Decoy Therapeutics Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion and analysis should be read in conjunction with the unaudited financial information and the notes thereto included herein, as well as our audited financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 31, 2026. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under "Part I - Item 1A - Risk Factors" discussed in our Annual Report on Form 10-K for the year ended December 31, 2025, in other subsequent filings with the SEC, and elsewhere in this Quarterly Report on Form 10-Q. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.

Overview

We are a pre-clinical stage biotechnology company focused on advancing our pipeline of peptide conjugate therapeutics engineered through our proprietary IMP3ACT™ platform. Our IMP3ACT™ platform represents a paradigm shift in peptide conjugate drug discovery and manufacturing, leveraging machine learning ("ML") and artificial intelligence ("AI") tools alongside high-speed synthesis techniques to rapidly engineer, optimize and manufacture peptide conjugates that target serious unmet medical needs. Peptide conjugates are emerging as a major therapeutic drug modality, with the potential to transform multiple therapeutic areas. Utilizing our novel IMP3ACT™ platform that increases the drug development speed and reduces the complexity of variant synthesis, we aim to build a robust portfolio of novel peptide conjugate therapeutics, initially focusing on infectious diseases and oncology, with the goal of becoming a fully integrated biopharmaceutical company at the forefront of this field. Through this approach, we intend to revolutionize the design, development, and commercialization of peptide conjugate therapeutics. We have no products approved for commercial sales and have not generated any revenue from product sales.

Prior to January 8, 2026, we were known as Salarius Pharmaceuticals, Inc. (“Salarius”). In November 2025, Salarius completed a merger (the “Merger”) with Legacy Decoy and conducted financings to raise capital for its business (together, along with future steps set forth elsewhere in this report, the “Decoy Transaction”). We refer herein to the post-transaction entity as the “Combined Company.” In connection with the Decoy Transaction, on January 8, 2026, Salarius filed an amendment to its amended and restated certificate of incorporation to change its name to Decoy Therapeutics Inc. (the “Name Change”). Except where the context otherwise requires or where otherwise indicated, all historical references to “Salarius” in this report refer to the Company prior to the Name Change. Prior to the Name Change, the Combined Company’s shares of common stock traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol “SLRX.” Following the Name Change, the Combined Company’s shares of common stock now trade on the Nasdaq under the symbol “DCOY.”

The Merger combined our complementary approaches to create a comprehensive drug development platform. The Decoy IMP³ACT platform is generating a pipeline of Designable Multi-Antivirals ("D-MAV") candidates across respiratory viruses, designed to be extended, not rebuilt, when the next threat emerges. Additionally, two small molecule drugs that address gene dysregulation: (1) SP-3164, a targeted protein degrader, and (2) seclidemstat (“SP-2577”), a targeted protein inhibitor are legacy Salarius clinical candidates which received FDA fast track designation as a potential treatment for Ewing sarcoma, a rare pediatric disease. We supported The University of Texas MD Anderson Cancer Center (“MDACC”) in MDACC’s sponsored clinical trial evaluating SP-2577 in combination with azacytidine in adult patients with myelodysplastic syndromes and chronic myelomonocytic leukemia through December, 2025. No further enrollment is planned. We are seeking strategic alternatives for this program including potential out-licensing.

We plan to integrate SP-3164 to expand our opportunities in creating a novel class of peptide conjugates called peptide-based proteolysis targeting chimeras (“P-PROTACs”). We believe the synergies from the Merger are evident in our combined approach to drug development, integrating expertise in peptide conjugates with our small molecule assets. This combination enables us to address a wider range of diseases and potentially “undruggable” targets.

Recent Developments

Private Placement

On June 26, 2026, we entered into a Securities Purchase Agreement with an institutional and accredited investor for a private placement of our securities, which closed on June 29, 2026. Under the agreement, we sold an aggregate of 592,217 shares of our common stock (or pre-funded warrants in lieu thereof, for any portion of the purchase that would have caused the investor to exceed an agreed beneficial ownership limitation) at a purchase price of $5.91 per share, together with accompanying milestone-based Series A, Series B and Series C common warrants exercisable for up to 100%, 200% and 200%, respectively, of the shares purchased, at an exercise price of $5.91 per share.

The private placement consisted of (i) $3.5 million of upfront gross proceeds at a purchase price of $5.91 per share from the sale of common stock (or pre-funded warrants in lieu thereof), (ii) a milestone-based Series A warrant with potential additional aggregate gross proceeds of approximately $3.5 million if fully exercised following both shareholder approval and the date of filing by the Company of a Clinical Trial Application with the applicable competent regulatory authority in the European Economic Area to commence a Phase 1 clinical trial, (iii) a milestone-based Series B warrant with potential additional aggregate gross proceeds of approximately $7.0 million if fully exercised following both shareholder approval and the Company’s receipt of formal written approval from the Medicines and Healthcare products Regulatory Agency to conduct a Phase 2a human challenge trial in the United Kingdom, and (iv) a milestone-based Series C warrant with potential additional aggregate gross proceeds of approximately $7.0 million if fully exercised following both shareholder approval and the Company’s public announcement of data from the Company’s positive Phase 2a human challenge trial conducted in the United Kingdom. As of the closing date, we received gross proceeds of approximately $3.5 million from this private placement, before deducting placement agent fees and other offering expenses. We intend to use the net proceeds for general corporate purposes, including to advance our lead asset into clinical trials.

Results of Operations

Three months ended June 30, 2026 Compared to the three months ended June 30, 2025

The following table sets forth the condensed consolidated results of our operations for the three months ended June 30, 2026 compared to June 30, 2025.

Grant Revenue

Grant revenue, which was derived solely from the Gates' Foundation grant, was $0.2 million and $0 million during the three months ended June 30, 2026 and 2025, respectively. The increase in revenue was due to an increase in overall expenses allowed by the grant. Given the nature of the development process, grant revenue will fluctuate depending on the stage of development and the timing of expenses.

Research and Development Expenses

Research and development expenses increased during the three months ended June 30, 2026 compared to the same period in 2025 primarily related to the Merger in November 2025 and the resulting addition of the IMP3ACT (Designable Multi-Antivirals) program. We anticipate higher research and development expense in upcoming quarters as the Company continues on its intended path to file an IND application with the FDA or the European equivalent CTA during the first half of 2027.

General and Administrative Expenses

General and administrative expenses were $1.3 million during the three months ended June 30, 2026, compared to $0.8 million for the three months ended June 30, 2025. The increase was primarily attributable to the inclusion of Legacy Decoy's operations in the current quarter following the Merger, which closed in November 2025.

Six months ended June 30, 2026 Compared to the six month ended June 30, 2025

The following table sets forth the condensed consolidated results of our operations for the six months ended June 30, 2026 compared to June 30, 2025.

Grant Revenue

Grant revenue, which was derived solely from the Gates' Foundation grant, was $0.2 million and $0 million for the six months ended June 30, 2026 and 2025, respectively. The increase in revenue was due to an increase in overall expenses allowed by the grant. Given the nature of the development process, grant revenue will fluctuate depending on the stage of development and the timing of expenses.

Research and Development Expenses

Research and development expenses increased during the six months ended June 30, 2026 compared to the same period in 2025 primarily related to the Merger in November 2025 and the resulting addition of the IMP3ACT (Designable Multi-Antivirals) program. We anticipate higher research and development expense in upcoming quarters as the Company continues on its intended path to file an IND application with the FDA or the European equivalent CTA during the first half of 2027.

General and Administrative Expenses

General and administrative expenses were $2.9 million during the six months ended June 30, 2026, compared to $2.5 million for the six months ended June 30, 2025. The increase was primarily attributable to the inclusion of Legacy Decoy's operations in the current quarter following the Merger, which closed in November 2025.

Liquidity and Capital Resources

Overview

Since inception, we have incurred operating losses and we anticipate that we will continue to incur losses for the foreseeable future. We have not generated any cash inflows from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercializes any of our potential product candidates, all of which are in early stages of development.

As of June 30, 2026, cash, cash equivalents, and restricted cash totaled $8.3 million, which were held in bank deposit accounts and a money market account. Approximately $2.7 million of our June 30, 2026 cash position is restricted for use under our Gates Foundation Grant Agreement and can only be used for specific development purposes. Working capital totaled $3.8 million as of June 30, 2026. Our cash, cash equivalents, and restricted cash balance decreased during the six months ended June 30, 2026, primarily due to cash used in operating activities. We believe our current cash and cash equivalents will be sufficient to fund our current and restructured operations into late 2026.

During the six months ended June 30, 2026, we closed a private placement pursuant to which we sold an aggregate of 592,217 shares of our common stock (or pre-funded warrants in lieu thereof) at a purchase price of $5.91 per share, together with accompanying milestone-based Series A, Series B and Series C common warrants. We received gross proceeds of approximately $3.5 million from this private placement, before deducting placement agent fees and other offering expenses.

During the six months ended June 30, 2025 the Company sold 1,966 shares of common stock in an "at the market offering" with gross proceeds of $0.4 million.

The Company issued 1,593 shares of common stock with proceeds of $0.7 million during the six months ended June 30, 2025 pursuant to the ELOC Agreement. No sales of common stock under either program were made during the six months ended June 30, 2026 .

We will need to raise additional capital to continue to fund the further development of product candidates and our operations. We may be unable to raise additional funds or enter into such agreements or arrangements on favorable terms, or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations could be materially and adversely affected. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts.

Cash Flows

Operating Activities

Net cash used in operating activities was $5.5 million in the current period, an increase of approximately $3.5 million from the same period in 2025. The increase is primarily due to higher operating expenses during the current period compared to the same period in 2025, including research and development associated with the development of the IMP3ACT Platform, professional costs associated with our Special Meeting of Shareholders in February 2026 and current period payments to lower accrued expense balances.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2026 and 2025 was $3.2 million and $0.4 million, respectively. The increase was primarily attributable to the Company's sale of equity securities under private placement arrangement during the six months ended June 30, 2026, as compared to proceeds from the ATM & ELOC program during the same period of 2025 .

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the condensed consolidated balance sheet and the reported amounts of expenses during the reporting period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our condensed consolidated financial statements prospectively from the date of the change in estimate.

There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with SEC on March 31, 2026.

Readers should refer to our Annual Report on Form 10-K, Note 2, Basis of Presentation and Significant Accounting Policies to the accompanying financial statements for descriptions of these policies and estimates.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2026. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2026, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2026, there was no significant change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there have been no material changes from the risk factors set forth under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025.

Nasdaq’s new $5.0 million market value standard for continued listing may, if implemented, threaten our ability to remain listed on the exchange.

On July 22, 2026, the SEC approved a new Nasdaq continued listing requirement (the “MVLS Rule”) that required each Nasdaq listed issuer to maintain a minimum market value of listed securities of at least $5 million. Under the MVLS Rule, if the value of an issuer’s listed securities, as measured by each applicable trading day’s closing price, continues to be less than $5 million for a period of 30 consecutive trading days, the issuer’s securities would immediately be delisted, with no compliance or cure period. The MVLS Rule would also preclude an issuer’s ability to seek stay of delisting during any appeals process, and would preclude Nasdaq hearings panels from reversing the delisting determination to situations where there was an error and the company never actually failed to satisfy the requirement. The panel would also not be able to consider any facts indicating that an issuer subsequently regained compliance with the requirement or grant an issuer any additional time to regain compliance.

On July 29, 2026, the SEC notified Nasdaq that the order granting approval of the MVLS Rule had been stayed pending further review. It is unknown whether the SEC will affirm its order to approve the MVLS Rule following such review. If approved by the SEC, the MVLS Rule could become effective on an immediate basis. Our Common Stock currently trades at levels that are below the $5 million aggregate market value threshold proposed by Nasdaq. As such, if the MVLS Rule is approved by the SEC, our Common Stock could be imminently delisted by Nasdaq on this basis.

If the MVLS Rule is approved, we may be required to monitor our market value of listed securities closely and, if necessary, take actions such as issuing additional securities, raising additional capital or undertaking other corporate actions to seek to maintain compliance, any of which could dilute our existing shareholders, increase our costs, or divert management’s attention. The risk of a rapid loss of Nasdaq listing, or an actual delisting, could adversely affect investor confidence, the liquidity and trading price of our Common Stock, and our ability to access the capital markets, and could have a material adverse effect on our business, financial condition and results of operations.

Further, if our Common Stock is delisted, we may seek to have our Common Stock quoted on an over-the-counter marketplace, such as on the OTCQX. The OTCQX is not a stock exchange, and if our Common Stock trades on the OTCQX rather than a securities exchange, there may be significantly less trading volume and analyst coverage of, and significantly less investor interest in, our Common Stock, which may lead to lower trading prices for our Common Stock.