GYRE THERAPEUTICS, INC.

Previous wording

We are a financially-sustainable pharmaceutical company with a record of financial success that develops and commercializes small-molecule anti-inflammatory and anti-fibrotic drugs targeting organ diseases, focusing specifically on organ fibrosis. Fibrotic diseases represent a large patient population with significant unmet medical needs. Fibrosis involves a complex, multi-stage process with multiple pathways. While there are numerous potential targets for anti-fibrotic therapy, both established and emerging, addressing a single molecular pathway may not be sufficient to prevent, halt, or reverse fibrosis.

Current wording

We are a commercial-stage biotechnology company with a proven track record of financial success developing and commercializing small-molecule anti-inflammatory and anti-fibrotic drugs targeting organ diseases, focusing specifically on organ fibrosis. Fibrotic diseases represent a large patient population with significant unmet medical needs and involves a complex, multi-stage process with multiple pathways. While there are numerous potential targets for anti-fibrotic therapy, both established and emerging, addressing a single molecular pathway may not be sufficient to prevent, halt, or reverse fibrosis.

Previous wording

Our strategy is to use our experience in the successful development and commercialization of ETUARY® (Pirfenidone) to expand into new indications and develop similar drug candidates. Pirfenidone, the first anti-fibrotic drug approved for IPF in Japan, the EU, the U.S., and the PRC, is a small molecule drug that inhibits the synthesis of TGF-ß1, TNF-α, and other fibrosis and inflammation modulators. We have obtained approval for ETUARY (pirfenidone) in the PRC for IPF.

Current wording

Our strategy is to build on our success in the development and commercialization of ETUARY® (pirfenidone) to expand into new indications and advance our pipeline of innovative drug candidates. Pirfenidone, the first anti-fibrotic drug approved for IPF in Japan, the EU, the United States, and the PRC, is a small molecule drug that inhibits the synthesis of TGF-ß1, Tumor Necrosis Factor-α, and other fibrosis and inflammation modulators. We have obtained approval for ETUARY (pirfenidone) in the PRC for IPF.

Previous wording

F351, our lead development candidate, is a structural derivative of ETUARY (Pirfenidone). It is a new oral chemical entity with an anti-fibrotic, TGF-ß1-targeting mechanism of action, for which we hold patents in major markets. Studies suggest that F351 and its major metabolites have minimal drug-drug interaction risks. Despite potential efficacy in IPF, we are prioritizing F351 for the treatment of liver fibrosis due to the large potential addressable market and significant unmet need.

Current wording

F351, our lead development candidate in both the United States and the PRC, is a structural derivative of ETUARY (pirfenidone). It is a new oral chemical entity with an anti-fibrotic, TGF-ß1-targeting mechanism of action. Studies suggest that F351 and its major metabolites have minimal drug-drug interaction risks. We are prioritizing F351 for the treatment of liver fibrosis due to the large potential addressable market and significant unmet need.

Previous wording

Gyre Pharmaceuticals has completed a Phase 2 trial of F351 in the PRC for CHB-associated liver fibrosis. The Phase 2 trial showed that F351 was well-tolerated without notable toxicity and patients treated showed statistically-significant improvement of liver fibrosis, with the best efficacy results achieved at 270 mg/day dosing. Based on these results, a confirmatory Phase 3 trial is ongoing in the PRC. The enrollment of 248 patients for the confirmatory Phase 3 trial has been completed, with last patient out expected in 2024 and clinical results expected by early 2025.

Current wording

Gyre Pharmaceuticals has completed a Phase 2 trial of F351 in the PRC for CHB-associated liver fibrosis. The Phase 2 trial showed that F351 was well-tolerated without notable toxicity and patients treated showed statistically-significant improvement of liver fibrosis, with the best efficacy results achieved at 270 mg/day dosing. Based on these results, a confirmatory Phase 3 trial is ongoing in the PRC with a primary endpoint of the reduction of the liver fibrosis score (Ishak Scoring System) by at least one stage after taking F351 in combination with Entecavir. In October 2024, the last patient completed the 52-week pivotal Phase 3 trial. Gyre Pharmaceuticals expects to report top-line data from this trial by the second quarter of 2025.

Previous wording

In the U.S., we have completed a Phase 1 clinical trial of F351 in healthy volunteers. We are preparing an IND application and expect to submit it in late 2024. Following results from the PRC Phase 3 trial in CHB-associated liver fibrosis and pending approval of our IND, we expect to initiate a Phase 2a trial to evaluate F351 for the treatment of NASH-associated liver fibrosis in 2025.

Current wording

In the United States, we have completed a Phase 1 clinical trial of F351 in healthy volunteers. Following results from the PRC Phase 3 trial in CHB-associated liver fibrosis and pending approval of an IND submission, we expect to initiate a Phase 2 trial to evaluate F351 for the treatment of MASH-associated liver fibrosis in 2025. 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.

Previous wording

On December 26, 2022, Catalyst, purchased the F351 Assets from GNI Japan and GNI Hong Kong, other than such assets and intellectual property rights located in the PRC, pursuant to the F351 Agreement.

Current wording

On December 26, 2022, we purchased the F351 Assets from GNI Japan and GNI Hong Kong, other than such assets and intellectual property rights located in the PRC, pursuant to the F351 Agreement.

Previous wording

On December 26, 2022, Catalyst entered into a Business Combination Agreement, as amended on March 29, 2023 and August 30, 2023 (the “Business Combination Agreement”) with GNI USA, GNI Japan, GNI Hong Kong, SG (collectively with GNI USA, GNI Japan and GNI Hong Kong, the “Contributors,” and each a “Contributor”), certain individuals and CPI. On October 30, 2023 (the “Effective Time”), the Contributions (as defined below) became effective and Catalyst acquired an indirect controlling interest in Beijing Continent Pharmaceuticals Co., Ltd. (doing business as Gyre Pharmaceuticals Co., Ltd.). In connection with the Contributions, and immediately prior to the Effective Time of the Contributions, Catalyst amended its certificate of incorporation, increased the number of authorized shares of its common stock, par value $0.001 per share (the “Catalyst Common Stock”) from 100,000,000 shares to 400,000,000 shares, effected the Reverse Stock Split and changed its name to Gyre Therapeutics, Inc.

Current wording

On December 26, 2022, Catalyst entered into a Business Combination Agreement, as amended on March 29, 2023 and August 30, 2023 (the “Business Combination Agreement”) with GNI USA, GNI Japan, GNI Hong Kong, SG (collectively with GNI USA, GNI Japan and GNI Hong Kong, the “Contributors,” and each a “Contributor”), certain individuals and CPI. On October 30, 2023 (the “Effective Time”), the Contributions (as defined below) became effective and Catalyst acquired an indirect controlling interest in Beijing Continent Pharmaceuticals Co., Ltd. (doing business as Gyre Pharmaceuticals Co., Ltd.).

Previous wording

GNI USA contributed all of its ordinary shares in the capital of CPI to Catalyst in exchange for 45,923,340 shares of Gyre Common Stock (the “CPI Contribution”),

Current wording

GNI USA contributed all of its ordinary shares in the capital of CPI to Catalyst in exchange for 45,923,340 shares of Common Stock (the “CPI Contribution”), b)

Previous wording

GNI USA contributed its interest in Further Challenger International Limited (“Further Challenger”) for 17,664,779 shares of Gyre Common Stock (the “FC Contribution” and together with the CPI Contribution, the “GNI USA Contributions”), and

Current wording

GNI USA contributed its interest in Further Challenger International Limited (“Further Challenger”) for 17,664,779 shares of Common Stock (the “FC Contribution” and together with the CPI Contribution, the “GNI USA Contributions”), and

Previous wording

each Minority Holder contributed 100% of the interest he or she held in his or her respective entity in exchange for an aggregate of 10,463,627 shares of Gyre Common Stock (the “Minority Holder Contributions” and together with the GNI USA Contributions, the “Contributions”).

Current wording

each Minority Holder contributed 100% of the interest he or she held in his or her respective entity in exchange for an aggregate of 10,463,627 shares of Common Stock (the “Minority Holder Contributions” and together with the GNI USA Contributions, the “Contributions”).

Previous wording

The immediate holding company of Gyre Pharmaceuticals is BJContinent Pharmaceuticals Limited (“BJC”). The intermediate holding company of Gyre Pharmaceuticals is CPI. Immediately following the GNI USA Contributions, the immediate holding company of CPI is Gyre. The majority stockholder of Gyre is GNI USA and the majority stockholder of GNI USA is GNI Japan.

Current wording

The majority shareholder of Gyre Pharmaceuticals is BJContinent Pharmaceuticals Limited (“BJC”). The immediate holding company of BJC is CPI. Immediately following the GNI USA Contributions, the immediate holding company of CPI is Gyre. The majority stockholder of Gyre is GNI USA, which is indirectly wholly owned by GNI Japan.

Previous wording

Concurrent with the signing of the Business Combination Agreement on December 26, 2022, Catalyst 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, excluding the Sellers, received one contractual contingent value right (a “CVR”) issued by the Company for each share of Catalyst common stock held by such holders. Each CVR entitles the CVR Holder thereof to receive certain cash payments in the future. For additional information, see Note 13 —Commitments and Contingencies to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Current wording

Concurrent with the signing of the Business Combination Agreement on December 26, 2022, Catalyst 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, excluding GNI Japan and GNI Hong Kong, received one contractual contingent value right (a “CVR”) issued by the Company for each share of Catalyst common stock held by such holders. Each CVR entitles the CVR Holder thereof to receive certain cash payments in the future. For additional information, see Note 13 — Commitments and

Previous wording

We effected a 1-for-15 reverse stock split immediately prior to the Effective Time of the Contributions. The par value of the Catalyst Common Stock following the Reverse Stock Split was not adjusted and remains at $0.001 per share. All of the Catalyst’s issued and outstanding common stock and options have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

Current wording

On October 30, 2023, we effected a 1-for-15 reverse stock split immediately prior to the Effective Time of the Contributions. The par value of the Catalyst Common Stock following the Reverse Stock Split was not adjusted and remains at $0.001 per share. All of the Catalyst’s issued and outstanding common stock and options have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

Previous wording

Preferred Stock and (ii) warrants to purchase up to 811 shares of Convertible Preferred Stock (the “Preferred Stock Warrants”) for an aggregate purchase price of $5.0 million. The Private Placement closed immediately after the closing of the Contributions.

Current wording

On October 27, 2023, we entered into the Securities Purchase Agreement for a private placement with GNI USA (the “Private Placement”). Pursuant to the Securities Purchase Agreement, GNI USA agreed to purchase (i) 811 shares of our 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”) for an aggregate purchase price of $5.0 million. The Private Placement closed immediately after the closing of the Contributions.

Previous wording

The Preferred Stock Warrants are exercisable at an exercise price of $4,915.00 per share of Convertible Preferred Stock and expire on October 30, 2033. Each share of Convertible Preferred Stock is convertible into approximately 666.67 shares of the Gyre Common Stock, as adjusted for the Reverse Stock Split. The Preferred Stock Warrants issued are considered freestanding financial instruments and classified as a liability.

Current wording

The Preferred Stock Warrants are exercisable at an exercise price of $4,915.00 per share of Convertible Preferred Stock and expire on October 30, 2033.

Previous wording

During the year ended December 31, 2023, we had a net loss of $85.5 million and a net loss attributable to common stockholders of $92.9 million. For the year ended December 31, 2022, our net income was $4.3 million and net income attributable to common stockholders was $2.3 million. As of December 31, 2023, we had accumulated deficit of $85.5 million and cash and cash equivalents of $33.5 million. As of December 31, 2022, we had retained earnings of $7.4 million and cash of $25.2 million.

Current wording

During the year ended December 31, 2024, we had a net income of $17.9 million and a net income attributable to common stockholders of $12.1 million. For the year ended December 31, 2023, our net loss was $85.5 million and net loss attributable to common stockholders was $92.9 million. As of December 31, 2024, we had accumulated deficit of $73.5 million and cash and cash equivalents of $11.8 million. As of December 31, 2023, we had an accumulated deficit of $85.5 million and cash and cash equivalents of $33.5 million.

Previous wording

We generate revenue primarily through sales of ETUARY and certain generic drugs in the PRC. Distributors are our direct customers, and sales to distributors accounted for 100% of the revenue from ETUARY. Such distributors sell ETUARY to certain outlets, including hospitals and other medical institutions, as well as pharmacies.

Current wording

We generate revenue primarily through sales of ETUARY and certain generic drugs in the PRC. Distributors are our direct customers, and sales to distributors accounted for 100.0% of the revenue from ETUARY. Such distributors sell ETUARY to certain outlets, including hospitals and other medical institutions, as well as pharmacies.

Previous wording

Prior to the GNI USA Contributions, we recorded a loss from the divestiture of almost all our assets other than our 56.0% indirect ownership interest in Gyre Pharmaceuticals. This expense was reflected in our consolidated statements of operations and comprehensive (loss) income. The loss is presented net of the direct costs incurred with the transaction.

Current wording

Prior to the GNI USA Contributions, we recorded a loss from the divestiture of almost all our assets other than our 56.0% indirect ownership interest in Gyre Pharmaceuticals. This expense was reflected in our consolidated statements of operations and comprehensive income (loss). The loss is presented net of the direct costs incurred with the transaction.

Previous wording

Other expense consists of any non-operating costs, such as loss from equity method investments.

Current wording

Other expenses consist of any non-operating costs, such as loss from equity method investments.

Previous wording

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 carry forwards for U.S. tax purposes, deemed income inclusions from controlled foreign corporations for U.S. tax purposes, and fixed and intangible assets, net of valuation allowances.

Current wording

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, deemed income inclusions from controlled foreign corporations for U.S. tax purposes, and fixed and intangible assets, net of valuation allowances.

Previous wording

The following tables summarize our results of operations for the years ended December 31, 2023 and 2022 (in thousands, except percentage change):

Current wording

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 (in thousands, except percentage change):

Previous wording

Research and development expenses decreased by $2.9 million, or 17.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily driven by a $1.8 million decrease in stock-based compensation, related to options being fully vested in 2022 and the modification of option terms in 2023, as well as by a $1.2 million decrease in pre-clinical research expenses. The latter is a result of several research and development projects advancing to the clinical trials stage or reaching the application phase in 2023. This overall decrease was partially offset by a $0.2 million increase in research and development payroll costs due to increased headcount.

Current wording

Research and development expenses decreased by $1.8 million, or 12.7%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily from Gyre Pharmaceuticals, and was driven by a $0.3 million decrease in materials and utilities, a $1.3 million decrease in pre-clinical research expense due to several research and development projects advancing to the clinical trials stage or reaching the application phase in 2024, a $0.4 million decrease in staff cost due to reduced headcount, and a $0.5 million decrease in stock-based compensation related to options being fully vested in 2023, which did not occur in 2024. This overall decrease was partially offset by a $0.7 million increase in research and development expense from Gyre Therapeutics due to increased consulting fees.

Previous wording

Acquired IPR&D expenses of $83.1 million for the year ended December 31, 2023 represent costs of incurred for acquisitions of IPR&D with no alternative future use, which were expensed immediately upon the closing of GNI USA Contributions.

Current wording

There was no acquired IPR&D expense for the year ended December 31, 2024 compared to $83.1 million for the year ended December 31, 2023. The acquired IPR&D represents costs incurred for acquisitions of IPR&D with no alternative future use, which were expensed immediately upon the closing of GNI USA Contributions.

Previous wording

During the year ended December 31, 2023, we recorded a loss of $2.7 million from the divestiture of almost all our assets other than our 56.0% indirect ownership interest in Gyre Pharmaceuticals. The loss is presented net of the direct costs incurred with the transaction.

Current wording

There was no divestiture loss for the year ended December 31, 2024 compared to $2.7 million for the year ended December 31, 2023. The divestiture losses are related to sales of almost all our assets other than our 56.0% indirect ownership interest in Gyre Pharmaceuticals. The loss is presented net of the direct costs incurred with the transaction.

Previous wording

Interest income increased by $0.3 million, or 43.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to additional investments in long-term certificates of deposit.

Current wording

Interest income increased by $0.5 million, or 48.2%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to additional investments in long-term certificates of deposit.

Previous wording

Change in fair value of warrant liability was a $9.3 million expense for the year ended December 31, 2023 and was related to the remeasurement of the Preferred Stock Warrants liability. There were no warrants outstanding during the year ended December 31, 2022.

Current wording

Change in fair value of warrant liability was a decrease of $7.2 million and an increase of $9.3 million for the years ended December 31, 2024 and 2023, respectively. The decrease is related to the remeasurement of the Preferred Stock Warrants liability.

Previous wording

Provision for income taxes was $8.5 million and $5.1 million for the years ended December 31, 2023 and 2022, respectively. The increase was primarily attributable to a higher profit from Gyre Pharmaceuticals operations and an increase in deferred tax asset.

Current wording

Provision for income taxes was $5.3 million and $8.5 million for the years ended December 31, 2024 and 2023, respectively. The decrease was primarily attributable to a lower profit from Gyre Pharmaceuticals' operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Previous wording

As of December 31, 2023, we had cash and cash equivalents of $33.5 million and long-term certificates of deposit of $23.4 million, which are available to fund operations, and an accumulated deficit of $85.5 million. Our net loss during the year ended December 31, 2023 was $85.5 million, while cash provided by operating activities was $25.9 million. 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.

Current wording

As of December 31, 2024, we had cash and cash equivalents of $11.8 million, short-term bank deposit of $14.9 million and long-term certificates of deposit of $24.6 million, which are available to fund operations, and an accumulated deficit of $73.5 million. Our net income during the year ended December 31, 2024 was $17.9 million, while cash used in operating activities was $3.6 million. 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.

Previous wording

We expect to use cash flows from operations to meet our current and future financial obligations, including funding our operations, 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. Factors that may affect financing requirements include, but are not limited to:

Current wording

We expect to use cash flows from operations to meet our current and future financial obligations, including funding our operations, 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, following results from the PRC Phase 3 trial in CHB-associated liver fibrosis and pending approval of an IND submission, we expect to initiate a Phase 2 trial to evaluate F351 for the treatment of MASH-associated liver fibrosis in 2025. 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. Factors that may affect financing requirements include, but are not limited to:

Previous wording

Cash provided by operating activities for the year ended December 31, 2022 was $10.7 million, reflecting our net income of $4.3 million and non-cash items of $14.2 million primarily related to stock-based compensation of $13.4 million, partially offset by net cash outflow of $7.8 million from the changes in net operating assets and liabilities.

Current wording

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.

Previous wording

Cash used in investing activities for the year ended December 31, 2022 was $13.8 million, which consisted of $7.5 million in purchases of certificates of deposit, $5.0 million in purchases of property and equipment and $1.3 million in cash paid for equity method investments.

Current wording

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, $0.8 million in acquisition of intangible assets and $1.7 million paid for equity method investment, partially offset by $0.4 million of cash acquired in connection with the sale of equipment.

Previous wording

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 and laboratory spaces through August 2024. As of December 31, 2023, our fixed lease payment obligations were $0.4 million, with $0.2 million payable within 12 months.

Current wording

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 and laboratory spaces through May 2027. As of December 31, 2024, our fixed lease payment obligations were $1.7 million, with $0.8 million payable within 12 months.

Previous wording

In June 2021, we entered into a transfer agreement with Nanjing Healthnice Pharmaceutical Technology Co., Ltd. (“Nanjing Healthnice”), an independent third party, pursuant to which Nanjing Healthnice agreed to transfer to us the avatrombopag maleate tablets for the treatment of CLD-associated thrombocytopenia and all relevant technologies, complete any research or trials and transfer to us all materials necessary for the application of marketing approval by CDE. Upon the completion of the transfer, we expect that we will be approved by NMPA as the marketing authorization holder of the avatrombopag maleate tablets. In exchange, we will pay a total of approximately $2.3 million upon certain milestones (e.g., the completion of bioequivalence study, or the registration application to CDE) being met. We have completed the bioequivalence study and received CDE acceptance on August 1, 2022, and as of December 15, 2023, we have made total payments of approximately $1.8 million.

Current wording

In June 2021, we entered into a transfer agreement with Nanjing Healthnice Pharmaceutical Technology Co., Ltd. (“Nanjing Healthnice”), an independent third party, pursuant to which Nanjing Healthnice agreed to transfer to us the avatrombopag maleate tablets for the treatment of CLD-associated thrombocytopenia and all relevant technologies, complete any research or trials and transfer to us all materials necessary for the application of marketing approval by the NMPA. We were approved by the NMPA as the marketing authorization holder of the avatrombopag maleate tablets on June 25, 2024. In exchange, we paid a total of approximately $2.3 million upon certain milestones (e.g., the completion of bioequivalence study, or the registration application to the NMPA) being met. We have completed the bioequivalence study and received NMPA acceptance on August 1, 2022, and as of December 31, 2024, we have made total payments of approximately $2.3 million.

Previous wording

In September 2022, we entered into a transfer agreement with New Jiyuan (Beijing) Pharmaceutical Technology Co., Ltd. (“New Jiyuan”), an independent third party, pursuant to which New Jiyuan agreed to transfer to us the minocycline hydrochloride foam for the treatment of moderate to severe acne and all relevant technologies, complete product development and transfer to us all materials necessary for the application of marketing approval of CDE. Upon the completion of the transfer, we expect that we will be approved by NMPA as the marketing authorization holder of the minocycline hydrochloride foam. In exchange, we will pay a total amount of $1.0 million and the payments will be made by installments conditioned upon certain milestones (e.g., the completion of bioequivalence study, or the registration application to CDE) being met. Process verification has been completed. As of December 31, 2023, we have made total payments of approximately $0.7 million.

Current wording

In September 2022, we entered into a transfer agreement with New Jiyuan (Beijing) Pharmaceutical Technology Co., Ltd. (“New Jiyuan”), an independent third party, pursuant to which New Jiyuan agreed to transfer to us the minocycline hydrochloride foam for the treatment of moderate to severe acne and all relevant technologies, complete product development and transfer to us all materials necessary for the application of marketing approval of NMPA. Upon the completion of the transfer, we expect that we will be approved by NMPA as the marketing authorization holder of the minocycline hydrochloride foam. In exchange, we will pay a total amount of $1.0 million and the payments will be made by installments conditioned upon certain milestones (e.g., the completion of bioequivalence study, or the registration application to NMPA) being met. Process verification has been completed. As of December 31, 2024, we have made total payments of approximately $0.7 million.

Previous wording

As of December 31, 2023, we have committed to allocate $12.7 million toward future research and development activities for various programs.

Current wording

As of December 31, 2024, we have committed to allocate $33.0 million toward future research and development activities for various programs.

Previous wording

Our commitments related to the purchase of property and equipment contracted but not yet reflected in the consolidated financial statements were $2.8 million as of December 31, 2023 and are expected to be incurred within one year.

Current wording

Our commitments related to the purchase of property and equipment contracted but not yet reflected in the consolidated financial statements were $1.4 million as of December 31, 2024 and are expected to be incurred within one year.

Previous wording

We record 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.

Current wording

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.

Previous wording

Revenue from the sale of pharmaceutical products is recognized at the point in time when control of the asset is transferred to the customer, generally on completion of delivery of the pharmaceutical products and quality inspection by the customer. For the sales of pharmaceutical products, most of our customers are distributors.

Current wording

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.

Previous wording

Revenue from product sales is recognized net of estimated sales discounts. These discounts are estimated based on sales volumes from the preceding months and applying the discount percentages specified in each contract.

Current wording

Revenue from product sales is recognized net of estimated sales discounts. These discounts are estimated based on sales volumes from the preceding months and applying the discount percentages specified in each contract. The estimation process requires management judgment, particularly in determining the amount of sales discounts based on historical sales volumes and contractually agreed-upon discount 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.

Previous wording

We estimate the amount of work completed through discussions 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. We record the costs of research and development activities based upon the estimated services provided but not yet invoiced and include these costs in accrued expenses and other current liabilities in our consolidated balance sheets and in research and development expense in our consolidated statements of operations and comprehensive income (loss). We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates.

Current wording

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.