ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward‑Looking Statements
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and the other financial information included in this Annual Report. This discussion contains forward‑looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward‑looking statements because of various factors, including those set forth under “Risk Factors” or in other parts of this Annual Report.
Company Overview
We are a commercial-stage biopharmaceutical company engaged in the discovery, development, marketing and sale of innovative treatment and therapies, primarily for rare and orphan diseases. Our only product, Endari® (prescription grade L-glutamine oral powder), is approved by the U.S. Food and Drug Administration, or FDA, to reduce the acute complications of sickle cell disease (“SCD”) in adult and pediatric patients five years of age and older. Endari® was approved for marketing in the United Arab Emirates, or U.A.E, in Qatar, Kuwait, Bahrain, and Oman. Our application for marketing authorization in the Kingdom of Saudi Arabia, or KSA is pending. While the application is pending, the FDA approval of Endari® can be referenced to allow access to Endari® in the KSA on a named-patient basis. In January 2025, Endari® was afforded market exclusivity in the KSA by the KSA’s unified purchasing system which extends to all KSA government institutions, including hospitals under the Ministry of Health, Military Hospitals, the National Guard, the Security Forces, and King Faisal Specialty Hospitals and Research Centers.
Endari® is sold in the U.S. through our nonexclusive distributors and in the Middle East North Africa, or MENA, region through exclusive arrangements with local distributors. In December 2025, we entered into a License and Exclusive Distribution Agreement, or License Agreement, with NeoImmuneTech, Inc., or NIT, pursuant to which we granted NIT, subject to the occurence of the "effective Date" of the License Agreement, an exclusive license to our rights to market, sell, and distribute Endari® and any generic equivalents we may develop in sickle cell disease, or the Field, in the U.S. and its territories and possession and Canada, or the Territory, in exchange for an upfront cash payment, a double digit percentage royalty on NIT’s sales of the licensed products and a double digit percentage of any NIT sublicenses of rights to the products. Of the upfront payment, somewhat less than half was paid in cash upon execution of the License Agreement, with the balance payable in cash upon the “Effective Date” of the License Agreement. The upfront cash payment is refundable by us under certain circumstances described in the License Agreement. We agree in the License Agreement to use a portion of the upfront payment payable upon the Effective Date to subscribe to purchase shares of NIT capital stock.
In connection with the License Agreement, we and NIT recently entered into an Exclusive Supply Agreement pursuant to which we agree to supply exclusively to NIT, and NIT agrees, subject to the occurrence of the Effective Date of the License Agreement and certain exceptions, to purchase exclusively from us all NIT’s requirements for the Products in the Field in the Territory at a purchase price based upon our cost of production plus a specified double digit percentage margin.
Pending the Effective Date, NIT has hired selected members of our U.S. sales force and we have entered into a sales services agreement under which NIT will render to us sales and marketing services for Endari® in the Field in the Territory in exchange for our payment of quarterly fees in the low-to-mid six figures. We will continue to realize all revenues from sales of the Endari® in the Territory pending the Effective Date.
The Effective Date is subject to NIT’s obtaining the necessary regulatory approvals and licensing to sell and distribute the licensed products and other specified conditions, and there is no assurance that the Effective Date will occur. The License Agreement may be terminated by either party if the Effective Date does not occur by the October 1, 2026, subject to certain exceptions, in which case all rights to the licensed products will revert to us. Once the Effective Date occurs, the rights granted to NIT under the License Agreement will become nonexclusive if NIT fails to generate annual minimum sales of the licensed products in the low seven figures. Following the Effective Date, the License Agreement may be terminated by either party in the event of a breach by the other party and other specified events.
Under the License Agreement, each party is entitled to make improvements to the licensed products and to own their respective improvements, subject to the grant of appropriate cross-rights to any such improvements. We retain all rights in the licensed products outside the Field and outside the Territory.
If the Effective Date does not occur, we will consider alternative strategies for marketing and selling Endari® and any generic equivalents we may develop in the U.S. and other markets in the territory. NIT has no experience is marketing brand name or generic pharmaceuticals in the U.S. or elsewhere, and if the Effective Date occurs there is no assurance that it will be able to successfully market and distribute Endari® or other licensed products.
For the foregoing reasons, our historical results of operations are unlikely to be an indication of our future performance.
Endari® is reimbursable by the Centers for Medicare and Medicaid Services, and every state provides coverage for Endari® for outpatient prescriptions to all eligible Medicaid enrollees within their state Medicaid programs. Endari® is also reimbursable by many commercial payors. We have agreements in place with the nation’s leading distributors, as well as physician group purchasing organizations and pharmacy benefits managers, making Endari® available at selected retail and specialty pharmacies nationwide which are expected to be assigned and assumed by NIT in connection with the Effective Date of the License Agreement. Following the Effective Date of the License Agreement with NIT, our revenues from U.S. operations will depend upon sales of Endari® to NIT under the exclusive supply agreement and on royalties from NIT’s sales of Endari® in the territory.
As of December 31, 2025, our accumulated deficit was $270.1 million, and we had cash and cash equivalents of $2.1 million. Until we can generate sufficient net revenues from Endari® sales or sales royalties, our future cash requirements are expected to be financed through loans from related parties, third-party loans, public or private equity or debt financings or possible corporate collaboration and licensing arrangements. We are unable to predict if or when we will become profitable.
Critical Accounting Estimates and Accounting Policy
Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the present circumstances. These estimates and assumptions 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 materially from these estimates.
While our significant accounting policies are more fully described in Note 2 of the Notes to Financial Statements included in this Annual Report, we believe that the accounting policies discussed below under “Financial Overview” are the most critical to assist you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.
Revenues, net
In the period covered by this Annual Report, we realized net revenues primarily from sales of Endari® to our distributors and specialty pharmacy providers. Distributors resell our products to other pharmacy and specialty pharmacy providers, health care providers, hospitals, and clinics. In addition to agreements with these distributors, we have contractual arrangements with specialty pharmacy providers, in-office dispensing providers, physician group purchasing organizations, pharmacy benefits managers and government entities that provide for government-mandated or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. These various discounts, rebates, and chargebacks are referred to as “variable consideration.” Revenue from product sales is recorded net of variable consideration.
Under ASC 606 Revenue from Contracts with Customers , we recognize revenue when its customers obtain control of the our product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for the product, or transaction price. To determine revenue recognition for contracts with customers within the scope of ASC 606, we perform the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligations.
Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of sales discounts, returns, government rebates, chargebacks and commercial discounts. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible transaction prices. Actual variable consideration may differ from our estimates. If actual results vary from the estimates, we adjust the variable
consideration in the period such variances become known, which adjustments are reflected in net revenues in that period. The following are our significant categories of variable consideration:
Sales Discounts : We afford our customers prompt payment discounts and additional discounts to encourage bulk orders to generate needed working capital.
Product Returns : We offer our distributors a right to return product principally based upon (i) overstocks, (ii) inactive product or non-moving product due to market conditions, and (iii) expired product. Product return allowances are estimated and recorded at the time of sale.
Government Rebates : We are subject to discount obligations under state Medicaid programs and the Medicare Part D prescription drug coverage gap program. We estimate Medicaid and Medicare Part D prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenues are recognized, resulting in a reduction of product revenues and the establishment of a current liability that is included as accounts payable and accrued expenses on our balance sheet. Our liability for these rebates consists primarily of estimates of claims expected to be received in future periods related to recognized revenues.
Chargebacks and Discounts : Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to distributors. The distributors charge us for the difference between what they pay for the products and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. In addition, we have contractual agreements with pharmacy benefit managers who charge us for rebates and administrative fee in connection with the utilization of product. These reserves are established in the same period that the related revenues are recognized, resulting in a reduction of revenues. Chargeback amounts are generally determined at the time of resale of product by our distributors.
Following the Effective Date of the License Agreement with NIT, our revenues from U.S. operations will depend upon sales of Endari® to NIT under the exclusive supply agreement and on royalties from NIT’s sales of Endari® in the Territory.
Share‑based Compensation
We recognize compensation expense for share‑based compensation awards during the service term of the recipients of the awards. The fair value of share‑based compensation is calculated using the Black‑Scholes‑Merton pricing model. The Black‑Scholes‑Merton model requires subjective assumptions regarding future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of awards granted is calculated using the simplified method allowed under the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Nos. 107 and 110. The risk‑free rate used to value an award is based on the U.S. Treasury rate on grant date that corresponds to the expected term of the award. The expected volatility was adjusted using the historical volatility of our common stock.
Fair Value Measurements
We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in accordance with Accounting Standards Codification ("ASC") Topic 820 - Fair value Measurements. We measure fair value under a framework that provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include:
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The fair value measurement level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The carrying values of cash and cash equivalents, accounts receivables, other current assets, account payable and accrued expenses, and other current liabilities approximate fair value due to the short-term maturity of those instruments. The fair value of our convertible debt instruments was determined based on Level 2 inputs. The carrying value of the debt was discounted based on allocating proceeds to other financial instruments within the arrangement as discussed in Note 7 to our consolidated financial statements.
The investment in convertible bond and certain outstanding warrants that contain price adjustment provision are remeasured at fair value on a recurring basis using Level 3 inputs. The level 3 inputs in the valuation and valuation methods used are discussed in Note 5, 7 and 8. There are no other assets or liabilities measured at fair value on a recurring basis.
Derivative liability
We evaluate its financial instruments including convertible notes to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. We apply significant judgment to identify and evaluate terms and conditions in these contracts and agreements to determine whether embedded derivative exists. If all the requirements for bifurcation are met, embedded derivatives are separately measured from the host contract. Bifurcated embedded derivatives are initially recorded at fair value and then remeasure at each reporting period, with change in fair value recognized in the consolidated statements of operations. Bifurcated embedded derivative are classified as separate liability in the consolidated balance sheets. Our derivative liability related to the conversion feature embedded in the convertible promissory notes. See note 7 for further details.
Related Party Transactions
For a discussion of related party transactions, refer to Note 5, 6, 7, 11, and 12 of the Notes to Consolidated Financial Statement included elsewhere in this Annual Report, which information is incorporated herein by reference.
Financial Highlights
Years Ended December 31,
REVENUES, NET
COST OF GOODS SOLD
GROSS PROFIT
OPERATING EXPENSES
Research and development
Selling
General and administrative
Total operating expenses
INCOME (LOSS) FROM OPERATIONS
OTHER INCOME (EXPENSE)
Loss on debt extinguishment
Change in fair value of warrant derivative liabilities
Change in fair value of conversion feature derivative, notes payable
Realized loss on investment in convertible bond
Gain on restructured debt
Gain (loss) on lease modification
Foreign exchange gain (loss)
Interest and other income (net)
Interest expense
Total other expense
LOSS BEFORE INCOME TAXES
Income tax provision
NET LOSS
COMPONENTS OF OTHER COMPREHENSIVE LOSS
Unrealized gain (loss) on debt securities available for sale (net of tax)
Reclassification adjustment for loss included in net loss
Foreign currency translation adjustments
Other comprehensive income (loss)
COMPREHENSIVE LOSS
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
Years ended December 31, 2025 and 2024
Net Loss. Net loss increased by $1.0 million, or 16%, to $7.5 million for the year ended December 31, 2025 compared to net loss of $6.5 million for the year ended December 31, 2024. The increase was due primarily to an increase of $3.2 million in other expenses partially offset by an increase of $2.1 million in income from operation. As of December 31, 2025, we had an accumulated deficit of approximately $270.1 million.
Revenues, Net . Net revenues decreased by $4.2 million, or 25%, to $12.5 million for the year ended December 31, 2025 compared to $16.7 million in 2024 due to competition from a generic version of L-Glutamine oral powder introduced into U.S. market in mid-2024 noted below.
On July 15, 2024, ANI Pharmaceuticals, Inc., or ANI. announced the launch of its L-Glutamine Oral Powder, a generic version of Endari®, following final approval of its Abbreviated New Drug Application from the U.S. Food and Drug Administration. The introduction of ANI’s generic product or other generic versions of L-Glutamine oral powder has adversely affected Endari® sales and is likely to adversely affect the reimbursement rates that Medicare, Medicaid and third-party payors are willing to pay for Endari®, which could have a material, adverse effect on our future sales and net revenues.
The market exclusivity for Endari® for SCD in the U.S. expired in July 2024 and Endari® has no or limited market exclusivity in the MENA region, which lack of exclusivity could adversely affect our Endari® sales and results of operations in the U.S. and the MENA region. We cannot predict whether or when competing generic prescription-grade L-glutamine products may be introduced in the MENA region or what effect the introduction of such products may have on reimbursement rates for Endari® in the MENA region or Endari® sales.
Cost of Goods Sold. Cost of goods sold decreased by $0.3 million, or 29%, to $0.9 million for the year ended December 31, 2025 compared to $1.2 million in 2024. This decrease was primarily due to the decrease in sales discussed above.
Research and Development Expenses . Research and development expenses decreased by $0.3 million, or 52%, to $0.3 million for the year ended December 31, 2025 compared to $0.7 million in 2024. The decrease was primarily due to a decrease of $0.4 million in payroll expenses from a reduction in headcount, partially offset by an increase of $0.1 million in research and development expenses.
Selling Expenses. Selling expenses decreased by $3.1 million, or 52%, to $2.9 million for the year ended December 31, 2025 compared to $6.0 million in 2024. The decrease was due to decreases of $1.4 million in consulting fee, $1.1 million in payroll expenses, $0.4 million in promotional expenses, and $0.2 million in travel expenses. We expect that our selling expenses will continue to decrease in the U.S. as we entered into exclusive distribution licensing agreement with NIT discussed above.
General and Administrative Expenses. General and administrative expenses decreased by $2.5 million, or 23%, to $8.2 million for the year ended December 31, 2025 compared to $10.7 million in 2024. The decrease was primarily due to decreases of $1.2 million in payroll related expenses, including shared-based compensation, $1.0 million in professional services, and $0.6 million in rent expense, partially offset by an increase of $0.5 million in settlement fee.
Other Expense. Other expense increased by $3.2 million, or 70%, to $7.7 million for the year ended December 31, 2025 compared to $4.5 million in 2024. The increase was primarily due to increases of $1.4 million in loss on debt extinguishment and $1.6 in interest expense, and a decrease of $1.0 million in gain on restructured debt, partially offset by an increase of $0.9 million in gain on lease modification.
Income Tax Provision. Income tax provision decreased by $20 thousand or 69%, to income tax expense of $9 thousand for the year ended December 31, 2025 compared to $29 thousand in 2024. A valuation allowance for net deferred tax assets recorded when it is more likely than not that we will not realize these assets through future operations. The valuation allowance increased by approximately $0.5 million and decreased by $4.1 million for the year ended December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025, and 2024, we had no unrecognized tax benefits or position which in the opinion of management would be reversed if challenged by a tax authority.
Liquidity and Capital Resources
We realized a net loss of $7.5 million for the year ended December 31, 2025 and anticipate that we will continue to incur net losses for the foreseeable future and until we can generate increased net revenues from Endari ® sales or sales royalties. There is no assurance that we or NIT or our distributors will be able to increase Endari® sales or that will attain sustainable profitability or have sufficient capital resources repay our existing indebtedness or to fund our operations until we are able to generate sufficient cash flow from operations.
Liquidity represents our ability to pay our liabilities when they become due, fund our business operations and meet our contractual obligations, including repayment of our indebtedness. Our primary sources of liquidity are our cash balances at the beginning of each period, sales of future receipts to third parties, proceeds from related-party loans and other financing activities. Our short-term and long-term cash requirements consist primarily of working capital requirements, general corporate needs and debt service under our outstanding notes payable.
As of December 31, 2025, we had outstanding $13.5 million in principal amount of convertible promissory notes and $11.3 million in principal amount of other notes payable that are due on demand. Our minimum lease payment obligations were $1.8 million as of December 31, 2025, of which $0.3 million was payable within 12 months.
Our API supply agreement with Telcon provides for an annual API purchase target of $5.0 million and a target “profit” ( i.e ., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, Telcon may be entitled to payment of the shortfall or to offset the shortfall against the Telcon convertible bond and proceeds thereof that are pledged as collateral to secure our obligations. With our consent, in April 2023 Telcon retained cash collateral and made offsets against the outstanding balance of our Telcon convertible bond for target shortfalls under the API supply agreement for 2022. A similar target shortfall for 2024 and 2023 was offset in April 2025 and April 2024, respectively.
Due to uncertainties regarding our ability to meet our current and future operating and capital expenses, there is substantial doubt about our ability to continue as a going concern for 12 months from the date of filing of this Annual Report as referred to in the “Risk Factors” section of this Annual Report and Note 2 of the Notes to Consolidated Financial Statements included herein. The report of our independent public accounting firm on our financial statements as of and for the year ended December 31, 2025 included in Item 15 of this Annual Report contains a going concern qualification.
Cash Flows
Net cash used in operating activities
Net cash used in operating activities decreased by $2.3 million, or 100%, to $11 thousand for the year ended December 31, 2025 from $2.3 million for the year ended December 31, 2024. The decrease was primarily due to an increase of $1.0 million net loss adjusted by $1.6 million non-cash activities and $1.7 million net changes in operating assets and liabilities.
Net cash provided by investing activities
Net cash provided by investing activities decreased by $0.3 million, or 13%, to $ 2.2 million for the year ended December 31, 2025 from $2.5 million for the year ended December 31, 2024. The decrease was primarily due to a $0.3 million decrease in proceeds from the deemed sale of a portion of the Telcon convertible bond from the offset of target shortfalls discussed above.
Net cash provided by (used in) from financing activities
Net cash used in from financing activities was $1.4 million for both the year ended December 31, 2025 and the year ended December 31, 2024.
Off‑Balance‑Sheet Arrangements
We had no off-balance sheet arrangements in the periods presented.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
The information required by this Item 8 is incorporated by reference to the information that begins on Page F‑1 of this Annual Report.
