GYRE THERAPEUTICS, INC.

Description of Business

Gyre Therapeutics, Inc. (the “Company,” “Gyre,” or the “combined company”), formerly known as Catalyst Biosciences, Inc. (“Catalyst”), is a biopharmaceutical company originally incorporated in Delaware on March 7, 1997 under the name Targacept, Inc. Catalyst was a biopharmaceutical company with expertise in protease engineering. Prior to ceasing research and development activities in March 2022, Catalyst had several protease assets that were designed to address unmet medical needs in disorders of the complement or coagulation systems.

After completion of the transactions under the Business Combination Agreement as described below, Gyre became a commercial-stage pharmaceutical 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.

F351 Asset Acquisition

On December 26, 2022, Catalyst executed and closed an Asset Purchase Agreement, which was amended on March 29, 2023 (the “F351 Agreement”), with GNI Group Ltd. (“GNI Japan”) and GNI Hong Kong Limited (“GNI HK”) to purchase all of the assets and intellectual property rights primarily related to a clinical-stage proprietary Hydronidone compound for the treatment of metabolic dysfunction-associated steatohepatitis (“MASH”), a severe form of nonalcoholic fatty liver disease (collectively, the “F351 Assets”), other than such assets and intellectual property rights located in the People’s Republic of China (“PRC”).

Business Combination Agreement

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, Inc. (“GNI USA”), GNI Japan, GNI HK, Shanghai Genomics, Inc. (“SG” and collectively with GNI USA, GNI Japan and GNI HK, the “Contributors,” and each a “Contributor”), certain individuals (each, a “Minority Holder” and collectively, the “Minority Holders”) and Continent Pharmaceuticals Inc. (“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.) (“Gyre Pharmaceuticals”). 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 “Common Stock”) from 100,000,000 shares to 400,000,000 shares, effected a 1-for-15 reverse stock split (the “Reverse Stock Split”) and changed its name to Gyre Therapeutics, Inc.

Shares of Catalyst Common Stock were previously listed on The Nasdaq Capital Market under the symbol “CBIO.” Catalyst had filed a listing application for the combined company with the Nasdaq Stock Market Inc. (“Nasdaq”). On October 31, 2023, Gyre’s Common Stock commenced trading on the Nasdaq Capital Market under the symbol “GYRE”, on a post-reverse stock split adjusted basis.

Pursuant to the Business Combination Agreement, at the Effective Time of the Contributions, and after giving effect to the 1-for-15 reverse stock split, a)

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”),

b)

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

c)

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”).

As a result of the GNI USA Contributions, Gyre directly and indirectly holds 100% of CPI’s shares. Through Gyre’s ownership of CPI, prior to the Minority Holder Contributions, Gyre held a 56.0% indirect interest in Gyre Pharmaceuticals. Upon completion of the Minority Holder Contributions, Gyre obtained additional indirect interests in Gyre Pharmaceuticals and holds, in aggregate, a 65.2% indirect interest in Gyre Pharmaceuticals.

Immediately after the closing of the Contributions, excluding potentially dilutive securities, GNI USA owned approximately 83.6% of the outstanding shares of Gyre Common Stock, Catalyst’s existing stockholders, excluding GNI USA, owned approximately 2.8% of the outstanding Gyre Common Stock, and the Minority Holders owned approximately 13.7% of the outstanding shares of Gyre Common Stock. The Convertible Preferred Stock remained outstanding after the closing of the Contributions and is not included in the above ownership percentages.

At the Effective Time, Gyre Pharmaceuticals terminated its 2021 Stock Incentive Plan (the “2021 Plan”) and the options (the “Gyre Pharmaceuticals Options”) outstanding under the 2021 Plan were terminated and replaced with options granted under a subplan for Chinese participants under the Gyre 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”) that are substantially similar in all material respects to the Gyre Pharmaceuticals Options previously outstanding under the 2021 Plan.

Each share of Catalyst Common Stock and option to purchase Catalyst Common Stock that was issued and outstanding at the Effective Time remained issued and outstanding, and such shares and options were unaffected by the Contributions.

Gyre Pharmaceuticals is a commercial-stage biopharmaceutical company registered and established in the PRC in 2002. Gyre Pharmaceuticals is committed to the research and development of new drugs as well as manufacturing and commercialization of ETUARY (pirfenidone capsule) for the treatment of idiopathic pulmonary fibrosis and other pharmaceutical products. The registered office of Gyre Pharmaceuticals is located at 60 Shunkang Road, Shunyi District, Beijing, PRC.

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

The GNI USA Contributions were treated as an asset acquisition under U.S. generally accepted accounting principles (“U.S. GAAP”), with CPI treated as the accounting acquirer and presented as the predecessor for the post-acquisition SEC reporting purposes. Since Catalyst is the legal acquirer, the GNI USA Contributions were accounted for as a reverse asset acquisition. This determination was based upon the terms of the Business Combination Agreement and other factors including that, immediately following the GNI USA Contributions: (i) GNI USA (as the parent company of CPI immediately prior to the GNI USA Contributions) owns a substantial majority of the voting power of the combined company; (ii) CPI, through GNI USA, has the ability to control the board of directors of the combined company; and (iii) senior management of Gyre Pharmaceuticals and GNI USA holds a majority of the key positions in senior management of the combined company. Immediately prior to the closing of the Contributions, Catalyst did not meet the definition of a business because Catalyst did not have an organized workforce that significantly contributed to its ability to create output, and substantially all of its fair value was concentrated in in-process research and development (“IPR&D”).

As of the closing date of the GNI USA Contributions, the net assets of Catalyst were recorded at their acquisition-date relative fair values in the accompanying consolidated financial statements of the Company and the reported operating results prior to the GNI USA Contributions are those of CPI.

The Minority Holder Contributions were treated as an equity transaction, where the Company obtained additional indirect interest and maintained its control in Gyre Pharmaceuticals.

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 holder of Catalyst Common Stock as of January 5, 2023 (the “CVR Holder”), excluding GNI, received one contractual contingent value right (a “CVR”) for each share of Catalyst Common Stock held by such holder. Each CVR entitles the holder thereof to receive certain cash payments in the future. For additional information, see Note 13 —Commitments and Contingencies.

Reverse Stock Split

On October 30, 2023, the Company 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.

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated. Proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise or vesting of all stock options and warrants outstanding, which resulted in a proportional decrease in the number of shares of the Company’s Common Stock reserved for issuance upon exercise or vesting of such stock options, warrants, and in the case of stock options and warrants, a proportional decrease in the exercise price of such stock options and warrants.

No fractional shares were issued in connection with the Reverse Stock Split and stockholders who would otherwise be entitled to a fraction of one share received a proportional cash payment.

Liquidity

For the year ended December 31, 2024, the Company had a net income of$17.9 million, while net cash used in operating activities was$3.6 million. As of December 31, 2024, the Company had an accumulated deficit of$73.5 million and cash and cash equivalents of$11.8 million. Based on the Company’s current operating plan, management believes that existing cash and cash equivalents, cash flows from operations, and access to capital markets will be sufficient to fund the Company’s operating activities and obligations for at least 12 months following the issuance of these consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its controlled subsidiaries have been prepared in accordance with U.S. GAAP. Intercompany accounts and transactions, if applicable, have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowance of doubtful accounts, long-term receivable, CVR derivative liability, warrant liability, allowance for credit losses, reserves for excess or obsolete inventory, operating lease right-of-use assets and liabilities, recognition of research and development expenses to the appropriate financial reporting period based on the progress of the research and development projects, income taxes, stock-based compensation and useful lives of property and equipment and intangibles with definite lives. The Company bases its estimates on various assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Noncontrolling Interest

The Company reports noncontrolling interest (“NCI”) in a subsidiary as a separate component of equity in the consolidated balance sheets. Additionally, the Company reports the portion of net income (loss) and comprehensive income (loss) attributed to the Company and NCI separately in the consolidated statements of operations and comprehensive income (loss).

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The measure of segment profit or loss is reported on the income statement as consolidated net income (loss). The CODM uses net income (loss) to evaluate income generated from segment assets in deciding whether to reinvest profits and monitor budget versus actual results in assessing performance of the segment.

The Company’s CODM, as a group, includes Gyre’s Chief of Executive Officer (“CEO”), Gyre Pharmaceuticals’ General Manager, Gyre's Chief Operating Officer, and the Chairman of Gyre’s Board of Directors (“Gyre’s Board”). The Company has determined that it operates intwo distinct operating segments and hastwo reportable segments.

Risks and Uncertainties

The Company is subject to a number of risks associated with companies at a similar stage, including dependence on key individuals, competition from larger and established companies, uncertainty of clinical results, ability to obtain adequate financing to support growth, the ability to attract and retain additional qualified personnel to manage the anticipated growth of the Company, and general economic conditions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, note receivable, long-term certificates of deposits, and short-term bank deposits.

The Company is exposed to United States credit risk in the event of default by the United States institutions holding cash to the extent beyond the amount insured by the United States federal depository insurance corporation.

In May 2015, a new Deposit Insurance System (“DIS”) managed by the People’s Bank of China was implemented by the Chinese government. Deposits in the licensed banks in mainland China are protected by DIS, up to a limit of Chinese Renminbi (“RMB”)500,000. The Company maintains cash and deposits in excess of the amount protected by DIS and in the event of bankruptcy of one of these financial institutions, the Company may be unable to claim its deposits back in full. Management believes that these financial institutions are of high credit quality and continually monitors the creditworthiness of these financial institutions. As of December 31, 2024 and 2023, the Company had cash and cash equivalents of$11.8 million and $33.5 million, and long-term certificates of deposit of$24.6 million and $23.4 million, respectively. In addition, the Company had short-term bank deposits of$14.9 million as of December 31, 2024. For the years ended December 31, 2024 and 2023, cash and cash equivalents, short-term bank deposits and long-term certificates of deposits exceeded the PRC DIS coverage by $46.3 million and $49.4 million, respectively.

Accounts receivable are typically unsecured and are derived from product sales. The Company manages credit risk related to the accounts receivable through ongoing monitoring of outstanding balances and limiting the amount of credit extended based upon payment history and creditworthiness. Historically, the Company has collected receivables from customers within the credit terms with no significant credit losses incurred.

Concentration of Customer Risk

For the years ended December 31, 2024 and 2023, one customer, Sinopharm Group Co., Ltd., accounted for approximately 54.3% and 50.5% of accounts receivable, respectively. For the year ended December 31, 2024, three customers, Sinopharm Group Co., Ltd., China Resources Pharmaceutical Group Ltd, and Shanghai Pharmaceuticals Holding Co., Ltd accounted for approximately 48.5%,13.6%, and 10.6% of total revenue respectively. For the year ended December 31, 2023, three customers, Sinopharm Group Co., Ltd., China Resources Pharmaceutical Group Ltd, and Shanghai Pharmaceuticals Holding Co., Ltd accounted for approximately 50.1%,13.7%, and 11.2% of total revenue respectively. All customers are located in the PRC.

Cash and Cash Equivalents

Cash and Cash equivalents includes cash on hand, demand deposits and money market mutual funds. The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.

Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis.

Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The fair value hierarchy requires that an entity maximize the use of observable inputs when estimating fair value. The fair value hierarchy includes the following three-level classification which is based on the market observability of the inputs used for estimating the fair value of the assets or liabilities being measured:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Derivative Financial Instruments

The Company evaluates its contracts to determine if those contracts qualify as derivatives under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date. Any changes in fair value are recorded as non-operating, non-cash other income or expense for each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is probable within the next 12 months from the balance sheet date.

The Company determined that certain contingent payments under the CVR Agreement qualified as derivatives under ASC 815, and as such, were recorded as a liability. Refer to Note 3 —Fair Value Measurements and Financial Instrumentsand Note 13 —Commitments and Contingenciesfor additional information regarding the CVR derivative liability.

Preferred Stock Warrants

Warrants to purchase shares of the Convertible Preferred Stock (“Preferred Stock Warrants”) are freestanding financial instruments classified as warrant liability on the Company’s consolidated balance sheets since the underlying securities are contingently redeemable upon the occurrence of events which are outside of the Company’s control. The Preferred Stock Warrants are recorded at fair value upon issuance and are subject to remeasurement at the end of each reporting period. Any change in the fair value of the Preferred Stock Warrants is recorded as changes in fair value of warrant liability in other income (expense), net on the consolidated statement of operations and comprehensive income (loss). The Company adjusts the liability for changes in fair value of the Preferred Stock Warrants until the warrants are exercised or expired.

Convertible Preferred Stock

The Company records shares of non-voting Convertible Preferred Stock at its relative fair value on the date of issuance. The Company applied the guidance in ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities, to account for the Convertible Preferred Stock. The Convertible Preferred Stock could become redeemable upon the occurrence of an event that is not solely within the control of the issuer and therefore, is classified within mezzanine equity in the accompanying consolidated balance sheets.

Long-term Certificates of Deposit

The long-term certificates of deposit will mature between January 2026 and April 2027. Certificates of deposit are accounted for at amortized cost with no adjustments for changes in fair value. Premiums and discounts, if any, are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield using theeffective interest method. The Company recordedno allowance for credit losses associated with the certificates of deposit as of December 31, 2024 and 2023.

Short-term Bank Deposits

The short-term bank deposits will mature between January 2025 and December 2025. Short-term bank deposits consist of bank deposits with original maturities of one year or less, and long-term deposits that have a remaining maturity of less than one year. These deposits are recorded at amortized cost. Interest income from these deposits is recognized and reported within interest income. The Company recordedno allowance for credit losses associated with the short-term certificates of deposit as of December 31, 2024 and 2023.

Long-Term Receivable

Catalyst sold its legacy rare bleeding disorder program to GC Biopharma Corp. (“GCBP”) in February 2023. The Company determined that the hold-back from the GCBP asset sale qualified as a long-term receivable. The receivable is considered a loan held for investment since the Company has the intent and ability to hold to maturity. The Company has elected to account for the receivable under the fair value option method of accounting and any changes in fair value are recorded in interest and other income, net on the consolidated statement of operations and comprehensive income (loss). Refer to Note 3 —Fair Value Measurements and Financial Instrumentsfor additional information regarding the long-term receivable.

Long-term Investments

The Company’s long-term investments include equity investments in an affiliate in which it does not have a controlling financial interest, but has the ability to exercise more than minor influence over the operating and financial policies of the investee. The investment is accounted for using the equity method of accounting in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Under the equity method, the Company initially records its investments at fair value. The Company subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of the equity investee’s net income or loss after the date of investment. The Company evaluates the equity method investment for impairment under ASC 323. An impairment loss on the equity method investments is recognized in losses when the decline in value is determined to be other-than-temporary. No impairment charge was recognized for the years ended December 31, 2024 and 2023.

Accounts and Note Receivables, Net

The Company recognizes a receivable when it has an unconditional right to payment, which represents the amount the Company expects to collect in a transaction. The Company’s trading terms with its customers are mainly on credit, and the credit period is usually within three months. Accounts and note receivables are recorded at net realizable value. The allowance for credit losses is determined by management’s best estimate of expected credit losses of the receivables based on historical data, current information, and future economic forecasts. Receivables are grouped into asset pools based on delinquency status and customer type, with fixed reserve percentages set for each pool. The reserve percentages are determined by considering factors such as historical experience with customers, regulatory and legal environments, and other relevant current and future macroeconomic factors.

Accounts and note receivables, net, consisted of the following at the dates indicated (in thousands):

Changes in the allowance for credit losses as of December 31, 2024 and 2023 consisted of the following (in thousands):

Inventories, Net

Inventories, consisting of raw materials, work in progress, and finished goods, are valued at the lower of cost or net realizable value with cost being determined on the first-in, first-out method. The Company will record a write-down to its net realizable value in cost of sales in the periods that the decline in value is first identified. The average cost of work in progress and finished goods consists primarily of material, labor and manufacturing overhead expenses (including fixed production-overhead costs) and includes the services and products of third-party suppliers. Net realizable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. The Company also regularly monitors inventory quantities on hand and in transit, and reserves for excess and obsolete inventories using estimates based on historical experience, historical and projected sales trends, specific categories of inventory, and expiration and age of on-hand inventory. Inventories presented in the consolidated balance sheets are net of reserves for excess and obsolete inventory. If actual conditions or product demands are less favorable than assumptions, additional inventory reserves may be required.

Property and Equipment, Net

Property and equipment, except for construction-in-progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property and equipment that have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where significant parts of property and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:

Where parts of an item of property and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

An item of property and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. The difference between the net sales proceeds and the carrying amount of the asset is recorded as gain or loss in profit or loss in the reporting period the relevant asset is derecognized.

Construction in progress represents a building under construction or machinery not yet put into operation, which is stated at cost less any impairment losses, if applicable, and is not depreciated. Cost comprises the direct costs of construction and machinery, and capitalized borrowing costs on related funds borrowed during the period of construction. Construction in progress is reclassified to the appropriate category of property and equipment when completed and ready for use.

Property and equipment is reviewed for impairment when events or circumstances exist which suggest that the carrying amount of the asset group may not be recoverable.

Intangible Assets, Net

Intangible assets acquired separately are measured upon initial recognition at cost. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives, consisting primarily of patents, technological know-how and computer software, are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. Nonrefundable advance payments for intangible assets are capitalized in “other assets, noncurrent” and will be recognized as intangible assets when the Company obtains the control of the underlying asset. As of December 31, 2024, the Company had paid $0.7 million to obtain the drug registration certificate for nintedanib and the advance payment was included in “other assets, noncurrent”.

Patents and Technological Know-How

Patents and technological know-how that have finite useful lives are stated at cost less any impairment losses and are amortized on a basis that best reflects how their economic benefits are utilized or on the straight-line basis, if not materially different from actual utilization, over their estimated useful life of 10 to 20 years.

Computer Software

Purchased computer software is stated at cost less any impairment losses and is amortized on the straight-line basis over its estimated useful life oftwo tothree years.

Leases

The Company assesses at contract inception whether a contract is, or contains, a lease based on the unique facts and circumstances present. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases are included in ROU assets, current operating lease liabilities, and long-term operating lease liabilities on the accompanying consolidated balance sheets. Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the expected lease term at commencement date or the lease modification date, if applicable. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the ROU assets may be required for items such as initial direct costs paid or incentives received.

The Company determines the expected lease term as the noncancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. The Company’s leases do not contain any residual value guarantees.

The Company has elected to combine lease and non-lease components as a single component. The lease expense for minimum lease payments is recognized over the expected term on a straight-line basis. Variable lease payments, which are primarily comprised of property maintenance, taxes, and other payments based on usage, are recognized when the expense is incurred.

Land Use Rights, Net

All land in mainland China is subject to government or collective ownership, and land use rights can be purchased for a specified period of time. The purchase price of land use rights represents the operating lease prepayments under ASC Topic 842, Leases and is recorded as land use rights, net asset on the consolidated balance sheets, which is amortized over the remaining lease term.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment, finite-lived intangible assets, ROU assets and land use rights, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the asset group level, i.e., the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts of an asset group to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such a review indicates the carrying amount of the asset group is not recoverable, an impairment loss shall be measured as the amount by which the carrying amount of an asset group exceeds its fair value. Any impairment loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets, except that the carrying amount of an individual asset shall not be reduced below its fair value. Calculating the fair value of the assets involves significant estimates and assumptions. These estimates and assumptions include, among others, projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and the determination of appropriate market comparables. Changes in these factors and assumptions used can materially affect the amount of impairment loss recognized in the period the asset was considered impaired. The Company didnot record any impairment of long-lived assets as of December 31, 2024 and 2023.

Income Tax Expense

Income taxes are recorded 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.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC Topic 740, Income Taxes. When uncertain tax positions exist, the Company recognizes 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, if any, are recorded as a component of income tax expense.

Revenue Recognition

The Company records 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. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Sale of Pharmaceutical Products

The Company mainly sells its pharmaceutical products to distributors in the PRC, who ultimately sell the products to hospitals, other medical institutions and pharmacies. Revenue from the sale of pharmaceutical products is recognized at the point in time when control of the product is transferred to the customer upon delivery of the underlying products.

The Company records revenue for product sales, net of estimated product returns. Customers have limited return rights related only to the product damage or defect identified upon delivery of the product. The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized. To date, actual returns have not differed materially from the Company’s estimates.

Rebates are offered to distributors, consistent with pharmaceutical industry practices. The estimated amounts of unpaid or unbilled rebates are recorded as a reduction of revenue, if any. Estimated rebates are determined based on contracted rates and sales volumes and, to a lesser extent, distributor inventories. The Company regularly reviews the information related to these estimates and adjusts the amounts accordingly. The Company uses the expected value method to estimate the amount of consideration to which it will be entitled.

The requirements on constraining estimates of variable consideration, i.e., when it is probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved, are applied and the expected future rebates are deducted from the trade receivables from the customers.

The Company has applied the practical expedients under ASC 606 with regard to assessment of financing component and concluded that there is no significant financing component given that the period between delivery of goods and payment is generally one year or less.

The Company didnot recognize any contract assets as of December 31, 2024 and 2023.

Contract liabilities

Contract liabilities are recognized when the payments are received from customers before the Company transfers the related goods or services. Contract liabilities are recognized as revenue when the Company performs under the contract (i.e., transfers control of the related goods or services to the customer). As of

December 31, 2024, the Company’s Contract liability balance was$61,000. Contract liability balance was$39,000 as of December 31, 2023 which has been recognized as revenue during the year ended December 31, 2024.

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; (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.

Stock-Based Compensation

The Company measures the cost of employee, non-employee and director services received in exchange for an award of equity instruments based on the fair value of the award on the date of grant. For equity awards that only contain service conditions, the Company recognizes the related expense over the period during which the employee, non-employee or director is required to provide service 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 the Company has determined that it is probable that performance conditions will be satisfied. The cost is recognized with a corresponding increase in equity.

Determining the fair value of stock-based awards at the grant date requires judgment. The Company uses 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 the Company’s assumptions regarding a number of variables including the fair value of its 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. The Company elected to account for forfeitures when they occur.

For awards that do not ultimately vest because non-market performance or service conditions have not been met, no expense is recognized. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and service conditions are satisfied.

Where the terms of an equity award are modified, a minimum expense is recognized as if the terms had not been modified if the original terms of the award are met. In addition, an expense is recognized for any modification that increases the total fair value of the stock-based payments or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the Company or the employee are not met. However, if a new award is substituted for the cancelled award and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquired IPR&D with no alternative future use is charged to expense at the acquisition date. Refer to Note 7 —GNI USA Contributions under the Business Combination Agreementfor a more detailed description.

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 of payroll and other personnel-related expenses, laboratory supplies and reagents, contract research and development services, materials, and consulting costs, as well as allocations of facilities and other overhead costs.

Selling and marketing expenses primarily relate to sales of ETUARY and consist of conference expenses incurred from hosting academic conferences, seminars and symposia; promotional expenses associated with market education on ETUARY for its use in hospitals; and staff costs primarily consisting of salaries and benefits for in-house marketing and promotion staff.

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 its functional employees; (iii) professional service fees, primarily for legal and accounting services; and (iv) other miscellaneous expenses.

Advertising Cost

Advertising costs are expensed when incurred. Such costs approximated$10.7 million and$10.5 million for the 2024 and 2023 fiscal years, respectively. Advertising costs are included in selling expenses on the consolidated statements of operations and comprehensive income (loss).

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. Grant income is included within other income in the consolidated statements of operations and comprehensive income (loss).

Interest Income

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.

Comprehensive Income (Loss)

The Company is required to report all components of comprehensive income (loss), including net income (loss), in the accompanying consolidated financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including net income, unrealized gains and losses on investments and foreign currency translation adjustments.

Net Income (Loss)Per Share (“EPS”) Attributable to Common Stockholders

The Company calculates basic and diluted EPS attributable to common stockholders in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires EPS for each class of stock (common stock and participating securities) to be calculated using the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings attributable to stockholders. The two-class method requires earnings available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all earnings for the period had been distributed. The Company’s Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. The Convertible Preferred Stock contractually entitled the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in the Company’s losses. As such, net losses attributable to stockholders for the periods presented were not allocated to these securities.

Basic EPS is calculated by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed by giving effect to all potentially dilutive securities outstanding for each period presented. For periods in which the Company reports net loss attributable to common stockholders, diluted EPS attributable to common stockholders is the same as basic EPS attributable to common stockholders since the effects of potentially dilutive securities are antidilutive. See Note 16 —EPSfor more information.

Foreign Currency Translation and Remeasurement

The functional currency of the Company is the US Dollar. The local currency of foreign operations, except for those in highly inflationary economies, generally are considered to be their functional currency. The functional currency of Gyre Pharmaceuticals is RMB. The determination of the respective functional currency is based on the criteria stated in ASC Topic 830, Foreign Currency Matters. The Company uses the U.S. Dollar as its reporting currency.

Assets and liabilities are translated at foreign exchange rates on the balance sheet date. Equity amounts are translated at historical exchange rates. Revenue and expenses are translated at the average foreign exchange rates. The effects of these translation adjustments are reported within accumulated other comprehensive income in the consolidated balance sheets and consolidated statements of convertible preferred stock and equity, with the translation gain (loss) shown as a separate component of other comprehensive income (loss) in the accompanying consolidated statements of operations and comprehensive income (loss). During the years ended December 31, 2024 and December 31, 2023, the Company had translation loss of$1.5 million and$1.5 million, respectively.

Foreign currency gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included within other income (expense), net in the consolidated statements of operations and comprehensive income (loss). The foreign currency transaction gains or losses for the years ended December 31, 2024 and 2023 were immaterial.

Foreign Currency Risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market.62.4% of the Company’s cash and cash equivalents, and 100.0% of the Company’s short-term bank deposits and long-term certificates of deposit as of December 31, 2024 in the amount of$7.4 million,$14.9 million and$24.6 million, respectively, were denominated in RMB.

Accounting Pronouncements Recently Adopted

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company adopted this standard as of January 1, 2024. The adoption of this ASU didnot have any material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements – Issued But Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is permitted. This ASU will result in the required additional disclosures being included in the Company’s consolidated financial statements, once adopted. The Company plans to adopt ASU 2023-09 and related updates as of January 1, 2025. The Company will assess the impact of adoption of this standard on its consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU 2023-06 modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Because of the variety of Topics amended, a broad range of entities may be affected by one or more of those amendments. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all other entities, the amendments will be effective two years later. The amendments in this update should be applied prospectively. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted. The Company is currently evaluating the provisions of this ASU.

For a description of the fair value hierarchy and fair value methodology, see Note 2 —Summary of Significant Accounting Policies. As of December 31, 2024, the Company’s highly liquid money market funds are included within cash equivalents.

The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023 (in thousands):

(1)Included in cash and cash equivalents on accompanying consolidated balance sheet.

The carrying amounts of cash, accounts and note receivables, net, other receivables, accounts payable, due to related parties, CVR excess closing cash payable, and accrued liabilities approximate their fair values due to their short maturities.

During the years ended December 31, 2024 and 2023, there wereno transfers of fair value measurement between Level 1 and Level 2 andno transfers into or out of Level 3 for both financial assets and liabilities.

Receivable from GCBP and CVR Derivative Liability

The receivable from GCBP and the corresponding CVR derivative liability relate to the asset purchase agreement with GCBP. The fair value of this receivable and derivative liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. These unobservable inputs include the probability of GCBP meeting its contractual payment obligations, the timing of cash flows, and the expected recovery rate of the receivable. The estimation process incorporates GCBP’s financial condition and market conditions that could impact its ability to fulfill obligations. Additionally, the selection of the discount rate (currently estimated at 5.05%) may fluctuate over time. The estimated fair value of the receivable from GCBP and CVR derivative liability was determined based on the anticipated amount and timing of projected cash flows to be received from GCBP pursuant to the GCBP asset purchase agreement discounted to their present values using an estimated discount rate of 5.05%. As of December 31, 2024, the Company expects to receive a$5.0 million hold-back payment from GCBP in the first quarter of 2025, which will be distributed, net of expenses, to the CVR Holders. The change in fair value of the receivable from GCBP and the corresponding CVR derivative liability was recorded in interest and other income, net on the consolidated statement of operations and comprehensive income (loss).

Warrant Liability

In October 2023, Catalyst entered into a Securities Purchase Agreement for a private placement with GNI USA (the “Private Placement”). The Private Placement closed immediately following the Contributions on October 30, 2023. Upon closing of the Private Placement, the Company issued 811 shares of Convertible Preferred Stock and 811 Preferred Stock Warrants to purchase shares of Convertible Preferred Stock to GNI for an aggregate purchase price of approximately$5.0 million. The Preferred Stock Warrants are immediately exercisable at an exercise price of$4,915.00 per share of Convertible Preferred Stock and expire on October 30, 2033. The number of shares of Common Stock issuable upon exercise and conversion of the Preferred Stock Warrants is 540,666. The Company accounted for the Private Placement as a non-arm's length transaction. The Preferred Stock Warrants were initially recognized at fair value upon issuance and the remaining proceeds from the Private Placement were allocated to the Convertible Preferred Stock.

The Preferred Stock Warrants are freestanding financial instruments classified as a warrant liability on the Company’s consolidated balance sheet. The fair value of the Preferred Stock Warrants is subject to uncertainty due to unobservable inputs, including the expected volatility of the Company’s stock price, the likelihood of warrant exercise, and the estimated term of the warrants. Since there is limited market activity for the Preferred Stock Warrants, their fair value is determined using an option pricing model, which incorporates subjective inputs such as the Company’s stock price volatility, derived from historical and peer company data, as well as management’s expectations regarding future performance. As these assumptions evolve due to market conditions or company specific factors, the warrant liability may experience fluctuations. The Preferred Stock Warrants are revalued each reporting period with the change in fair value recorded as change in fair value of warrant liability in other income (expense), net on the consolidated statement of operations and comprehensive income (loss).

The fair value of the warrant liability is estimated based on the Black-Scholes option pricing model using the following weighted-average assumptions:

The following table sets forth the changes in the estimated fair value of the Company’s Level 3 financial assets and liabilities (in thousands):

Financial Instruments

Cash equivalents and held-to-maturity debt securities consisted of the following (in thousands):

The fair value and amortized cost of the Company's held-to-maturity debt securities and redemption date were as follows:

Interest income from the short-term bank deposits is recognized on an accrual basis over the term of the deposits. The accrued interest income for the periods ended December 31, 2024 and 2023 was $0.4 million and $0, respectively.

Interest income from the long-term certificates of deposit is recognized on an accrual basis over the term of the deposits. The accrued interest income for the periods ended December 31, 2024 and 2023 was $0.6 million and $0.6 million, respectively.

Inventories, net

Inventories, net of reserves of$4,000 and$46,000 as of December 31, 2024 and 2023, respectively, consisted of the following components (in thousands):

The provision for inventory and write-downs for the years ended December 31, 2024 and 2023 were immaterial.

Accrued expenses and other current liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

Deferred government grants

Deferred government grants represent funds provided by the government for research and development, construction of new facilities, or improvement of existing production facilities. The amount of deferred government grants as of December 31, 2024 and 2023, is net of the amount recognized as government grant income. During the years ended December 31, 2024 and 2023, the Company received$0.9 million and$1.1 million government grants, respectively. During the years ended December 31, 2024 and 2023, the Company recognized$0.1 million and$1.0 million of government grant income within other income in the consolidated statements of operations and comprehensive income (loss), respectively.

Summarized below are deferred government grants as of December 31, 2024 and 2023 (in thousands):

Property and equipment, net

Property and equipment, net consisted of the following (in thousands):

Depreciation expense was $1.3 million and$1.0 million for each of the years ended December 31, 2024 and 2023, respectively.

Long-Term Investment Measured Under Equity Method

On June 28, 2024, Gyre Pharmaceuticals entered into a partnership agreement as a limited partner with other investors and is obligated to pay $4.2 million for an 18.93% equity interest in the partnership. 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, 2024, the Company's total investment into the partnership and the carrying value of the Company’s long-term investment in this affiliate, which was included in “Other assets, noncurrent” in the balance sheet, was $1.7 millionand $1.6 million, respectively.

The gross carrying amounts and accumulated amortization of the Company’s intangible assets with determinable lives as of December 31, 2024 and 2023 were as follows (in thousands):

Intangible assets are carried at cost less accumulated amortization and impairment, if applicable, and the amortization expense is recorded in operating expenses. The weighted average amortization period for the intangible assets as of December 31, 2024 is 4.04 years.

Amortization expense was$38,000 and$0.1 million for each of the years ended December 31, 2024, and 2023, respectively. Based on finite-lived intangible assets recorded as of December 31, 2024, the estimated future amortization expense is as follows (in thousands):

The Company’s product revenues were mainly generated from the sale of ETUARY. Sales of ETUARY accounted for 99.3% and 98.9% of total revenue for the years ended on December 31, 2024 and 2023, respectively.

Sales of Pharmaceutical Products

The Company generates revenue mostly through sales of ETUARY and certain generic drugs. The distributors were the Company’s direct customers, and sales to distributors accounted for 100.0% of revenue from ETUARY. The distributors sell ETUARY to outlets, including hospitals and other medical institutions, as well as pharmacies.

Product returns to date have not been significant and the Company has not considered it necessary to record a reserve for product returns. The Company’s product revenues were recognized at a point in time when the underlying product was delivered to the customer, which was when the customer obtained control of the product. Revenue from sales of pharmaceutical products was $105.8 million and $113.5 million for the years ended December 31, 2024 and 2023, respectively. All sales are generated in the PRC.

The Company’s sales by product categories for the years ended December 31, 2024 and 2023 are as follows (in thousands):

The GNI USA Contributions under the Business Combination Agreement (see Note 1) was treated as a reverse asset acquisition, with CPI as the accounting acquirer and Catalyst as the legal acquirer. Under U.S. GAAP, a company must evaluate if an integrated set of assets and activities qualifies as a business acquisition or an asset acquisition by assessing if the gross assets’ fair value is primarily concentrated in a single asset or a group of similar assets. If this criterion is met, the acquired operations are not considered a business. Catalyst did not meet the business definition as its fair value was concentrated in one IPR&D asset, it lacked an organized workforce contributing significantly to output creation, and no substantive processes were acquired. As such, the GNI USA Contributions was treated as an asset acquisition. In an asset acquisition, goodwill is not recognized, and the cost allocated to the acquired IPR&D with no alternative future use is expensed.

The following summarizes the purchase price paid in the GNI USA Contributions (in thousands, except per share amounts):

(1)

The purchase price was based on the closing price of Catalyst Common Stock on October 30, 2023.

(2)

This amount is calculated based on 12,340 shares of Convertible Preferred Stock outstanding as of October 30, 2023. Each share of preferred stock converts into approximately 666.67 shares of common stock. The fair value was calculated using the closing price of Catalyst Common Stock on October 30, 2023 and the number of underlying common shares.

(3)

Any option to purchase Catalyst Common Stock that was issued and outstanding at the Effective Time remains issued and outstanding and unaffected by the GNI USA Contributions. In a reverse acquisition, however, from an accounting perspective, the Catalyst employee stock option awards have been exchanged for share-based payment awards of the accounting acquirer. Accordingly, this balance represents the pre-Contributions service portion of the estimated fair value of the employee stock option awards issued to Catalyst option holders. In calculating the estimated fair value of the option awards based on the Black-Scholes model, management used the following weighted-average assumptions:

The total purchase price paid in the GNI USA Contributions has been allocated to the net assets acquired and liabilities assumed based on their fair values at the Effective Time. The allocation of the purchase price, as shown above, is as follows (in thousands):

The Minority Holder Contributions were treated as an equity transaction, where the Company obtained additional indirect interest and maintained its control in Gyre Pharmaceuticals.

Prior to the Contributions, CPI entered into a CP U.S. Share Purchase Agreement with GNI USA and divested almost all of its assets other than its 56.0% indirect ownership interest in Gyre Pharmaceuticals. GNI USA is the parent company of Gyre. In connection with the transaction, the Company recorded a receivable in the amount of$0.8 million included in other receivables from GNI on the consolidated balance sheet as of December 31, 2023 and recognized a loss of$2.7 million during the year ended December 31, 2023, included in divestiture losses of the consolidated statements of operations and comprehensive income (loss).

Operating leases

In April 2024, Gyre Pharmaceuticals entered into a lease arrangement for its new corporate headquarters, an approximately 2,130 square meter office space in Beijing, PRC, which lease is set to expire in June 2027. In 2022, Gyre Pharmaceuticals secured a lease for an office space of approximately 180 square meters in Zhengzhou, PRC, which was renewed in July 2024 and is set to expire in August 2026. In November 2024, Gyre Pharmaceuticals secured a new lease for an office space of approximately 224 square meters in Shanghai, China, with the lease set to expire in December 2026. In November 2023, the Company secured a lease for its U.S. headquarters in San Diego, California, with the lease set to expire in thefirst quarter of 2027.

The Company also has multiple short-term leased properties used as offices and employee dormitories. The Company recorded a total of$68,000 and$89,000 short-term rent expenses during the years ended December 31, 2024 and 2023, respectively. The short-term rent expense amounts are recorded in operating expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

As of December 31, 2024, the Company recorded an aggregate ROU asset of$1.8 million and an aggregate lease liability of$1.6 million in the accompanying consolidated balance sheets.

Rent expense related to operating leases was$0.7 million and $0.5 million for the years ended December 31, 2024, and 2023, respectively. Variable lease payments for the years ended December 31, 2024 and 2023 were immaterial.

Supplemental cash flow information related to operating leases was as follows (in thousands):

The present value assumptions used in calculating the present value of the lease payments were as follows:

As of December 31, 2024, undiscounted future minimum payments under the Company’s operating leases were as follows (in thousands):

The Company is required to maintain security deposits of$0.3 million in connection with various leases, which amounts are included in other assets, noncurrent on the Company’s consolidated balance sheets.

Land use rights

As of December 31, 2024, the Company held land use rights for two land parcels in Beijing’s Shunyi District, expiring in 2053, and in Cangzhou, Hebei Province, expiring from 2067 to 2071. These parcels, with a combined area of approximately 66,559 square meters, are utilized as manufacturing facilities. As of December 31, 2024, the aggregate recorded land use rights, net assets for these parcels was$1.4 million.

Common Stock

Under the Company’s amended and restated certificate of incorporation, the Company has 400,000,000 shares of Common Stock authorized for issuance with a$0.001 par value per share. The number of authorized shares of Common Stock may be increased or decreased by the affirmative vote of the holders of a majority of the Company’s stock who are entitled to vote. The holders of Common Stock have voting rights equal toone vote per share of Common Stock held. The holders of Common Stock are entitled to receive dividends when and as declared or paid by the Company’s board of directors.

Common stock reserved for future issuance is as follows:

[1] Includes 7,304,898 options exercisable for shares of common stock, which underlying shares of common stock were transferred in the name of the Company to Futu Network Technology Limited, the stock plan administrator of the 2023 Omnibus Incentive Sub-Plan for Chinese Participants.

2024 ATM Program

On November 27, 2024, Gyre Therapeutics, Inc. entered into an Open Market Sale Agreement (the “ATM Agreement”) with Jefferies LLC (the “Sales Agent”) as sales agent, pursuant to which the Company may offer and sell, from time to time, through the Sales Agent, shares of Common Stock with aggregate gross sales proceeds of up to$50.0 million through an at-the-market offering program (the “ATM Program”). The Company will pay the Sales Agent a commission of up to 3% of the gross proceeds of any shares sold. The Company also agreed to reimbursethe Sales Agent for certain expenses incurred in connection with its services under the ATM Agreement, including up to $135,000 for legal expenses in connection with the establishment of the ATM Program. During the year ended and as of December 31, 2024, the Company sold 70,267 shares of Common Stock under ATM Program and received net proceeds of$0.8 million, after deducting commissions and offering costs of$0.02 million.

Sales of shares of Common Stock under the ATM Program may be made pursuant to the registration statement on Form S-3 (File No. 333-283237), which was declared effective by the SEC on November 22, 2024, and a related prospectus supplement filed with the SEC on November 27, 2024.

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, which represented the amount of net assets of the relevant subsidiaries not available for distribution were $64.3 million and $64.3 million as of December 31, 2024 and 2023, respectively.

As a result of the above restrictions, parent-only financial statements are presented in Schedule I.

Statutory Reserve

Gyre Pharmaceuticals is required to set aside at least 10% of its after-tax profits as the statutory reserve fund until the cumulative amount of the statutory reserve fund reaches 50% or more of its registered capital, if any, to fund its statutory reserves, which are not available for distribution as cash dividends. At the Company’s discretion, the Company may allocate a portion of after-tax profits based on PRC accounting standards to a discretionary reserve fund.

There wereno appropriations to these reserves during the years ended December 31, 2024 and 2023.

In December 2022, Catalyst issued an aggregate of 12,340 shares of Convertible Preferred Stock to GNI Japan and GNI HK in connection with the F351 Asset Acquisition (see Note 1 —Organization and Nature of Operations), which were subsequently transferred to GNI USA in October 2023.

In October 2023, immediately following the closing of the Contributions, the Company issued 811 shares of Convertible Preferred Stock and 811 Preferred Stock Warrants to GNI USA under the Private Placement. For additional information, see Note 3 —Fair Value Measurements and Financial Instruments.

In November 2023, GNI USA provided notice to the Company to convert its 13,151 shares of Convertible Preferred Stock. Each share of Convertible Preferred Stock was convertible into approximately 666.67 shares of common stock. On January 22, 2024, subject to the terms and conditions of the Convertible Preferred Stock Certificate of Designation,8,767,332 shares of Common Stock were issued to GNI USA upon such conversion.

2023 Omnibus Incentive Plan

The 2023 Omnibus Incentive Plan was approved by Catalyst’s stockholders in August 2023 and ratified by Gyre’s board of directors (the “Board”) in October 2023. The 2023 Omnibus Incentive Plan became effective on October 30, 2023. The 2023 Omnibus Incentive Plan permits the Company to issue up to 17,845,496 shares of common stock and will automatically increase by the lesser of (i)5% of the total number of outstanding shares of common stock on December 31st of the preceding calendar year and (ii) such smaller number of shares of common stock as determined by the Board on the first day of each fiscal year beginning on January 1, 2024. On January 1, 2024, pursuant to the automatic increase in the number of shares reserved, an additional 3,829,780 shares of common stock were reserved and made available for issuance under the 2023 Omnibus Incentive Plan.

The following table summarizes stock option activity considering the conversion of Gyre Pharmaceuticals options to Gyre options to purchase shares of Gyre common stock upon completion of the Contributions:

The weighted-average grant date fair value of options granted was$7.25 and$5.45 per share for the years ended December 31, 2024 and 2023, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was$9.6 million and $0.1 million, respectively.

The fair value of all equity awards that vested during the periods ended December 31, 2024 and 2023 was $0.5 million and $4.5 million, respectively.

Cash received from the exercise of options was approximately$1.9 million and $0 for the years ended December 31, 2024 and 2023, respectively.

Valuation Assumptions

The Company estimated the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. Due to its limited relevant historical data, the Company estimated its volatility considering a number of factors, including the use of the volatility of comparable public companies. The expected term of options granted under the 2023 Omnibus Incentive Plan, all of which qualify as “plain vanilla” per SEC Staff Accounting Bulletin 107, is determined based on the simplified method due to the Company’s limited relevant history. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. This fair value is being amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

The fair value of employee stock options granted was estimated using the following weighted-average assumptions:

Total stock-based compensation recognized was as follows (in thousands):

As of December 31, 2024, the Company had an unrecognized stock-based compensation expense of $4.2 million, related to unvested stock option awards, which is expected to be recognized over an estimated weighted-average period of 3.12 years.

Each CVR under the CVR Agreement (see Note 1 —Organization and Nature of Operations) entitles the holder to receive (i) certain cash payments from the net proceeds related to the disposition of Catalyst’s legacy assets, (ii)100% of the excess cash (net of all current or contingent liabilities, including transaction-related expenses) retained by the Company in excess of $1.0 million as of the closing date of the transactions under the Business Combination Agreement, (iii)100% of the amount actually received by the Company, net of expenses, pursuant to an asset purchase agreement Catalyst entered into with Vertex Pharmaceuticals Inc. (“Vertex”) in May 2022 and (iv)100%of the excess amount, by which the preapproved costs to manage, negotiate, settle and finalize certain third party claims exceed the costs actually incurred with respect to such claims. The CVRs are not transferable, except in certain limited circumstances as provided for in the CVR

Agreement, will not be certificated or evidenced by any instrument, and will not be registered with the SEC or listed for trading on any exchange.

In June 2023, Catalyst fully settled the CVR payments related to the Vertex asset purchase agreement.

In February 2023, Catalyst sold its legacy rare bleeding disorder program to GCBP. As a result, the Company distributed the net cash proceeds received from the GCBP asset sale of$0.2 million to the CVR Holders as well as recorded a$4.5 million long-term CVR derivative liability for the future distribution of the hold-back amount to be received in May 2025. As of December 31, 2024 and 2023, the carrying value of the CVR derivative liability was$5.0 million and$4.7 million on the consolidated balance sheet, respectively. Refer to Note 3 —Fair Value Measurements and Financial Instrumentsfor additional information regarding the CVR derivative liability and GCBP asset sale.

On October 30, 2023, pursuant to the CVR Agreement, the Company recorded a $1.1 million CVR excess closing cash payable upon closing of the Contributions. During the first quarter of 2024, the Company received a settlement related to the CVR litigation, and on August 26, 2024, it distributed approximately$12.6 million (or$0.40 per contingent value right) to the CVR Holders. Subsequent to the payment, the CVR Holders have received all requisite cash payable under the CVR Agreement and there areno outstanding distributions.

Litigation and Legal Matters

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s consolidated financial statements.

Purchasing Commitments

Property and Equipment

The Company’s commitments related to 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 were expected to be incurred within one year.

F351

In September 2020, Gyre Pharmaceuticals entered into an intellectual property (“IP”) transfer agreement (the “F351 Transfer Agreement”) with GNI Japan and certain of its wholly owned subsidiaries (the “GNI Group”). According to the F351 Transfer Agreement, Gyre Pharmaceuticals acquired the exclusive right to use Hydronidone IP rights in mainland China and the right of first offer for the global IP rights (the “F351 IP Rights”).

Under the F351 Transfer Agreement, in exchange for the F351 IP Rights, Gyre Pharmaceuticals is obligated to pay GNI Group$4.6 million upon submission of the F351 New Drug Application (the “NDA”) to Center for Drug Evaluation of the National Medical Products Administration (the “NMPA”) of the PRC,$1.2 million after the NDA passes the NMPA’s Center for Food and Drug Review and Inspection’s on-site registration inspection for the F351 product, and$6.9 million upon NMPA’s approval of the NDA. As of December 31, 2024, the payment conditions have not been met, andno payments have been made.

Research and Development Programs

In addition to the F351 program, as of December 31, 2024, the Company has committed to allocate$20.3 million toward future research and development activities for various programs.

Indemnification Agreements

In the normal course of business, the Company enters into agreements that indemnify others for certain liabilities that may arise in connection with a transaction or certain events and activities. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, the Company may be required to reimburse the loss. These indemnifications are generally subject to various restrictions and limitations. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations.

The components of the Company’s provision for income taxes for the years ended December 31, 2024 and 2023 consist of the following (in thousands):

The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2024 and 2023 are as follows:

Significant components of the Company’s deferred tax assets as of December 31, 2024 and 2023 consist of the following (in thousands):

The movements of the valuation allowance are as follows (in thousands):

Based on the available objective evidence on December 31, 2024, the Company does not believe it is more likely than not that its net deferred tax assets will be realizable for US tax purposes. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets on December 31, 2024 for U.S. tax purposes.

As of December 31, 2024, after consideration of certain limitations (see below), the Company had approximately $193.4 million federal and $13.9 million state net operating loss carryforwards (“NOL”) available to reduce future taxable income which, if unused, will begin to expire in 2037 for federal and 2034 for state tax purposes. The federal net operating loss carryforward includes $191.9 million that have an indefinite life.

As of December 31, 2024, the Company also had tax credit carry forwards available to offset future tax liabilities of approximately $8,000 for federal and $7.5 million for state. If unused, the federal credit will begin to expire in 2042 and the state tax credit does not expire.

If the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change NOL carryforwards are subject to annual limitation under Section 382 of the Internal Revenue Code (California has similar provisions). The annual limitation is determined by multiplying the value of the Company’s stock immediately before such ownership change by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The Company determined that ownership changes under Section 382 occurred on December 31, 2007, August 20, 2015, April 13, 2017, February 15, 2018, February 18, 2020, and December 26, 2022. Approximately $156.5 million and $75.2 millionof the NOLs will expire unutilizedfor federal and California state income tax purposes, respectively. The Company has derecognized NOL related deferred tax assets in the tax affected amounts of $32.9 million and $0 for federal and California state income tax purposes, respectively through the year ended December 31, 2024.

All of the federal R&D credits could expire unutilized, whereas none of the California R&D credits are subject to expiration. Approximately $26.0 million of gross federal R&D credit-related deferred tax assets were derecognized due to the Section 383 limitation. The ability of the Company to use its remaining NOL and credit carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.

Accounting for Uncertainty in Income Taxes

The Company only recognizes tax benefits if it is more likely than not that they will be sustained upon audit by the relevant tax authority based upon their technical merits. An uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The Company had approximately $1.9 million of unrecognized tax benefits as of December 31, 2024. As the Company has a full valuation allowance on its deferred tax assets, the unrecognized tax benefits have reduced the deferred tax assets and the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits to materially change in the next twelve months.

A reconciliation of the beginning and ending balance of the unrecognized tax benefits is as follows (in thousands):

Interest and penalties related to unrecognized tax benefits would be included as income tax expense in the Company’s consolidated statements of operations. As of December 31, 2024 and 2023, the Company hadnot recognized any tax-related penalties or interest in its consolidated financial statements.

The Company files income tax returns in the United States federal, California, and Florida for tax year 2023. The Company filed an initial return in 2022 in Florida and final returns in 2021 in Kansas, Missouri and New Jersey state jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. As of December 31, 2024 and 2023, the Company hadno uncertain tax positions which affected its financial position as its results of operations or its cash flow for US tax purposes, and will continue to evaluate for uncertain tax positions in the future. The Company is subject to United States federal and state income tax examinations by authorities for all tax years due to accumulated net operating losses that are being carried forward for tax purposes.

According to the PRC Tax Administration and Collection Law, the statute of limitations isthree years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances where the underpayment of taxes is more than RMB100 thousand. In the case of transfer pricing issues, the statute of limitations is 10 years. There isno statute of limitations in the case of tax evasion. The income tax returns of the Company’s PRC subsidiaries for the years from 2019 to 2024 are open to examination by the PRC tax authorities.

APB 23

Generally, a taxable outside basis difference associated with a foreign subsidiary may not be recognized if the indefinite reversal criterion of ASC paragraph 740-30-25-17 (APB Opinion No. 23, Accounting for Income Taxes – Special Areas (“APB 23”)) is met. A deferred tax liability is recognized when an entity no longer meets the indefinite reversal criterion. ASC paragraph 740-30-25-17 provides a presumption that all undistributed earnings will be transferred to the parent entity may be overcome, and no income taxes shall be accrued by the parent entity, if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation.

The Company does not have a plan of repatriation of earnings from non-US subsidiaries to the Company. However, to the extent the Company will not permanently reinvest in its PRC business, a deferred tax liability of approximately $8.3 million as of December 31, 2024 related to PRC withholding taxes on repatriation of Gyre Pharmaceuticals’ earnings (i.e., the Company’s primary operating subsidiary in the PRC) would need to be recorded.

Research and development with GNI Group

Research and development fees paid to GNI Group during the year ended December 31, 2024 were $0.2 million. No research and development fees were paid to GNI Group during the year ended December 31, 2023.

As of December 31, 2024 and 2023, the Company had a $0.2 million and $1.4 million related parties payable due to GNI Group, respectively.

Other receivables from GNI Group

As of December 31, 2024, the Company had recorded $0.2 million in other receivables from GNI Group, of which$0.2 million was from CPI’s restructuring transaction (see Note 8). As of December 31, 2023, the Company had recorded $1.3 million in other receivables from GNI Group, of which $0.8 million was from CPI’s restructuring transaction (see Note 8) and $0.5 million was from Gyre’s cost sharing with GNI Group.

The dilutive effect of outstanding stock options and warrants is calculated using the treasury stock method. Stock options and warrants are anti-dilutive and excluded from the diluted net income per share attributable to common stock calculation if the exercise price exceeds the average market price of the common shares.

The following table sets forth the computation of EPS attributable to common stockholders, basic and diluted (in thousands, except share and per share data):

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

Mainland China Contribution Plan

Pursuant to relevant PRC regulations, the Company is required to make contributions to various defined contribution plans organized by municipal and provincial PRC governments. The contribution for each employee is based on a percentage of the employee’s current compensation as required by the local government. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme. The total contributions for such employee benefits were $5.1 million and $4.3 million for the years ended December 31, 2024, and 2023, respectively.

Defined-Contribution Savings Plan

In the U.S., the Company maintains a defined-contribution savings plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan is available to employees who meet the minimum age and length of service requirements. The contributions made during the year ended December 31, 2024 and 2023 were immaterial.

The Company is a consolidated entity comprised oftwo distinct operating segments: Gyre Pharmaceuticalsand Gyre after the Contributions. The Company’s reportable segments are based upon internal organizational structure, the manner in which operations are managed, the criteria used by the CODM to evaluate segment performance, the availability of separate financial information, and overall materiality considerations. All Gyre’s operations are within the U.S., while all of Gyre Pharmaceuticals’ operations are in mainland China.

Gyre Pharmaceuticals

Gyre Pharmaceuticals has one major commercial drug product, ETUARY, and several product candidates in pre-clinical and clinical development. Gyre Pharmaceuticals’ product revenues are mainly generated from the sale of ETUARY and certain generic drugs. Gyre Pharmaceuticals primarily sells its pharmaceutical products to distributors in the PRC, who ultimately sell the products to hospitals, other medical institutions and pharmacies.

Gyre

Gyre is a biopharmaceutical company focused on the development and commercialization of F351 for the treatment of MASH-associated liver fibrosis in the United States. Other than the IP associated with F351 in the U.S., Gyre has no other product candidates since the Company sold all of its legacy IP assets prior to the closing of the Contributions. Subsequent to the closing of the Contributions, Gyre has not generated any revenue.

Other

Other represents the financial information from other subsidiaries, consisting of mainly CPI, GNI HK, and Continent Pharmaceuticals U.S., Inc. During the year ended December 31, 2023, prior to the Contributions, CPI divested almost all of its assets other than its 56.0% indirect ownership interest in Gyre Pharmaceuticals (see Note 8 –Restructuring).

Segment inform ation for the years ended December 31, 2024 and 2023 is as follows (in thousands):

(1)$0.6 million represents legal expense recorded in CPI during the year ended December 31, 2023.

(2)$2.7 million represents divestiture losses. See Note 8 for details.

The table below presents total assets as of December 31, 2024 and 2023.

The table below only includes cash outflows for the purchase of property and equipment and excludes non-cash activities.

Additional Financial Information of Parent Company

Financial Statements Schedule I