Trevi Therapeutics, Inc. (TRVI) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the statements contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Annual Report on Form 10-K, particularly including those risks identified in Part I-Item 1A “Risk Factors” and our other filings with the SEC.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Statements made herein are as of the date of the filing of this Annual Report on Form 10-K with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

82

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (oral nalbuphine ER) for the treatment of chronic cough in patients with idiopathic pulmonary fibrosis, or IPF, chronic cough in patients with non-IPF interstitial lung disease or non-IPF ILD, and refractory chronic cough, or RCC. Haduvio is an oral extended-release formulation of nalbuphine. Haduvio acts on the cough reflex arc both centrally and peripherally as a kappa agonist and a mu antagonist, or KAMA. Kappa and mu are opioid receptors that play a key role in controlling cough hypersensitivity. The kappa- and mu-opioid receptors are known to be critical mediators of cough. Nalbuphine is a mixed kappa-opioid receptor agonist and mu-opioid receptor antagonist that has been approved and marketed as an injectable for pain indications for more than 30 years in the United States, or the U.S., and Europe. Nalbuphine’s mechanism of action also potentially mitigates the risk of abuse associated with mu-opioid agonists because it antagonizes, or blocks, the mu-opioid receptor. Parenteral nalbuphine is not scheduled as a controlled substance in the U.S. and most of Europe.

Chronic Cough in Patients with IPF Program. We previously announced positive data from the full set of patients in our Phase 2 clinical trial of Haduvio for the treatment of chronic cough in patients with IPF, which we refer to as the Phase 2 CANAL trial. The Phase 2 CANAL trial was a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study that was designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in patients with IPF that we conducted at multiple sites in the United Kingdom. In total, 42 patients in the study received Haduvio. In the Phase 2 CANAL trial, Haduvio demonstrated statistically significant results for the primary efficacy endpoint of daytime cough frequency reduction (p0.0001) and for key secondary endpoints on patient and clinician reported outcomes. The safety results of the trial were generally consistent with the known safety profile of Haduvio from previous trials in other patient populations.

We are conducting our Phase 2b CORAL clinical trial, which is a dose-ranging study evaluating the efficacy, safety and tolerability of Haduvio for chronic cough in patients with IPF. This trial is being conducted at multiple sites in ten countries and uses a randomized, double-blind, placebo-controlled, parallel-arm design, which evaluates three doses of Haduvio as compared to placebo. The primary efficacy endpoint for the trial is the relative change in 24-hour cough frequency at the end of week six versus baseline for Haduvio compared to placebo, as measured via an objective cough monitor. The protocol for the Phase 2b CORAL clinical trial provided for a sample size re-estimation, or SSRE, analysis once approximately 50% of the patients in the trial were evaluable for the primary endpoint. In October 2024, we reached 50% of the targeted study enrollment. As a result, the SSRE analysis was performed once the last of these patients completed the six weeks of treatment and was evaluable for the primary endpoint. In December 2024, we announced that this analysis resulted in no change to the targeted 160 patient sample size for the trial. We completed enrollment of the trial in February 2025 and expect to announce topline results in the second quarter of 2025.

We are also conducting a Phase 1b respiratory physiology study, which we refer to as TIDAL, in the U.K. and U.S. and we have initiated screening. TIDAL is a randomized, single-blind, placebo-controlled study. We expect to enroll up to approximately 25 patients who will be in-patient for ten days. The primary endpoint of the study is the effect of escalating doses of Haduvio on respiratory function. Secondary endpoints of additional respiratory functions will also be measured. The goal of this study is to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity. We plan to use this information to define the patient population for any Phase 3 clinical trials that we may conduct in chronic cough in patients with IPF.

We expect to request an end of Phase 2 meeting with the FDA in 2025 and initiate our Phase 3 program in the first half of 2026, subject to the results of the Phase 2b CORAL clinical trial.

Chronic Cough in Patients with non-IPF ILD Program. We also plan to develop Haduvio for the treatment of chronic cough in patients with non-IPF ILD. We plan to determine the population of non-IPF ILD patients who may benefit from Haduvio’s cough reduction capabilities and, assuming positive data from the Phase 2b CORAL clinical trial, we plan to conduct a Phase 2 clinical trial for such patients with non-IPF ILD, subject to discussions with Health Authorities.

RCC Program. We are also developing Haduvio for the treatment of patients with RCC. In March 2025, we announced positive topline data from our Phase 2a clinical trial of Haduvio in patients with RCC, which we refer to as the Phase 2a RIVER trial. The Phase 2a RIVER trial was a randomized, double-blind, placebo-controlled, two-treatment, two-period, crossover study that was designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for the treatment of patients with RCC. We conducted this trial at multiple sites in the United Kingdom and Canada. In total, 66 patients in the trial received Haduvio. The primary endpoint of the trial was the mean change in 24-hour cough frequency, as determined by an objective cough monitor, for the full analysis set population at Day 21. The full analysis set population included all patients who received at least one dose of study drug and have objective cough count data on both Baseline and Day 21 in at least one treatment period (N=59). In the trial, Haduvio met the primary endpoint with a statistically significant reduction in the objective 24-hour cough frequency of 67% from baseline and 57% on a placebo-adjusted basis (p0.0001). Patient reported and other secondary outcomes reported in the top-line data were statistically significant and consistent with the primary endpoint. Haduvio demonstrated a statistically significant reduction for the secondary endpoint of reduction in 24-hour cough frequency in two pre-specified subgroups: patients who coughed 10-19 times/hour (moderate 24-hour cough frequency) (p0.0001), and patients who coughed 20 or greater times/hour (severe 24-hour cough

83

frequency) (p0.0001). The safety results of the trial were generally consistent with the known safety profile of Haduvio from previous trials in other patient populations and there were no serious adverse events reported in the trial.

We are in the process of designing our next planned trial of Haduvio in patients with RCC. We expect the objectives for the trial will be to determine the dose response and to select doses to be evaluated in a pivotal clinical trial of Haduvio in patients with RCC as well as to further characterize the safety in this specific patient population. Based on these results, we plan to discuss next steps with the FDA and anticipate initiating the next trial after we receive their input.

Human Abuse Potential. In December 2024, we announced positive topline results from the human abuse potential, or HAP, study that demonstrated a statistically significant lower "Drug Liking" for the clinical doses of oral nalbuphine (81mg and 162mg) compared to 6mg intravenous, or IV, butorphanol. The supratherapeutic dose of oral nalbuphine (486mg) was numerically lower than the 6mg IV butorphanol for “Drug Liking” but the results were not statistically significant. Secondary endpoints included pharmacodynamic markers and patient reported outcomes, which were generally consistent with the primary endpoint. No serious adverse events were reported in the study.

Since commencing operations in 2011, we have devoted substantially all of our efforts and financial resources to the clinical development of Haduvio. We have not generated any revenue from product sales and, as a result, we have never been profitable and have incurred net losses in each year since commencement of our operations. As of December 31, 2024, we had an accumulated deficit of $287.0 million, primarily as a result of research and development and general and administrative expenses. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize Haduvio for the treatment of chronic cough in patients with IPF, chronic cough in patients with non-IPF ILD, or RCC and we can provide no assurance that we will ever generate significant revenue or profits.

As of December 31, 2024, we had cash, cash equivalents and marketable securities of $107.6 million. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of issuance of the Consolidated Financial Statements included in this Annual Report on Form 10-K.

We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to the trials we are conducting and plan to conduct for Haduvio including our ongoing Phase 2b CORAL clinical trial and our planned Phase 3 program for the treatment of chronic cough in patients with IPF, our ongoing Phase 1b TIDAL respiratory physiology study in patients with IPF of varying disease severity, our planned Phase 2 clinical trial of Haduvio for the treatment of chronic cough in patients with non-IPF ILD, and our next clinical trial of Haduvio for the treatment of patients with RCC.

We will need substantial additional funding to support our continuing operations and pursue development and commercialization of Haduvio. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of Haduvio for one or more indications or delay our efforts to expand our product pipeline.

84

Components of Operating Results

Operating Expenses

Research and Development Expenses

For the periods presented, all of our research and development expenses consist of expenses incurred in connection with the development of Haduvio. These expenses include personnel-related costs, including stock-based compensation, consulting costs, fees paid to contract research organizations, or CROs, to conduct certain research and development activities on our behalf, contract manufacturing costs and fees paid to other vendors that provide goods and services related to our clinical trials. We do not allocate all of our costs by each indication for which we are developing Haduvio, as a significant amount of our development activities broadly support all indications. In addition, several of our departments support our Haduvio drug candidate development program and we do not identify internal costs for each potential indication.

We expect our research and development expenses to increase as we pursue our development program, pursue regulatory approval of Haduvio in the U.S., Europe and other jurisdictions outside the U.S. and prepare for a possible commercial launch of Haduvio. Predicting the timing or the cost to conduct our Haduvio development program and prepare for a possible commercial launch of Haduvio is difficult and delays may occur because of many factors including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on our development program. Furthermore, we are unable to predict when or if Haduvio will receive regulatory approval in the U.S. or elsewhere with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, including stock-based compensation for personnel in executive, finance, commercial and other administrative functions; professional fees for legal, information technology, consulting and accounting services; as well as rent and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation and expanded infrastructure.

Other Income (Expense), Net

Interest Income, Net

Interest income, net consists of interest earned primarily on our cash, cash equivalents and marketable securities as well as accretion of discounts/amortization of premiums on purchases of marketable securities.

Other Income, Net

Other income, net consists of foreign currency transaction gains and losses. In 2023, other income, net also included employee retention tax credits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act as well as an immaterial effect from the early extinguishment of debt in connection with us paying the remaining amounts due under the SVB Loan Agreement.

Interest Expense

Interest expense consists of the interest expense associated with our finance lease. In 2023, interest expense also included interest under the loan and security agreement, or the SVB Loan Agreement, that we originally entered into with Silicon Valley Bank, or SVB, in August 2020, pursuant to which we borrowed $14.0 million under the SVB Term Loan. In connection with the SVB Term Loan, we recognized interest expense which included amortization of deferred financing charges, accretion of loan discount-financing costs, accrual of the final payment fee, amortization of the term loan discount-interest and the stated interest on the SVB Term Loan.

On May 9, 2023, we paid the remaining amount due under the SVB Loan Agreement, resulting in the full extinguishment of the SVB Term Loan. The total payoff amount was $6.5 million, consisting of the remaining principal amount due of $5.2 million, the final payment fee of $1.2 million, and $0.1 million of accrued interest and prepayment premium.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the periods indicated (in thousands):

85

Operating Expenses

Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated (in thousands):

Research and development expenses for the year ended December 31, 2024 increased $15.7 million, or 66.3%, to $39.4 million from $23.7 million for the year ended December 31, 2023, primarily due to increased clinical development expenses for our Phase 2b CORAL trial, our Phase 2a RIVER trial, our HAP study, and our Phase 1b TIDAL study along with an increase in personnel-related expenses and stock-based compensation expense. These increases were partially offset by decreased clinical development expenses for our Phase 2b/3 PRISM trial. For the years ended December 31, 2024 and 2023, all of our research and development expenses related to our development activity for Haduvio.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2024 increased $1.9 million, or 18.6%, to $12.1 million from $10.2 million for the year ended December 31, 2023, primarily due to increases in personnel-related expenses, stock-based compensation expense, information technology service costs and market research costs.

Other Income, Net

Other income, net for the year ended December 31, 2024 decreased by $1.2 million, or 25.8% to $3.6 million from $4.8 million for the year ended December 31, 2023. The decrease was primarily due to a decrease in interest income of $1.1 million due to lower cash equivalent and marketable securities balances.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations.

In June 2020, we entered into a sales agreement, the ATM Sales Agreement, under which we were able to issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $12.0 million. In May 2022, we and SVB Securities LLC (formerly SVB Leerink LLC), or SVB Securities, amended the ATM Sales Agreement to increase the maximum aggregate offering price of common stock that we were able to issue and sell from time to time under the ATM Sales Agreement by $50.0 million, from $12.0 million to up to $62.0 million. Sales of common stock under the ATM Sales Agreement were able to be made by any method that was deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act. We were not obligated to make any sales of our common stock under the ATM Sales Agreement. Through August 15, 2023, the date of termination of the ATM Sales Agreement, we had issued and sold an aggregate of 4,333,394 shares of common stock for gross proceeds of $12.7 million, before deducting estimated commissions and allocated fees of $1.0 million.

86

In June 2023, we filed with the SEC the Shelf Registration Statement, which allows us to offer and sell up to $200.0 million of common stock, preferred stock, debt securities, units and/or warrants from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. The Shelf Registration Statement was filed to replace our prior universal shelf registration statement on Form S-3 and was declared effective on August 15, 2023. Further, in June 2023, we entered into the 2023 ATM Sales Agreement with Leerink Partners, under which we may issue and sell shares of common stock, from time to time by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act. We are not obligated to make any sales of our common stock under the 2023 ATM Sales Agreement. We filed a prospectus under the Shelf Registration Statement for the offer and sale of shares of our common stock having an aggregate offering price of up to $75.0 million pursuant to the 2023 ATM Sales Agreement. In accordance with the terms of the 2023 ATM Sales Agreement, the ATM Sales Agreement terminated upon effectiveness of the Shelf Registration Statement, at which point we were no longer able to issue and sell shares of our common stock under the ATM Sales Agreement. As of December 31, 2024, we had issued and sold 4,498,065 shares of common stock for gross proceeds of $14.6 million, before deducting estimated commissions and allocated fees of $0.5 million under the 2023 ATM Sales Agreement.

On May 9, 2023, we paid the remaining amount due under the loan and security agreement, or the SVB Loan Agreement, that we originally entered into with Silicon Valley Bank, or SVB, in August 2020, resulting in the full extinguishment of the term loan thereunder, or the SVB Term Loan. The total payoff amount was $6.5 million, consisting of the remaining principal amount due of $5.2 million, the final payment fee of $1.2 million, and $0.1 million of accrued interest and prepayment premium. For further discussion of the SVB Term Loan, see “—Liquidity and Capital Resources.”

On December 17, 2024, we issued and sold 12,500,000 shares of our common stock to certain investors in an underwritten registered direct offering, or the December 2024 Offering, at an offering price of $4.00 per share of common stock pursuant to an underwriting agreement, or the Underwriting Agreement, with Leerink Partners LLC, Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co. Inc, as representatives of the several underwriters. The December 2024 Offering resulted in aggregate gross proceeds to us of approximately $50.0 million.

Cash Flows

The following table summarizes our cash flows for each of the periods presented below (in thousands):

Operating Activities

During the year ended December 31, 2024, operating activities used $38.3 million of net cash, resulting from our net loss of $47.9 million partially offset by changes in our operating assets and liabilities of $6.8 million and net non-cash charges of $2.8 million. Changes in our operating assets and liabilities for the year ended December 31, 2024 consisted primarily of a $2.7 million decrease in prepaid expenses and other current assets, a $2.6 million increase in accrued expenses and other liabilities and a $1.6 million increase in accounts payable. The decrease in prepaid expenses and other current assets was primarily due to a decrease in prepayments related to our clinical trial work performed by our CROs. The increase in accrued expenses and other liabilities was primarily due to an increase in accruals for clinical development and clinical trial work performed by our CROs. The increase in accounts payable was primarily due to the timing of vendor invoices. The non-cash charges consisted primarily of stock-based compensation expense of $3.6 million, a $0.5 million change in value of our operating lease right-of-use assets and $0.1 million of depreciation and amortization expense, which were partially offset by $1.4 million of accretion of our available-for-sale marketable securities.

During the year ended December 31, 2023, operating activities used $31.7 million of net cash, resulting from our net loss of $29.1 million and changes in our operating assets and liabilities of $3.8 million, partially offset by net non-cash charges of $1.2 million. Changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a $2.9 million increase in prepaid expenses and other current assets and a $1.0 million decrease in accounts payable. The increase in prepaid expenses and other current assets was primarily due to an increase in prepayments related to our clinical trial work performed by our CROs. The decrease in accounts payable was primarily due to the timing of vendor invoices. The non-cash charges consisted primarily of stock-based compensation expense of $2.2 million, $0.4 million for the write off of deferred offering costs, a $0.4 million change in value of our operating lease right-of-use assets and liabilities and $0.2 million of accretion/accrual of term loan discounts and debt issuance costs, which were partially offset by $2.1 million of accretion of our available-for-sale marketable securities.

87

Investing Activities

During the year ended December 31, 2024, net cash used in investing activities was $21.5 million, consisting of $98.5 million of purchases of available-for-sale marketable securities and less than $0.1 million of purchases of property, equipment and leasehold improvements, partially offset by $77.0 million of proceeds from maturities of available-for-sale marketable securities.

During the year ended December 31, 2023, net cash provided by investing activities was $59.4 million, consisting of $69.5 million of proceeds from maturities of available-for-sale marketable securities, partially offset by $9.9 million of purchases of available-for-sale marketable securities and $0.1 million of purchases of property, equipment and leasehold improvements.

Financing Activities

During the year ended December 31, 2024, net cash provided by financing activities was $61.5 million, consisting of cash proceeds of $47.0 million, net of commissions from sales of our common stock in our December 2024 Offering, cash proceeds of $14.1 million, net of commissions from sales of our common stock under the ATM Sales Agreement, $0.4 million of cash proceeds from the exercise of stock options and $0.1 million of cash proceeds from sales under our 2019 Employee Stock Purchase Plan. These cash inflows were partially offset by payments of $0.1 million on our finance lease.

During the year ended December 31, 2023, net cash used in financing activities was $7.9 million, consisting of repayments of $9.4 million on the SVB Term Loan including payment of the final payment fee and prepayment premium, both associated with the payoff of the SVB Term Loan, payments of offering costs of $0.3 million and payments of $0.1 million on our finance lease. These cash outflows were partially offset by cash proceeds of $1.7 million, net of commissions from sales of our common stock under the ATM Sales Agreement, $0.1 million of cash proceeds from the exercise of stock options and $0.1 million of cash proceeds from sales under our 2019 Employee Stock Purchase Plan.

Funding Requirements

We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to:

•
our ongoing Phase 2b CORAL clinical trial and any additional trials of Haduvio for the treatment of chronic cough in patients with IPF;

•
our ongoing Phase 1b TIDAL study to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity;

•
our planned Phase 2 clinical trial and any additional trials of Haduvio for the treatment of chronic cough in patients with non-IPF ILD; and

•
our next clinical trial and any additional trials of Haduvio for the treatment of patients with RCC.

We expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, information technology, investor relations and other expenses.

We will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms or at all. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

•
the scope, progress, timing, costs and results of clinical trials of Haduvio, including our ongoing Phase 2b CORAL clinical trial and our planned Phase 3 program of Haduvio, each for the treatment of chronic cough in patients with IPF, our ongoing Phase 1b TIDAL study to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity, our planned Phase 2 clinical trial of Haduvio for the treatment of chronic cough in patients with non-IPF ILD, and our next clinical trial in patients with RCC, as well as trials for any future product candidates;

•
the number and characteristics of indications for which we seek to develop Haduvio or any future product candidates and their respective development requirements;

•
the outcome, timing and costs of clinical and non-clinical trials and of seeking regulatory approvals, including the costs of supportive clinical studies;

88

•
the costs to manufacture necessary quantities of Haduvio or any future product candidate for clinical development in connection with regulatory submissions;

•
the costs of commercialization activities for Haduvio for the treatment of chronic cough in patients with IPF, chronic cough in patients with non-IPF ILD and RCC or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

•
subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of chronic cough in patients with IPF, chronic cough in patients with non-IPF ILD or RCC or from any future product candidates;

•
our ability to identify potential collaborators for Haduvio for the treatment of patients with prurigo nodularis or for the treatment of chronic cough in patients with IPF, chronic cough in patients with non-IPF ILD or RCC or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates;

•
the extent to which we acquire or in-license rights to other potential product candidates or technologies and the terms and timing of any such acquisition or licensing arrangements;

•
our potential obligation to make milestone payments to Endo Pharmaceuticals Inc., or Endo, which would become due upon the successful completion of the first Phase 3 clinical trial of a licensed product candidate and the marketing approval of a licensed product in the U.S., as well as our potential obligations to pay Endo royalties on the net sales of the product;

•
our headcount growth and associated costs as we expand our research and development activities and medical affairs activities and establish a commercial infrastructure;

•
the costs of preparing, filing and prosecuting patent applications, maintaining, expanding and protecting our intellectual property rights and defending against intellectual property-related claims;

•
the effect of competing technologies and market developments;

•
our ability to establish and maintain healthcare coverage and adequate reimbursement for our products; and

•
the costs of operating as a public company.

We believe that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026.

We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing and financing may not be available to us on acceptable terms, on a timely basis or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We do not have any committed external source of funds. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations, licensing arrangements or other sources to complete the clinical development and commercialization of Haduvio for the treatment of chronic cough in patients with IPF, chronic cough in patients with non-IPF ILD or RCC or any other indication, including to conduct our planned clinical trials to completion. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any debt financing into which we enter would result in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, granting liens over our assets, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates. Any debt financing that we seek or additional equity that we raise may contain terms that could adversely affect our common stockholders.

If we are unable to raise sufficient capital as and when needed, we may be required to delay, reduce or abandon our product development programs or commercialization efforts. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

89

Contractual Obligations and Commitments

A significant portion of our development activities are outsourced to third parties under agreements, including with CROs and contract manufacturers in connection with the production of clinical trial materials. The contracts are cancelable at any time by us, generally upon 60 days' prior written notice to the CRO, and therefore we believe that our non-cancelable obligations under these agreements are not material.

For information related to our future commitments relating to our lease and licensing agreements, see Note 5, “Leases” and Note 13, “Collaborative and Licensing Agreements” of our Consolidated Financial Statements.

Critical Accounting Policies and Use of Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates and assumptions involved in the accounting policy described below may have the greatest potential impact on our Consolidated Financial Statements and, therefore, consider this to be our critical accounting policy.

Research and Development Expenses

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.

We have entered into agreements with CROs, contract manufacturing organizations and other companies that provide services in connection with our research and development activities. Our research and development expenses as well as prepaid and accrued expenses related to these agreements, are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, timing of payments made, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on our consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CROs, contract manufacturing organizations and other companies under these arrangements in advance of the performance of the related services are recorded as prepaid expenses.