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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.22pp more bullish 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.
Risk Factors
+0.02pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.42pp
Lean +
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+5
litigation+5
closing+5
adversely+4
fail+4
Positive rising
able+4
successfully+4
effective+3
greater+2
benefit+2
Risk Factors (Item 1A)
49,244 words
Item 1A. RISK FACTORS.
The following section includes the most significant factors that may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this Annual Report on Form 10-K before deciding to invest in our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects may be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment. Moreover, some of the factors, events and contingencies discussed below may have occurred in the past, but the disclosures below are not representations as to whether or not the factors, events or contingencies have occurred in the past and instead reflect our beliefs and opinions as to the factors, events, or contingencies that could materially and adversely affect us in the future.
Summary of Risk Factors
Investing in our securities involves a high degree of risk. Below please find a summary of the principal risks we face. These risks are discussed more fully below.
There is no assurance when or if the Merger will be completed. Any in completing the Merger may substantially reduce the potential benefits that we expect to obtain from the Merger.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
adverse+2
late+1
slow+1
severity+1
incidence+1
Positive rising
able+1
leading+1
satisfy+1
advancement+1
satisfaction+1
MD&A (Item 7)
7,908 words
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.” You should carefully read the “Cautionary Note About Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.
Overview
We are a commercial-stage biopharmaceutical company focused on the development and commercialization of small-molecule therapies for the treatment of organ fibrosis and inflammatory diseases. We operate through our majority indirectly owned subsidiary, Gyre Pharmaceuticals, in the PRC, and through our U.S. operations headquartered in San Diego, California.
Our strategy is to leverage our established commercial portfolio to support and de-risk the of -stage product candidates, expand approved products into additional indications, and build a diversified pipeline targeting significant unmet medical needs in fibrosis and related inflammatory diseases.
Our business is significantly dependent on the sales of ETUARY®, one of our marketed products in the PRC, amid a competitive landscape, and there is a possibility that we may not be able to sustain or boost the sales volume, pricing, and profitability of ETUARY®.
There is a risk that our marketed products in the PRC, ETUARY®, Etorel® and Contiva®, along with any other products that we may receive approval for and commercialize in the future, may not attain sufficient market acceptance among physicians, healthcare facilities, pharmacies, patients, third-party payers, and the broader medical community, which is crucial for their commercial viability.
The future of our business and financial outcomes is largely contingent on the progress and success of our product candidates in clinical and preclinical stages, such as ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC. We face the risk of not being able to finalize their clinical development, secure necessary regulatory approvals, or accomplish their market launch successfully, or we may encounter substantial setbacks in these processes.
To support the growth of our research and development activities and operations, we require further funding, which might not be obtainable on favorable terms or could be entirely unavailable. If we fail to secure the needed capital at the critical time, we might have to postpone, scale down, or halt some of our development projects, market introduction initiatives, or other operational aspects.
We may fail to win bids to sell our commercialized products, ETUARY®, and any other future products, if approved and commercialized, to PRC public hospitals through the centralized tender process.
The true market potential for our product and product candidates may be less than expected. Our expansion could be constrained by the current and emerging number of IPF patients in the PRC, pending the approval and profitable launch of expanded applications for ETUARY® for future indications in the PRC, and our other product candidates.
The approval procedures of the NMPA, FDA, and comparable foreign regulatory authorities are extensive, protracted, and inherently uncertain. Failure to secure necessary approvals, or encountering delays in the approval process, will prevent us from marketing our product candidates, such as ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC, which may significantly affect our revenue generation.
Should we or our licensors fail to secure, uphold, defend, or extend adequate patent and other intellectual property rights for our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any product candidates globally, or if the breadth of these intellectual property rights is insufficient, our ability to effectively compete in our markets could be compromised.
We have established, and may continue to establish, collaborative agreements and strategic partnerships. However, there is no guarantee we will fully achieve the anticipated benefits from these collaborations, alliances, or licensing agreements, and conflicts could emerge with our present or prospective partners.
Clinical drug development involves a lengthy and expensive process and outcomes are uncertain, and we may not successfully complete clinical trials for drugs under development, including ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC, or demonstrate the safety and efficacy of our product candidates to the satisfaction of regulatory authorities.
Our ongoing success is reliant on our capacity to retain key executives and to recruit, maintain, and inspire skilled professionals.
If our intangible assets are impaired, our results of operations and financial condition may be adversely affected.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
The market price of our common stock has been, and may continue to be, volatile.
We will continue to incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with regulations related to operating as a public company.
Risks Related to the Merger with Cullgen
There is no assurance when or if the Merger will be completed. Any delay in completing the Merger may substantially reduce the potential benefits that we expect to obtain from the Merger.
Completion of the Merger is subject to the satisfaction or waiver of a number of conditions, as set forth in the Merger Agreement, including (1) approval by the requisite Cullgen stockholders of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, and (2) a filing under HSR Act. There can be no assurance that we and Cullgen will be able to satisfy the closing conditions or that closing conditions beyond our or Cullgen’s control will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or may not be completed within the expected timeframe, and we may materially and adverselylose some or all of the potential benefits that we expect to achieve as a result of the Merger and could result in additional transaction costs or other effects associated with uncertainty about the Merger. Moreover, we have incurred and expect to continue to incur significant expenses related to the Merger, such as legal and accounting fees, some of which must be paid even if the Merger is not completed.
We and Cullgen can agree at any time to terminate the Merger Agreement, even if the Cullgen securityholders have already adopted the Merger Agreement and thereby approved the Merger and the other transactions contemplated by the Merger Agreement. We and Cullgen can also terminate the Merger Agreement under other specified circumstances.
The issuance, or expected issuance, of our common stock in connection with the Merger could decrease the market price of our common stock.
In connection with the Merger and as part of the merger consideration, we expect to issue shares of common stock to Cullgen stockholders. The anticipated issuance of our common stock in the Merger may result in fluctuations in the market price of our common stock, including a stock price decrease. In addition, the perception in the market that the holders of a large number of shares of our common stock may intend to sell shares could reduce the market price of our common stock.
The intended benefits of the Merger may not be realized.
The Merger poses risks for our ongoing operations, including, among others:
that senior management’s attention may be diverted from the management of our current operations and development of our products;
costs and expenses associated with any undisclosed or potential liabilities; and
unforeseendifficulties may arise in integrating Cullgen’s and our business.
As a result of the foregoing, we may be unable to realize the full strategic and financial benefits currently anticipated from the Merger, and we cannot assure you that the Merger will be accretive to us in the near term or at all. Furthermore, if we fail to realize the intended benefits of the Merger, the market price of our common stock could decline to the extent that the market price reflects those benefits. Our stockholders will have experienced substantial dilution of their ownership interests in us without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent we are able to realize only part of the strategic and financial benefits currently anticipated from the Merger.
Because the lack of a public market for Cullgen common stock makes it difficult to evaluate the fairness of the Merger, Cullgen stockholders may receive consideration in the Merger that is greater than or less than the fair market value of Cullgen common stock.
The outstanding Cullgen common stock is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Cullgen shares. Since the percentage of our common stock to be issued to Cullgen stockholders was determined based on negotiations between the parties, it is possible that the value of our common stock to be issued in connection with the Merger will be greater than the fair market value of Cullgen shares. Alternatively, it is possible that the value of the shares of our common stock to be issued in connection with the Merger will be less than the fair market value of Cullgen shares.
Our directors and officers may have interests in the Merger that are different from, or in addition to, those of our stockholders generally that may influence them to support or approve the Merger.
Our officers and directors may have interests in the Merger that are different from, or are in addition to, those of our stockholders generally. Effective upon the Closing, Ying Luo, Ph.D., current President and Chief Executive Officer of Cullgen, is expected to be employed as Chief Executive Officer and President and appointed as a director of Gyre. Each outstanding option to acquire shares of Cullgen common stock held by Cullgen executive officers and directors will be converted into an option to acquire shares of our common stock.
In addition, our directors and executive officers also have certain rights to indemnification or to directors’ and officers’ liability insurance that will survive the completion of the Merger. These interests may have influenced our directors and executive officers to support or recommend the proposals presented to our stockholders.
The announcement and pendency of the Merger could have an adverse effect on our business, financial condition, results of operations or business prospects.
The announcement and pendency of the Merger could disrupt our business in the following ways, among others:
Our current and prospective employees could experience uncertainty about their future roles, and this uncertainty might adversely affect our ability to retain, recruit and motivate key personnel;
the attention of our management may be directed towards the completion of the Merger and other transaction-related considerations and may be diverted from our day-to-day business operations, as applicable, and matters related to the Merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to us;
customers, prospective customers, suppliers, collaborators and other third parties with business relationships with us may decide not to renew or may decide to seek to terminate, change or renegotiate their relationships with us as a result of the Merger, whether pursuant to the terms of their existing agreements with us; and
the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed.
Should they occur, any of these matters could adversely affect our business, or harm our financial condition, results of operations or business prospects.
During the pendency of the Merger, we may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the Merger Agreement.
Covenants in the Merger Agreement impede our ability to make dispositions or acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition, a tender offer, a merger or other business combination outside the ordinary course of business. These restrictions may prevent us from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes to our business or executing certain of our business strategies prior to the completion of the Merger, which could be favorable to our stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of us and Cullgen from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances if our board of directors determines in good faith, after consultation with its independent financial advisor and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would be reasonably likely to result in a breach of the fiduciary duties of our board of directors.
The Exchange Ratio is not adjustable based on the market price of our common stock, so the Merger consideration at the Closing may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has fixed the Exchange Ratio (as defined in the Merger Agreement) for the Cullgen common stock, and the Exchange Ratio is not adjustable. Any changes in the market price of common stock before the completion of the Merger will not affect the number of shares Cullgen securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger, the market price of our common stock declines from the market price on the date of the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Merger, the market price of our common stock increases from the market price on the date of the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially more value for their shares of Cullgen common stock than the parties had negotiated for in the establishment of the Exchange Ratio.
We are expected to incur substantial expenses related to the Merger with Cullgen.
We expect to continue to incur, substantial expenses in connection with the Merger, as well as operating as a public company. We will incur significant fees and expenses relating to legal, accounting, financial advisory and other transaction fees and costs associated with the Merger. Actual transaction costs may substantially exceed our estimates and may have an adverse effect on our financial condition and operating results.
Failure to complete the Merger could negatively affect the value of our common stock and our future business and financial results.
If the Merger is not completed, our ongoing business could be adversely affected. Moreover, we will be subject to a variety of risks associated with the failure to complete the Merger, including without limitation the following:
diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the Merger;
reputational harm due to the adverse perception of any failure to successfully complete the Merger; and
having to pay certain costs relating to the Merger, such as legal, accounting, financial advisory, filing and printing fees.
If the Merger is not completed, the market price of our common stock and our business and financial results could be materially affected.
The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes or other causes.
In general, either party can refuse to complete the Merger if there is a material adverse effect affecting the other party between March 2, 2026, the date of the Merger Agreement, and the Closing of the Merger. However, some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on us or Cullgen, as the case may be:
general economic or political conditions or conditions generally affecting the industries in which the parties operate;
any natural disaster, calamity or epidemics, pandemics or other force majeure events, or any act or threat of terrorism or war, any armed hostilities or terrorist activities (including any escalation or general worsening of any of the foregoing) anywhere in the world or any governmental or other response or reaction to any of the foregoing; or
changes in GAAP or other applicable law or the interpretation thereof.
If adverse changes occur but we and Cullgen must still complete the Merger, the market price of our common stock may suffer.
We and/or our board of directors may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of our management and harm our business, and insurance coverage may not be available or sufficient to cover all related costs, expenses, and damages.
Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We or our board of directors may become involved in this type of litigation in connection with the Merger, and we may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business.
We are substantially dependent on our remaining employees, key contractors and consultants to facilitate the consummation of the Merger.
Our ability to successfully complete the Merger depends in large part on our ability to retain certain remaining personnel, in addition to key contractors and consultants. Despite our efforts to retain these employees, as well as key contractors and consultants, one or more may terminate their employment or services with us on short notice. The loss of the service of certain employees, key contractors or consultants could potentially harm our ability to consummate the Merger and run our day-to-day business operations, as well as fulfill our reporting obligations as a public company.
Risks Related to Our Financial Condition and Capital Requirements
Our business is significantly dependent on the sales of ETUARY®, one of our marketed products in the PRC, amid a competitive landscape, and there is a possibility that we may not be able to sustain or boost the sales volume, pricing, and profitability of ETUARY®.
We are a biotechnology company and have primarily generated revenues from the commercial sale of ETUARY®, which is approved in the PRC, Etorel®, Contiva® and certain generic drugs. We only have three products and certain generic drugs for commercial sale and are still in the early stages of development of our other product candidates. We are largely dependent on sales of ETUARY®, but we may not be able to maintain ETUARY®’s sales volumes, pricing levels or profit margins. Sales of ETUARY® accounted for 91.0% and 99.3% of our total revenue in 2025 and 2024, respectively, and we expect that sales of ETUARY® will continue to comprise a substantial portion of our total revenue in the near future. In 2025, we initiated commercialization of Etorel® and Contiva®, which accounted for 4.0% and 4.7% of our total revenue in 2025, respectively. However, our commercialization efforts, including increasing market access, physician education and patient support programs, for Etorel® and Contiva® may not successful and we may not be able to develop sufficient sales volume, optimal pricing or sustained profitability of Etorel® or Contiva®, and sales of Etorel® and Contiva® may not offset any future declines in ETUARY® sales. As a result, any reduction in sales or profit margins of ETUARY® will have a material negative impact on our business and results of operations.
In addition, the pharmaceutical industries are characterized by rapid changes in technology, constant enhancement of industrial know-how and frequent emergence of new products, which renders our targeted markets highly competitive. Notably, the IPF drug market in the PRC is characterized by increasingly fierce competition, with several pirfenidone and nintedanib products approved and commercialized, in addition to our products ETUARY®, Etorel® and Contiva®. There are also several drug candidates that have entered into Phase 2 or more advanced clinical trial stage. With the increase in the penetration rate of IPF drugs and the expansion of the overall market, including past new market participants, we expect that more market players will join the IPF market, and, consequently, the sales of ETUARY®, Etorel® and Contiva® may decrease. For details, see “—Business—Our Commercial Portfolio—Pulmonary Fibrosis—ETUARY® (pirfenidone)” in this Annual Report. New entrants to the IPF market in the PRC may exert downward pressure on our average selling price of ETUARY®, Etorel® and/or Contiva®, which may negatively impact sales and/or profit of ETUARY®, Etorel® and/or Contiva®, respectively.
Many of our competitors, including foreign pharmaceutical companies, may have substantially greater clinical, research, regulatory, manufacturing, marketing, financial and human resources compared to us. Certain of our competitors may be actively engaged in research and development in areas where we have products or where we are developing product candidates or new indications for our existing products. Other companies may discover, develop, acquire or commercialize products more quickly or more successfully than we do. Moreover, there may also be significant consolidation in the pharmaceutical industry among our competitors or ventures among competitors that may increase their market share. Furthermore, our competitors may apply for and obtain marketing approvals in the PRC, United States or other countries for products with the same intended use as our generic products, ETUARY®, Etorel®, Contiva® and product candidates more rapidly than we do. The capacity of the relevant authorities, such as the NMPA, FDA or other comparable foreign regulatory authorities, to concurrently review multiple marketing applications for the same type of innovative drug may be limited. Therefore, such authorities’ review of our product candidates may be delayed when there is concurrent review of our product candidates with our competitors’ products, and the registration process of our products may be prolonged.
In addition to market competition from generic drugs and other products or therapies indicated for the same disease, many of the factors discussed in this Risk Factors section could adversely affect sales of ETUARY®, Etorel® and Contiva® including but not limited to, pricing pressures caused by government policies and inclusion or removal from the governmental medical insurance coverage, market acceptance among the medical community, disruptions in manufacturing or distribution, issues with product quality or side effects and disputes over intellectual property. Moreover, despite our efforts, we may be unable to achieve expected sales of Etorel® and Contiva® or develop or acquire new products that would diversify our business and reduce our dependence on ETUARY®.
The future of our business and financial outcomes is largely contingent on the progress and success of our product candidates in clinical and preclinical stages, such as ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC. We face the risk of not being able to finalize their clinical development, secure necessary regulatory approvals, or accomplish their market launch successfully, or we may encounter substantial setbacks in these processes.
We have devoted most of our financial resources to research and development, including our preclinical and clinical development activities. Our ability to generate revenue and realize profitability depends on the successful completion of the development of our product candidates, obtaining necessary regulatory approvals, and manufacturing and commercializing our product candidates, which is contingent upon various factors, including:
the clinical development of ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC;
our ability to attract, hire and retain skilled personnel;
the successful enrollment in, and completion of, clinical trials, as well as completion of preclinical studies and favorable safety and efficacy data therefrom;
receipt of regulatory approvals;
the performance by contract research organizations (“CROs”), or other third parties, of their duties to us in a manner that complies with our trial protocols and applicable laws and protects the integrity of the resulting data;
our ability to acquire or in-license other product candidates and technologies;
obtaining, maintaining, protecting and enforcing patent, trade secret and other intellectual property and proprietary protection and regulatory exclusivity, and ensuring we do not infringe, misappropriate or otherwise violate the patent, trade secret or other intellectual property and proprietary rights of third parties;
successfully increasing commercial sales of Etorel® and Contiva®, which commercially launched in 2025, and successfully launching future products;
obtaining and/or maintaining favorable governmental and private medical reimbursement;
efficiently and cost-effectively enhancing our marketing platform and distribution capabilities;
competition with other products and product candidates;
continued acceptable safety profile following regulatory approval, including of ETUARY®, Etorel® and Contiva®;
creating additional infrastructure to support operations as a public company and our product development and planned future commercialization efforts; and
delays or other issues with any of the above.
We may not be able to achieve one or more of the foregoing factors in a timely manner or at all. As a result, we could experience significant delays in obtaining or not being able to obtain approval for and/or successful commercialization of our products, ETUARY®, Etorel® and Contiva®, and product candidates, which would render us unable to achieve our planned milestones and materially harm our drug development prospects. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to sustain or increase profitability on a quarterly or annual basis. Failure to sustain or increase profitability would depress the value of our common stock and could impair our ability to raise capital, expand our business, maintain research and development efforts, diversify product offerings or even continue operations. A decline in the value of our common stock could also cause you to lose all or part of your investment.
To support the growth of our research and development activities and operations, we require further funding, which might not be obtainable on favorable terms or could be entirely unavailable. If we fail to secure the needed capital at the critical time, we might have to postpone, scale down, or halt some of our development projects, market introduction initiatives, or other operational aspects.
The development, commercialization, manufacturing, marketing, sales and distribution of biopharmaceutical products and product candidates is capital-intensive. We have only generated revenues from the commercial sale of ETUARY®, Etorel®, Contiva® and certain generic drugs in the PRC and will not be able to generate any product revenues in addition to those generated by ETUARY®, Etorel®, Contiva® and certain generic drugs until we receive approval to sell our other product candidates from the NMPA, FDA or other regulatory authorities or acquire and maintain the rights to commercially approved products. As we have only generated revenue from commercial sales of ETUARY®, Etorel®, Contiva® and certain generic drugs to date and do not expect to generate any revenue from our other product candidates until they obtain regulatory approval, if ever, we will need to raise substantial additional capital in order to fund our future research and development, including any new clinical trials, product development, partnerships with third parties and strategic collaborations. We expect to need to raise substantial additional capital to continue the clinical development of ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, and depending on the availability of capital, may need to delay or cease development of some or all of our product candidates. Even if we raise additional capital, we may elect to focus our efforts on one or more development programs and delay or cease other development programs.
While we expect that the implementation of our strategies and business plans will require us to rely in part on external financing sources, including our at-the-market offering program (the “ATM Program”) with Jefferies LLC, as sales agent (“Jefferies LLC”), our ability to obtain additional capital on commercially reasonable terms is subject to a variety of factors, many of which are outside of our control, including our future financial condition, results of operations and cash flows, the global economic conditions, industry and competitive conditions, interest rates, prevailing conditions in the credit markets and government policies on lending. Additional funds may not be available when we need them on terms that are acceptable, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate some or all of our research or development programs, and we may not be able to execute our strategies and business plans as currently contemplated, which could have a material adverse effect on our business, financial condition and results of operations.
Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
the costs and results of preclinical studies or clinical trials of ETUARY®, Hydronidone, F573, F528 and F230 or other product candidates, and expenses related to potential clinical development of such candidates;
the expenses associated with promoting academic marketing and expanding our sales and distribution network;
the number and characteristics of product candidates that we pursue;
the terms and timing of any future collaboration, licensing or other arrangements that we may establish;
our need and ability to retain key management and hire scientific, technical, business and medical personnel;
the outcome, timing and cost of regulatory approvals;
our efforts to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
the effect of competing technological and market developments;
the costs and timing associated with manufacturing our products, including ETUARY®, Etorel® and Contiva® and generic products and product candidates for which we may receive regulatory approval, and establishing commercial supplies and sales, marketing and distribution capabilities;
market acceptance of any product candidates for which we may receive regulatory approval;
the capital expenditure required to increase our production capacity and to expand and upgrade our facilities;
the costs of continuing to operate our business, including costs associated with being a public company; and
the extent to which we acquire, license or invest in businesses, products or technologies.
Further, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from public health crises, the conflict between Russia and Ukraine or the conflicts in the Middle East. For details regarding the risks related to the relations between the PRC and the United States, see “— Risks Related to Our Business Operations in the PRC — Changes in the relations between the PRC and the United States may affect our business, financial condition and results of operations. ” If we are unable to raise sufficient additional capital, we could be forced to curtail our planned operations and the pursuit of our strategy.
Raising additional funds by issuing securities or through licensing arrangements may cause dilution to stockholders, restrict our operations or require us to relinquish proprietary rights.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of common stockholders. We currently have in place an ATM Program with Jefferies LLC that permits us, subject to applicable SEC regulations, to issue up to $50.0 million of shares of our common stock in “at the market” transactions at prevailing market prices.
Debt financing, if available at all, 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 additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquishvaluable rights to our technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to us. We may also seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. There can be no assurance that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, curtail or eliminate one or more, or all, of our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We may grow our business in part through acquisitions, which may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and have material adverse effect on our ability to manage our business, and we may fail to successfully complete such acquisitions or enhance post-acquisition performances in the future.
To enhance our growth and benefit our product development, technology advancement and distribution network, we have in the past and may continue to acquire businesses, products, technologies or know-how or enter into strategic partnerships. Any completed, in-process or potential acquisition or strategic partnership may entail numerous risks, including:
inability to identify suitable acquisition targets and reach agreement on acceptable terms;
lack of access to financing for acquisitions on acceptable terms or at all, or otherwise on assumption of additional indebtedness or contingents and issuance of our equity securities;
failure to obtain or secure the governmental approvals and third-party consents necessary to consummate any proposed acquisition;
increased operating expenses, including research and development expenses due to an increased number of product candidates, administrative expenses and selling expenses;
assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;
diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;
difficulty in retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;
risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products and product candidates;
inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; and/or
deficiencies in internal controls, data adequacy and integrity, product quality and regulatory compliance and product liabilities in the acquired business we discover after such acquisition.
The process of proposing, negotiating and implementing an acquisition is lengthy and complex. We may devote resources to potential acquisitions that are never completed, or our plan to grow our business through such acquisitions may not materialize as expected, or we may fail to realize the anticipated benefits.
Our high gross margin during the years ended December 31, 2025 and 2024 may not be sustainable.
During the years ended December 31, 2025 and 2024, we maintained a high level of gross margin. Our profit margins were 95.4% and 96.3% for the years ended December 31, 2025 and 2024, respectively, due to our mature technology and significant cost reduction due to the scale effect. However, there can be no assurance that we will sustain a similarly high gross margin in the future. Various factors may affect our gross margin, many of which are beyond our control. For example, changes in the competitive landscape of the relevant markets may decrease the average selling prices of ETUARY®, Etorel® and/or Contiva®, which may have a negative effect on our gross margin. Moreover, our gross margin will be influenced by various components of our costs, such as the cost of raw materials. For details, see “ —Risks Relating to Manufacture and Supply of Our Product—Fluctuations in prices of our raw materials and energy supply, as well as other costs associated with our production processes, may have a material adverse effect on us if we are not able to pass the cost increases on to our customers ” in this Risk Factors section.
Our five largest customers accounted for a substantial amount of our revenue during the years ended December 31, 2025 and 2024, which subjects us to concentration risks.
Our five largest customers accounted for a substantial amount of our revenue for the years ended December 31, 2025 and 2024. As such, we may be exposed to credit risks, and there can be no assurance that we can properly assess and respond in a timely manner to changes in our customers’ credit profile. As of each of December 31, 2025 and 2024, we had certain concentrations of credit risk of 10%. In addition, as of December 31, 2025, 53.3% and 87.2%, and as of December 31, 2024, 54.3% and 84.9%, of our trade receivables were due from our largest customer and our five largest customers, respectively. If such customers’ cash flows, working capital, financial condition or results of operations decrease, they may be unable, or they may otherwise be unwilling, to pay trade receivables owed to us promptly or at all. Any substantial defaults or delays could materially and adversely affect our cash flows, and if we terminate our relationships with our customers as a result of such customers’ default or payment delay, then that may adversely and materially affect our cash flows and operations.
If any of our major customers stop purchasing ETUARY®, Etorel® or Contiva® or substantially reduce order size in the future, whether due to the termination or amendment of our contractual relationship with such customer, or due to any other reason unrelated to us, we may not be able to identify and sell ETUARY®, Etorel® or Contiva® to an alternative customer in a timely manner, or at all. As a result, our business and financial performance may be materially and adversely affected.
We may face risk regarding the obsolescence of our inventories.
Our inventories consist of raw materials, works in progress, semi-finished goods and finished goods. As of December 31, 2025 and 2024, our inventories were valued at $10.2 million and $6.3 million, respectively. During the years ended December 31, 2025 and 2024, we did not identify material inventory items requiring impairment provisioning, and we believe that maintaining appropriate levels of inventory helps us meet market demands in a timely manner. We generally purchase supplies based on our estimated demand and manufacturing capacity, and our management system covers each stage of the warehousing process. The storage and distribution of our inventories are closely monitored in order to keep our inventories and logbook consistent. However, as our business expands, our inventory levels may increase and the risk of obsolescence may increase accordingly. Furthermore, any unexpected material fluctuations in the supplies or changes in customers’ preferences may lead to decreased demand and overstocking of supplies and increase the risk of obsolescence.
If our intangible assets are impaired, our results of operations and financial condition may be adversely affected.
We have intangible assets primarily consisting of product development in progress, patents, technological know-how, and computer software, which accounted for a considerable portion of our total assets as of December 31, 2025 and 2024. The value of our intangible assets is based on a number of assumptions made by our management. If any of these assumptions do not materialize, or if the performance of our business is not consistent with such assumptions, we may have to write off a significant portion of our intangible assets and record a significant impairmentloss. In addition, our determination on whether intangible assets are impaired requires an estimation of the carrying amount and recoverable amount of an intangible asset. If the carrying amount exceeds its recoverable amount, our intangible assets may be impaired, which could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to credit risk in collecting trade receivables due from our customers.
As of December 31, 2025 and 2024, our trade receivables amounted to $31.1 million and $19.6 million, respectively, which primarily represented the balances due from our distributors. Our liquidity and cash flow are directly affected by our customers’ ability to pay us in a timely manner, but there can be no assurance that our customers will not default on us in the future, despite our efforts to conduct credit assessments. During the years ended December 31, 2025 and 2024, our trade receivables turnover days were 79 days and 60 days, respectively.
If any of our customers’ business, cash flow, conditions or results of operations decrease, such customers may be unable or unwilling to pay trade receivables owed to us promptly or at all. Bankruptcy or deterioration of the credit condition of our major customers could also materially and adversely affect our collection of trade receivables. For details of the risk associated with concentrations of credit risk that we are exposed to, see “— Our five largest customers accounted for a substantial amount of our revenue during the years ended December 31, 2025 and 2024, which subjects us to concentration risks. ” in this Risk Factors section. If significant amounts due to us are not settled in a timely manner, we may incur significant write-offs and our liquidity and cash flow may be adversely affected.
We have historically received government grants and have been entitled to preferential tax treatment, but we may not continue to receive government financial incentives in the future.
We have historically received government grants in connection with certain of our research and development and manufacturing activities, and recognized government grants under other income and gains of $0.8 million and $0.1 million for the years ended December 31, 2025 and 2024, respectively. For details of the amounts of our other recognized income, see Note 4—Balance Sheet Components to the Audited Financial Statements of Gyre Therapeutics, Inc. in this Annual Report. We were also entitled to a preferential corporate income tax rate of 15% for each of the years ended December 31, 2025 and 2024 as a High and New Technology Enterprise. In addition, our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, have been entitled to a preferential VAT treatment at the tax rate of 3%, 3% and 13%, respectively. However, there can be no assurance of the continued availability of such preferential treatment. Our eligibility for government grants and preferential tax rates depends on a variety of factors, including, but not limited to, the assessment of our improvement on existing technologies, relevant government policies and the availability of funding at different granting authorities. In addition, the timing, amount and criteria of government financial incentives are determined within the sole discretion of the PRC government authorities. Government financial incentives are non-recurring in nature, and there can be no guarantee that we will continue to receive government incentives. In addition, some government financial incentives may be subject to the satisfaction of certain conditions, including compliance with the applicable financial incentive agreements and completion of the specific projects therein, which we may not satisfy. Any reduction or elimination of the government financial incentives we currently receive could have an adverse effect on our financial condition.
Risks Related to Our Business Operations and Product Candidates
There is a risk that our marketed products in the PRC, ETUARY®, Etorel® and Contiva®, along with any other products that we may receive approval for and commercialize in the future, may not attain sufficient market acceptance among physicians, healthcare facilities, pharmacies, patients, third-party payers, and the broader medical community, which is crucial for their commercial viability.
The commercial success of our existing marketed products, ETUARY®, Etorel® and Contiva®, and future approved and commercialized products, if any, depends upon the degree of market acceptance such products can achieve, particularly among physicians, hospitals, pharmacies and other medical institutions, which is contingent upon a number of factors. For example, early-year supply chain and distribution delays moderated Etorel®’s launch initiation, and uncertainty related to the PRC government’s volume-based procurement led customers to cautious purchasing behavior of Etorel®. We experienced lower than expected sales of Etorel® and Contiva® relative to internal budget expectations. Such factors affecting the market acceptance of a current or future approved product, if any, may include:
the clinical indications for which the product is approved;
the safety and efficacy of the product;
the potential and perceived advantages and disadvantages of the product, relative to competing or alternative products or treatments;
the affordability of the product;
the cost of treatment in relation to alternative treatments and therapies;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of our relationships with patient communities;
the availability of third-party coverage and adequate reimbursement;
the willingness of patients to pay out-of-pocket in the absence of coverage and adequate reimbursement by third-party payors and government authorities;
the strength of marketing and distribution support;
the prevalence and severity of any side effects;
the current diagnostic conditions of the disease for which the product is indicated, which may be influenced by the number of physicians from the relevant department and their respective experiences, available diagnostic methods and equipment therefor; and
the effectiveness of our sales and marketing efforts.
If our existing and future approved products, if any, fail to achieve or maintain widespread market acceptance, or if new products introduced by our competitors are perceived more favorably by healthcare practitioners and patients, are more cost-effective or otherwise render our products obsolete, the demand for our products may decline and our business and profitability may be materially and adversely affected.
If any of our product candidates receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Doctors may not accept or use ETUARY® as a treatment for PD even if ETUARY® receives marketing approval for such indication. Doctors may not accept or use Hydronidone as a treatment for liver fibrosis even if Hydronidone receives marketing approval. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues from or receive any return on our investment in any such product candidates.
Clinical drug development involves a lengthy and expensive process and outcomes are uncertain, and we may not successfully complete clinical trials for drugs under development, including ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC, or demonstrate the safety and efficacy of our product candidates to the satisfaction of regulatory authorities.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate their safety and efficacy, but there can be no assurance that such trials will be completed in a timely or cost-effective manner, due to the inherently unpredictable nature of clinical drug development. We have only obtained regulatory approval for one product that we developed, ETUARY® for the treatment of IPF in the PRC, and it is possible that none of our existing product candidates in development or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Events that may prevent successful or timely completion of clinical development may include:
regulators, IRBs or ethics committees not authorizing us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
our inability to reach agreements on acceptable terms with prospective CROs, site management organizations and hospitals as trial centers;
manufacturing issues, including problems with manufacturing, supply quality, compliance with GMP, or obtaining sufficient quantities of a product candidate for use in a clinical trial in a timely manner;
clinical trials producing negative or inconclusive results, resulting in additional clinical trials or abandoning drug development programs;
changes to the clinical trial protocol;
our third-party contractors’ failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
our suspending or terminating clinical trials for various reasons, including negative or inconclusive clinical response or a finding that participants are being exposed to unacceptable health risks or experiencing adverse effects;
the cost of clinical trials being greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials being insufficient or inadequate;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
participants choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in competing clinical trials;
occurrence of adverse effects or seriousadverse effects associated with the product candidate that are viewed to outweigh its potential benefits;
the occurrence of seriousadverse events in clinical trials of competing products or conducted by competitors;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol or other regulatory requirements or committing fraud; and
the results of preclinical studies or early clinical trials not being predictive of the results of later-stage clinical trials, and initial or interim results of a trial not being predicative of final results.
If we are required to conduct additional preclinical studies or clinical trials of our product candidates, including of ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC or other testing, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
be delayed in obtaining regulatory approval from the NMPA, FDA, EMA or other regulatory authorities for our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC;
not obtain regulatory approval at all and lose our ability to further develop and commercialize our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC;
be required to conduct additional clinical trials or other testing beyond those that we currently contemplate;
obtain regulatory approval for indications or patient populations that are not as broad as intended or desired;
continue to be subject to post-marketing testing requirements from the NMPA, FDA, EMA or other regulatory authorities;
be unable to be listed in the NRDL in the PRC; or
experience having the product removed from the market after obtaining regulatory approval.
Consequentially, any delays in completing our clinical trials may increase our costs, delay our product candidate development and approval process, and jeopardize our ability to commercialize our approved products and generate revenues.
Liver fibrosis is an area of our focus, and our key product candidate in this area is Hydronidone. Our future clinical trials for Hydronidone may not be successful.
We expect to invest a substantial amount of our efforts and financial resources into the research and development of Hydronidone. In May 2025, Gyre Pharmaceuticals completed a pivotal Phase 3 trial of Hydronidone in the PRC evaluating its safety and efficacy for the treatment of liver fibrosis in patients with CHB-associated liver fibrosis. In January 2026, Gyre Pharmaceuticals completed a Pre-NDA Application communication meeting with the CDE of the NMPA regarding Hydronidone. Based on these positive results, we currently expect to submit an NDA for conditional approval of Hydronidone in the first half of 2026, subject to final data readiness and applicable regulatory procedures.
In addition, we continue to engage with the FDA regarding the IND requirements for a Phase 2 trial evaluating Hydronidone for the treatment of MASH-associated liver fibrosis. Pending regulatory feedback, we plan to file the U.S. IND for Hydronidone for the treatment of MASH-associated liver fibrosis in 2026 and, subject to clearance, initiate a Phase 2 clinical trial. We plan to conduct a hepatic impairment study in U.S. subjects under our active U.S. IND. Results from this study are expected to help optimize dose selection and safe enrollment criteria in populations with reduced hepatic function, supporting a more robust Phase 2 development plan. Our clinical trials may be adversely affected by the March 2024 marketing approval for Rezdiffra®, the August 2025 marketing approval for Wegovy® for the treatment of MASH or the potential regulatory approvals for one or more investigational MASH products.
Hydronidone will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, marketing approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote Hydronidone, or any other product candidates, before we receive marketing approval from the NMPA, FDA and comparable foreign regulatory authorities, and we may never receive such marketing approvals.
The success of Hydronidone will depend on a variety of factors. We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of Hydronidone, even if approved. If we are not successful in commercializing Hydronidone, or are significantly delayed in doing so, our business will be materially harmed.
If we experience delays or difficulties in the commencement of clinical trials or patient enrollment in clinical trials, our regulatory approvals could be delayed or prevented.
We or our collaborators may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate, enroll and maintain enrollment of a sufficient number of eligible patients to participate in these trials as required by the NMPA, FDA or similar regulatory authorities outside the PRC or the United States.
Furthermore, there are inherent difficulties in enrolling MASH patients, which can currently only be definitively diagnosed through a liver biopsy. Specifically, identifying patients most likely to meet MASH enrollment criteria on biopsy is an on-going challenge, with existing clinical indicators lacking both sensitivity and specificity. As a result, MASH trials often suffer from high levels of screen failure following central review of the baseline liver biopsy, which can lead to lower enrollment. As a result of such difficulties and the significant competition for recruiting MASH patients in clinical trials, we or our future collaborators may be unable to enroll the patients we need to complete clinical trials on a timely basis, or at all. In addition, our competitors, some of whom have significantly greater resources than we do, are conducting clinical trials for the same indications and seek to enroll patients in their studies that may otherwise be eligible for our clinical studies or trials. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which could further reduce the number of patients who are available for our clinical trials in these sites. The availability of other approved products, including Rezdiffra® and Wegovy®, and other products in clinical trials have and may limit the number of patients willing to participate in our clinical trials.
Patient enrollment is affected by other factors including:
the severity of the disease under investigation;
the eligibility criteria for the study in question;
the perceived risks and benefits of the product candidate under study;
the efforts to facilitate timely enrollment in clinical trials;
clinical trials of other product candidates in the same indication;
laboratory testing and turnaround time for samples needed for eligibility assessments;
the patient referral practices of physicians;
the ability to monitor patients adequately during and after treatment; and
the proximity and availability of clinical trial sites for prospective patients.
Our inability to enroll a sufficient number of patients for our clinical trials will result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in clinical trials conducted by us may also result in increased development costs for our product candidates, which would cause the value of the Company to decline and limit our ability to obtain additional financing.
Our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future product, if approved and commercialized, may be excluded or removed from national, provincial or other government-sponsored medical insurance programs.
Under medical insurance programs in the PRC, patients are entitled to reimbursement of all or a portion of the cost of pharmaceutical products listed in the NRDL, the relevant provincial reimbursement drug lists, or other medical insurance reimbursement lists. However, such inclusion is based on a variety of factors, including clinical needs, use frequency, efficacy, safety and price, which may be outside of our control. Moreover, the relevant PRC government authorities may, from time to time, review and revise, or change the scope of reimbursement for, the products that are included in the medical insurance reimbursement lists.
ETUARY® has been included in the NRDL as a Category B drug for the treatment of IPF since 2017. There can be no assurance that ETUARY® will remain so listed, or unimpacted negatively by changes in the scope of reimbursement. To the extent that our future approved product candidates are not included in any medical insurance reimbursement list, or if any such insurance schemes are changed or canceled, which results in the removal of such product candidates from the relevant medical insurance reimbursement lists, patients may choose, and hospitals, pharmacies and other medical institutions may recommend, alternative treatment methods, which may reduce demand for our products, ETUARY®, Etorel® and Contiva® and future products, if approved and commercialized, and adversely impact our sales.
We may face pressure to lower the prices of our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future product, if approved and commercialized, in order for such products to qualify for medical insurance reimbursement or due to market competition.
We may face pressure to lower the prices of our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future product, if approved and commercialized, in order to have such product candidates included in the medical insurance reimbursement lists, while such low price and reimbursement may not necessarily lead to increased sales. It is difficult to estimate the net effect of decreased prices and the potential of increased sales on our profitability, and our profits from the sales of our future products may decrease if we significantly lower prices without a greater increase in sales.
In addition, it is typical that the prices of pharmaceutical products will decline over the life of the product as a result of, among other things, increased competition from substitute products, the tender process by the hospitals or the government authorities, pricing policies of the relevant government authorities, or voluntary price adjustments by pharmaceutical companies. Any strategic downward price adjustments of our existing or future approved products due to market competition could have a materially adverse effect on our business and results of operations.
Moreover, our marketed product, ETUARY® is subject to the risk of being included in the PRC’s centralized volume-based procurement scheme. For details, see “ —In the future, the policies of centralized volume-based procurement set by the PRC government may cover our commercialized product, ETUARY®, and any other future products, if approved and commercialized, and the prices of such product may decrease, which in turn may have a material adverse impact on our revenue, financial condition and results of operation ” in this Risk Factors section.
We may fail to win bids to sell our commercialized products, ETUARY®, and any other future products, if approved and commercialized, to PRC public hospitals through the centralized tender process.
Because a considerable portion of pharmaceutical products we sell to our distributors are sold to public hospitals and other medical institutions in the PRC, we must submit bids in a centralized tender process to supply our commercialized products, ETUARY®, and any other future products, if approved and commercialized, to these institutions at specified prices. Each public medical institution in the PRC must generally procure drugs through a provincial centralized drug purchase platform and make substantially all of its purchases of pharmaceutical products through a centralized tender process. Our bids submitted in the centralized tender process are generally considered on the basis of price relative to substitute products and the clinical effectiveness of such substitute products, as well as the quality of our product and services, among other things. As a result, our sales volumes and profitability of ETUARY® depend on our ability to successfully differentiate our products and price our bids in a manner that enables us to succeed in the centralized tender process at profitable levels.
In November 2025, the NHSA released the Announcement of the Winning Bids for the National Centralized Drug Procurement , under which Etorel® was selected. However, the impact on our future operating performance as a result of this announcement remains uncertain.
We may fail to win bids in a centralized tender process due to various factors, including reduced demand for the relevant product, noncompetitive bidding price, failure to meet certain quality requirements, or the relevant products being perceived to be less clinically effective than competing products. If our commercialized products, ETUARY®, and any other future products, if approved and commercialized, are not selected in the centralized tender process in one or more regions, our sales of the relevant product to the public hospitals in those regions may encounter difficulties, and our market share, revenues and profitability could be adversely affected.
In the future, the policies of centralized volume-based procurement set by the PRC government may cover our commercialized product, ETUARY®, and any other future products, if approved and commercialized, and the prices of such product may decrease, which in turn may have a material adverse impact on our revenue, financial condition and results of operation.
PRC government authorities have implemented policies that aim to further increase the affordability of pharmaceutical products, including the centralized volume-based drug procurement system. For further details, see “Business—Our Operations in the PRC: Gyre Pharmaceuticals—Product Pricing—Centralized Tender Process and Centralized Volume-Based Procurement System ” and “ Our Operations in the PRC: Gyre Pharmaceuticals—Government Regulations in the PRC—Regulations Relating to the Development, Manufacture and Sale of Pharmaceuticals—Centralized Tender Process and Centralized Volume-Based Procurement System ” in this Annual Report.
Future procurement by the PRC government is expected to include drugs listed in the NRDL that have great market demand and high purchase price, and such future procurement is expected to gradually cover all types of domestically marketed drugs in the PRC necessary for clinical use and of reliable quality to the extent possible. As a result, all appropriate drugs may be procured thereunder in the PRC. Appropriate procurement methods for “orphan drugs” and drugs in shortage may be actively explored to ensure stable supply.
ETUARY® is currently not subject to the centralized volume-based procurement process. However, it is uncertain whether the centralized volume-based procurement scope would be expanded in the future and result in the inclusion of our product ETUARY®, which is approved in the PRC, or other product candidates if commercialized, which may cause their retail prices to decrease. In addition, nintedanib and avatrombopag were both included in the 2025 national volume-based procurement catalog, and Etorel® was selected in the Winning Bids for the National Centralized Drug Procurement, which resulted in market uncertainties related to these products. Moreover, if any products comparable or similar to our product, generic drugs or product candidates if commercialized are included in the centralized volume-based procurement, patients’ willingness to use such products may be materially and adversely affected and we may need to change our pricing strategy. If any or all of the foregoing were to occur, our sales revenue may decrease, which in turn would have a material adverse impact on our financial condition, profitability and results of operation.
The true market potential for our product and product candidates may be less than expected. Our expansion could be constrained by the current and emerging number of IPF patients in the PRC, pending the approval and profitable launch of expanded applications for ETUARY® for future indications in the PRC, and our other product candidates.
Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products, since the market opportunities for our product candidates may be smaller than we anticipate. Similarly, the actual market size of our products ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, may not be as large as we anticipate. The total addressable market opportunity will depend on, among other things, acceptance of the product by the medical community and patient access, product pricing and reimbursement. Moreover, the number of patients in the addressable markets may be lower than expected, patients may not be amenable to treatment with our product, or new patients may become increasingly difficult to identify or access. Further, new studies may change the estimated incidence or prevalence of the diseases that our product candidates target. Any of the above unfavorable developments could have a material adverse effect on our business, financial condition and results of operations. In particular, if the existing and newly identified cases of IPF patients in the PRC are fewer than we expect, our growth and financial position may be negatively impacted until and if the expanded indications of ETUARY® and our other product candidates such as Hydronidone are approved and become profitable.
According to Frost & Sullivan, the prevalence of IPF in the PRC has increased from 89,000 patients in 2018 to 162,000 patients in 2024, and is expected to increase to 332,000 patients by 2032. Notwithstanding the short term increase in the prevalence of IPF, with strengthening of the public health system as well as medical and technological advancement in the PRC, the potential risks that cause IPF may be lowered or eliminated in the future which in turn may lead to corresponding decrease in the prevalence of IPF in the PRC. The shrinking prevalence of IPF in the PRC, as a result, may have a negative impact on the market size of ETUARY®.
We may be unable to conduct effective academic marketing.
Effective marketing and successful sales are crucial for us to increase the market penetration of ETUARY®, Etorel® and Contiva® in the PRC, expand our coverage of hospitals, pharmacies and other medical institutions and promote new products, if any, in the future. In particular, we place a strong emphasis on academic marketing, through which we promote ETUARY®, Etorel® and Contiva® to medical professionals, hospitals, pharmacies and other medical institutions. While our sales and marketing force actively works with medical professionals, hospitals, pharmacies and other medical institutions and we endeavor to inform them of the distinctive characteristics, advantages, safety and efficacy of ETUARY®, Etorel® and Contiva® as compared to our competitors’ products, we may not be able to successfullyenhance our product awareness.
We may fail to maintain a qualified sales and marketing force.
In order to successfully market and sell our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future products, if approved and commercialized, our sales and marketing teams are expected to possess a relatively high level of technical knowledge, up-to-date understanding of industry trends, necessary expertise in the relevant therapeutic areas and products, as well as sufficient promotion and communication abilities. However, there can be no assurance that there will be a sufficient amount of competent sales professionals with the relevant rare disease knowledge and/or academic KOLs or doctor networks available for hire. As a result, if we are unable to effectively train our in-house sales representatives or monitor and evaluate their academic marketing performances, our sales and marketing may be less successful than desired.
Moreover, our ability to attract, motivate and retain a sufficient number of qualified sales professionals is especially important because we primarily rely on our in-house sales force to market our product. As competition for experienced marketing, promotion and sales personnel is intense, we may be unable to attract, motivate and retain a sufficient number of marketing, promotion and sales professionals. If we fail to maintain a qualified sales and marketing force, sales volume of our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, may be adversely affected and we may be unable to expand our coverage of hospitals, pharmacies and other medical institutions or increase our market penetration.
We may fail to maintain or expand an effective distribution network for our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future products, if approved and commercialized, or further expand our distribution channel.
As we primarily rely on our network of distributors to distribute commercialized products, ETUARY®, Etorel® and Contiva®, in the PRC, and intend to continue engaging distributors to sell our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, in the foreseeable future, our ability to maintain and grow our business depends on our ability to maintain and manage a sufficient number of distributors with an extensive sales network, which we could fail to achieve for several reasons. Our distributors may be unable to maintain or expand their sales network, or may encounter difficulties in selling our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized. Our distributors might elect not to renew their agreements with us or otherwise terminate their business relationships with us for various reasons, such as price controls or other factors that substantially reduce the margins they can obtain through the resale of our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized. Further, we may fail to find an appropriate group of distributors suitable for our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, or the costs of doing so may become prohibitively high. Any disruption to our distribution network, including our failure to maintain relationships, form new relationships or renew our existing distribution agreements, could negatively affect our ability to sell our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, and may materially and adversely affect our business, results of operations, financial condition and prospects.
We may fail to sufficiently and promptly respond to clinical demand and market changes in the pharmaceutical industry.
Clinical demand and market conditions for pharmaceutical products may change rapidly and significantly, and our success in part depends on our ability to anticipate product offering lead-times and demand, identify customer preferences and adapt our products to these preferences. We may need to adjust our research and development plan, production scale and schedule, product portfolio and inventory levels based on customer demand, sales trends and other market conditions. However, there can be no assurance that we will be able to sufficiently and promptly respond to changes in clinical demand and purchasing patterns in a timely manner or at all.
Geopolitical events and global economic conditions, such as public health crises, the conflicts between Russia and Ukraine and in the Middle East may impact our third-party supply of the raw materials and components needed for our products, ETUARY®, Etorel® and Contiva®, and product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, which increases the risk that we will not have sufficient quantities of such product, generic drugs or product candidates or will not have such quantities at an acceptable cost, which will delay, prevent or impair our commercialization, marketing or development efforts, as applicable.
If supplies of the raw materials for our products, ETUARY®, Etorel® and Contiva®, or product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, are significantly delayed, or if the third parties that we engage to supply any materials or to manufacture any products for our preclinical tests and clinical trials should cease to continue to do so for any reason, including due to the effects of global economic conditions, including new or increased tariffs imposed by the U.S. government and potential retaliatory measures by foreign governments and other barriers to trade, especially in light of recent comments and executive orders made by the Trump administration, trade and other international disputes, inflation and fluctuating interest rates, slower growth or recession, tighter credit, volatility in financial markets, high unemployment, labor availability constraints, public health crises, significant natural disasters, including as a result of climate change, changes to fiscal and monetary policy or government budget dynamics, particularly in the pharmaceutical and biotech areas, government shutdowns, political and military conflict, including the conflicts between Russia and Ukraine and in the Middle East, we likely would experience delays in advancing these tests and trials while we identify and qualify replacement suppliers or manufacturers and we may be unable to obtain replacement supplies on terms that are favorable to us.
For example, trade policies and geopolitical disputes (including as a result of China-Taiwan relations) and other international conflicts can result in tariffs, sanctions and other measures that restrict international trade, and can materially adversely affect our business, particularly if these measures occur in regions where we source our components or raw materials. In addition, tensions between the United States and the PRC have led to a series of tariffs being imposed by the United States on imports from China mainland, as well as other business restrictions. Since February 2025, the United States government has imposed various tariffs on imports from most countries, including tariffs on imports from the PRC and South Korea. In September 2025, President Trump announced plans to impose 100% tariffs on imported branded or patented pharmaceuticals, unless the importing company is building U.S. manufacturing capacity, although the effective date of such tariffs has been delayed. Certain major drug producers and manufacturers are in negotiations with the U.S. Presidential Administration to receive relief from such tariffs. As a result of these negotiations, certain manufacturers, such as Pfizer, have announced their participation in a new direct purchasing platform called “TrumpRx.gov,” designed to offer discounts on their products and some specialty brands. Details regarding potential platform, as well as any potential impact on our business are unclear at this time. It is not yet clear whether these tariffs would apply to the importation of API and possibly bulk drug products that are intended for use in clinical trials and not for commercial sale, which could increase the costs of materials for our clinical trials. There still remains substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended. Historically, tariffs have led to increased trade and political tensions. In response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. Tariffs increase the costs of the components and raw materials we source. Countries may also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact the Company’s operations and supply chain.
In addition, if we are not able to obtain adequate supplies of our product, generic drugs or product candidates or the substances used to manufacture them, it will be more difficult for us to commercialize, market or develop our product, generic drugs or product candidates, as applicable, and compete effectively.
Our current and anticipated dependence upon third-party suppliers may adversely affect our ability to develop our product, generic drugs, and product candidates and could delay our clinical trials and development programs as well as marketing and commercialization efforts, and otherwise harm our operations and financial condition and increase our costs and expenses. See “ —Risks Related to Our Reliance on Third Parties—Because we rely on a limited number of suppliers for certain of our raw materials, we may experience supply interruptions that could harm our ability to manufacture products .”
For details regarding the risks related to the relations between the PRC and the United States, see “—Risks Related to Our Business Operations in the PRC—Changes in the relations between the PRC and the United States may affect our business, financial condition and results of operations. ”
Business disruptions could seriouslyharm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our distributors, suppliers, research institution collaborators and other business partners, could be subject to natural or man-made disasters, health epidemics or business interruptions, for which we are predominantly self-insured. Damage or extended periods of interruption to our and our partners’ administration, development, research, manufacturing or storage facilities due to fire, natural disaster, health epidemic, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development or commercialization of some or all of ETUARY®, Etorel®, Contiva®, our generic products or product candidates, seriouslyharm our and our partners’ operations and financial condition and increase our and our partners’ costs and expenses.
We have limited insurance coverage, and any claims beyond our insurance coverage may result in substantial costs and a diversion of resources.
We operate in the pharmaceutical industry, which involves numerous operating risks and occupational hazards. The insurance policies we maintain are required under the applicable laws and regulations as well as based on our assessment of our operational needs and industry practice. However, there can be no assurance that the existing insurance coverage is sufficient to compensate for actual lossessuffered or incurred. In addition, there are certain types of losses, such as losses from war, acts of terrorism, health or public security hazards, earthquakes, typhoons, flooding and other natural disasters, for which we cannot obtain insurance at a reasonable cost or at all. If an uninsuredloss or a loss in excess of insured limits were to occur, our business, results of operations and financial condition may be materially and adversely affected. For details of the specific risks of inadequate insurance coverage in the event of product liability claims and environmental liabilities, see “ —We may be subject to product liability claims that could expose us to costs and liabilities ” and “ —If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business ,” respectively, in this section.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we must focus on development programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications for these product candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquishvaluable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
We may be unable to identify, discover, or develop new product candidates, or to identify additional therapeutic opportunities for our product candidates, in order to expand or maintain our product pipeline.
We may not be able to continue to identify and develop new product candidates to enrich our current pipeline. Research programs to pursue the development of our product candidates for additional indications and to identify new product candidates and product targets require substantial technical, financial and human resources. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development. For example, product candidates may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be successfully developed, much less receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates based upon our approach, we will materially and adversely affect our future growth and prospects, which likely would result in significant harm to our financial position and adversely affect our stock price.
Results from preclinical or early stage clinical trials, including the results of our preclinical testing and early clinical trials of ETUARY®, Hydronidone and F573, may not be confirmed in later trials or be predictive of the success of later clinical trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later-stage clinical trials. Trials of our product candidates in larger numbers of patients may not have similar efficacy results and could result in adverse effects that were not observed in the earlier trials with smaller numbers of patients.
We will be required to demonstrate substantial evidence through well-controlled clinical trials that our product candidates are safe and effective before we can seek marketing approvals for their commercial sale. Demonstrations of efficacy or an acceptable safety profile in our prior preclinical studies do not mean that future clinical trials will yield the same results. For instance, while ETUARY® is approved in the PRC for the treatment of IPF, it may not be approved for the treatment of other indications, such as PD or RILI, or in other markets. In addition, we do not know whether Hydronidone will perform in future clinical trials in the United States as Hydronidone has performed in preclinical studies and early clinical trials conducted by us in the PRC, and, despite Hydronidone’s Phase 1 trial in the United States showing promising evidence of tolerability and PK, our Phase 2 clinical trial in the PRC demonstrating results in the reversal of CHB-associated fibrosis. To date, there are no approved therapies for CHB-associated liver fibrosis and Hydronidone’s Phase 3 trial in the PRC demonstrating histologic improvement in liver fibrosis as measured by the Ishak fibrosis score. We also do not know whether F573 will perform in its Phase 2 clinical trial for ALF/ACLF as it has performed in its Phase 1 clinical observation of tolerability and PK. In addition, we do not know whether F230 will perform in its Phase 1 clinical trial in the PRC for the treatment of PAH. Product candidates, including ETUARY®, Hydronidone and F573, may fail to demonstrate in later-stage clinical trials sufficient safety and efficacy to the satisfaction of the NMPA, FDA and other comparable foreign regulatory authorities despite having progressed through preclinical studies and earlier stage clinical trials. Regulatory authorities may also limit the scope of later-stage trials until we have demonstrated satisfactory safety or efficacy results in earlier-stage trials. In particular, although ETUARY® is approved in the PRC for the treatment of IPF, it may not perform in the Phase 3 clinical trial for the treatment of PD or Phase 2/3 clinical trial of ETUARY® for the treatment of RILI. In addition, we plan to file the U.S. IND for Hydronidone for the treatment of MASH-associated liver fibrosis in 2026 and, subject to clearance, initiate a Phase 2 clinical trial. Although data from our Phase 3 trial in the PRC demonstrated histologic improvement in liver fibrosis as measured by the Isak fibrosis score, that does not mean that future clinical trials in the United States or for the treatment of MASH-associated liver fibrosis will yield similar results.
In addition to the pre-IND guidance provided, at the time of review of the IND, the NMPA, FDA or other comparable foreign regulatory authorities may require additional investigations (nonclinical) and analyses (both nonclinical and clinical, including the analysis of the supportive clinical trials conducted in the PRC) before it accepts the IND file to ensure that there is sufficient and adequate information on the risks to human subjects. Such additional requests may delay the timelines for the IND filing and initiation of the planned Phase 2 trial in MASH-associated liver fibrosis. Furthermore, if the NMPA or FDA believes that additional data is necessary to supplement our clinical study data, Phase 2 clinical trial data and Phase 3 clinical trial data, then the NMPA or the FDA may require us to conduct additional trials before expanding into a broader Phase 2 clinical trial. For example, in January 2026, as part of the agreed regulatory pathway, we plan to conduct an additional confirmatory clinical trial designed to evaluate liver-related clinical outcomes to support conditional approval of Hydronidone to regular approval for the treatment of CHB-associated liver fibrosis. There is no guarantee that the NMPA, FDA and other comparable foreign regulatory authorities will consider the data that is expected to be obtained in the planned Phase 2 trial in the United States sufficient to allow us to expand the development of Hydronidone in a larger Phase 2 or confirmatory Phase 3 clinical trial. There is no guarantee that we will be able to complete such trials on the timelines we anticipate or that such trials will produce positive results. Any limitation on our ability to conduct clinical trials could delay or prevent regulatory approval or limit the size of the patient population to which we may market our product candidates, if approved.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage MASH clinical trials after achievingpositive results in earlier development, and we may face similar setbacks. Many companies that believed their product candidates performed satisfactorily in preclinical studies and early clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials for our product candidates warrant marketing approval, the NMPA, FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Any Phase 2, Phase 3 or other clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates.
Preliminary, “top-line” or interim data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures.
We have publicly disclosed and may in the future publicly disclose preliminary or top-line data from our clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data. We also make assumptions, estimations, calculations and conclusions as part of our analyses of these data without the opportunity to fully and carefully evaluate complete data. As a result, the preliminary or top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated or subsequently made subject to audit and verification procedures.
Any preliminary or top-line data should be viewed with caution until the final data are available. From time to time, we have also disclosed and may in the future disclose interim data from our preclinical studies and clinical trials. Interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the likelihood of approval or commercialization of the particular product candidate and our company in general. In addition, from time to time we may disclose top line or summary information regarding a particular preclinical study or clinical trial. Such summary information is necessarily based on more fulsome and extensive information, and investors or regulators may not agree with what we determine is material or otherwise determine is appropriate information to include in our disclosure. If the preliminary, top-line or interim data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, may cause or be perceived to cause significant adverse events, toxicities or other undesirable side effects that may result in a safety profile that could interrupt, delay or halt clinical trials, delay or prevent regulatory approval, marketing approval or market acceptance, limit their commercial potential and profile of an approved label, adversely affect our reputation and results of operations or result in significant negative consequences following any regulatory approval.
If our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and our product candidates, including ETUARY® (for future indications), Hydronidone, F573, F528 and F230, are associated with undesirable side effects or have unexpected characteristics in preclinical studies or clinical trials when used alone or in combination with other approved products or INDs, we may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Many times, side effects are only detectable after investigational product candidates are tested in large-scale, Phase 3 trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that any of our current product candidates and any future product candidates has serious or life-threatening side effects or other side effects that outweigh the potential therapeutic benefit, the development of the product candidate may fail or be delayed, or, if the product candidate has received marketing approval, such approval may be revoked, which would harm our business, prospects, operating results and financial condition.
Any adverse events or seriousadverse events reported in our clinical trials caused by our product candidates could give rise to significant negative consequences. Such consequences may include:
regulatory authorities may order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications;
regulatory authorities may seek an injunctionagainst our product candidates manufacture or distribution;
regulatory authorities may withdraw approvals or revoke licenses of an approved product candidate, or we may determine to do so even if not required;
regulatory authorities may require additional warnings on the label, including “boxed” warnings, of an approved product candidate or impose other limitations on an approved product candidate;
regulatory authorities may issue safety alerts, require press releases or other communications containing warnings or other safety information about the product;
regulatory authorities may require us to change the way such product is administered;
we may be required to develop a REMS for the product candidate, which could include a medication guide outlining the risks of such side effects for distribution to patients, or to incorporate additional requirements under REMS;
we may be required to conduct additional clinical trials or post-market studies;
we could be subject to litigation proceedings and held liable for harm caused to patients;
we could be found in breach of contract with our major customers;
patient enrollment may be insufficient or slower than we anticipate or patients may drop out or fail to return for post-treatment follow-up at a higher rate than anticipated;
our commercialized products could be removed from medical insurance reimbursement lists or be rendered unable to participate in the centralized tender process in the PRC;
regulatory authorities may impose fines, injunctions or criminalpenalties;
we may fail to achieve or maintain market acceptance of a particular product candidate, if approved and commercialized, which may cause seriousharm to our business; and
our reputation may suffer.
Undesirable or unintended side effects may be a result of a number of factors that are outside of our control, including potential side effects not revealed in clinical testing, unusual but severe side effects in isolated cases, defective products not detected by our quality management system, and misuse of our products by end-users.
Further, our product, generic drugs and future products, if approved, may be perceived to cause severe side effects if other pharmaceutical companies’ products containing the same or similar API, raw materials or delivery technologies as our product, generic drugs and future products, if approved, cause or are perceived to have caused severe side effects, or if regulators or international institutions determine that products containing the same or similar pharmaceutical ingredients as our product, generic drugs and future products, if approved, cause severe side effects. Our product, generic drugs and future products, if approved, may also be perceived to cause severe side effects when a conclusive determination as to the cause of the severe side effects is not obtained or is unobtainable.
In general, the anticipated clinical trials of Hydronidone will include patients with advanced liver fibrosis who are at risk of further progression to cirrhosis and deterioration, but are not criticallyill. A certain percentage of patients with HBV-induced liver fibrosis treated with Hydronidone have experienced adverse events, including gastrointestinal diseases, ear and labyrinth diseases, systemic diseases, metabolic and nutritional diseases, skin and subcutaneous tissue diseases, heart organ diseases, and hepatobiliary system diseases. However, the risk/benefit of Hydronidone in MASH may differ from that shown in HBV liver fibrosis patients and there is always a risk that the severity and frequency of the adverse events may worsen. See the section entitled “ —Business—Our Product Candidate Pipeline—F351 (Hydronidone) .”
In addition, the patient populations treated with our product candidates in our various Phase 3 clinical trials have serious diseases that make them susceptible to significant health risks. Therefore, these patients may experience adverse events, including seriousadverse events.
In conducting drug research and development, we face potential liabilities; in particular, product liability claims or lawsuits that could cause us to incur substantial liabilities.
We face an inherent risk of product liability as a result of clinical trials if our product candidates cause, or are perceived to cause, injury, or are found to be otherwise unsuitable during clinical testing. Regardless of the merits or eventual outcome, such liability claims may, among others, result in:
decreased demand for our product candidates after commercialization;
injury to our reputation;
withdrawal of clinical trial participants and inability to continue clinical trials;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources; and
substantial monetary awards to trial participants or patients.
To cover such liability claims arising from clinical trials, we have clinical trial insurance for all of our trials, which are necessary for the approval of commercialization of our pipeline products. However, it is possible that our liabilities could exceed our insurance coverage or that our insurance will not cover all situations in which a claim against us could be made. We may also not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise.
Adverse drug reactions and negative results from off-label use of our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future products, if approved, could materially harm our business reputation, product brand name, and financial condition and expose us to liability.
Products distributed or sold in the pharmaceutical market may be subject to off-label drug use, and may be prescribed for an indication, dosage or in a dosage form that is not in accordance with regulatory approved usage and labeling. As such, our products, ETUARY®, Etorel® and Contiva®, and future products, if approved, may be subject to off-label drug use and may be prescribed to a patient population, or in a dosage or dosage form that has not been approved by competent authorities, which may render our product, generic drugs and future products, if approved, less effective or entirely ineffective and cause adverse drug reactions. Any of these occurrences can create negative publicity and significantly harm our business reputation, product brand name, commercial operations and financial condition, including our share price. These occurrences may also expose us to liability and cause, or lead to, a delay in the progress of our clinical trials and may ultimately result in failure to obtain regulatory approval for our product candidates.
Breakthrough Therapy designation by the FDA for any product candidate may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that the product candidate will receive marketing approval.
We may, in the future, apply for Breakthrough Therapy designation in the United States, or the equivalent thereof in other foreign jurisdictions (where available), for our product candidates, depending on robustness of the clinical benefit in clinical trials. In the United States, Breakthrough Therapy is defined as a product candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the submission of the NDA.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditions for qualification or it may decide that the time period for FDA review or approval will not be shortened.
Risks Relating to Manufacture and Supply of Our Product and Product Candidates
Manufacturing pharmaceutical products on a large commercial scale is highly exacting and complex, and we and our third-party manufacturers may encounter problems during the process.
The manufacturing of pharmaceutical products is highly complex, and problems may arise during manufacturing for a variety of reasons, including, but not limited to:
equipment malfunction;
failure to follow specific protocols and procedures;
changes in product specification;
low quality or insufficient supply of raw materials;
delays in the construction of new facilities or the expansion of our existing manufacturing facilities and limits to manufacturing capacity due to regulatory requirements;
changes in the types of products produced;
advances in manufacturing techniques;
physical limitations that may inhibit continuous supply;
man-made or natural damages, other disasters and environmental factors; and
shortage of qualified personnel or key contractors.
Despite our quality control and assurance system and procedures, we may not be able to eliminate such risks, which may delay or suspend our manufacturing activities, and we may not be able to secure temporary, alternative manufacturers for our product, generic drugs or product candidates with the terms, quality and costs acceptable to us, or at all. If we encounter any manufacturing problems, including those listed above, our clinical trials and/or the availability of our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, generic drugs and future products, if approved, for commercial sale may be delayed, and we may spend significant time and costs in order to rectify such problems and maintain production at our manufacturing facilities. Moreover, products with quality issues may have to be discarded, resulting in product shortages or additional expenses.
Furthermore, manufacturing methods and formulation are sometimes altered through the development of product candidates from clinical trials to approval, and further to commercialization, in an effort to optimize manufacturing processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause the product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay the commercialization of product candidates and require bridging studies or the repetition of one or more clinical trials, which may result in increases in clinical trial costs, delays in product approvals and jeopardize our ability to commence product sales and generate revenue.
We use Hydronidone capsules manufactured by Wuxi Biologics, and may continue to use foreign CROs and contract manufacturing organizations (“CMOs”) in the future. Wuxi Biologics has completed manufacturing one lot of the Hydronidone capsules for our planned Phase 2 clinical trial in the U.S. WuXi Biologics is identified in the U.S. legislation known as the BIOSECURE Act, which was enacted into law on December 18, 2025, as a “biotechnology company of concern.” The BIOSECURE Act as it was enacted into law on December 18, 2025, will prohibit U.S. federal agencies from entering into, extending or renewing procurement contracts with, as well as providing grants and loans to, an entity that uses biotechnology equipment or services from a “biotechnology company of concern,” and includes a grandfathering provision allowing biotechnology equipment and services provided or produced by named biotechnology companies of concern under a contract or agreement entered into before the effective date of revisions to the Federal Acquisition Regulation designating an entity a biotechnology company of concern until five years from such effective date. The timing for implementation of the BIOSECURE Act is uncertain. Depending on how the BIOSECURE Act is implemented by U.S. federal agencies, we could be potentially restricted from pursuing U.S. federal government business or grants in the future if we continue to use WuXi Biologics and if WuXi Biologics or other parties we contract with are identified as “biotechnology companies of concern” beyond the grandfathering period. Foreign CMOs may be the target of U.S. legislation, including the BIOSECURE Act, trade restrictions and other foreign regulatory requirements which could increase the cost or reduce the supply of material available to us, delay the procurement or supply of such material, restrict or even prohibit our ability to work with such CMOs, or have an adverse effect on our ability to secure significant commitments from governments to purchase potential therapies.
The biopharmaceutical industry in the PRC is strictly regulated by the Chinese government. Changes to Chinese regulations or government policies affecting biopharmaceutical companies are unpredictable and may have a material adverse effect on our collaborators in the PRC which could have an adverse effect on our business, financial condition, results of operations and prospects. Evolving changes in the PRC’s public health, economic, political, and social conditions and the uncertainty around the PRC’s relationship with other governments, such as the United States and the U.K., could also negatively impact our ability to manufacture our product candidates for our planned clinical trials or have an adverse effect on our ability to secure government funding, which could adversely affect our financial condition and cause us to delay our clinical development programs. For more details, see “— Risks Related to Our Business Operations in the PRC — Changes in the relations between the PRC and the United States may affect our business, financial condition and results of operations. ”
In addition, we plan to enter into various development, manufacturing and clinical supply services agreements with third-party manufacturers for drug substance and drug product manufacturing of our other product candidates. If our third-party manufacturers are not able to provide sufficient quantities or quality of our product candidates on a timely basis, or at all, whether due to production shortages or other supply delays or interruptions resulting from public health crises or otherwise, our preclinical trials, clinical trials or regulatory approvals, as applicable, may be delayed. Significant portions of our research and development resources are focused on manufacturing. If any of our third-party manufacturers experiences difficulties in scaling production or experiences product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error or improper storage conditions, the potential trials of the affected product candidate would be delayed, perhaps substantially, which could materially and adversely affect our business.
We and our contract manufacturers will be subject to significant regulation with respect to manufacturing our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and our product candidates. Delays in completing and receiving regulatory approvals for our and our third-party manufacturing facilities could delay our development plans or commercialization efforts.
All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including us and any contract manufacturers for ETUARY®, Etorel®, Contiva®, and our other product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with GMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product, generic drugs or product candidates that may not be detectable in final product testing.
Our existing and planned manufacturing facilities, as well as our manufacturing process, and our third-party manufacturing facilities and process, will be subject to ongoing, periodic inspection by the NMPA, the FDA or other comparable regulatory agencies to ensure compliance with GMP, which is usually the prerequisite to obtain marketing approval. Moreover, we and our third-party manufacturers must obtain various permits, certificates and other approvals for our manufacturing facilities and other premises from the relevant administrative authorities at various stages of property development, including planning permits, construction permits, land use rights certificates, environmental assessments, fire control assessments, construction completion inspections and ownership certificates. Failure to comply with applicable regulations could lead to:
increased expense and result in sanctions being imposed on us (including fines, injunctions, civil penalties, requirements to suspend or pause one or more of our clinical trials);
failure to obtain marketing approval of our product candidates;
delays, suspension or withdrawal of approvals; supply disruptions;
license revocation; seizures or recalls of product, generic drugs or product candidates; and
operating restrictions and criminalprosecutions, any of which could materially and adverselyharm our business.
We may experience substantial disruption to our production sites and problems in manufacturing our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and future products, if approved.
We are dependent on our manufacturing facilities in Beijing, PRC and Cangzhou, PRC. The continued operation of our manufacturing facilities and our production safety may be substantially interrupted due to a number of factors, many of which are outside of our control. These factors may include fire, flood, earthquakes, power outages, fuel shortages, mechanical breakdowns, terrorist attacks and wars, or other natural disasters, as well as loss of licenses, certifications and permits, changes in governmental planning for the land underlying these facilities or their vicinity and regulatory changes. Moreover, the production activities on our manufacturing facilities may be suspended on a temporary basis due to governmental policies or regulations, including that on environmental protection or organizing public events. If the operation of any of our manufacturing facilities is substantially disrupted, we may not be able to replace the equipment or inventories at such facilities or use different sites or a third-party contractor to continue our production in a legal, timely and cost-effective manner or at all. Although we maintain property insurance for certain properties, machinery and equipment and other assets owned, operated or deemed important for us, in line with industry practice in the PRC, we do not have certain types of insurance, such as business interruption insurance. The amount and nature of our insurance coverage may not be sufficient to cover any substantial losses in the event of a significant disruption to any of our manufacturing facilities.
Since September 2021, as a result of the shortage of coal supply combined with high electricity demand from manufacturers, the PRC has experienced widespread power outages. The PRC government has imposed power curbs, including imposing power restrictions on factories in a number of provinces in the PRC to deal with an imbalance in energy supply and demand. As of December 31, 2025, we have not received any notice from relevant government authorities ordering us to temporarily suspend or limit production, and our Beijing and Cangzhou production centers were not subject to any power restrictions. The PRC government imposed power restrictions did not have a material adverse impact on our business operations or financial performance during the years ended December 31, 2025 and 2024.
We may not be able to meet the increasing demand for our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future products, if approved and commercialized, maintain adequate manufacturing capacity or successfully manage our anticipated growth.
To produce ETUARY®, Etorel®, Contiva®, and our increasing number of product candidates, if approved, in the quantities that we believe will be required to meet anticipated market demand, we may need to increase our production capacity over the initial level of production by constructing new manufacturing facilities and production lines. However, our ability to successfully implement our expansion plan for increasing production capacities is subject to a number of risks and uncertainties, including, but not limited to, the risk of construction delays and delays in equipment procurement, and our ability to timely recruit sufficient qualified staff to support the increase in our production capacity. If we are unable to do so, are delayed, face costs that are not economically feasible or cannot find a third-party manufacturer, we may not be able to produce ETUARY®, Etorel®, Contiva® and our future approved product candidates, if any, in sufficient quantities to meet future demand. Moreover, our plans to increase our production capacities require significant capital investment and the actual costs of our expansion plan may exceed our original estimates, which could adversely affect the return on our expenditure.
Furthermore, given the size of our existing and planned manufacturing facilities, we may not be able to fully utilize within a reasonable period of time after we commence operation. During the construction and ramp-up period, there may be significant changes in the macroeconomics of the pharmaceutical industry, including, among other things, market demand, product and supply pricing trends and customer preferences. Any adverse trends in this area could result in operational inefficiency and unused capacity in our facilities.
Fluctuations in prices of our raw materials and energy supply, as well as other costs associated with our production processes, may have a material adverse effect on us if we are not able to pass the cost increases on to our customers.
In order to manufacture our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future products, if approved, we must obtain sufficient quantities of high-quality raw materials and stable supply of energy and power at commercially acceptable prices and in a timely manner, which exposes us to risks associated with fluctuations in prices of raw materials. The prices of such materials may be affected by a number of factors, including market supply and demand, the PRC, the United States or international environmental and regulatory requirements, natural disasters and the global and local economic conditions. In addition, we may be subject to fluctuations in other costs associated with our production processes, such as costs of waste disposal, which are beyond our control. We may have limited capability to increase our revenue in a timely manner, and a significant increase in such costs may increase our cost of sales and negatively affect our profit margins.
Failure to maintain optimal inventory levels could increase our operating costs or lead to unfulfilled customer orders.
We are required to maintain optimal inventory levels in order to satisfy demand coming from our distribution network and successfully meet our customers’ demand. However, we may not be able to maintain proper inventory levels of our commercialized products, ETUARY®, Etorel® and Contiva®, which is approved and commercialized by us in the PRC, generic drugs and any other future products, if approved and commercialized, as a result of rapid changes in product life cycles, changing clinical demands and uncertainty of product developments and launches, as well as the volatile economic environment in the PRC. There can be no assurance that we can accurately predict these trends and events and avoid over-stocking or under-stocking our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved. Further, demand for our commercialized products, ETUARY®, Etorel® and Contiva®, generic drugs and any other future products, if approved, could change significantly between the time the products are ordered and the time they are ready for delivery.
Inventory levels in excess of demand may result in inventory write-downs, expiration of our product or an increase in inventory holding costs and a potential negative effect on our liquidity. On the other hand, if we underestimate demand, we may experience inventory shortages which may, in turn, result in unfulfilled customer orders, leading to a negative impact on our customer relationships.
Risks Related to Our Reliance on Third Parties
We have established, and may continue to establish, collaborative agreements and strategic partnerships. However, there is no guarantee we will fully achieve the anticipated benefits from these collaborations, alliances, or licensing agreements, and conflicts could emerge with our present or prospective partners.
We have in the past formed, and may in the future seek and form, strategic alliances, joint ventures or other collaborations, including entering into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our existing commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, generic drugs and product candidates, including ETUARY®, Hydronidone, F573, F528, F230, and any future product candidates that we may develop. Our strategic collaboration with partners involves numerous risks. We may not achieve the revenue and cost synergies expected from the transactions, as such synergies are inherently uncertain and subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond our control. In addition, the synergies from our collaboration with our partners may be offset by other costs incurred during the collaboration, including increases in other expenses, operating losses or problems in the business unrelated to our collaboration.
Moreover, disputes may arise between us and our current or future collaboration partners. Such disputes or our partners’ failure to fully perform their obligations may cause delay or termination of the research, development or commercialization of our product, generic drugs or product candidates, or result in costlylitigation or arbitration that may divert management attention and resources. In particular, international business relationships subject us to additional risks that may materially and adversely affect our ability to attain or sustain profitable operations, including, difficulty of effective enforcement of contractual provisions in local jurisdictions, and third-party collaborators may not properly obtain, maintain, protect or enforce our patent, trade secret and other intellectual property rights and regulatory exclusivity for our product, generic drugs or product candidates or may use our intellectual property that exposes us to potential litigation or other intellectual property-related proceedings that could jeopardize or invalidate our intellectual property.
We face significant competition in seeking appropriate collaborators. Whether we can reach a definitive agreement with a collaborator will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of preclinical trials, the likelihood of approval by the NMPA, FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative products, product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us. There can also be no assurance that we will enter into any collaboration agreements, or that any such agreements will be on favorable terms.
Collaborations are complex and time consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, and increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
Our rights to develop and commercialize some of our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others.
The success of our collaborations with our partners depends on each party’s performing its respective obligations under the relevant collaboration agreement. Such agreements may impose on us diligence obligations in product development or commercialization, payment obligations when certain development or regulatory milestones and sales are achieved and other obligations. If we fail to comply with our obligations under our current or future agreements, our counterparties may have the right to terminate these agreements, in which event we may not be able to develop, manufacture or market the product candidate that is covered under the agreements. Termination of the licenses or assignments provided for under these agreements or reduction or elimination of our rights under these agreements may result in us having to negotiate new or amended agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
In addition, we may not have the exclusive right to control the preparation, filing, prosecution, maintenance, enforcement and defense of patents and patent applications covering the product or product candidates that we are licensed or assigned from third parties. In the event that these patents and patent applications are not prepared, filed, prosecuted, maintained, enforced and defended in a manner consistent with the best interests of our business, our rights to the relevant intellectual property may be reduced or eliminated, and our right to develop and commercialize the product, generic drugs or product candidates covered under the agreement could be adversely affected.
Moreover, the third parties on whom we rely with respect to licenses to certain patent rights and other intellectual property rights that are important or necessary to the development, manufacture or commercialization of our product, generic drugs or product candidates may themselves rely on upstream licenses from other third parties. Such sub-licenses may not provide exclusive rights to use the covered intellectual property in all relevant fields of use or in all territories in which we may wish to develop or commercialize our product candidates, and add further uncertainties and complications as to the scope of our rights under the relevant agreement.
Further, the license or assignment agreements we have entered into, or will enter into in the future, are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our advancement through our collaboration relationship with its partners.
We rely on third parties to conduct certain aspects of our preclinical studies and any clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such tasks or trials.
We rely on third parties such as CROs, medical institutions and clinical investigators to conduct certain aspects of preclinical development, including assay development and testing, and to enroll qualified patients and conduct, supervise and monitor clinical trials. For more details, see “ —Business—Our Research and Development ” in this Annual Report. Our reliance on these third parties for preclinical and clinical development activities reduces our control over these activities. Our reliance on these third parties, however, will not relieve us of our regulatory responsibilities, including ensuring that our clinical studies are conducted in accordance with GCPs, and the investigational plan and protocols contained in the relevant regulatory application, such as an IND. In addition, the CROs with whom we contract may not complete activities on schedule or may not conduct our preclinical studies or clinical studies in accordance with regulatory requirements or our clinical study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, compromise the quality or accuracy of the clinical data obtained by CROs or our investigators due to failure to adhere to our clinical protocols or regulatory requirements, or the quality of the products manufactured fails to comply with GMP, our efforts to complete development and obtain regulatory approvals for, and to commercialize, our product, generic drugs and product candidates may be delayed or prevented.
In addition, we, our CROs for clinical programs and our investigators are required to comply with GCP for all of our product candidates in clinical development. If we or any of our CROs or investigators fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the NMPA, FDA or comparable regulatory authorities may require us to perform additional clinical trials before considering whether to approve our marketing applications, which would delay the regulatory approval process.
If our distributors act in violation of the relevant agreements, or if sub-distributors with whom we have not entered into distribution agreements do not comply with policies and measures that our distributors agree to comply with, our business, prospects and reputation could be materially and adversely affected.
While we rely on the distribution agreements and the policies and measures we have in place to manage our distributors, we cannot guarantee that these agreements, policies and measures will be able to effectively manage our distributors, or that our distributors will comply with our agreements and policies. If our distributors take one or more of the following actions, our business, results of operations, prospects and reputation may be adversely affected:
failing to distribute our product, generic drugs and future products, if approved and commercialized, in the manner we contemplate, impairing the effectiveness of our distribution network;
breaching the distribution agreements or our policies and measures;
failing to maintain the requisite licenses, permits or approvals or failure to comply with applicable regulatory requirements; and
violating any applicable anti-corruption, anti-bribery, competition or other laws and regulations.
Any such actual or allegedviolation or non-compliance by our distributors of the distribution agreements, our policies or any applicable laws and regulations could result in the erosion of our goodwill, expose us to liabilities, disrupt our distribution network and create an unfavorable public perception about the quality of our products, ETUARY®, Etorel® and Contiva®, generic drugs and future products, if approved and commercialized.
Moreover, some of our distributors engage sub-distributors to distribute our product, and we do not engage these sub-distributors directly or maintain contractual relationships with them. Instead, we mainly rely on our distributors to manage and control their sub-distributors in accordance with regulatory requirements, the terms of the distribution agreements between us and our distributors and our policies for our distributors. Since our control is limited over these sub-distributors, there is no assurance that the sub-distributors will comply with the geographical restrictions agreed to with our distributors or other distribution requirements under our distribution agreements and policies. As a result, there can be no assurance that we will be able to identify or remediate any practices by any sub-distributors’ that may be detrimental to our business in a timely manner or at all, which may adversely affect our results of operations and reputation.
Because we rely on a limited number of suppliers for certain of our raw materials, we may experience supply interruptions that could harm our ability to manufacture products.
During the years ended December 31, 2025 and 2024, we had a small number of suppliers, with whom we believe we have stable relationships. However, the stability of operations and business strategies of our suppliers are beyond our control, and there can be no assurance that we will be able to maintain a stable relationship and high-quality outsourced raw materials or services with our large suppliers.
Risks Related to Employee Matters, Managing Growth and Our Business Operations
Our ongoing success is reliant on our capacity to retain key executives and to recruit, maintain, and inspire skilled professionals.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our executive management and scientific personnel. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. In addition, we will need to add personnel to achieve our business objectives. The loss of the services of any of our executive officers, other key employees, and our inability to find suitable replacements, or our inability to hire new clinical development and manufacturing personnel, could result in delays in product development and harm our business.
We conduct our U.S. operations at our facility in San Diego, California. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. In the PRC, we compete for qualified personnel with other pharmaceutical and biotechnology companies, universities and research institutions. The pool of suitable candidates is limited, and we may not be able to hire and retain enough skilled and experienced scientists or other technical personnel at the current level of wages, and may need to offer higher compensation and other benefits, which could materially and adversely affect our financial condition and results of operations.
To induce valuable employees to remain with us, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of management and scientific and development teams have terminated and may terminate their employment with us on short notice. Our employees are under at-will employment arrangements, which means that any of our employees can leave employment with us at any time, with or without notice. Failure to retain, replace or recruit personnel could harm our business.
Our future performance will also depend, in part, on our ability to successfully integrate newly hired executive officers into our management team and our ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and create effective working relationships among them and other members of management could result in inefficiencies in the development and commercialization of our product, generic drugs and product candidates, harming future marketing approvals, sales of our product, generic drugs and product candidates and our results of operations.
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and collaborators. Misconduct by these parties could include intentionalfailures to comply with the regulations of the NMPA, FDA, SEC and non-PRC and non-U.S. regulators, to provide accurate information to the NMPA, FDA and non-PRC and non-U.S. regulators, to comply with healthcare fraud and abuse laws and regulations in the PRC, United States and abroad, to report financial information or data accurately or to discloseunauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained during clinical studies that could result in regulatory sanctions and cause seriousharm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We will continue to incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with regulations related to operating as a public company.
As a public company, we have and will continue to incur significant legal, accounting and other expenses, including costs associated with public company reporting and corporate governance requirements, in order to comply with the rules and regulations imposed by the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection, as well as rules implemented by the SEC and Nasdaq. Stockholder activism, the political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways that are not currently anticipated. Our management and other personnel need to devote a substantial amount of time to compliance with regulations related to operating as a public company. In addition, these rules and regulations make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain our current levels of such coverage. We expect that we will annually incur significant expenses to comply with the requirements imposed on us as a public company.
Our management team has not previously managed and operated a U.S. public company. These executive officers and other personnel will need to devote substantial time to gaining expertise related to public company reporting requirements and compliance with applicable laws and regulations to ensure that we comply with all of these requirements. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on the board of directors or on board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.
Increased labor costs negatively affect our operations and have an adverse impact on our profitability.
Our strategies and business growth may require us to hire additional employees, and we may also hire additional employees as a result of acquisitions. The average cost of labor in the PRC has been steadily increasing in recent years as a result of inflation, government-mandated wage increases and other changes in PRC labor laws, as well as competition for talent and qualified employees among pharmaceutical companies. As a result, increased labor costs could have negative effects on our growth and decrease our profitability.
Risks Related to Our Intellectual Property
Should we or our licensors fail to secure, uphold, defend, or extend adequate patent and other intellectual property rights for our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any product candidates globally, or if the breadth of these intellectual property rights is insufficient, our ability to effectively compete in our markets could be compromised.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and product candidates. In order to protect the technologies, products and product candidates that we consider commercially important, we have filed and continue to file patent applications in the PRC, United States and other countries. However, applying for patent protection is an expensive and time-consuming process, and we may not be able to successfully file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may not be able to prevent competitors from developing and commercializing competitive products in all such fields and territories.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. For example, there can be no assurance that we were the first to make the inventions claimed in our patents or pending patent applications because of the delay between publications of discoveries in scientific or patent literature and actual discoveries and patent applications. Under the “first-to-file” system adopted by the PRC, and the United States, even after reasonable investigation, we may be unable to determine with certainty whether our product, product candidates, processes, technologies, improvement and other related matters are or may become unpatentable because a third-party filed or may file a patent application earlier than we have or do for inventions thereunder that are the same or substantially similar to our inventions. Additionally, the USPTO and patent offices in other jurisdictions have often required that patent applications directed to pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Accordingly, even if we or our licensors are able to obtain patents, the patents might be substantially narrower than anticipated. Thus, there is no assurance as to the degree and range of protections any of our patents, if issued, may afford us or whether patents will be issues. Third parties may challenge the validity, enforceability or scope of our patents, which may result in those patents being narrowed or invalidated. The patent applications that we own may fail to result in issued patents with claims that cover our product and product candidates in the PRC, United States or in other foreign countries. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product or product candidates or prevent others from designing around our claims. Certain of our patents also cover processes, for which enforcement can be difficult. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If the patents or patent applications we hold or have in-licensed for ETUARY®, Etorel®, Contiva®, our programs or product candidates are invalidated or fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product or product candidates, it could threaten our ability to commercialize future products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. In the PRC, the amendment to the PRC Patent Law (the “Amended PRC Patent Law”) provides for patent term extension and patent linkage. The Amended PRC Patent Law and relevant implementing regulations provide a cause of action to allow a patent holder to initiate a declarative action during the regulatory review process of a drug to determine whether the drug in review falls within the relevant scope of the patent of such patent holder, which may be comparable to the patent linkage system in the United States. The system requires that the NMPA continue to review the potentially infringing follow-on application during any lawsuit by the innovator. However, the NMPA may not approve the follow-on application pending resolution of the patent litigation in favor of the follow-on application or for a specified period of time, whichever is shorter. The Amended PRC Patent Law and relevant implementing regulations also provide patent term extension, similar to the United States, for the patent term lost during the regulatory review process of a new drug upon the patent holder’s request. The extended term shall not exceed five years, and the total patent term of the new drug from the date of its market approval shall not exceed 14 years. However, subject to the decision of relevant authorities, the patents we have in-licensed or own in the PRC may not be eligible to be extended for any patent term lost during the regulatory review process. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Once the patent life has expired for a product, we may be subject to competition from generic medications.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent and other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining the physical security of our premises and physical and electronic security of our information technology systems. Enforcing a claim that a party illegally obtained and is using our trade secrets is challenging and the outcome is unpredictable. In addition, courts outside of the United States may be less willing to protect trade secrets. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their applicable inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide guarantee that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information. Moreover, some of our employees, including senior management, may have been employed at other pharmaceutical companies, including our competitors or potential competitors. Such employees may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. We may be subject to claims these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. In the event that litigation is necessary to defendagainst such claims, we may be subject to monetary damages and losevaluable intellectual property rights or personnel.
Further, filing, prosecuting and defending patents on our products, ETUARY®, Etorel® and Contiva®, and product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the PRC and United States are less extensive than those in the PRC and United States. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the PRC or United States. As a result, we may encounter significant problems in protecting and defending our intellectual property in the PRC, United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition. In addition, we may be involved in claims and disputes of intellectual property infringement in other jurisdictions, and the defense of these claims or disputes, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The China National Intellectual Property Administration (the “CNIPA”) and other governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. For example, in several stages over the lifetime of a patent, periodic maintenance fees are due to be paid to the CNIPA and other patent agencies. Although an inadvertentlapse can, in many cases, be cured by payment of a late fee or by other means in accordance with the applicable rules, non-compliance could result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Such non-compliance events may include failure to respond to official actions in a timely manner, non-payment of fees, and failure to properly submit formal documents. In addition, under PRC patent law, any applicant that applies for a patent in a foreign country for an invention or utility model accomplished in the PRC must report to the CNIPA for confidentiality examination. If the applicant fails to report to the CNIPA for confidentiality examination, the patent right may not be granted if an application is later filed in the PRC.
The scope of our patent protection may be uncertain, and third-party claims of intellectual property infringement or challenging the inventorship or ownership of our patents may prevent or delay our development and commercialization efforts.
The coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we license or own currently or in the future are to be issued as patents, they may not be issued in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. In addition, the patent position of medical device companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the PRC and United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, third-party submissions of prior art to the CNIPA, USPTO or other related intellectual property offices, oppositions, inter partes reexamination proceedings before the CNIPA, USPTO, and corresponding foreign patent offices and post-grant proceedings such as opposition, derivation, revocation, invalidation, re-examination or inter partes review, or interference proceedings or similar proceedings in foreign jurisdictions challenging the priority of our invention or other features of patentability of our patents and patent applications. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our products, ETUARY®, Etorel® and Contiva®, and product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that the manufacture, use or sale of our products, ETUARY®, Etorel® and Contiva®, and our product candidates infringes patents held by such third parties, or that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to compositions of matter, materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product, generic drugs and product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates or current product may infringe.
Parties making claimsagainst us may obtain injunctive or other equitable relief that could effectively block our ability to further develop and commercialize one or more of our products, ETUARY®, Etorel® and Contiva®, and our product candidates unless we redesigned infringing products (which may be impossible) or obtained a license under the applicable patents (which may not be available on commercially reasonable terms or at all), or until such patents expire.
We may be involved in lawsuits to protect or enforce our patents.
Competitors may infringe our patents. To counter infringement or unauthorized use, we or our collaborators may be required to file infringementclaims that can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one of our patents is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse determination or outcome of a third-party submission, proceeding or litigation may result in loss of patent rights or exclusivity, or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to prevent competitors from using or commercializing similar or identical technologies and products, or limit the duration of the patent protection of our technologies, products, ETUARY®, Etorel® and Contiva®, and product candidates.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the PRC or United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims, regardless of their merit, would cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In the event of a successful claim of infringementagainst us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, in addition to paying royalties, redesigning infringing products or obtaining one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
Changes in patent law could diminish the value of patents generally, which may impair our ability to protect ETUARY®, Etorel®, Contiva® and our product candidate pipeline.
Decisions made by the National People’s Congress of the PRC and the CNIPA could change the laws and regulations governing patents in unpredictable ways that may affect our ability to obtain new patents or to enforce our existing patents and/or future patents. The United States has enacted and is currently implementing wide-ranging patent reform legislation. In addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. Similar changes in the laws of other jurisdictions may impact the value of our patent rights or our other intellectual property rights. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, there is uncertainty with respect to the value of patents once obtained, if any. As the laws and regulations governing patents evolve in the PRC and other jurisdictions, such changes may have a negative impact on our intellectual property protection.
We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third-party may hold intellectual property, including patent rights, that is important to or necessary for the development of our product candidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially.
We may fail to protect our trademarks and trade names, which may negatively affect our ability to build brand recognition in our markets of interest.
We currently own issued trademark registrations and have trademark applications pending in order to build name recognition among potential partners and customers in our markets of interest. However, such trademark registrations and applications subject us to risks of trademark invalidity, dilution and infringement. Our trademark registrations and applications may be subject to a governmental or third-party objection, and may be challenged, infringed, circumvented or declared generic. If an issued trademark registration or trademark application is successfullychallenged, then we may not be able to register or maintain such trademark registration or application. Moreover, as our products, ETUARY®, Etorel® and Contiva®, continue to be marketed, such products' reliance on our trademarks to differentiate us from our competitors may increase. We may not be able to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, or from engaging in conduct that constitutes unfair competition, defamation or other violations of our trademark rights. In addition, owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names may pursue trade name or trademark infringementclaimsagainst us. If we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively in our markets of interest, and our business may be adversely affected.
Intellectual property rights may not address all potential threats to our business or competitive advantage.
The degree of protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. The limitations of currently available intellectual property protection regimes include that:
others may be able to make products that are similar to ETUARY®, Etorel®, Contiva® or our product candidates or utilize similar technologies that are not covered by our owned and licensed patents;
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our intellectual property rights;
the proprietary technologies on which we rely may not be patentable; and
we may choose not to file a patent for certain trade secrets or know-how, yet a third-party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Regulatory Approval of Our Product Candidates and Other Compliance Matters
All material aspects of research, development, manufacturing and commercialization of our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and product candidates are heavily regulated.
Obtaining regulatory approvals and maintaining compliance with applicable laws and regulations is a lengthy, expensive and uncertain process which requires the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the drug development process or approval process, or after approval, may subject us to administrative or judicial sanctions. These sanctions could include, but are not limited to, a regulator’s refusal to approve pending applications, withdrawal of an approval, license revocation, a clinical hold, warning or untitled letters, voluntary or mandatory product recalls, product seizures, total or partial suspension of production or distribution, import alerts, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminalpenalties.
The approval procedures of the NMPA, FDA, and comparable foreign regulatory authorities are extensive, protracted, and inherently uncertain. Failure to secure necessary approvals, or encountering delays in the approval process, will prevent us from marketing our product candidates, such as ETUARY® for future indications in the PRC, F573 in the PRC, and Hydronidone in the PRC and in additional markets beyond the PRC, which may significantly affect our revenue generation.
The process of obtaining regulatory approvals, in the PRC, United States and abroad, is unpredictable, expensive and typically takes many years following commencement of clinical trials, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved.
Other than certain generic drugs, we have only three successfully approved and commercialized products: (i) ETUARY®, which is approved in the PRC for the treatment of IPF; (ii) Etorel®, which is approved in the PRC for the treatment of IPF; and (iii) Contiva® for the treatment of TP associated with CLD in adult patients undergoing elective diagnostics procedures or therapy. We also received approval to expand the indication for Contiva® to include ITP in January 2025. ETUARY® is currently in its Phase 3 clinical trial for the treatment of PD and Phase 2/3 clinical trial of ETUARY® for the treatment of RILI. Although ETUARY® is approved in the PRC for the treatment of one indication, we may be unable to successfully commercialize ETUARY® in the PRC for the treatment of other indications.
In addition, we plan to submit an NDA for conditional approval of Hydronidone for the treatment of CHB-associated liver fibrosis in the PRC in the first half of 2026, subject to final data readiness and applicable regulatory procedures. In addition, we plan to file a U.S. IND for Hydronidone for the treatment of MASH-associated liver fibrosis in 2026, and, subject to clearance, initiate a Phase 2 clinical trial, and we may file additional INDs for future indications or future product candidates. If any such future IND is not timely cleared by the FDA, our clinical development timeline may be negatively impacted and any future clinical programs may be delayed or terminated. As a result, we may be unable to obtain regulatory approvals or successfully commercialize our product candidates.
We also have an early clinical-stage product pipeline that includes F573 for ALF/ACLF treatment. F573 has entered into Phase 2 clinical trials in the PRC. We completed our Phase 1 clinical observations of tolerability and PK in July 2022 and initiated our Phase 2 clinical study of F573 in March 2023. We have also established a tiered preclinical product pipeline. For instance, we are researching and developing F528 for the treatment of COPD. In addition, we initiated a Phase 1 clinical trial in F230 in the PRC for the treatment of PAH, our product that demonstrated the potential to significantly alleviate PAH in animal studies.
We cannot guarantee that any preclinical studies and clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our product candidates is susceptible to the risk of failure at any stage of drug development, including failure to demonstrate efficacy in a clinical trial or across a suitable population of patients, the occurrence of severe or medically or commercially unacceptableadverse events, failure to comply with protocols or applicable regulatory requirements and determination by the NMPA, FDA or any comparable foreign regulatory authority that a drug product is not approvable. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any.
We cannot commercialize product candidates in the PRC or United States without first obtaining regulatory approval from the NMPA or the FDA, respectively. Similarly, we cannot commercialize product candidates outside of the PRC or United States without obtaining regulatory approval from comparable foreign regulatory authorities. Before obtaining regulatory approvals for the commercial sale of our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for each targeted indication. Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Further, our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval.
The NMPA, FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other data. our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including:
the NMPA, FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
We may be unable to demonstrate to the satisfaction of the NMPA, FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the NMPA, FDA or comparable foreign regulatory authorities for approval; serious and unexpected drug-related side effects may be experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;
We may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; the NMPA, FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the PRC, United States or elsewhere, and we may be required to conduct additional clinical trials;
the NMPA, FDA or the applicable foreign regulatory authority may disagree regarding the formulation, labeling and/or the specifications of our product candidates;
the NMPA, FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the NMPA, FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
The approval requirements for our product candidates are likely to vary by jurisdiction such that success in one jurisdiction is not necessarily predicative of success elsewhere.
We may experience delays in completing planned clinical trials for a variety of reasons, including delays related to:
the availability of financial resources to commence and complete the planned trials;
inability to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining approval at each clinical trial site by an IRB;
recruiting suitable patients to participate in trials;
having patients complete a trial or return for post-treatment follow-up;
clinical trial sites deviating from trial protocol or dropping out of a trial;
adding new clinical trial sites; and
manufacturing sufficient quantities of qualified materials under cGMP regulations and applying them on a subject-by-subject basis for use in clinical trials.
We could also experience delays in obtaining approval if physicians encounter unresolved ethical issues, including but not limited to those associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles given the serious nature of the diseases for the core indications for our product candidates. Additionally, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which the trials are being conducted, the Data Monitoring Committee for the trial, or by the NMPA, FDA or other regulatory authorities for a number of reasons, including failure to conduct the clinical trial in accordance with regulatory requirements or its clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues, or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, the FDA review and approval process could be delayed by any future shutdown of the U.S. government, and our development activities could be harmed or delayed as a result. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, our ability to commercialize our product candidates will be harmed and our ability to generate revenue will be materially impaired. Additionally, delays in completing trials will increase costs, delay our product development and approval process, and impair our ability to commence product sales and generate revenue. Many of the factors that could create or lead to a delay in the commencement or completion of clinical trials may lead to the denial of regulatory approval for our product candidates.
Of the large number of drugs in development, only a small percentage successfully complete the NMPA, FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, which would significantly harm our business, results of operations and prospects.
If we were to obtain approval, regulatory authorities may approve any of our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, for fewer or more limited indications than we request, including failing to approve the most commercially promising indications, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, including ETUARY® for future indications, F573, F528, and F230 in the PRC, and Hydronidone in the PRC and potentially additional markets beyond the PRC, we will not be able to commercialize, or will be delayed in commercializing, our product candidates and our ability to generate revenue will be materially impaired.
We are developing Hydronidone for the treatment of liver fibrosis associated with MASH. The requirements for approval of Hydronidone by the NMPA, FDA and comparable foreign regulatory authorities are unknown, may be difficult to predict, and may change over time, which makes it difficult to predict the timing and costs of clinical development and the likelihood of marketing approval.
We are developing Hydronidone for the treatment of liver fibrosis associated with MASH. Although there are guidelines issued by the FDA for the development of drugs for the treatment of MASH, the development of a novel product candidate such as Hydronidone may be more expensive and take longer in the United States than for other, better known or extensively studied product candidates. As other companies are in later stages of clinical trials for their potential MASH therapies, we expect that the path for regulatory approval for MASH therapies may continue to evolve in the near term as these other companies refine their regulatory approval strategies and interact with regulatory authorities. Such evolution may impact our future clinical trial designs, including trial size and endpoints, in ways that we cannot predict today. In particular, regulatory authority expectations about liver biopsy data may evolve especially as more information is published about the inherent variability in liver biopsy data.
Certain of our competitors have experienced regulatory setbacks for MASH therapies following communications from the FDA. We currently do not know the impact, if any, that these setbacks could have on the path for regulatory approval for MASH therapies generally or for Hydronidone.
Our anticipated development costs would likely increase if development of Hydronidone or any future product candidate is delayed because we are required by the NMPA, FDA or other comparable regulatory authorities to perform studies or trials in addition to, or different from, those that we currently anticipate, or make changes to ongoing or future clinical trial designs. In addition, if we are unable to leverage our safety database for MASH indications, we may be required to perform additional trials, which would result in increased costs and may affect the timing or outcome of our clinical trials. In addition, Hydronidone may not be developed as a monotherapy, but as a part of a combination therapy, which will add to the complexity of clinical development and may cause further delays in Hydronidone’s development and affect our costs and divert management’s resources.
Our failure to obtain or renew certain approvals, licenses, permits and certificates required for our business may materially and adversely affect our business, financial condition and results of operations.
Pursuant to relevant laws and regulations, we are required to obtain and maintain various approvals, licenses, permits and certificates from relevant authorities to operate our business. Some of these approvals, permits, licenses and certificates are subject to periodic renewal and/or reassessment by the relevant authorities, and the standards of such renewal and/or reassessment may change from time to time. Any failure to obtain or renew any approvals, licenses, permits and certificates necessary for our operations may result in enforcement actions thereunder, including orders issued by the relevant regulatory authorities ceasing our operations, and may include corrective measures requiring capital expenditure or remedial actions. If the interpretation or implementation of existing laws and regulations changes, or new regulations come into effect requiring us to obtain any additional approvals, permits, licenses or certificates that were previously not required to operate our existing businesses, there can be no assurance that it will successfully obtain such approvals, permits, licenses or certificates.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
United States
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we would market, sell and distribute our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized. As a pharmaceutical company, even though we do not and may not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. These regulations include:
the AKS that prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid, and which will constrain our marketing practices and the marketing practices of our licensees, educational programs, pricing policies, and relationships with healthcare providers or other entities;
the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients to providers of “designated health services” with whom the physician or a member of the physician’s immediate family has an ownership interest or compensation arrangement, unless a statutory or regulatory exception applies;
federal falseclaims laws that prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government reimbursement programs that are false or fraudulent, and which may expose entities that provide coding and billing advice to customers to potential criminal and civil penalties, including through civil whistleblower or qui tam actions, and including as a result of claims presented in violation of the AKS, the Stark Law or other healthcare-related laws, including laws enforced by the FDA;
HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and willfullyfalsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services that, as amended by HITECH, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
federal physician sunshine requirements under the ACA, which requires manufacturers of approved drugs, devices, biologics and medical supplies to report annually to the U.S. Department of Health and Human Services, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations;
the Federal Food, Drug, and Cosmetic Act, which, among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and falseclaims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, state laws requiring pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and which may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state and foreign laws governing the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws such as HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
PRC
Our operations are subject to various fraud and abuse laws, including, but not limited to, the PRC Anti-Unfair Competition Law, the PRC Criminal Law and the physician payment sunshine laws and regulations. There are ambiguities as to what is required to comply with any of these requirements, and violations of such fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension from governmental healthcare programs and debarment from contracting with the relevant jurisdiction. As law enforcement authorities increase their focus on enforcing these laws, efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations may involve substantial costs.
We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-corruption and anti-bribery laws of the PRC and other countries in which we operate, as well as U.S. and certain foreign export controls, trade sanctions and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in certain markets, and any determination that we have violated these laws could have a material adverse effect on our business or our reputation.
Our operations are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of the PRC and other countries in which we operate. The FCPA and these other laws generally prohibit us, our officers and our employees and intermediaries from, directly or indirectly, offering, authorizing or making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business or other advantage. We may engage third parties for clinical trials outside of the PRC and United States, to sell our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, abroad and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. As our business expands, the applicability of the FCPA and other anti-bribery laws to our operations will increase. If our procedures and controls to monitor anti-bribery compliance fail to protect us from reckless or criminal acts committed by our employees or agents or if we, or our employees, agents, contractors or other collaborators, fail to comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, be required to disgorge profits, and incur other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.
In addition, our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, or our failure to obtain any required import or export authorization for such products, when applicable, could harm our international or domestic sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, may create delays in the introduction of such products in international markets or, in some cases, prevent the export of such products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons or products targeted by such regulations, could result in decreased use of our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, or in our decreased ability to export such products to, existing or potential customers with international operations. Any decreased use of our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, or limitation on our ability to export or sell such products would likely adversely affect our business.
Our results of operations may be adversely affected by current and potential future healthcare legislative and regulatory actions.
All jurisdictions in which we conduct our research, development, manufacturing and commercialization activities regulate these activities in great depth and detail. Obtaining regulatory approvals is a lengthy, expensive and uncertain process. We intend to focus our activities in the major markets of the PRC and the United States. These geopolitical areas all have strict regulation on medical devices, and, in doing so, they employ broadly similar regulatory strategies, including regulation of product development, approval, manufacturing, sales and marketing and distribution of medical devices. However, regulatory regimes vary in different regions, which makes regulatory compliance more complex and costly for companies like us that plan to operate in each of these regions.
United States
The price of pharmaceuticals has been a topic of considerable public discussion that could lead to price controls or other price-limiting strategies by payors that have the effect of lowering payment and reimbursement rates for drugs or otherwise making the commercialization of pharmaceuticals less profitable. Many federal and state legislatures have considered, and adopted, healthcare policies intended to curb rising healthcare costs, such as the Inflation Reduction Act of 2022. These cost-containment measures may include, among other measures: requirements for pharmaceutical companies to negotiate prescription drug prices with government healthcare programs; controls on government-funded reimbursement for drugs; new or increased requirements to pay prescription drug rebates to government healthcare programs, including if drug prices increase at a higher rate than inflation; controls on healthcare providers; challenges to or limits on the pricing of drugs, including pricing controls or limits or prohibitions on reimbursement for specific products through other means; requirements to try less expensive products or generics before a more expensive branded product; and public funding for cost effectiveness research, which may be used by government and private third-party payors to make coverage and payment decisions. Political, economic and regulatory developments may further complicate developments in healthcare systems and pharmaceutical drug pricing. These developments could, for example, impact our potential licensing agreements as commercial and collaborative partners may also consider the impact of these pressures on their licensing strategies.
Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry, could adversely affect our ability to successfully commercialize our product candidates. The implementation of any price controls, caps on prescription drugs or price transparency requirements could adversely affect our business, operating results and financial condition.
PRC
The policies of the NMPA may change, or additional government regulations may be enacted, that could prevent, limit or delay regulatory approval of our product candidates, restrict or regulate post-approval activities and affect our profitability. We cannot predict the likelihood, nature or extent of governmental policies or regulations that may arise from future legislation or administrative actions in the PRC, where the regulatory environment is constantly evolving. For example, if changes to regulatory requirements and guidance require us to substantially amend clinical trial protocols, we may experience increased costs or inability to complete clinical trials in a timely manner or at all. Changes in government regulations relating to pharmaceutical product registrations and approvals, such as a relaxation in regulatory requirements, or the introduction of simplified approval procedures, could lower the barriers to entry for potential competitors, or increased regulatory requirements could increase the difficulty to satisfy such requirements.
In recent years in the PRC, there have been, and will likely continue to be, efforts to enact administrative or legislative measures that include more rigorous coverage criteria and may result in downward pressure on prices on our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized. For details of the risks associated with such downward pricing pressure, see “— Risks Related to Our Business Operations and Product Candidates — We may face pressure to lower the prices of our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future product, if approved and commercialized, in order for such products to qualify for medical insurance reimbursement or due to market competition. ” in this Risk Factors section.
Furthermore, any changes in laws and regulations on collection and transfer of personal data in the PRC, including the Personal Information Protection Law of the PRC and the Administrative Regulations on Human Genetic Resources of the PRC, could affect our ability to use medical data and subject us to liability for the use of such data for previously permitted purposes.
The PRC government or other government authorities in countries where we plan to sell our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized in the PRC, could adopt new or different regulations with respect to sales of pharmaceutical products to address bribery, corruption or other concerns. New or different regulations could result in increased costs incurred by us, our employees or distributors in selling our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, or imposed restrictions on sales and marketing activities, which could, in turn, increase our costs.
We are subject to evolving privacy and data protection laws, including HIPAA and the EU General Data Protection Regulation (EU) 2016/679 (“GDPR”). If we fail to protect personal information or comply with existing or future data protection regulations, our business, financial condition, results of operations and prospects may be materially adversely affected.
Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability, integrity, and other processing of personal information. HIPAA establishes a set of national privacy and security standards for the protection of PHI (as defined in HIPAA) by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. HIPAA requires covered entities and business associates, such as us, to develop and maintain policies with respect to the protection of, use and disclosure of electronic PHI, including the adoption of administrative, physical and technical safeguards to protect such information, and certain notification requirements in the event of a data breach.
The processing of personal data, including health-related personal data in the European Economic Area (“EEA”) is mainly governed by the provisions of the GDPR, and related data protection laws in individual EEA countries. In the United Kingdom, the processing of personal data is mainly governed by the GDPR as incorporated into UK law pursuant to the European Union (Withdrawal) Act 2018 (the “UK GDPR”). The GDPR and UK GDPR impose a number of strict obligations and requirements for the processing, including collecting, analyzing and transferring of personal data of individuals in the EEA or in the UK, in particular with respect to health data from clinical trials and adverse event reporting. The GDPR and UK GDPR include requirements relating to the legal basis of the processing (such as consent of the individuals to whom the personal data relates), the information provided to the individuals prior to processing their personal data, the personal data breaches which may have to be notified to the national data protection authorities and data subjects, the measures to be taken when engaging processors, and obligations relating to the security and confidentiality of the personal data. EEA countries may also impose additional requirements in relation to the processing of health, genetic and biometric data through their national legislation.
Failure to comply with the requirements of the GDPR or UK GDR and the related national data protection laws of the EEA countries may result in significant monetary fines for noncompliance of up to €20.0 million or £17.5 million (as applicable), 4% of the total worldwide annual turnover (for higher-tier infringements). This is enforced by ICO and is entirely separate from fines under EU GDPR. In addition, violations of national laws can trigger additional, administrative penalties, investigations, corrective orders, temporary or definitive bans, and, in some jurisdictions, and a number of criminal offenses for organizations and, in certain cases, their directors and officers, as well as civil liability claims from individuals whose personal data was processed.
In addition, we are subject to various U.S. state laws which may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
Because our operations involve the use of hazardous chemical materials and may produce hazardous waste, we are subject to numerous environmental, health and safety laws and regulations, including those governing air emissions, discharge of water and the handling, use, storage, treatment and disposal of hazardous materials and wastes. While we have entered into hazardous waste disposal agreements with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminalfines and penalties for failure to comply with such laws and regulations. Further, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage, use or disposal of hazardous materials and waste.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
We are subject to extensive ongoing regulatory obligations and continued regulatory review related to our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and we may be subject to such obligations and review related to our future product candidates, if approved, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipatedproblems with our product candidates.
Our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any product candidates that are approved in the future remain subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, distribution, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including requirements in the PRC, federal and state requirements in the United States and requirements of comparable foreign regulatory authorities, as described in “ Business—Government Regulation ” of this Annual Report.
In addition, regulatory approvals may contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements. For example, the FDA may require a REMS in order to approve our product candidates, which could entail requirements for a medication guide, physician training and communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and our product candidates, if approved, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export will be subject to comprehensive regulation by the NMPA, FDA and other regulatory agencies in the PRC, United States and by comparable foreign regulatory authorities, respectively. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as on-going compliance with cGMPs and GCPs for any clinical trials that we conduct following approval. Manufacturers of drug products and their facilities are also subject to continual review and periodic, unannounced inspections by the NMPA, FDA and other regulatory authorities for compliance with cGMPs. In addition, following an approval for commercial sale of any product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, may be subject to additional review and approval by the NMPA, the FDA, and/or comparable regulatory authorities.
If we fail to comply with applicable regulatory requirements, or there are safety or efficacy problems with a product, a regulatory agency or enforcement authority may, among other things:
issue warning or notice of violation letters;
impose civil or criminalpenalties;
suspend or withdraw regulatory approval;
suspend any of our ongoing clinical studies;
refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including closing our contract manufacturers’ facilities;
seize or detain products, or require a product recall; or
require entry into a consent decree.
Any government investigation of allegedviolations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
Risks Related to Our Business Operations in the PRC
The PRC government may exert influence over Gyre Pharmaceuticals’ operations, which could result in an adverse change in our operations.
We have extensive business operations in the PRC, including manufacturing, sales and marketing, research and development and other business operations. Accordingly, the PRC government has some oversight and discretion over the conduct of our business in the PRC and may exert influence over our operations. The PRC government has recently published new policies that significantly affected certain industries, and we cannot rule out the possibility that it will in the future do the same regarding our industry, including policies that could require us to seek permission from the PRC authorities to continue to operate our business in the PRC.
In February 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “Trial Measures”), which came into effect on March 31, 2023. The Trial Measures comprehensively improve and reform the existing regulatory regime for overseas offering and listing of PRC domestic companies’ securities and regulate both direct and indirect overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based regulatory regime.
In February 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening the Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which came into effect on March 31, 2023. According to the Confidentiality Provisions, PRC domestic companies that directly or indirectly conduct overseas offerings and listings shall strictly abide by the laws and regulations on confidentiality when providing or publicly disclosing, whether directly or through their overseas listed entities, materials to securities services providers. In the event such materials contain state secrets or working secrets of government agencies, PRC domestic companies shall first obtain approval from authorities, and file with the secrecy administrative department at the same level with the approving authority; in the event that such materials, if divulged, will jeopardize national security or public interest, PRC domestic companies shall comply with procedures stipulated by national regulations.
If (i) we mistakenly conclude that certain regulatory filings, permissions and approvals are not required, (ii) applicable laws, regulations, or interpretations change, or (iii) we are required to obtain such filings, permissions or approvals in the future, we may be unable to obtain them in a timely manner, or at all, and such filings, permissions or approvals may be denied or rescinded even if obtained. We may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies if we are unable to comply with such requirements, which may result in fines and penalties, restrictions on our operations, having to delist from a stock exchange outside of China, the halting of securities offerings to foreign investors and/or other actions that could materially and adversely affect our operations.
Any such actions or sanctions, once taken by the PRC government, could significantly limit delay or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
The pharmaceutical industry in the PRC is highly regulated and such regulations are subject to change, which may affect approval and commercialization of our products, ETUARY®, Etorel® and Contiva®, and product candidates.
The pharmaceutical industry in the PRC is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. For details of a discussion of regulatory requirements that are applicable to our current and planned business in the PRC, see “ —Business—Our Operations in the PRC: Gyre Pharmaceuticals—Government Regulations in the PRC ” in this Annual Report. We believe our strategy and approach are consistent with the PRC government’s policies, but we cannot ensure that our strategy and approach will continue to be consistent. In recent years, the regulatory framework for the pharmaceutical industry in the PRC has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in:
increased compliance costs on our business;
delays in or prevention of successful development or commercialization of our product candidates; or
reduction of the current benefits we experience and believe are available to us from developing and manufacturing drugs in the PRC.
The PRC authorities have also become increasingly vigilant in enforcing laws in the pharmaceutical industry, and any failure by us to maintain compliance with applicable laws and regulations may result in the suspension or termination of our business activities in the PRC.
Changes in political, economic and other policies of the PRC government could have a material adverse effect on the overall economic growth of the PRC, which could reduce the demand for our commercialized products, ETUARY®, Etorel® and Contiva®, and any other future products, if approved and commercialized, or otherwise materially and adversely affect our business, operations or competitive position.
Our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in the PRC. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may have negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are currently applicable to us. Our ability to successfully maintain or grow business operations in the PRC depends on various factors, which are beyond our control. These factors include, among others, macroeconomic and other market conditions, political stability, social conditions, measures to control inflation or deflation, changes in the rate or method of taxation, changes in laws, regulations and administrative directives or their interpretation, and changes in industry policies. If we fail to take timely and appropriate measures to adapt to any of the changes or challenges, our business, results of operations and financial condition could be materially and adversely affected.
There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
The PRC legal system is a civil law system based on written codes and statutes. Unlike the common law system, prior court decisions may be cited as persuasive authority, but have limited precedential value. Since the late 1970s, the PRC government has promulgated a comprehensive system of laws, rules and regulations governing economic matters in general. In particular, as a result of the recency of implementation of certain laws and regulations, the non-precedential nature of court decisions, and the discretion regulators have in interpretation and enforcement of such laws, rules and regulations, the PRC legal system involves significant uncertainties, and can be inconsistent in its implementation, interpretation and enforcement. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we may experience. These uncertainties may impede our ability to enforce our contracts and could materially and adversely affect our business, financial condition and results of operation.
The PRC legal system is based in part on government policies and internal rules which may be amended from time to time with little advance notice. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.
Implementation of the labor laws and regulations in the PRC may adversely affect our business and results of operations, and failure to fully comply with PRC labor-related laws may expose us to potential liabilities and penalties.
Pursuant to the PRC Labor Contract Law, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. It is uncertain as to how the labor contract law and its implementation rules will affect our current employment policies and practices. Our employment policies and practices may violate the labor contract law or its implementation rules, and we may thus be subject to related penalties, fines or legal fees.
Compliance with the labor contract law and its implementation rules may increase our operating expenses, in particular, our personnel expenses. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the labor contract law and its implementation rules may also limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance, and the employers must, together with their employees or separately, pay the social insurance premiums for such employees. The PRC government's enhanced measures relating to social insurance collection may lead to stricter enforcement.
We expect our labor costs to increase due to the implementation of these laws and regulations. Compliance with the Social Insurance Law and its implementation rules may increase our operating expenses, in particular, our personnel expenses. As the interpretation and implementation of these laws and regulations are still evolving, there can be no assurance that our employment practice policy will at all times be deemed to be in full compliance with labor-related laws and regulations in the PRC, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.
Fluctuations in exchange rates may result in foreign currency exchange losses.
The change in the value of the Renminbi against other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and the PRC’s foreign exchange policies, as well as supply and demand in the local market. We are exposed to the risks of market forces or government policies and their impact on the exchange rate between Renminbi or other currencies in the future. Substantially all of our revenue and costs are denominated in Renminbi and most of our financial assets are also denominated in Renminbi. Any significant fluctuations in the value of the Renminbi may materially and adversely affect our liquidity and cash flows and the value of our financial assets.
Our operations are subject to and may be affected by changes in PRC tax laws and regulations.
The PRC government from time to time adjusts or changes its tax laws and regulations, and future adjustments or changes to PRC tax laws and regulations, together with any uncertainty resulting therefrom, could have an adverse effect on our results of operations. Our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized in the PRC, have been entitled to a preferential VAT treatment at the tax rate of 3%, 3% and 13%, respectively. However, there can be no assurance that our applicable VAT rate will stay the same or decrease, and any future changes to the VAT policies may negatively impact the selling price of ETUARY®, Etorel®, Contiva® and future approved product candidates.
Furthermore, under the PRC Individual Income Tax Law, foreign nationals who have no domicile in the PRC, but have resided in the PRC for a total of 183 days or more in a tax year, are subject to PRC individual income tax on their income gained within or outside the PRC. This may materially affect our ability to attract and retain highly skilled foreign scientists and research technicians to work in the PRC. We are also subject to periodic examinations on fulfillment of our tax obligation under the PRC tax laws and regulations by PRC tax authorities, and there can be no assurance that any such examinations by PRC tax authorities would not result in fines, other penalties or actions that could adversely affect our business, financial condition and results of operations, as well as our reputation.
We may be restricted from transferring our scientific data abroad or using human genetic resources collected in the PRC.
On March 17, 2018, the General Office of the State Council promulgated the Measures for the Management of Scientific Data (the “Scientific Data Measures”), which provides a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in the PRC must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. Upon approval by the competent authorities, the enterprise shall undergo the required procedures, and enter into confidentiality agreements with the users of the scientific data. Further, any researcher conducting research funded at least in part by the PRC government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal. Given that the term “state secret” is not clearly defined, if and to the extent any data collected or generated in connection with our R&D of medical drug candidates are subject to the Scientific Data Measures and any subsequent laws as required by the relevant government authorities, there can be no assurance that we can always obtain relevant approvals for sending scientific data (such as the results of our preclinical studies or clinical trials conducted within the PRC) abroad or to our foreign partners in the PRC.
In addition, pursuant to the Service Guide for Administrative Licensing Items on the Examination and Approval of Sampling, Collecting, Trading, Exporting Human Genetic Resources, or Taking Such Resources out of the PRC, the sampling, collection or research activities of human genetic resources through clinical trials is required to be submit through applications with the relevant authority for such authority’s review and approval. Furthermore, the Administrative Regulations on Human Genetic Resources of the PRC stipulates that collecting human genetic resources of the PRC’s important genetic families and specific regions, or collecting those human genetic resources in such categories and quantities as prescribed by the administrative department for health under the State Council, preserving the PRC’s human genetic resources and providing the basic platform for scientific research, utilization of the PRC’s human genetic resources for international cooperation in scientific research, as well as transporting the PRC’s materials of human genetic resources abroad shall be subject to the approval of the administrative department for health under the State Council.
If we are unable to obtain necessary approvals or comply with the regulatory requirements in a timely manner, or at all, our R&D of drug candidates may be hindered. If the relevant government authorities consider the transmission of our scientific data or collection and usage of human genetic resources to be in violation of the requirements under applicable PRC laws and regulations, we may be subject to fines and other administrative penalties imposed by those government authorities. Furthermore, it is possible that the regulation may be interpreted and applied in a manner that is inconsistent with our clinical trial practices, potentially resulting in the confiscation of human genetic resources samples and associated data and administrative fines.
Changes in the relations between the PRC and the United States may affect our business, financial condition and results of operations.
Due to our operations in the PRC, our business, results of operations and financial condition may be influenced to a certain degree by changes in government relations between the PRC and the United States or other governments. There is significant uncertainty about the future relationship between the United States and the PRC with respect to trade policies, treaties, government regulations and tariffs.
During the years ended December 31, 2025 and 2024, we directly and indirectly relied on certain overseas suppliers to obtain raw materials, and we have directly and indirectly relied on collaboration with entities in foreign countries and regions in connection with our business operations. We may also pursue partnerships with entities in foreign countries and regions in the future. Our business is therefore subject to changing international economic, regulatory, social and political conditions, and local conditions in foreign countries and regions. As a result, the PRC’s political relationships with those foreign countries and regions may affect development and commercialization of our products, ETUARY®, Etorel® and Contiva®, and product candidates.
Additionally, the PRC’s political relationships with those foreign countries and regions may also affect our current and future relationships with third parties. There can be no assurance that our existing or potential collaborators will not alter their perception of us or their preferences as a result of adverse changes to the state of political relationships between the PRC and the relevant foreign countries or regions, and such alteration may cause a decline in the demand for our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized, and adversely affect our business, financial condition, results of operations, cash flows and prospects.
In July 2021, the PRC government provided new guidance on the PRC-based companies raising capital outside of the PRC, including through arrangements called variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements on the PRC-based companies seeking to register securities with the SEC. Although we do not have a VIE structure, due to our operations in the PRC, any future PRC, U.S. or other rules and regulations that place restrictions on capital raising or other activities by companies with operations in the PRC could affect our business and results of operations. Changes in the state of relations between the PRC and the United States or other governments are difficult to predict and could adversely affect our operations and our business in the PRC and United States.
Changes in U.S. and PRC regulations may impact our business, our operating results and our ability to raise capital.
The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to United States and international relations, and will impact companies with connections to the United States or the PRC, including imposing several rounds of tariffs affecting certain products manufactured in the PRC, imposing certain sanctions and restrictions in relation to the PRC and issuing statements indicating enhanced review of companies with certain operations based in the PRC. It is unknown whether and to what extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any such actions would have on companies with significant connections to the United States or to the PRC, our industry or on us. We conduct research activities and business operations both in the United States and the PRC. Any unfavorable government policies on cross-border relations and/or international trade, including increased scrutiny on companies with certain operations based in the PRC, capital controls or tariffs, may affect the competitive position of our drug product, generic drugs and product candidates, the hiring of scientists and other research and development personnel, the demand for our drug product, the import or export of raw materials in relation to drug development or our ability to raise capital, or prevent us from selling our drug product in certain countries. Since February 2025, the United States government has imposed various tariffs on imports from most countries, including tariffs on imports from the PRC. In September 2025, President Trump announced plans to impose 100% tariffs on imported branded or patented pharmaceuticals, unless the importing company is building U.S. manufacturing capacity, although the effective date of such tariffs has been delayed. Certain major drug producers and manufacturers are in negotiations with the U.S. Presidential Administration to receive relief from such tariffs. As a result of these negotiations, certain manufacturers, such as Pfizer, have announced their participation in a new direct purchasing platform called “TrumpRx.gov,” designed to offer discounts on their products and some specialty brands. Details regarding potential platforms, as well as any potential impact on our business are unclear at this time. It is not yet clear whether these tariffs would apply to the importation of API and possibly bulk drug products that are intended for use in clinical trials and not for commercial sale, which could increase the costs of materials for our clinical trials. There still remains substantial uncertainty about the duration of existing tariffs and whether additional tariffs may be imposed, modified or suspended.
Furthermore, the SEC has issued statements primarily focused on companies with certain operations based in the PRC, such as us. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC, issued a Statement on Investor Protection Related to Recent Developments in the PRC, pursuant to which Chairman Gensler stated that he has asked the SEC staff to engage in targeted additional reviews of filings for companies with certain operations based in the PRC. The statement also addressed risks inherent in companies with VIE structures. We do not have a VIE structure and are not in an industry that is subject to foreign ownership limitations by the PRC. However, it is possible that our periodic reports and other filings with the SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to effectively raise capital in the United States.
In response to the SEC’s July 30, 2021 statement, the CSRC announced on August 1, 2021 that “[i]t is our belief that Chinese and U.S. regulators shall continue to enhance communication with the principle of mutual respect and cooperation, and properly address the issues related to the supervision of the PRC-based companies listed in the U.S. so as to form stable policy expectations and create benign rules framework for the market.” While the CSRC will continue to collaborate “closely with different stakeholders including investors, companies, and relevant authorities to further promote transparency and certainty of policies and implementing measures,” it emphasized that it “has always been open to companies’ choices to list their securities on international or domestic markets in compliance with relevant laws and regulations.”
If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing trade agreements are renegotiated, if the U.S. or the PRC governments take retaliatory actions due to the recent U.S.-PRC tension or if the PRC government exerts more oversight and control over securities offerings that are conducted in the United States, such changes could have an adverse effect on our business, financial condition and results of operations, and our ability to raise capital.
Compliance with the PRC’s laws, regulations and guidelines relating to data security, cybersecurity and privacy and any other future laws and regulations may entail significant expenses and could affect our business.
The PRC has implemented or will implement rules and is considering a number of additional proposals relating to data protection. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in the PRC from transferring data stored in the PRC to foreign law enforcement agencies or judicial authorities without prior approval by the PRC government.
Additionally, the PRC’s Cybersecurity Law and the Administrative Measures for the Hierarchical Protection of Information Security require companies to take certain organizational, technical and administrative measures and other necessary measures to ensure the security of their networks and data stored on their networks. Under the rules, regulations and guidelines relating to the multi-level protection scheme, entities operating information systems must have a thorough assessment of the risks and the conditions of their information and network systems to determine the level of the entity’s information and network systems. These levels range from the lowest Level 1 to the highest Level 5 pursuant to a series of national standards on the grading and implementation of the classified protection of cybersecurity. The grading result will determine the set of security protection obligations that entities must comply with. Entities classified as Level 2 or above should report the grade to the relevant government authority for examination and approval.
Recently, the Cybersecurity Administration of China (“CAC”) has taken action against several PRC internet companies in connection with their initial public offerings on U.S. securities exchanges for alleged national security risks and improper collection and use of the personal information of PRC data subjects. According to the official announcement, the action was initiated based on the National Security Law, the Cyber Security Law and the Cybersecurity Review Measures, which are aimed at “preventing national data security risks, maintaining national security and safeguarding public interests.”
Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators procuring network products and services, and online platform operators (as opposed to “data processors” in the Revised Draft CAC Measures) carrying out data processing activities which affect or may affect national security, shall conduct a cybersecurity review pursuant to the provisions therein. In addition, online platform operators possessing personal information of more than one million users seeking to be listed on foreign stock markets must apply for a cybersecurity review.
On September 24, 2024, the State Council of the PRC published the Network Data Regulations, which became effective on January 1, 2025. The Network Data Regulations provide detailed implementing rules and guidance on various aspects of data compliance requirements under the existing data protection framework pillars of the Cybersecurity Law, the PRC Data Security Law and the PRC Personal Information Protection Law. The Network Data Regulations supplement the requirements on several aspects of the PRC Personal Information Protection Law regarding notification, consent, and the exercise of personal rights, provide more detail on compliance requirements for processors of important data, and also provide more guidance to streamline cross-border data transfers.
As of the date of this Annual Report, we have not received any notice from any PRC regulatory authority identifying us as a “critical information infrastructure operator,” “online platform operator” or “data processor,” or requiring us to go through the cybersecurity review procedures pursuant to the Cybersecurity Review Measures and Regulation on Network Data Security Management (the “Network Data Regulations”). Based on our understanding of the Cybersecurity Review Measures, and the Network Data Regulations, we believe it is unlikely that they will become subject to cybersecurity review by the CAC for issuing securities to foreign investors because: (i) the clinical and preclinical data we handle in our business operations, either by its nature or in scale, do not normally trigger significant concerns over PRC national security and (ii) we have not processed, and do not anticipate to process in the foreseeable future, personal information for more than one million users or persons. However, there remains uncertainty as to how the Cybersecurity Review Measures, and the Network Data Regulations, if enacted as currently proposed, will be interpreted or implemented. Furthermore, there remains uncertainty as to whether the PRC regulatory authorities may adopt new laws, regulations, rules, or detailed implementation and interpretation in relation, or in addition, to the Revised CAC Measures and the Draft Management Regulations. While we intend to closely monitor the evolving laws and regulations in this area and take all reasonable measures to mitigate compliance risks, we cannot guarantee that our business and operations will not be adversely affected by the potential impact of the Cybersecurity Review Measures, the Network Data Regulation or other laws and regulations related to cybersecurity, privacy and data security.
Furthermore, the Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in the PRC, and the processing of personal information of persons in the PRC outside of the PRC if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in the PRC. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by PRC cyberspace regulators are also required to store in the PRC personal information generated or collected in the PRC, and to pass a security assessment administered by PRC cyberspace regulators for any export of such personal information. Lastly, the Personal Information Protection Law contains proposals for significant fines for seriousviolations of up to approximately $7.2 million or 5% of annual revenues from the prior year and may also be ordered to suspend any related activity by competent authorities. We do not maintain, nor do we intend to maintain in the future, personally identifiable health information of patients in the PRC.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. Compliance with the PRC’s new Cyber Security Law and Data Security Law could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by the Cyber Security Law, the Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by PRC government authorities and private claims or litigation, any of which could adversely affect our business, financial condition and results of operations. Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and results of operations. Moreover, the legal uncertainty created by the Data Security Law, the Cybersecurity Review Measures and the recent PRC government actions could adversely affect our ability, on favorable terms, to raise capital.
Restrictions on currency exchange, including the risks of transferring cash outside of the PRC, may limit Gyre Pharmaceuticals’ ability to receive and use effectively financing in foreign currencies or Gyre Therapeutics’ ability to transfer cash from Gyre Pharmaceuticals or other potential investors in the PRC.
Gyre Pharmaceuticals’ ability to obtain currency exchange is subject to significant foreign exchange controls and, in the case of transactions under the capital account, requires the approval of and/or registration with PRC government authorities, including the SAFE. In particular, if Gyre Pharmaceuticals finances by means of foreign debt from BJContinent Pharmaceuticals Limited or other foreign lenders, the amount is not allowed to, among other things, exceed the statutory limits and such loans must be registered with the local branch of SAFE. If Gyre Pharmaceuticals finances by means of additional capital contributions, these capital contributions are subject to registration with the State Administration for Market Regulation or its local branch, reporting of foreign investment information with the MOFCOM or its local branch, or registration with other governmental authorities in the PRC.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC-based entities by offshore holding companies, there can be no assurance that Gyre Pharmaceuticals will be able to complete the necessary government requirements or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans or capital contributions by Gyre Pharmaceuticals. If Gyre Pharmaceuticals fails to adhere to such requirements or obtain such approval, Gyre Pharmaceuticals’ ability to capitalize or otherwise fund Gyre Pharmaceuticals’ PRC operations, including Gyre Pharmaceuticals’ technology development may be negatively affected, which could materially and adversely affect Gyre Pharmaceuticals’ ability to fund and expand Gyre Pharmaceuticals’ business.
Gyre Therapeutics may not be able to transfer funds out of Gyre Pharmaceuticals, or Gyre Therapeutics might face difficulties in transferring funds from investors in the PRC should Gyre Therapeutics decide to solicit investments from investors in the PRC, in a timely manner due to restrictions imposed by the PRC authorities.
PRC regulations relating to the establishment of offshore special purpose companies by residents in the PRC may subject our PRC resident beneficial owners in the PRC to liability or penalties, or may otherwise adversely affect us.
The Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles (“SAFE Circular 37”) requires residents of the PRC to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by residents of the PRC in the offshore special purpose vehicles or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible bonds or other arrangements. SAFE Circular 37 further requires amendment to the registration in the event of any changes with respect to the basic information of or any significant changes with respect to the special purpose vehicle, such as an increase or decrease in capital contributed by PRC residents, share transfer or exchange, merger, division or other material events. If the shareholders of the offshore holding company who are residents of the PRC do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited from making distributions of profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore parent company and from carrying out subsequent cross-border foreign exchange activities, and the offshore parent company may be restricted in its ability to contribute additional capital into its PRC subsidiaries. Moreover, failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign exchange restrictions.
Certain residents of the PRC may hold direct or indirect interests in our company, and we will request residents of the PRC who we know hold direct or indirect interests in our company, if any, to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules. However, we may not at all times be fully aware or informed of the identities of our stockholders or beneficial owners that are required to make such registrations, and we cannot provide any assurance that these residents will comply with our requests to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37 or other related rules. The failure or inability of our PRC resident stockholders to comply with the registration procedures set forth in these regulations may subject us to fines or legal sanctions, restrictions on our cross-border investment activities. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.
Any failure to comply with PRC regulations regarding the registration requirements for our employee equity incentive plans may subject us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results of operations.
Pursuant to the Stock Option Rules and other relevant rules and regulations, PRC citizens or non-PRC citizens residing in the PRC for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain procedures. Our employees who are PRC citizens or who are non-PRC citizens but reside in the PRC for a continuous period of not less than one year and who participate in our stock incentive plans will be subject to such regulation. We plan to assist our employees to register their equity awards. However, any failure of PRC individual beneficial owners and holders of equity awards under our stock incentive plans to comply with the SAFE registration requirements may subject them to fines and legal sanctions.
Since Gyre Pharmaceuticals is a legal entity registered in Beijing, PRC, it is classified as a PRC tax resident for PRC income tax purposes by default, and such classification results in unfavorable tax consequences to Gyre Pharmaceuticals and its non-PRC shareholders.
Under Article 2 of the PRC Enterprise Income Tax Law, a resident enterprise is an enterprise that is established within the territory of the PRC or an enterprise established with a “de facto management body” within the PRC.
Gyre Pharmaceuticals is a PRC tax resident for PRC tax purposes by default because it is a legal entity registered in Beijing, PRC. Because Gyre Pharmaceuticals is a PRC tax resident for PRC enterprise income tax purposes, Gyre Pharmaceuticals is subject to PRC tax at a rate of 25% on its world-wide income, which materially reduces Gyre Pharmaceuticals’ net income. In addition, Gyre Pharmaceuticals is also subject to PRC tax resident income tax reporting obligations.
Gyre Pharmaceuticals and its shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or other assets attributable to a PRC establishment of a non-PRC company.
The PRC tax authorities have strict scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing Notice of Ministry of Finance and State Administration of Taxation (“SAT”) on Several Issues relating to Treatment of Corporate Income Tax Pertaining to Restructured Business Operations of Enterprises (“Circular 59”), as amended and supplemented by the Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Enterprise Income Tax Treatment for Promoting Enterprise Restructuring, and the Bulletin on Issues of Enterprise Income Tax and Indirect Transfers of Assets by Non-PRC Resident Enterprises (“Bulletin 7”), as amended and supplemented by the relevant SAT rules including but not limited to the Bulletin on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises (“Bulletin 37”). Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax.
According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in the PRC, immoveable properties located in the PRC, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, factors to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in the PRC or if its income mainly derives from the PRC; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the income tax payable overseas for the transaction of indirect transfer of taxable assets in PRC; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immoveable properties located in the PRC or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of sale and acquisition of shares by non-resident enterprise through a public stock exchange.
Bulletin 7 may be determined by the tax authorities to be applicable to some of Gyre Pharmaceuticals’ offshore restructuring transactions or sales of the shares of Gyre Pharmaceuticals’ offshore holding companies or investments where PRC taxable assets are involved. The transferors and the transferees may be subject to tax filing or withholding and tax payment obligations, while Gyre Pharmaceuticals may be requested to assist in such filings. Furthermore, the transferors or the transferees (as withholding agent) may be required to spend valuable resources to comply with Bulletin 7 or to establish that the transferors should not be taxed under Bulletin 7, for Gyre Pharmaceuticals’ previous and future restructuring or disposal of shares of Gyre Pharmaceuticals’ offshore subsidiaries. The PRC tax authorities have the discretion under Bulletin 7 to adjust the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities adjust the taxable income of the transactions under Bulletin 7, income tax costs on the transferor side associated with such potential acquisitions or disposals will increase.
Gyre Pharmaceuticals faces uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in Gyre Pharmaceuticals by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request Gyre Pharmaceuticals to assist in the filing. As a result, non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 or Bulletin 7 and Bulletin 37, and may be required to expend valuable resources to comply with Circular 59, the applicable SAT rules, or to establish that its non-resident enterprises should not be taxed under the relevant rules.
The PRC tax authorities have the discretion under these applicable rules to adjust the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although Gyre Pharmaceuticals currently has no plans to pursue any acquisitions in the PRC or elsewhere in the world, Gyre Pharmaceuticals may pursue acquisitions in the future that may involve complex corporate structures. Because Gyre Pharmaceuticals is a PRC tax resident by default, and if the PRC tax authorities adjust the taxable income of the transactions under Circular 59 or Bulletin 7 and Bulletin 37, Gyre Pharmaceuticals’ income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on Gyre Pharmaceuticals’ financial condition and results of operations.
The enacted “Holding Foreign Companies Accountable Act” and the “Accelerating Holding Foreign Companies Accountable Act” call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the Public Company Accounting Oversight Board. These developments could add uncertainties to the market for our common stock.
The Holding Foreign Companies Accountable Act (the “HFCAA”) requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board (the “PCAOB”) is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trading on a national exchange or through other methods. In December 2022, the Accelerating Holding Foreign Companies Accountable Act amended the HFCAA by decreasing the number of non-inspection years from three to two, thus reducing the time period before our common stock may be prohibited from trading or delisted if the PCAOB were to determine that it could not inspect our auditor.
In March 2021, the SEC adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the HFCAA. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. In December 2021, the SEC adopted amendments finalizing such rules to require that any such identified registrant is required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and is also required to disclose in the registrant’s annual report the audit arrangements of, and governmental influence on, such a registrant.
In December 2021, the PCAOB issued a Determination Report which found that the PCAOB was then unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the PRC, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. The PCAOB has made such designations as mandated under the HFCAA. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future.
In August 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in mainland China and Hong Kong. Pursuant to the Protocol, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. In December 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. While vacating those determinations, the PCAOB noted that, should it encounter any impediment to conducting an inspection or investigation of auditors in mainland China or Hong Kong as a result of a position taken by any authority there, the PCAOB will consider the need to issue a new determination. Notwithstanding the foregoing, if the PCAOB is not able to inspect and investigate completely our auditor’s work papers in China, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities may be prohibited under the HFCAA.
Our auditor, Grant Thornton Zhitong Certified Public Accountants LLP, an independent public accounting firm registered with the PCAOB, and an auditor of publicly traded companies in the U.S., is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is headquartered in mainland China and was inspected by the PCAOB for the first time in July 2024 and was identified as a firm subject to the determinations announced by the PCAOB in December 2021. Should the PCAOB be unable to fully conduct inspection of our auditor’s work papers in mainland China, it will make it difficult to evaluate the effectiveness of our auditor’s audit procedures or equity control procedures. Investors may consequently lose confidence in our reported financial information and procedures or quality of the financial statements, which would adversely affect us and our securities. Moreover, if trading in our securities is prohibited under the HFCAA in the future because the PCAOB determines that it cannot inspect or fully investigate our auditor at such future time, if our securities were then traded on an exchange, that exchange may determine to delist our securities.
Risks Related to Commercialization of Our Product and Product Candidates
Many of our product candidates are years away from regulatory approval.
Our development candidates are not expected to be commercially available for several years, if at all. Further, the commercial success of product candidates will depend upon its acceptance by physicians, individuals, third-party payors and other key decision-makers as a therapeutic and cost-effective alternative to products available at the time, which may include competing products currently under development by others. See the risk factor titled “— We face substantial competition that may result in others discovering, developing or commercializing products before or more successfully than we do .” If we are unable to successfully develop, obtain regulatory approval in a timely manner (including due to reasons that are beyond our control, such as changes in regulations or a shutdown of the federal government, including the FDA) and commercialize our development candidates, our ability to generate revenue from product sales with respect to any product candidates that ultimately obtain approval may be delayed and our business, growth and financial prospectus may be materially and adversely affected.
For instance, no anti-fibrosis product for the treatment of PD has been approved in the PRC. Although ETUARY® is approved in the PRC for the treatment of IPF, we cannot be certain that the NMPA, FDA or other comparable regulatory authority will approve ETUARY® for the treatment of other indications, such as PD.
In addition, the regulatory authorities in the PRC, United States and the EU have not approved any products for the treatment of MASH, and while there are guidelines issued by the NMPA and FDA for the development of drugs for the treatment of MASH and an NMPA and FDA surrogate endpoint table for drug approval, respectively, it is unclear whether the requirements for approval will change in the future or whether the NMPA or FDA will rely on regulatory precedent for future regulatory approvals. Any such changes may require us to conduct new trials that could delay our timeframe and increase the costs of our programs related to Hydronidone or any future product candidate for the treatment of MASH. In addition, we cannot be certain which efficacy endpoints or presentation thereof clinical or regulatory agencies may require in a Phase 3 clinical trial of MASH or for approval of our product candidates.
Even if the NMPA, FDA or other regulatory agency approves our product candidates, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product and may impose ongoing commitments or requirements for post-approval studies, including additional research and development and clinical trials. The NMPA, FDA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.
Regulatory approval from authorities in foreign countries will be needed to market our product candidates in those countries. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. For example, ETUARY® is approved for the treatment of pulmonary fibrosis in the PRC but may not be approved in any other jurisdiction, such as the United States, for such indication. If we fail to obtain approvals from foreign jurisdictions, the geographic market for our product candidates would be limited.
We face substantial competition that may result in others discovering, developing, commercializing or marketing products, including our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, before or more successfully than we do.
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies, and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Although there is one approved therapeutic drug treatment for liver fibrosis in the United States, several companies are developing product candidates in clinical studies. For details, see “ —Business—Market Overview of Pipeline Products ” in this Annual Report.
We face competition with respect to our current product, generic drugs and product candidates and will face competition with respect to any future product candidates from segments of the pharmaceutical, biotechnology and other related industries that pursue targeted therapies for patients with organ fibrosis, such as IPF, MASH, PD, DKD, ALF/ACLF or COPD. If ETUARY®, Hydronidone, F573, F528, F230, or our future product candidates do not offer sustainable advantages over competing products, we may not be able to successfully compete against current and future competitors.
Our competitors may obtain regulatory approval of their products more rapidly than we may or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile than our products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and future products, if approved and commercialized, and these competitors may also be more successful than us in manufacturing and marketing their products.
Our commercial opportunity in different indications could be reduced or eliminated if competitors develop and market products or therapies that are more convenient to use, more effective, less expensive, and safer to use than our products, ETUARY®, Etorel® and Contiva®, and future products, if approved and commercialized. Furthermore, if competitors gain NMPA, FDA or other foreign regulatory authority approval earlier than we do, we may be unable to establish a strong market presence or to gain market share. The key competitive factors affecting the success of all our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition, and the availability of reimbursement from government and other third-party payors. Our product candidates, if any are approved, may compete with these existing drug and other therapies but may not be competitive with them in price. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic, including branded generic, products. As a result, obtaining market acceptance of, and gaining significant share of the market for, any of our product candidates that we successfully introduce to the market will pose challenges.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and individual registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our commercialized products, ETUARY®, Etorel® and Contiva®, which are approved and commercialized by us in the PRC, and any other future product, if approved and commercialized, may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives that would harm our business.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we may obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
United States
Our ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for certain medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for any product that we or our collaborators commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Reimbursement may affect the demand for, or the price of, any product candidate that receives marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmaco-economic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
PRC
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the NMPA, FDA or similar regulatory authorities outside the PRC and United States. Moreover, eligibility for reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers its costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover its costs and may not be made permanent.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the PRC or United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that they develop could have a material adverse effect on our operating results, ability to raise capital needed to commercialize products and overall financial condition.
Moreover, our marketed product, ETUARY®, is subject to the risk of being included in the PRC’s centralized volume-based procurement scheme. For details, see “ —In the future, the policies of centralized volume-based procurement set by the PRC government may cover our commercialized product, ETUARY®, and any other future products, if approved and commercialized, and the prices of such product may decrease, which in turn may have a material adverse impact on our revenue, financial condition and results of operation ” in this Risk Factors section.
The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products in the United States and decrease our ability to generate revenue.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments in the United States. Sales of our product candidates will depend substantially, both domestically in the United States and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Risks Related to Our Common Stock
The market price of our common stock has been, and may continue to be, volatile.
The market price of our common stock could be subject to significant fluctuations. Some of the factors that may cause the market price of our common stock to fluctuate include:
timing and results of INDs, preclinical studies and clinical trials of our product candidates, or those of our competitors or our existing or future collaborators;
the success of competitive products or announcements by potential competitors of their product development efforts;
failure to meet or exceed financial and development projections we may provide to the public;
failure to meet or exceed the financial and development projections of the investment community;
announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors;
actions taken by regulatory agencies with respect to our product, product candidates, clinical studies, manufacturing process or sales and marketing terms;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
additions or departures of key personnel;
lawsuits, including patent or stockholder litigation;
if securities or industry analysts do not publish research or reports about our business, or if they issue adverse or misleading opinions regarding our business and stock;
changes in the market valuations of similar companies;
geo-political developments, general market or macroeconomic conditions including inflation and interest rates;
market conditions in the pharmaceutical and biotechnology sectors;
changes in the structure of healthcare payment systems;
announcement of expectation of additional financing efforts;
sales of securities by us or our securityholders in the future;
if we fail to raise an adequate amount of capital to fund our operations and continued development of our product candidates;
trading volume of our common stock;
publicity or announcements by competitors of new commercial products, clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments;
the impact of any natural disasters or public health emergencies;
the introduction of technological innovations or new products or product candidates that compete with our products, ETUARY®, Etorel® and Contiva®, and product candidates and our services; and
period-to-period fluctuations in our financial results.
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock. In addition, macroeconomic conditions, a recession, depression or other sustained adverse market event, or otherwise could materially and adversely affect our business and the value of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigationagainst such companies. Furthermore, market volatility may lead to increased shareholder activism if we experience a market valuation that activists believe is not reflective of our intrinsic value. Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our board of directors could have an adverse effect on our operating results and financial condition.
Fluctuations in operating results could adversely affect the price of our common stock.
Our operating results are likely to fluctuate significantly from quarter to quarter and year to year. These fluctuations could cause our stock price to decline. Some of the factors that may cause operating results to fluctuate on a period-to-period basis include the scope, progress, duration results and costs of preclinical and clinical development programs, as well as non-clinical studies and assessments of product candidates and programs, restructuring costs, implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, non-recurring revenue or expenses under any such agreement, the cost, timing and outcomes of regulatory compliance, approvals or other regulatory actions, the likelihood of regulatory approval, failure of regulators to grant regulatory approval and general and industry-specific economic conditions, particularly as it affects the pharmaceutical, biopharmaceutical or biotechnology industries in the PRC or United States. Period-to-period comparisons of our historical and future financial results may not be meaningful, and investors should not rely on them as an indication of future performance. Fluctuating losses may fail to meet the expectations of securities analysts or investors. Failure to meet these expectations may cause the price of our common stock to decline.
Sales of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress the market price of our common stock.
Our current trading volumes are modest, and sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could cause the market price to decline. Any additional sales in the public market of our common stock or other securities under these shelf registration statements could adversely affect prevailing market prices for our common stock. In addition, we have outstanding options to purchase 19,483,378 shares of common stock at a weighted average exercise price of $3.09 as of December 31, 2025. If such options are exercised and the shares are sold into the open market, such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Conversion or exercise of these securities into shares of our common stock will cause dilution to the other holders of our common stock, and all such stock may be sold in the public market after conversion or exercise, subject to restrictions under the securities laws, which may lead to a decline in the market price of our common stock.
Provisions in our certificate of incorporation and bylaws and provisions under Delaware law could make an acquisition of the Company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our management.
Provisions that will be included in our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control of the Company that stockholders may consider favorable, including transactions in which our common stockholders might otherwise receive a premium price for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors will be responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions will:
continue the use of a classified board of directors such that not all members of our board of directors are elected at one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from our board of directors;
provide for advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and for nominations to our board of directors;
limit who may call stockholder meetings;
limit actions by our stockholders by written consent;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
require the approval of the holders of at least two-thirds of the votes that all stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which generally prohibits a person who, together with their affiliates and associates, owns 15% or more of the company’s outstanding voting stock from, among other things, merging or combining with the company for a period of three years after the date of the transaction in which the person acquired ownership of 15% or more of the company’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our certificate of incorporation and bylaws generally provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our certificate of incorporation and bylaws provide that, unless the company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the sole and exclusive forum for the following types of proceedings: (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, employees or stockholders to the company or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (4) any action asserting a claim arising pursuant to any provision of our restated certificate of incorporation or our bylaws (in each case, as they may be amended from time to time) or that is governed by the internal affairs doctrine. This choice of forum provision will not apply to suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
This exclusive forum provision may make it more expensive for stockholders to bring a claim than if the stockholders were permitted to select another jurisdiction and may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees or stockholders, which may discourage such lawsuits against us and our directors, officers and other employees and stockholders. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations.
We do not anticipate that we will pay any cash dividends in the foreseeable future.
The current expectation is that we will retain our future earnings, if any, to fund the growth of our business as opposed to paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain, if any, for the foreseeable future.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that equity research analysts publish about us and our business. Lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which in turn could cause our stock price or trading volume to decline.
General Risk Factors
Our ability to utilize our net operating loss carryforwards and tax credit carryforwards may be subject to limitations.
As of December 31, 2025, after consideration of certain limitations (see below), we had approximately $193.3 million federal and $21.7 million state net operating loss carryforwards. Under Section 382 and Section 383 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change net operating losses (“NOLs”) and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. A Section 382 “ownership change” is generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. We have experienced several ownership changes. Approximately $156.5 million and $75.2 million of the NOLs will expire unutilized for federal and California state income tax purposes, respectively. We may experience ownership changes in the future due to subsequent shifts in our stock ownership (some of which are outside of our control).
In addition, our ability to use our NOLs to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs.
Even if we achieveprofitability, we may not be able to utilize a material portion of our NOLs and other tax attributes, which could have a material adverse effect on cash flow and results of operations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
Changes in tax laws or in their implementation may adversely affect our business and financial condition.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes in tax law may adversely affect our business or financial condition or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law. Prospective investors should consult their tax advisors regarding the potential consequences of changes in tax law on our business and on the ownership and disposition of our common stock.
We are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. Our stockholders do not have the same protections afforded to stockholders of companies that are subject to such requirements.
The GNI Parties control a majority of the voting power of our outstanding common stock. As a result, we qualify as a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a listed company of which more than 50% of the voting power with respect to the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that (i) a majority of our board of directors consist of independent directors, (ii) director nominees be selected or recommended to our board of directors entirely by independent directors and (iii) our compensation committee be composed entirely of independent directors.
We rely on these exemptions. As a result, we do not have a majority of independent directors, director nominees are not selected or recommended to our board of directors by entirely independent directors and our compensation committee does not consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. In the event we cease to be a "controlled company" and our shares continue to be listed on Nasdaq, we will be required to comply with these provisions within the applicable transition periods.
Our executive officers, directors and principal stockholders have the ability to control or significantly influence all matters submitted to our stockholders for approval.
As of December 31, 2025, our executive officers, directors and principal stockholders, in the aggregate, beneficially owned a majority of our outstanding common stock. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire.
We may be exposed to increased litigation, including stockholder litigation, which could have an adverse effect on our business and operations.
We may from time to time become subject to various litigation, legal or contractual disputes, investigations or administrative proceedings arising in the ordinary course of our business, including, but not limited to, various disputes with or claims from our suppliers, customers, contractors, licensors, business partners and other third parties that we engage for our business operation. Such litigation may have an adverse impact on our business and results of operations or may cause disruptions to our operations. In addition, in the past, stockholders have initiated class action lawsuits against biotechnology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.
If any verdict or award is rendered against us or if we agree to settle with an adverse party, we could be required to pay significant monetary damages, assume other liabilities and/or suspend or terminate the related business projects. Negative publicity arising from litigation, legal disputes, investigations or administrative proceedings may damage our reputation and adversely affect the image of our brands and products.
We may be subject to product liability claims that could expose us to costs and liabilities.
We are exposed to product liability risks as a result of developing, producing, marketing, promoting and selling pharmaceutical products in the PRC, United States and other jurisdictions. Such claims may arise if our products, ETUARY®, Etorel® and Contiva®, and future products, if approved, are deemed or proven to be unsafe, ineffective, defective or contaminated, or if we are alleged to have engaged in practices such as insufficient or improper labeling of products or providing inadequate, insufficient or misleadingwarnings or disclosures regarding side effects. A product liability claim brought against us may, regardless of merit or outcome, result in reputational harm and strain on financial resources and may consume the time and attention of our management. If we are unable to successfullydefend itself against such claims, we may, among others, be subject to product recalls, civil liability for physical injury, death or other losses caused by our products, ETUARY®, Etorel® and Contiva®, and future products, if approved, criminal liability and the revocation of our business licenses. PRC laws and regulations currently do not require us to, and we do not, maintain liability insurance to cover product liability claims. As a result, we may not be able to recover our losses resulting from future product liability claims.
Breach, failure or disruption in or to our information system could compromise sensitive information related to our business and expose us to liability or reputational harm, and our ability to effectively manage our business operations could be adversely affected.
Our information systems may fail and are subject to risks of breakdown, breach, interruption or damage from computer viruses, ransomware and other cyber-attacks, computer hackers, malicious code, employee error or malfeasance, theft or misuse, denial-of-service attacks, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war, telecommunication and electrical failures or other compromise. Any system damage or failure that interrupts data input, retrieval or transmission or increases service time could disrupt our normal operations, including the loss of clinical trial data from completed or future clinical trials. Loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. There can be no assurance that we will be able to effectively handle a failure of our information systems, or that we will be able to restore our operational capacity in a timely manner or at all to avoid disruption to our business. Further, cybersecurity breaches or other cybersecurity incidents may allow hackers access to our preclinical compounds, strategies, discoveries, trade secrets, and/or other confidential information. Additionally, sensitive data could be leaked, disclosed, or revealed as a result of or in connection with our employees’, personnel’s, vendors’ or partners’ use of generative AI technologies. To the extent that any disruption or cybersecurity incident were to result in a loss of, or damage to, our data or applications, or inappropriate use, disclosure of or access to confidential or proprietary information, we could incur liability, including under laws and regulations governing the protection of PHI and other personal data, our competitive position could be harmed and the further development and commercialization of our products, ETUARY®, Etorel® and Contiva®, and product candidates could be hindered or delayed. The risk of a cybersecurity incident or other informational technology disruption, particularly through cyber-attacks, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
We may collect and store sensitive personal data in the ordinary course of our business. For details, see “ —Risks Related to Our Business Operations in the PRC—Compliance with the PRC’s laws, regulations and guidelines relating to data security, cybersecurity and privacy and any other future laws and regulations may entail significant expenses and could affect our business ” in this Risk Factors section. If personal data are compromised due to a material breach of our information, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged. We could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations.
You may have difficulty enforcing judgments obtained against us.
Substantially all of our assets are located outside of the United States. Most of our operations and administrative and corporate functions are conducted in the PRC. In addition, several of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, due to the lack of reciprocity and treaties between the United States and some of these foreign jurisdictions, together with cost and time constraints, it may be difficult for you to effect service of process within the United States upon these persons. In particular, several of our officers and directors are generally located in the PRC, and it will be more difficult to enforce liabilities and enforce judgments on those individuals.
If we fail to maintain proper and effective internal controls over financial reporting our ability to produce accurate and timely financial statements could be impaired.
Pursuant to Section 404(a) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), our management is required to report upon the effectiveness of our internal control over financial reporting. Beginning with our annual report for our fiscal year ending December 31, 2024, we became an “accelerated filer.” As an “accelerated filer,” Section 404(b) of the Sarbanes-Oxley Act requires our independent auditors to express an opinion on our internal control over financial reporting. Ensuring that we have adequate internal controls in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. If we are unable to maintain effective internal control over financial reporting, we may not have adequate, accurate or timely financial information, our independent registered public accounting firm may issue a report that is adverse, and we may be unable to meet our reporting obligations as a public company or comply with the requirements of the SEC or the Sarbanes-Oxley Act. This could result in a restatement of our financial statements, the imposition of sanctions, including the inability of registered broker dealers to make a market in our common stock, or investigation by regulatory authorities. Any such action or other negative results caused by our inability to meet our reporting requirements or comply with legal and regulatory requirements or by disclosure of an accounting, reporting or control issue could adversely affect the trading price of our securities and our business. To achieve compliance with Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. This process will be time-consuming, costly and complicated.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
We may identify material weaknesses or significant deficiencies in our internal control over financial reporting in the future or fail to maintain effective internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting.
Remediation measures to remediate a material weakness or significant deficiency may be time consuming, may result in us incurring significant costs, and may place significant demands on our financial and operational resources.
Our failure to identify and address any material weaknesses or significant deficiencies that may be identified in the future could result in material misstatements to our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis, which could cause investors to lose confidence in our reported financial information, which may result in volatility in and a decline in the market price of our securities.
Item 1B. UNRESOL VED STAFF COMMENTS.
None.
Item 1C. CYBERSECURITY.
We strive to safeguard our important data, hardware, and internal network from digital attacks, theft and damage. In the ordinary course of our business, we collect, use, store, and digitally transmit confidential, sensitive, proprietary, and personal information. The secure maintenance of this information and our information technology systems is important to our operations and business strategy. To this end, we have implemented processes designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity, and availability of these systems and the data residing therein. At Gyre Therapeutics, these processes are managed and monitored by a third-party information technology (“IT”) consulting company (the “Managed Service Provider”) and are overseen by our Chief Financial Officer. At Gyre Pharmaceuticals, these processes are managed and monitored by a dedicated Information Security team, which is led by the General Manager. Gyre Therapeutics’ and Gyre Pharmaceuticals’ processes include mechanisms, controls, technologies, systems, and other processes designed to prevent or mitigate data loss, theft, misuse, or other security incidents or vulnerabilities affecting the data. In the process of advancing the systematic development of information security, we seek to maintain a robust approach that encompasses policy formulation, organizational structuring, technological application enhancement, process optimization, and personnel training. For example, Gyre Therapeutics and Gyre Pharmaceuticals maintain software and hardware inventories, perform security monitoring and alerting, and complete ongoing risk assessments. Gyre Therapeutics and Gyre Pharmaceuticals also conduct regular employee trainings on cyber and information security, among other topics. In addition, both companies consult with outside advisors and experts on a regular basis to assist with assessing, identifying, and managing cybersecurity risks, including to anticipate future threats and trends, and their impact on the Company’s risk environment.
Our Chief Financial Officer, who reports directly to our Chief Executive Officer, is responsible for assessing and managing Gyre Therapeutics’ cybersecurity risks with support from the Managed Service Provider, which employs IT consultants with over 20 years of experience managing information technology and cybersecurity matters and are certified as Microsoft Certified Systems Engineers. Our Gyre Pharmaceuticals information security team, who reports to the Secretary of the General Manager at Gyre Pharmaceuticals, comprises of four employees with an average of 20 years of experience managing information technology and cybersecurity matters. The Secretary of the General Manager reports to the General Manager at Gyre Pharmaceuticals, and the General Manager reports to the Board of Directors and is responsible for assessing and managing Gyre Pharmaceuticals’ cybersecurity risks. We consider cybersecurity, along with other significant risks that we face, within our overall enterprise risk management framework. Since the beginning of the last fiscal year, we have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, but we face certain ongoing cybersecurity risks that, if realized, are reasonably likely to materially affect us. Additional information on cybersecurity risks we face is discussed in Part I, Item 1A, “Risk Factors,” under the heading “Breach, failure or disruption in or to our information system could compromise sensitive information related to our business and expose us to liability or reputational harm, and our ability to effectively manage our business operations could be adversely affected.”
The Board of Directors, as a whole and at the committee level, has oversight for the most significant risks facing us and for our processes to identify, prioritize, assess, manage, and mitigate those risks. The Audit Committee, which is comprised solely of independent directors, has been designated by our Board to oversee cybersecurity risks. The Audit Committee receives regular updates on cybersecurity and information technology matters and related risk exposures from our management team. The Board also receives updates from management and the Audit Committee on cybersecurity risks on at least an annual basis.
advancement
late
On March 2, 2026, we entered into the Merger Agreement with Cullgen and Merger Sub, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Cullgen, with Cullgen continuing as a wholly owned subsidiary of Gyre and the surviving corporation of the Merger. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
The consummation of the Merger is subject to certain closing conditions, including, among other things, (1) approval by the requisite Cullgen stockholders of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, and (2) a filing under the HSR Act.
There can be no assurances that the Merger will be successfully consummated, and the intended benefits of the Merger may not be realized.
Our Commercial Portfolio
ETUARY® (pirfenidone)
Pirfenidone is a small-molecule anti-fibrotic therapy for the treatment of IPF. It was first approved in Japan and subsequently approved in the PRC, the EU, and the United States. These approvals were obtained by different sponsors in their respective jurisdictions under separate regulatory frameworks.
In the PRC, we conducted independent research and development to support our regulatory submission and received first-in-class approval in 2011 as a National Category 1.1 New Drug. We commercialized pirfenidone under the brand name ETUARY®, which was included in the NRDL in 2017 and has since maintained a leading market position.
In addition to IPF, we are pursuing potential label expansion into additional indications in the PRC, including PD, for which, in 2025, we completed enrollment of 272 patients in our 52-week Phase 3 trial, and RILI, including cases with or without immune-related pneumonitis, for which the NMPA approved our clinical trial application in March 2025, and we expect to initiate an adaptive Phase 2/3 study in the first half of 2026.
Etorel® (nintedanib esilate soft capsules)
In May 2024, Gyre Pharmaceuticals entered into a comprehensive agreement with Jiangsu Wangao Pharmaceuticals Co., Ltd. to obtain the drug registration certificate for Etorel® (nintedanib) and become the marketing authorization holder in the PRC. Etorel® is approved as a standard-of-care therapy for IPF, SSc-ILD, and PF-ILD. The addition of Etorel® to our commercial portfolio expanded treatment options for patients and strengthened Gyre’s leading position in the pulmonary fibrosis market. Commercialization of Etorel® in the PRC commenced in June 2025.
On November 7, 2025, the NHSA released the Announcement of the Winning Bids for the National Centralized Drug Procurement , under which Etorel® was selected. As of the filing date, we are in the process of entering into procurement contracts with various participating hospitals under the National Centralized Drug Procurement program. We are currently assessing the potential impact of this development on its future operating performance.
Contiva® (avatrombopag maleate tablets)
In June 2021, Gyre Pharmaceuticals acquired avatrombopag maleate tablets pursuant to a transfer agreement with Nanjing Healthnice Pharmaceutical Technology Co., Ltd. Avatrombopag is an oral thrombopoietin receptor agonist. In June 2024, the NMPA approved avatrombopag maleate tablets for the treatment of TP associated with CLD in adult patients undergoing elective diagnostic procedures or therapy. In January 2025, the NMPA approved an additional indication for chronic ITP. Gyre Pharmaceuticals commenced commercialization of avatrombopag under the brand name Contiva® in the PRC in March 2025.
Our Product Candidate Pipeline
Hydronidone
Hydronidone is our lead development candidate for the treatment of liver fibrosis. It is a structurally modified derivative of pirfenidone designed to optimize metabolic properties while targeting the TGF-β1 signaling pathway, a key mediator of fibrogenesis. We are developing Hydronidone for two primary indications: CHB-associated liver fibrosis in the PRC and MASH-associated liver fibrosis in the United States. Hydronidone represents our primary liver-focused development program and reflects our commitment to advancing therapies targeting both viral- and metabolic-associated liver fibrosis.
CHB-Associated Liver Fibrosis (PRC)
For CHB-associated liver fibrosis, antiviral therapy may suppress viral infection but is not able to prevent, slow or reverse fibrosis progression, and anti-fibrotic treatment is recommended for intermediate and advanced liver fibrosis and early-stage cirrhosis. As of December 31, 2025, no small molecule or biologic drugs treating CHB-associated liver fibrosis have been approved globally. In recognition of the severity of the disease and the preliminary clinical evidence generated to date, the CDE of the NMPA granted Hydronidone Breakthrough Therapy designation in March 2021.
We conducted a Phase 3 randomized, double-blind, placebo controlled, Entecavir-based, multi-center trial in the PRC assessing Hydronidone in CHB-associated liver fibrosis. This trial was designed to randomize 248 patients, with a primary endpoint of ≥1-stage reduction in Ishak fibrosis score at Week 52 for Hydronidone in combination with Entecavir.
In May 2025, we reported that in the pivotal Phase 3 trial, Hydronidone met its primary endpoint: 52.85% of treated patients achieved ≥1-stage fibrosis regression at Week 52, compared with 29.84% in the placebo group (p=0.0002), based on centralized, blinded Ishak histologic assessment. Hydronidone also met a key secondary endpoint with statistically significant inflammation improvement without fibrosis progression at Week 52 versus placebo. Hydronidone was well tolerated, with a comparable incidence of seriousadverse events (4.88% vs. 6.45% in placebo) and no discontinuations due to adverse events in the Hydronidone group.
Following our pre-NDA meeting in December 2025, the CDE indicated that the existing Phase 3 data support submission for conditional approval and potential priority review eligibility, subject to formal acceptance and approval by the NMPA. We currently expect to submit an NDA seeking conditional approval in the first half of 2026, subject to completion of regulatory and technical preparations.
MASH-Associated Liver Fibrosis (United States)
In the United States, we have completed a Phase 1 clinical trial in healthy volunteers evaluating Hydronidone’s safety, tolerability, and PK. We continue to engage with the FDA regarding IND requirements for a Phase 2 clinical trial in MASH-associated liver fibrosis. Pending regulatory feedback, we intend to file a U.S. IND in 2026 and, if the IND becomes effective, initiate a Phase 2 clinical trial.
Other Product Candidates
We have completed a Phase 1 clinical trial of F573 in healthy volunteers in the PRC and are currently evaluating it in a multi-stage Phase 2 clinical trial initiated in March 2023 in patients with liver injury and liver failure. The Phase 2 clinical trial is expected to be completed in 2026.
F230 is our clinical-stage product candidate for the treatment of PAH in the PRC. F230 is a selective endothelin receptor A antagonist designed to address vascular remodeling and elevated pulmonary arterial pressure associated with PAH. F230 complements our broader organ-focused portfolio by expanding our development efforts into pulmonary vascular disease while remaining aligned with our strategy of targeting fibrotic and inflammatory pathways across organ systems. We submitted an IND application for F230 to the NMPA in March 2024, and the IND was approved in May 2024. The first subject was enrolled in the Phase 1 clinical trial in June 2025.
F528 is our preclinical-stage product candidate for the treatment of COPD in the PRC. F528 is an anti-inflammatory small-molecule compound designed to inhibit multiple inflammatory cytokines and potentially modify disease progression. F528 expands our pulmonary-focused development efforts beyond fibrosis and vascular disease into chronic inflammatory respiratory conditions, supporting our broader strategy of addressing organ diseases driven by inflammatory and fibrotic pathways. We anticipate submitting an IND application to the NMPA for F528 in the first quarter of 2027.
Contingent Value Rights Agreement
Concurrent with the signing of the previously disclosed business combination agreement pursuant to which we acquired an indirect controlling interest in Gyre Pharmaceuticals, on December 26, 2022, the Company and the Rights Agent (as defined in the CVR Agreement) executed a contingent value rights agreement (the “CVR Agreement”), as amended on March 29, 2023, pursuant to which each CVR Holder (as defined in the CVR Agreement), excluding GNI Japan and GNI Hong Kong Limited, received one contractual contingent value right (a “CVR”) issued by the Company for each share of common stock held by such holders. Each CVR entitles the CVR Holder thereof to receive certain cash payments in the future. In the first quarter of 2025, we had fully settled the CVR liability and collected all outstanding amounts related to CVR receivables.
Share Capital Increase Agreement
In the third quarter of 2025, pursuant to an agreement previously entered into by and among BJContinent Pharmaceuticals Limited (“BJC”), Gyre Pharmaceuticals and the other parties thereto, BJC increased its capital contribution in Gyre Pharmaceuticals by $1.28 million in exchange for 9,184,910 additional shares of Gyre Pharmaceuticals. As a result, our indirect interest in Gyre Pharmaceuticals increased from 65.2% to 69.7%.
Long-Term Investment Measured Under Equity Method
On June 28, 2024, Gyre Pharmaceuticals entered into a partnership agreement as a limited partner and is obligated to pay $4.2 million for an 18.93% equity interest in the partnership. In April 2025, a new investor joined the partnership agreement, and as a result, Gyre Pharmaceuticals’ equity interest was adjusted to 18.35%. Pursuant to the partnership agreement, Gyre Pharmaceuticals, as a limited partner, shall not participate in any activities related to the management of the investment business. However, Gyre Pharmaceuticals may appoint a member to the advisory committee of the partnership.
As of December 31, 2025 and 2024, our total investment into the partnership was $1.7 million and $1.7 million, respectively, and the carrying value of the Company’s long-term investment in this affiliate was $1.6 million and $1.6 million, respectively.
Financial Operations Overview
During the year ended December 31, 2025, we had net income of $9.9 million and net income attributable to common stockholders of $5.0 million. For the year ended December 31, 2024, our net income was $17.9 million and net income attributable to common stockholders was $12.1 million. As of December 31, 2025, we had an accumulated deficit of $68.4 million and cash and cash equivalents of $37.1 million. As of December 31, 2024, we had an accumulated deficit of $73.5 million and cash and cash equivalents of $11.8 million.
Components of Results of Operations
Revenues
Sales of Pharmaceutical Products
We generate revenue primarily through sales of ETUARY®, Etorel®, Contiva® and certain generic drugs in the PRC. Distributors are our direct customers, and sales to distributors accounted for 100.0% of the revenue from each of ETUARY®, Etorel® and Contiva®. Such distributors sell our products to certain outlets, including hospitals and other medical institutions, as well as pharmacies.
Operating Expenses
Cost of Revenue
Cost of revenue mainly consists of cost of sales representing direct and indirect costs incurred to bring the product to saleable condition. Cost of sales primarily consists of (i) raw material costs; (ii) staff costs for production employees, including stock-based compensation; (iii) depreciation and amortization related to property and equipment and intangible assets used in production; (iv) taxes and surcharges; (v) transportation costs; and (vi) miscellaneous other costs.
Selling and Marketing Expenses
Selling and marketing expenses primarily relate to selling and marketing our products in the PRC and consist of expenses incurred from hosting academic conferences, seminars and symposia; promotional expenses associated with market education on our products for their use in hospitals; and staff costs primarily consisting of salaries, benefits, and stock-based compensation for in-house marketing and promotion staff.
Research and Development Expenses
Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services used in research and development are initially deferred and capitalized in prepaid and other current assets. The capitalized amounts are then expensed as the related goods are delivered or services are performed, or until it is no longer expected that the goods or services will be delivered.
Research and development costs consist primarily of costs related to the preclinical and clinical development of our product candidates, which include payroll and other personnel-related expenses, including stock-based compensation, laboratory supplies and reagents, contract research and development services for preclinical research and clinical trials, materials, and consulting costs, as well as allocations of facilities, depreciation and other overhead costs.
We manage our research and development expenses by identifying the research and development activities we expect to be performed during a given period and then prioritizing efforts based on anticipated probability of successful technical development and regulatory approval, market potential, available human and capital resources, scientific data and other considerations. We regularly review our research and development activities based on unmet medical need and, as necessary, reallocate resources among our research and development portfolio that we believe will best support the long-term growth of our business. Although we do track and allocate certain operational research and development costs, as described above, we do not fully track and allocate research and development expenses at the individual product candidate level.
General and Administrative Expenses
General and administrative expenses consist of (i) accounting, IT, legal, administrative, and other internal service staff costs; (ii) stock-based compensation representing share options granted to our functional employees; (iii) professional service fees, primarily for legal and accounting services; and (iv) other miscellaneous expenses.
Loss on Disposal of Property and Equipment
The net loss on the sale and disposal of property and equipment is reflected in our consolidated statements of operations and comprehensive income.
Other Income (Expense), Net
Interest Income, Net
Interest income consists primarily of interest earned on our long-term certificates of deposit. Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.
Other (Expense) Income, Net
Other income consists mostly of government grants. Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received, and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual installments or deducted from the carrying amount of the asset and released to profit or loss by way of a reduced depreciation charge.
Other expenses consist of any non-operating costs, such as loss from equity method investments.
Change in Fair Value of Warrant Liability
In connection with a private placement conducted in October 2023 with GNI USA, Inc., we issued (i) 811 shares of our Series X Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”) and (ii) warrants to purchase up to 811 shares of Convertible Preferred Stock (the “Preferred Stock Warrants”), which are freestanding financial instruments classified as warrant liability since the underlying securities are contingently redeemable upon the occurrence of events which are outside of our control. The Preferred Stock Warrants are recorded at fair value upon issuance and are subject to remeasurement at the end of each reporting period, with any change in fair value recognized in our statements of operations as other (income) expense.
Provision for Income Taxes
Provision for income taxes are comprised primarily of current income tax provision, mainly attributable to the profitable Gyre Pharmaceuticals operations in the PRC, and deferred income tax provision, mainly including deferred tax recognized for temporary differences in relation to research and development tax credit and net operating loss carryforwards for U.S. tax purposes, and fixed and intangible assets, net of valuation allowances.
On July 4, 2025, the OBBBA was enacted into law, which introduced several U.S. income tax provisions that have and may continue to potentially impact our provision for income taxes. The provisions include, but are not limited to, the immediate expensing of domestic research and development expenses beginning in 2025, as well as a modification to the Global Intangible Low-Taxed Income effective in 2026. We have recognized the effects of the OBBBA provisions on our financial results to the extent they are applicable to the year ended December 31, 2025. We will continue to evaluate the impact of the OBBBA on our 2026 and subsequent financial statements.
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2025 and 2024 (in thousands, except percentage change):
Year Ended December 31,
Change ($)
Change (%)
Revenues
Operating expenses:
Cost of Revenues
Selling and marketing
Research and development
General and administrative
Loss on disposal of property and equipment
Total operating expenses
Income from operations
Other income (expense), net:
Interest income, net
Other expense, net
Change in fair value of warrant liability
Income before income taxes
Provision for income taxes
Net income from operations
Net income attributable to noncontrolling interest
Net income attributable to common stockholders
Comparison of the Years Ended December 31, 2025 and 2024
Revenues
Revenues for the years ended December 31, 2025 and 2024 were $116.6 million and $105.8 million, respectively. The $10.8 million, or 10.2%, increase in revenue was driven by $5.5 million in Contiva® sales and $4.6 million in Etorel® sales, along with a $1.1 million increase in ETUARY® sales, partially offset by a $0.4 million decline in generic drug revenue.
Sales of Contiva® and Etorel®, which commenced commercialization in March 2025 and June 2025, respectively, were primarily driven by the targeted allocation of commercial and marketing resources to support their respective launches during the first half of 2025. The increase in ETUARY® sales reflects a strategic realignment of marketing efforts in the third quarter of 2025 to optimize product mix and address evolving market dynamics.
Cost of Revenues
Cost of revenues for the years en ded December 31, 2025 and 2024 was $5.4 million and $3.9 million, respectively. The $1.5 million, or 39.4%, increase was primarily driven by a $0.8 million increase in ETUARY®'s cost due to higher plant, property and equipment depreciation from a plant renovation completed in the second half of 2024, a $0.6 million increase in the cost of Contiva® and Etorel®, in line with the corresponding increase in their sales, and a $0.5 million increase in stock-based compensation expense. These factors were partially offset by a $0.4 million decrease in costs related to generic drugs due to the decrease in sales.
Selling and Marketing Expenses
Selling and marketing expenses increased by $7.7 million, or 13.3%, for the year ended December 31, 2025 compared with the prior-year period ended December 31, 2024. This increase was primarily driven by a $2.5 million increase in conference expenses and promotional expenses, attributable to the launch of additional promotional campaigns in the current year—particularly for our new products, a $2.6 million increase in staff costs, which was driven by expanded headcount and higher sales commissions, consistent with the corresponding growth in revenue, a $2.3 million increase in stock-based compensation expense, and a $0.3 million increase in traveling and other expense.
Research and Development Expenses
The table below details our costs for research and development for the years ended December 31, 2025 and 2024 (in thousands, except percentage change):
Year Ended December 31,
Change ($)
Change (%)
Direct program expenses:
Clinical trials
Materials and utilities
Preclinical research
Indirect expenses:
Personnel-related costs including stock-based compensation
Facilities, depreciation and other
Total research and development expenses
Research and development expenses for the year ended December 31, 2025 increased by $1.7 million, or 13.9%, compared with the year ended December 31, 2024. This increase was primarily attributable to a $1.0 million increase in clinical trial costs, primarily as a result of data analysis costs for Hydronidone, PD and RILI, a $0.4 million increase in staff costs, which included $0.2 million in stock-based compensation expense, a $0.5 million increase in facilities, depreciation and other expenses, attributable mainly to professional and consulting fees incurred in connection with research and development operations, and a $0.4 million increase in preclinical research expenses. These expense increases were partially offset by a $0.6 million decrease in materials and utilities expenses.
For the year ended December 31, 2025, we refined the classification of our research and development expenses to better reflect the nature of our development activities. Gyre's research and development expenses relate to the development of Hydronidone are now classified entirely as preclinical research, because it has not yet been submitted for an NDA or entered formal clinical trial phases as of December 31, 2025. Prior period amounts have been reclassified to conform to the current year presentation. Such reclassification did not impact total research and development expenses previously reported.
General and Administrative Expenses
General and administrative expenses increased by $4.7 million, or 29.1%, for the year ended December 31, 2025 compared with the year ended December 31, 2024. This increase was primarily driven by a $3.3 million increase in stock-based compensation expense, a $1.3 million increase in functional and administrative department's personnel expense, and a $0.9 million increase in miscellaneous expense. These cost increases were partially offset by a $0.8 million decrease in professional service expenses.
Other Income (Expense), Net
Interest income increased by $0.2 million, or 12.9%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to additional investments in long-term certificates of deposit.
Other expense decreased by $0.2 million, or 9.3%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease was primarily attributable to a $0.7 million increase in government grant income, partially offset by a $0.5 million increase in donation-related expenses.
Change in fair value of warrant liability decreased by $4.5 million, or 62.2%, for the years ended December 31, 2025 compared with the year ended December 31, 2024. The decrease was related to the remeasurement of the Preferred Stock Warrants liability.
Provision for Income Taxes
Provision for income taxes was $4.6 million and $5.3 million for the years ended December 31, 2025 and 2024, respectively. The decrease was primarily attributable to a lower profit from Gyre Pharmaceuticals' operations and impact of option exercises for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2025, we had cash and cash equivalents of $37.1 million, short-term bank deposit of $15.4 million and long-term certificates of deposit of $23.5 million, which are available to fund operations, and an accumulated deficit of $68.4 million. Our net income during the year ended December 31, 2025 was $9.9 million, while cash provided by operating activities was $1.0 million. We currently have in place an ATM Program with Jefferies LLC that permits us, subject to applicable SEC regulations, to issue up to $50.0 million of shares of our common stock in “at the market” transactions at prevailing market prices. We believe that our existing cash and cash equivalents, cash flows from operations, and access to capital markets will be sufficient to fund our operating activities and obligations for at least 12 months following the filing date of this Annual Report and thereafter for the foreseeable future.
Future Funding Requirements
We expect to use cash provided by operating activities, short-term deposits, and long-term certificate of deposits, as well as potential cash issuances to meet our current and future financial obligations, including funding our operations, research and development activities, clinical pipelines, and capital expenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic, regulatory, and other factors, many of which we cannot control. In particular, pending approval of an IND submission, we expect to initiate a Phase 2 trial to evaluate Hydronidone for the treatment of MASH-associated liver fibrosis in 2026. We cannot guarantee that a Phase 2 trial will be initiated or estimate the funding needed for such trial at this time, but may need to raise additional capital to fund this program. In addition, we anticipate that we will incur expenses related to and in connection with the Merger. Factors that may affect financing requirements include, but are not limited to:
the timing, progress, cost and results of our clinical trials, preclinical studies and other discovery and research and development activities;
the timing and outcome of, and costs involved in, seeking and obtaining marketing approvals for our products, and in maintaining quality systems standards for our products;
the timing of, and costs involved in, commercial activities, including product marketing, sales and distribution;
our ability to successfully commercialize and to obtain regulatory approval for, and successfully commercialize our other or future product candidates;
increases or decreases in revenue from our marketed products, including decreases in revenue resulting from generic entrants or health epidemics or pandemics;
the number and development requirements of other product candidates that we pursue;
our ability to manufacture sufficient quantities of our products to meet expected demand;
the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, litigation costs and the results of litigation;
our ability to enter into collaboration, licensing or distribution arrangements and the terms and timing of these arrangements;
the potential need to expand our business, resulting in additional payroll and other overhead expenses;
the potential in-licensing of other products or technologies;
the emergence of competing technologies or other adverse market or technological developments; and
the impacts of inflation and resulting cost increases.
Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.
The following table summarizes our cash flows for the periods presented (in thousands):
Year Ended December 31,
Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash Flows from Operating Activities
Cash provided by operating activities for the year ended December 31, 2025 was $1.0 million, reflecting our net income of $9.9 million and non-cash items of $6.7 million, which primarily includes $7.2 million in stock-based compensation and $2.5 million in depreciation and amortization, offset by $2.7 million related to the change in fair value of warrant liability. Additionally, cash used in operating activities reflected changes in net operating assets and liabilities of $15.6 million.
The increase in cash provided by operating activities for the year ended December 31, 2025 compared with cash used in operating activities for the year ended December 31, 2024 was primarily attributable to higher customer collections, reduced payments for raw materials and services, and lower tax payments resulting from employee stock option exercises.
Cash used in operating activities for the year ended December 31, 2024 was $3.6 million, reflecting our net income of $17.9 million, offset by non-cash items of $5.9 million primarily related to the $7.2 million cash used in change in fair value of warrant liability, depreciation and amortization of $1.5 million, stock-based compensation of $0.8 million. Additionally, cash used in operating activities reflected changes in net operating assets and liabilities of $15.7 million.
Cash Flows from Investing Activities
Cash used in investing activities for the year ended December 31, 2025 was $0.5 million, which consisted of $14.0 million in purchases of certificates of deposit, $1.2 million in purchases of property and equipment, and $0.7 million in acquisitions of intangible assets, partially offset by $15.4 million of proceeds from the maturity of certificates of deposit.
Cash used in investing activities for the year ended December 31, 2024 was $19.9 million, which consisted of $15.5 million in purchases of certificates of deposit, $2.3 million in purchases of property and equipment, $1.7 million paid for equity method investment and $0.8 million in acquisition of intangible assets, partially offset by $0.4 million of cash acquired in connection with the sale of equipment.
Cash Flows from Financing Activities
Cash provided by financing activities for the year ended December 31, 2025 was $24.4 million, and consisted of $23.0 million in proceeds from the issuance of 2,555,555 shares of common stock in a public offering, $2.4 million in proceeds from the exercise of stock options, and $0.5 million in proceeds from the issuance of common stock under our ATM Program with Jefferies LLC. These inflows were partially offset by $1.5 million of cash used in connection with deferred offering costs.
Cash provided by financing activities for the year ended December 31, 2024 was $2.1 million due to $1.9 million in proceeds from the exercise of stock options and $0.8 million in proceeds from the issuance of common stock under our ATM Program with Jefferies LLC, partially offset by $0.5 million of cash used in connection with deferred financing costs.
Restricted Net Assets
Under PRC laws and regulations, Gyre Pharmaceuticals is subject to restrictions on foreign exchange and cross-border cash transfers, including to parent companies and U.S. stockholders. The ability to distribute earnings to the parent companies and U.S. stockholders is also limited. Current PRC regulations permit Gyre Pharmaceuticals to pay dividends to BJC only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. Amounts restricted include paid-in capital and the statutory reserves of Gyre Pharmaceuticals. The aggregate amounts of restricted capital and statutory reserves of the relevant subsidiaries not available for distribution were $70.1 million and $64.3 million as of December 31, 2025 and December 31, 2024. We do not expect the restrictions described above to have a material impact on our ability to meet our cash obligations.
Contractual Obligations and Other Commitments
We expect to satisfy these contractual obligations and commitments through a combination of cash on hand, cash provided by operating activities, short-term deposits, and long-term certificate of deposits.
Leases
We have entered into lease arrangements in (1) San Diego, California for our headquarters, which expires on the last day of the 38th full calendar month beginning on or after November 11, 2023, and (2) the PRC, for office spaces, through May 2027. As of December 31, 2025, our fixed lease payment obligations were $1.0 million, with $0.7 million payable within 12 months.
Research and Development Programs
As of December 31, 2025, we have committed to allocating $52.8 million toward future research and development activities for various programs.
Property and Equipment
Our commitments related to the purchase of property and equipment contracted but not yet reflected in the consolidated financial statements were $3.9 million as of December 31, 2025 and are expected to be incurred within one year.
Etorel® IP Rights
In May 2024, Gyre Pharmaceuticals entered into an agreement with Jiangsu Wangao Pharmaceuticals Co., Ltd. (the “Jiangsu Wangao Agreement”), effective from May 7, 2024 to May 6, 2035. Pursuant to the Jiangsu Wangao Agreement, Gyre Pharmaceuticals obtained the drug registration certificate for and became the marketing authorization holder of Etorel®, a small-molecule drug for the treatment of SSc-ILD and PF-ILD, within the PRC. The total minimum payments under the Jiangsu Wangao Agreement are RMB 35.0 million, or approximately $5.0 million, based on the December 31, 2025 spot exchange rate. This includes an upfront transfer fee of RMB 15.0 million, or approximately $2.1 million, payable in three installments, and subsequent payments based on annual sales over eight years following the commencement of commercial sales. Additionally, Gyre Pharmaceuticals will bear the costs associated with relocating the production site to a designated location and will cover all expenses related to the manufacturing process. As of December 31, 2025, we had paid three installments totaling RMB 15.0 million, or approximately $2.1 million, based on the December 31, 2025 spot exchange rate.
We are committed to annual payments to the Etorel® IP Rights transferor over eight years following the commencement of commercial sales. See Note 11—Commitments and Contingencies.
SDM Service Agreement
In December 2025, we entered into a clinical trial agreement with a third-party CRO for Hydronidone’s Phase 3c confirmatory clinical trial. This trial is designed to evaluate clinical endpoint events and satisfy the safety exposure requirements to support the potential conditional approval and subsequent conventional marketing authorization of Hydronidone capsules. The agreement, with an aggregate value of Chinese Renminbi (“RMB”) 114.0 million, or approximately $16.2 million, based on the December 31, 2025 spot exchange rate, covers full-cycle clinical trial services and features milestone-based payments. Under this agreement, we are obligated to make payments based on the achievement of specified clinical and operational milestones and the performance of clinical trial–related services, including trial preparation, patient enrollment and follow-up, site management, interim analyses, data management–related activities, and preparation of the clinical study report. All services under the agreement are related to our research and development activities and will be performed over the duration of the clinical trial. As of December 31, 2025, none of the payment conditions had been met, and no payments had been made under the agreement. Refer to Note 11—Commitments and Contingencies for further details.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our significant accounting policies and methods used in preparation of the consolidated financial statements are described in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
Management believes our critical accounting policies and estimates discussed below are critical to understanding its historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Revenue Recognition
We recognize revenue in accordance with ASC Topic 606 (“ASC 606”), Revenue from Contracts with Customers, whereby revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. A five-step model is used to achieve the core principle: (1) identify the customer contract, (2) identify the contract’s performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenue when or as a performance obligation is satisfied. We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.
For the sale of pharmaceutical products, revenue is recognized at a point in time when control of the asset is transferred to the customer, generally on completion of delivery of the pharmaceutical products. For the sales of pharmaceutical products, most of our customers are distributors.
Revenue from product sales is recognized as net of estimated rebates. These rebates are estimated based on sales volumes from the preceding months and applying the rebate percentages specified in each contract. The estimation process requires management judgment, particularly in determining the amount of rebates based on historical sales volumes and contractually agreed-upon rebate percentages. Additionally, variable consideration related to sales rebates is recorded as deductions from revenue based on historical experience and contract terms. Depending on the contract structure, we apply either the expected value method or the most likely amount method to estimate future rebates, selecting the approach that best predicts the amount of variable consideration. The estimates for these rebates are reviewed regularly, and adjustments are made as necessary.
Research and Development Expenses and Accruals
Research and development costs are expensed as incurred when the expenditures relate to ongoing research activities without alternative future use. A significant portion of our research and development expenses consists of preclinical and clinical trial costs, which involve contracts with third-party service providers such as contract research organizations. These costs are accrued based on management’s estimates of the services performed during the respective period.
We estimate the amount of work completed through discussion with internal personnel and external service providers in conjunction with reporting information obtained directly from the external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. Accruals are based on progress reports, contractual terms, and management’s judgment regarding the stage of completion of various projects. Since there is often a timing difference between service delivery and invoicing, we make adjustments as more information becomes available. We also assess the likelihood of milestone-based payments under contract terms.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of research and development expenses.
Income Taxes
We record income taxes using the liability method, under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are recorded against deferred tax assets, including net operating losses and tax credits, when it is determined it is more-likely-than-not that some or all of the tax benefits will not be realized.
We account for uncertain tax positions in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification 740, Income Taxes. When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense, if any.
Stock-Based Compensation
We measure the cost of employee, non-employee and director services received in exchange for an award of equity instruments based on the fair value-based measurement of the award on the date of grant and recognize the related expense over the period during which an employee, non-employee or director is required to provide services in exchange for the award on a straight-line basis. The estimated fair value of equity awards that contain performance conditions is expensed over the term of the award once we have determined that it is probable that performance conditions will be satisfied.
Determining the fair value of stock-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the grant date fair value of options using an option-pricing model is affected by our assumptions regarding a number of variables including the fair value of our common stock, its expected common stock price volatility over the expected life of the options, expected term of the stock option, risk-free interest rates and expected dividends. We record stock-based compensation as a compensation expense, net of the forfeited awards. We elected to account for forfeitures when they occur. As such, we recognize stock-based compensation expense over their requisite service period based on the vesting provisions of the individual grants. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. See Note 10—Stock Based Compensation to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more information.
Warrant Liability
In connection with the Private Placement, we issued the Preferred Stock Warrants (see Note 3—Fair Value Measurements and Financial Instruments to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K) which are freestanding financial instruments classified as warrant liability since the underlying securities are contingently redeemable upon the occurrence of events which are outside of our control. The Preferred Stock Warrants are recorded at fair value upon issuance and are subject to remeasurement at the end of each reporting period. We use the Black-Scholes option-pricing model to determine the fair value of the Preferred Stock Warrants which is affected by our assumptions regarding a number of variables, including the fair value of our Convertible Preferred Stock, the expected share price volatility over the expected life of the options, expected term of the warrant, risk-free interest rates and expected dividends. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our estimated fair value of warrant liability could be materially different. We will continue to use judgment in evaluating the assumptions utilized for our warrant liability fair value calculations on a prospective basis.
Smaller Reporting Company and Accelerated Filer Status
We are a “smaller reporting company” as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Based on the aggregate market value of our common stock held by non-affiliates of approximately $72.6 million as of June 30, 2025, we remain a smaller reporting company and continue to qualify as an “accelerated filer” as of December 31, 2025. As an accelerated filer, we are required, pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, to include in our Annual Report on Form 10-K for the year ending December 31, 2025 an attestation report as to the effectiveness of our internal control over financial reporting that is issued by our independent registered public accounting firm. We expect to continue to take advantage of the reduced reporting requirements applicable to smaller reporting companies.
Recent Accounting Pronouncements
Refer to Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.
Item 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact on our financial position because of adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure resulting from potential changes in exchange rates, interest rates, or inflation.
Foreign Currency Exchange Risk
Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States and the PRC. Our results of current and future operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates. A hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would not have a material effect on our operating results. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations, other than its impact on the general economy. Nonetheless, if our costs were to become subject to inflationary pressures, we might not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Item 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on page F-1 of this Form 10-K.
