 15 of this Annual Report and are incorporated by reference into this Item.
