Rezolute, Inc.: Form 10-Q for the period ended Mar 31, 2025

Certain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding. As used in the discussion below, “we,” “our,” “us,” and the “Company” refers to Rezolute, Inc.

Rezolute, Inc. (“Rezolute”, the “Company”, “we” or “us”) is a late-stage rare disease company focused on significantly improving outcomes for individuals with hypoglycemia caused by hyperinsulinism (“HI”).

Our priority in the first half of 2025 is to execute across our two Phase 3 clinical trials. Our goals include (i) complete enrollment of the sunRIZE study (as defined below) to enable topline data in December 2025, and (ii) advance study start-up activities and begin enrollment for the registrational tumor HI study in mid-2025.

Ersodetug for congenital hyperinsulinism (cHI)

Based on the multinational Phase 2b clinical trial (“RIZE”) outcomes and the evidence of benefit in this serious condition with substantial unmet medical need, ersodetug was granted Breakthrough Therapy Designation by the Food and Drug Administration (“FDA”) in the U.S.

sunRIZE Phase 3 Study

We are actively enrolling a pivotal Phase 3 clinical study (the “sunRIZE” study) of ersodetug for the treatment of hypoglycemia in participants with congenital HI, an ultra-rare pediatric genetic disorder characterized by excessive production of insulin by the pancreas. If untreated, the elevated insulin levels in patients suffering with congenital HI can induce extreme hypoglycemia (low blood sugar) events, increasing the risk of neurological and developmental complications, including persistent feeding problems, learning disabilities, recurrent seizures, brain damage or even death.

The sunRIZE study is a global, randomized, double-blind, placebo-controlled, parallel arm evaluation of ersodetug in participants 3 months of age and older with congenital HI who are not adequately responding to standard of care medical therapies. Specifically, the study is evaluating the safety and efficacy of ersodetug in participants who are unable to achieve control of low blood sugars (“hypoglycemia” [<70 mg/dL]). The study will determine the ability of ersodetug to correct hypoglycemia as assessed by (i) hypoglycemia events using self-monitored blood glucose (“SMBG”) and (ii) time in hypoglycemia using continuous glucose monitoring (“CGM”) over 24 weeks of treatment.

We are currently enrolling at all sites globally, including the U.S. Topline results from the study are anticipated to be available in December of calendar 2025, but the specific date of the availability of such results may vary.

On April 23, 2025, we announced a positive outcome from an interim analysis of the sunRIZE study. An independent Data Monitoring Committee (DMC) recommended to continue the study as planned in patients with congenital HI without an increase in the study sample size. We remain blinded to the results and information made available to the DMC to inform its decision making.

The interim analysis of the Phase 3 sunRIZE study was performed by an unblinded DMC and was based on a pre-specified analysis of the primary study endpoint (hypoglycemia events), after approximately half of enrolled patients completed the primary assessments. The analysis was intended to evaluate for study futility or otherwise to inform a potential sample size increase, for purposes of optimizing the study power and statistical confidence in the final analysis outcomes.

Congenital HI is the most common cause of recurrent and persistent hypoglycemia in children. Individuals with congenital HI typically present with signs or symptoms of hypoglycemia shortly after birth. Hypoglycemia can result in significant brain injury and death if not recognized and managed appropriately. Additionally, recurrent, or cumulative, hypoglycemia can lead to progressive and irreversible damage over time, including serious and devastating brain injury, seizures, neuro-developmental problems, feeding difficulties, and significant impact on patient and family quality of life. In cases that are unresponsive to medical management, surgical removal of the pancreas may be required. In those with diffuse disease where the whole pancreas is affected, a near-total pancreatectomy can be undertaken, although ongoing medical treatment of hypoglycemia is generally required for several years after surgery, before eventual insulin-dependent diabetes ensues. There are no FDA approved therapies for all forms of congenital HI and the current standard of care treatments are suboptimal. The current treatments used by physicians include glucagon, diazoxide, somatostatin analogues and pancreatectomy. We estimate that in the U.S. alone the addressable market for congenital HI is more than 1,500 individuals.

Ersodetug has received Orphan Drug Designation in the U.S. and European Union for the treatment of congenital HI, as well as Rare Pediatric Disease Designation in the U.S., a prerequisite for a request for a Rare Pediatric Disease Priority Review Voucher upon Biologics License Application (“BLA”) submission. Based on the multinational Phase 2b clinical trial outcomes and the evidence of benefit in this serious condition with substantial unmet medical need, ersodetug was subsequently granted a priority medicines (“PRIME”) designation by the European Medicines Agency (“EMA”), an Innovation Passport designation by the UK Innovative Licensing and Access Pathway (“ILAP”) Steering Group for the treatment of congenital HI, and the Breakthrough Therapy Designation by the FDA in the United States. Additionally, ersodetug has received PRIME and ILAP designations in the European Union and United Kingdom, respectively.

Ersodetug for tumor hyperinsulinism (tHI)

Based on clinical trial data across the overall HI program and a recognition of the mechanistic applicability to tumor HI, further validated by real-world experience in tumor HI patients who have been successfully treated with ersodetug throughout the U.S. in the Company's Expanded Access Program, ersodetug was granted Breakthrough Therapy Designation by the FDA in the U.S. in May 2025. Utilizing this designation, we plan to engage further with FDA to discuss the registrational trial, including the necessary data package to support a BLA filing and potential approval for the tumor HI indication, as an expansion of the congenital HI indication.

Registrational Study

We are initiating start-up activities for a registrational study of ersodetug for the treatment of hypoglycemia due to tumor HI, and patient enrollment is planned to commence in the middle of calendar 2025. Topline results from the study are anticipated to be available in the second half of calendar 2026, but the specific date of the availability of such results may vary.

The registrational study is a double-blind, randomized, placebo-controlled trial of 24 participants who have inadequately controlled hypoglycemia because of tumor HI. Eligible participants will be randomized in 1:1 fashion (12 per treatment arm) to receive ersodetug 9 mg/kg per week or matched placebo, as an add-on to standard of care. Up to 24 additional participants may be enrolled into an open-label arm, in participants whose hypoglycemia is being managed by IV glucose in a hospital setting. Following an 8-week pivotal treatment period, all participants may receive ersodetug in open-label extension. The primary endpoint is the change in Level 2 (moderate) and Level 3 (severe) hypoglycemia events by self-monitored blood glucose. Additional endpoints include overall hypoglycemia events, time in hypoglycemia by continuous glucose monitor, patient reported quality of life, hospitalizations, and change in glucose requirements for open-label hospitalized participants.

Utilizing Breakthrough Therapy Designation, we plan to engage further with FDA to discuss the registrational trial, including the necessary data package to support a BLA filing and potential approval for the tumor HI indication, as an expansion of the congenital HI indication.

Tumor HI may be caused by two distinct types of tumors: neuroendocrine islet cell tumors (“ICTs”) and non-islet cell tumors (“NICTs”), both of which lead to hypoglycemia due to excessive activation of the insulin receptor. Insulinomas are the most common type of functional ICT and mediate hypoglycemia through excessive insulin production. NICTs are generally associated with relatively large, solid tumors such as hepatocellular carcinoma, fibrosarcoma and mesothelioma, and can cause hypoglycemia by producing and secreting insulin-like paraneoplastic substances such as IGF-2 or related variants that bind to and activate the insulin receptor. This form of hypoglycemia can occur in more than 15 different tumor types.

Current therapies for insulinomas and NICTs can be grouped into two main categories: (a) tumor-directed de-bulking therapies (e.g. surgery, chemotherapy, radiotherapy), which may indirectly and/or eventually lead to decreased levels of circulating insulin and/or insulin-like substances, and therefore control HI and related hypoglycemia; and/or (b) medical therapies such as glucocorticoids that are used to attempt to treat the hypoglycemia. Tumor-directed therapies do not directly treat hypoglycemia caused by insulinomas or NICTs.

In many cases, tumor-directed therapies are administered concurrently with medical therapies for hypoglycemia and in other cases successful treatment of hypoglycemia often enables the initiation and/or continuation of tumor-directed therapies, as indicated. During the period from diagnosis to surgical treatment, or if surgery is contraindicated or refused, medical treatments are often necessary to directly manage the HI and hypoglycemia induced by the tumor. Additionally, chronic medical management of refractory hypoglycemia is often necessary for patients who cannot be cured by surgery, such as those with extensive disease of the pancreas, multi-focal insulinomas, inoperable or unresectable benign or malignant insulinomas, metastatic insulinomas, non-pancreatic insulinomas, or NICT hypoglycemia resulting from a variety of other tumors.

A significant unmet need exists for treatment options with improved efficacy and tolerability as normalization of glucose levels is crucial to prevent serious signs and symptoms of hypoglycemia, improve patient quality of life and overall function, and even to ensure patients are fit to receive cancer treatment and to reduce mortality. Unfortunately, some patients are unresponsive to the current standard of care medical therapies for tumor HI and experience debilitating hypoglycemia that is otherwise untreatable. Currently available medical therapies are directed at reducing or eliminating insulin production and/or secretion from tumors, which may be challenging when the tumor is differentiated or dysregulated, and therefore not responding to usual control mechanisms for suppressing insulin production. In some cases, commonly utilized somatostatin analog therapies may even worsen hypoglycemia due to suppression of glucagon. Therefore, currently available medical therapies directed at suppressing insulin production may have limited effectiveness in tumor HI.

While we believe the total addressable market may be larger, the immediately addressable market for the combined indications causing tumor HI is estimated to be approximately 1,500 patients in the U.S. alone, including approximately 500 with islet cell tumor hypoglycemia (“ICTH”) and approximately 1,000 with non-islet cell tumor hypoglycemia (“NICTH”).

Expanded Access Program (“EAP”)

We maintain an EAP for a variety of HI indications for the purpose of making ersodetug available on a compassionate use basis when available therapeutic options have failed, and an individual’s hypoglycemia is unmanageable. In clinical and real-world experience, ersodetug has been shown to counteract excessive insulin action downstream, at the insulin-receptor on target organs. The unique mechanism of action of ersodetug makes the therapy a potential universal treatment for any form of HI. To date, we have received over 25 unsolicited inbound physician inquiries regarding the use of ersodetug in patients with tumor HI caused by metastatic insulinomas or non-islet cell tumors, which has thus far resulted in the request, approval, and initiation of ersodetug in nine patients with tumor HI. In the U.S., these requests have all been individually approved by the Division. The tumor HI patients dosed have been refractory to the standard of care therapies for chronic management of hypoglycemia. They generally required continuous intravenous dextrose or nutritional infusion in order to prevent severe hypoglycemia, and were typically hospitalized and in life-threatening or hospice-bound condition at the time of request. Further treatment with tumor-directed therapies (e.g., embolization, radiotherapy, chemotherapy) was often deferred as a result of the debilitating hypoglycemia.

Generally, dosing for tumor HI patients has been either 6 mg/kg or 9 mg/kg every 1-4 weeks. In all cases to date, ersodetug has led to substantial improvement in hypoglycemia and has been well tolerated. Within a relatively short period of time after administration of ersodetug, continuous intravenous dextrose was discontinued or substantially reduced and hospitalized patients were able to be discharged and receive maintenance ersodetug doses on an outpatient basis, with durable benefit. In several cases, other background medical therapies to prevent hypoglycemia were able to be weaned or stopped, and patients were able to resume tumor-directed therapies for treatment of their underlying cancer. No participants have discontinued the therapy due to lack of response or safety, and the duration of treatment has ranged from several months to more than 1 year in several instances, in this subset of tumor HI patients with significantly advanced and metastatic tumor burden. Presently, 3 patients are receiving ersodetug in an ongoing fashion, including one patient who has been successfully treated for more than one year, and several other patients have recently been brought to our attention and are currently under consideration for possible treatment.

Four patients with cHI are currently receiving ersodetug as part of our EAP, which has served to support patients on a compassionate use basis prior to availability of the Phase 3 sunRIZE clinical trial. These participants were refractory to usual therapies and include one infant patient where off-label or surgical (pancreatectomy) therapies were being considered. The duration of treatment in these participants ranges from 1 year to approximately 3 years, with ongoing benefit.

Recent Developments

2025 Underwritten Offering

On April 23, 2025, we entered into an underwriting agreement for the planned issuance and sale of equity securities in an underwritten public offering (the “2025 Underwritten Offering”). The 2025 Underwritten Offering resulted in the issuance of (i) 20,786,923 shares of common stock at a price of $3.25 per share for gross proceeds of $67.6 million, and (ii) pre-funded warrants to purchase 6,905,385 shares of common stock at a public offering price of $3.249 per pre-funded warrant (the “2025 PFWs”) for gross proceeds of $22.4 million. The Company granted the underwriters a 30-day option to purchase up to an additional 4,153,846 shares of its common stock at a public offering price of $3.25 per share. The underwriters’ option was fully exercised for all 4,153,846 shares of common stock for gross proceeds of $13.5 million. Closing occurred on April 24, 2025, whereby the aggregate gross proceeds amounted to $103.5 million. The net proceeds of the 2025 Underwritten Offering amounted to approximately $96.9 million, after deducting underwriting commissions and other offering costs.

2024 Underwritten Offering

On June 13, 2024, we entered into an underwriting agreement for the planned issuance and sale of equity securities in an underwritten public offering (the “2024 Underwritten Offering”). The 2024 Underwritten Offering provided for the issuance of (i) 11,250,000 shares of common stock at a price of $4.00 per share for gross proceeds of $45.0 million, and (ii) pre-funded warrants to purchase 3,750,000 shares of common stock at a public offering price of $3.999 per pre-funded warrant (the “2024 PFWs”) for gross proceeds of $15.0 million. The Company granted the underwriters a 30-day option to purchase up to an additional 2,250,000 shares of its common stock at a public offering price of $4.00 per share. The underwriters’ option was partially exercised for 1,786,589 shares of common stock for gross proceeds of $7.1 million. Closing occurred on June 24, 2024, whereby the aggregate gross proceeds amounted to $67.1 million. The net proceeds of the 2024 Underwritten Offering amounted to approximately $62.6 million, after deducting underwriting commissions and other offering costs. In July 2024, we utilized approximately $59.7 million of net proceeds from the 2024 Underwritten Offering to purchase investments in marketable debt securities with maturities that range from October 2024 through December 2025.

2024 Private Placement

In June 2024, we entered into a securities purchase agreement (the “2024 SPA”) with Handok, Inc. and one other investor relating to a private placement (the “2024 Private Placement”), pursuant to which we agreed to sell 1,500,000 shares of common stock at a purchase price of $4.00 per share. Closing of the 2024 Private Placement occurred in July 2024, whereby we received proceeds of $6.0 million.

Exchange PFW Exercises

On July 23, 2024, an investor from our March 2024 Exchange Agreement provided notice of cashless exercise of their Exchange PFWs. We issued 610,273 shares of our common stock on July 24, 2024, and we did not receive any cash proceeds from this exercise. In October 2024, all the remaining holders of Exchange PFWs provided notice of cashless exercise of their PFWs. This resulted in the issuance of 2,389,111 shares of our common stock in October 2024. We did not receive any cash proceeds from this exercise.

Class B PFW Exercise

On November 6, 2024, an investor from our May 2022 registered direct offering provided notice of cashless exercise of their Class B PFWs. This resulted in the issuance of 2,525,883 shares of our common stock in November 2024 and we did not receive any cash proceeds from this exercise.

Factors Impacting our Results of Operations

We have not generated any meaningful revenues since our inception in March 2010. Over the last several years, we have conducted private placements and public offerings to raise additional capital, adopted a licensing model to pursue development of product candidates, conducted pre-clinical and clinical trials, and conducted other research and development activities on our pipeline of product candidates.

Due to the time required to conduct clinical trials and obtain regulatory approval for our product candidates, we anticipate it will be several years before we generate substantial revenues, if ever. We expect to incur operating losses for the foreseeable future; therefore, we expect to continue efforts to raise additional capital to maintain our current operating plans over the next several years. We cannot assure you that we will secure such financing or that it will be adequate for the long-term execution of our business strategy. Even if we obtain additional financing, it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing shareholders.

Key Components of Consolidated Statements of Operations and Comprehensive Loss

Research and development expenses. Research and development (“R&D”) expenses consist primarily of compensation and benefits for our personnel engaged in R&D activities, clinical trial costs, licensing costs, and consulting and outside services. Our R&D compensation costs include an allocable portion of our cash and share-based compensation, employee benefits, and consulting costs related to personnel engaged in the design and development of product candidates and other scientific research projects. We also allocate a portion of our facilities and overhead costs based on the personnel and other resources devoted to R&D activities.

General and administrative expenses. General and administrative (“G&A”) expenses consist primarily of (i) an allocable portion of our cash and share-based compensation and employee benefits related to personnel engaged in our administrative, finance, accounting, and executive functions, and (ii) an allocable portion of our facilities and overhead costs related to such personnel. G&A expenses also include travel, legal, auditing, consulting, investor relations and other costs primarily related to our status as a public company.

Interest and other income. Interest and other income consist primarily of interest income earned on marketable debt securities and temporary cash investments, amortization of investment premiums and accretion of investment discounts, and realized gains on investments in marketable debt securities.

Loss from change in fair value of derivative liabilities. We recognize liabilities for financial instruments that are required to be accounted for as derivatives, as well as embedded derivatives in our debt agreements. Derivative liabilities are adjusted to fair value at the end of each reporting period until the contracts are settled, expire, or otherwise meet the conditions for equity classification. Changes in fair value are reflected as a gain or loss in our unaudited condensed consolidated statements of operations and comprehensive loss.

Critical Accounting Policies and Significant Judgments and Estimates

Overview

The discussion herein is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed 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 revenue and expenses during the reporting periods. These items are monitored and analyzed for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

With respect to our significant accounting policies that are described in Note 1 to our consolidated financial statements included in Item 8 of our 2024 Form 10-K, we believe that the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Investments in Marketable Debt Securities

We account for investments in marketable debt securities as available-for-sale securities whereby they are recorded in our consolidated balance sheets at fair value. Interest income consists of accrued interest earned based on the coupon rate of the security, plus the impact of accreting discounts and amortizing premiums to maturity using the straight-line method which approximates the interest method. Unrealized gains and losses due to subsequent changes in fair value of the investments are reported in shareholders’ equity as a component of accumulated other comprehensive income (loss). The individual debt securities in our portfolio are subject to credit risk in the event of default by the issuers. We review the components of our portfolio of available-for-sale debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below amortized cost have resulted from a credit-related loss or other factors. To the extent that declines in fair value are due to a deterioration of credit quality of the issuer, we will recognize an allowance for credit losses related to such investments with a corresponding loss in the consolidated statements of operations. Allowances for credit losses may be reversed in subsequent periods if conditions improve and credit-related losses are no longer expected. For a decline in fair value that is solely due to changes in interest rates, impairment is not recognized if we have the ability and intent to hold the investment until maturity. The cost basis of any securities sold prior to maturity will be determined using the specific identification method.

Research and Development

R&D costs are expensed as incurred. Intangible assets related to in-licensing costs under license agreements with third parties are charged to expense unless we are able to determine that the licensing rights have an alternative future use in other R&D projects or otherwise.

Clinical Trial Accruals

Clinical trial costs are a component of R&D expenses. We accrue and recognize expenses for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with clinical research organizations and clinical trial sites. We determine the estimates through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. Nonrefundable advance payments for goods and services that will be used or rendered in future R&D activities are deferred and recognized as expense in the period that the related goods are delivered, or services are performed.

Share-Based Compensation Expense

We measure the fair value of services received in exchange for grants of share-based awards based on the fair value of the award as of the grant date. We compute the fair value of the equity awards with time-based vesting using the BSM option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award. For awards that contain a graded vesting schedule, and the only condition for vesting is a service condition, compensation cost is recognized on a straight-line basis over the requisite service period as if the award was, in substance, a single award. We recognize the impact of forfeitures in the period that the forfeiture occurs, rather than estimating the number of awards that are not expected to vest in accounting for share-based compensation. For stock options that are voluntarily surrendered, all unrecognized compensation is immediately recognized in the period the options are cancelled.

Results of Operations

Revenue. As a late-stage rare disease company, we did not generate any revenue for the three and nine months ended March 31, 2025 and 2024. We are at a late stage of clinical development and do not currently have any commercial products. Our existing product candidates will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment before they generate any revenues. We do not expect to be able to generate revenue from any of our product candidates for several years.

Three months ended March 31, 2025 and 2024

Research and development expenses. R&D expenses for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The increase in R&D expenses of $2.9 million for the three months ended March 31, 2025 was primarily attributable to (i) a $3.5 million increase in ersodetug R&D costs, and (ii) a $1.0 million increase in R&D headcount costs, partially offset by a decrease of $1.7 million in RZ402 and other R&D related costs.

The increase in ersodetug R&D costs was driven by (i) $1.9 million of manufacturing related costs for process performance qualification batch production of drug product, (ii) $1.0 million in clinical costs due to startup activities in 2024 for the tumor HI phase 3 study which we are in preparation for first patient enrollment anticipated in the second quarter of calendar 2025, and (iii) a $0.9 million increase in clinical trial costs due to the ongoing enrollment of patients in the cHI phase 3 clinical study. These increases amount to $3.8 million and were partially offset by a $0.3 million decrease in preclinical, toxicology and other ersodetug costs after the partial clinical hold on the sunRIZE study was lifted by the FDA in September 2024, requiring no further toxicology studies for that specific purpose. For the three months ended March 31, 2024, there were no clinical costs incurred for tumor HI related program spend as this study had yet to be initiated and there were fewer clinical costs for cHI as we had not enrolled any patients in the sunRIZE study as of March 31, 2024.

The increase in R&D facilities and headcount related costs of $1.0 million was driven by (i) $0.7 million increase in R&D compensation costs attributable to an increase in the average number of R&D employees from 39 for the three months ended March 31, 2024 to 48 employees for the three months ended March 31, 2025 and (ii) increase in R&D facilities costs to support the increased headcount.

RZ402 costs decreased by $1.7 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease was due to a $1.7 million reduction in RZ402 clinical costs as we completed the Phase 2 study in the prior year and are actively in discussion with potential partners to continue clinical development leading to minimal program costs in the current period.

General and administrative expenses. G&A expenses for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The increase in G&A expenses of $0.9 million for the three months ended March 31, 2025, was primarily attributable to an increase of $0.5 million in compensation and benefits for our G&A workforce, and an increase in consulting expenses of $0.4 million related to business development and market planning activities in preparation for future ersodetug commercial activities, such as market research.

The $0.5 million increase in G&A cash compensation was primarily attributable to an increase in the average number of G&A employees from 16 for the three months ended March 31, 2024, to 20 employees for the three months ended March 31, 2025.

Interest and other income. Interest and other income amounted to $1.1 million for the three months ended March 31, 2025 and 2024. Interest and other income received is primarily from our investments in marketable debt securities.

Change in fair value of derivative liabilities. For the three months ended March 31, 2025, there were no warrant liabilities recognized. For the three months ended March 31, 2024, we recognized an expense of approximately $2.0 million, primarily due to the increase of $0.65 per share in our stock price, resulting in changes in the fair value of the warrant derivative liability related to the Exchange PFWs issued on March 8, 2024.

Income taxes. For the three months ended March 31, 2025 and 2024, we did not recognize any income tax benefit due to our net losses, and our determination that a valuation allowance was required for all of our deferred income tax assets.

Nine months ended March 31, 2025 and 2024

Research and development expenses. R&D expenses for the nine months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The increase in R&D expenses of $4.0 million for the nine months ended March 31, 2025 was primarily attributable to (i) an increase of $8.2 million related to ersodetug R&D costs and (ii) an increase of $1.5 million in other R&D costs. These increases amount to $9.7 million and were partially offset by a $5.7 million decrease in costs related to RZ402 program spend as there are no active RZ402 studies in the current period while we are actively seeking a partner to continue development of this program.

The net increase in ersodetug costs of $8.2 million was attributable to (i) $6.3 million of manufacturing related costs for process performance qualification batch production of drug product, which will also continue support both phase 3 studies and EAPs, (ii) $1.8 million of clinical related costs incurred for the tumor HI phase 3 study for which startup activities were initiated in August 2024 after clearance of our IND application and anticipating enrollment of the first patient in the study in the second quarter of calendar 2025 and (iii) $0.9 million of costs for the sunRIZE clinical trial which did not enroll its first patient until April 2024, and we are tracking to complete enrollment in the study in May 2025. These increases amount to $9.0 million and were partially offset by a $0.8 million decrease in preclinical, toxicology and other ersodetug costs that were no longer required to support our efforts to remove the partial clinical hold on the sunRIZE study, which was lifted by the FDA in September 2024.

Other R&D preclinical, toxicology and facilities costs increased by $1.5 million due to an increase in R&D employee compensation and employee related costs. The increase in R&D employee compensation and related costs was attributable to an increase in the average number of R&D employees from 42 for the nine months ended March 31, 2024 to 48 employees for the nine months ended March 31, 2025.

General and administrative expenses. G&A expenses for the nine months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages):

The increase in G&A expenses of $2.7 million for the nine months ended March 31, 2025, was primarily attributable to (i) an increase in consulting expenses of $1.5 million related to business development, market planning activities for ersodetug and other professional service fees, and (ii) an increase of $1.2 million in compensation and benefits for our G&A workforce.

Cash-based compensation and benefits for our G&A workforce increased by approximately $1.9 million and was partially offset by a reduction of share-based compensation of $0.7 million. This $1.9 million increase in cash-based compensation was primarily attributable to an increase in the average number of G&A employees from 14 for the nine months ended March 31, 2024, to 18 employees for the nine months ended March 31, 2025. Share-based compensation for our G&A workforce decreased by $0.7 million from $3.1 million for the nine months ended March 31, 2024 to $2.4 million for the nine months ended March 31, 2025. This decrease in share-based compensation expense was primarily attributable to stock options that became fully vested during the fiscal year ended June 30, 2024.

Interest and other income. Interest and other income amounted to $4.0 million for the nine months ended March 31, 2025, compared to $3.8 million for the nine months ended March 31, 2024. This increase of $0.2 million was primarily due to an increase in the average value of money market funds and investments in marketable debt securities from $79.1 million at March 31, 2024 to $85.0 million as of March 31, 2025. Investment balances were higher due to proceeds from the 2024 Underwritten Offering and 2024 Private Placement, offset by investment maturities that were utilized to fund operating activities. Investments in marketable debt securities are our primary source of liquidity to fund clinical expenditures and other operating expenses.

Change in fair value of derivative liabilities. For the nine months ended March 31, 2025, there were no warrant liabilities recognized. For the nine months ended March 31, 2024, we recognized an expense of approximately $2.0 million, primarily due to the increase of $0.65 per share in our stock price, resulting in changes in the fair value of the warrant derivative liability related to the Exchange PFWs issued on March 8, 2024.

Income taxes. For the nine months ended March 31, 2025 and 2024, we did not recognize any income tax benefit due to our net losses, and our determination that a valuation allowance was required for all of our deferred tax assets.

Liquidity and Capital Resources

Short-term Liquidity Requirements

As of March 31, 2025, we had cash and cash equivalents of $14.6 million, short-term marketable debt securities of $72.3 million and working capital was approximately $78.2 million. We have incurred cumulative net losses of $379.5 million since our inception and as a clinical stage company we have not generated any meaningful revenue to date. Our most significant contractual obligations consist of milestone payments pursuant to licensing agreements with XOMA Corporation (“XOMA”) and ActiveSite Pharmaceuticals, Inc. (“ActiveSite”) discussed below.

Our primary source of liquidity has historically been from the completion of private placements and public offerings of our equity securities, as well as proceeds from the issuance of debt securities. For the nine months ended March 31, 2025, we received proceeds of $6.0 million related to a private placement of 1.5 million shares of common stock. Additionally, in April 2025 we completed the 2025 Underwritten Offering that resulted in net proceeds of $96.9 million from the issuance of 24.9 million shares of common stock and pre-funded warrants to purchase 6.9 million shares of common stock. For further information about the key terms and results of our recent equity financing activities please refer to the discussion above under the caption Recent Developments. The completion of equity financings between May 2022 and July 2024 is the primary source of our total cash, cash equivalents and short-term investments in marketable debt securities of $86.9 million as of March 31, 2025.

In April 2022 we entered into a lease agreement for a new corporate headquarters facility in Redwood City, California. This lease, which commenced in October 2022, provides for total base rent payments of approximately $2.9 million through the expected expiration of the lease in July 2027. Additionally, in October 2023 we extended the lease agreement for our office facility in Bend, Oregon. This lease extension provides for additional base rent payment of approximately $0.4 million through the expiration date of the lease in February 2027.

Remaining cash payments related to existing contractual obligations for the 12-months ending March 31, 2026 include approximately (i) $0.8 million under all of our operating lease agreements, (ii) a milestone payment to XOMA of $5.0 million due upon dosing of the last patient in any of our Phase 3 clinical trials for ersodetug. Due to uncertainties in the estimated timing associated with clinical trial activities, it is possible that the milestone payment due upon dosing of the last patient could be delayed beyond March 31, 2026.

Based on our cash and cash equivalents balance of $14.6 million and investments in short-term marketable debt securities balance of $72.3 million as of March 31, 2025, combined with the net proceeds of $96.9 million received in the 2025 Underwritten Offering, we believe we have adequate capital resources to meet all of our contractual obligations and conduct all planned activities to advance our clinical trials at least through the next 12 months.

Long-term Liquidity Requirements

Our most significant long-term contractual obligations consist of additional clinical and regulatory milestone payments up to $30.0 million payable to XOMA and additional milestone payments up to $25.0 million payable to ActiveSite. Of these amounts, we expect that $5.0 million will be payable to XOMA during the 12-month period ending March 31, 2026 as discussed above under the caption Short-term Liquidity Requirements. Up to $50.0 million of the remaining milestone payments that may become payable are considered a long-term liquidity requirement. Due to uncertainties in the timing associated with clinical trial activities and regulatory approvals, there is even greater uncertainty in forecasting the timing of future clinical and regulatory milestone payments to XOMA and ActiveSite that may extend beyond the next 12 months.

In addition to the clinical and regulatory milestone payments discussed above, upon the future commercialization of ersodetug and RZ402 we will be obligated to pay additional milestone payments and alternative indication regulatory approval payments to XOMA and ActiveSite for an aggregate up to $202.5 million and royalties based on the net sales of the related products. These future milestones include $185.0 million in potential payments to XOMA and $17.5 million to ActiveSite for various sales-based milestones and alternative indication regulatory approvals. No assurance can be provided that commercialization will ever be achieved for ersodetug or RZ402, in which case none of these future payments may ever be required.

In addition to our licensing obligations, we also have long-term contractual obligations under existing operating lease agreements of $0.8 million for each of the fiscal years ending June 30, 2026 and 2027. Based on our current forecast, we expect that our existing cash, cash equivalents and investments in marketable debt securities will be sufficient to fund our long-term contractual obligations and conduct all planned activities to advance our clinical trials into the second quarter of calendar year 2026.

In November 2023 we entered into the Sales Agreement that provides for an “at-the-market” offering for the sale of up to $50.0 million in shares of our common stock. The net proceeds under the Sales Agreement, if any, will be used to fund a portion of our long-term liquidity requirements including payments for general corporate purposes and to meet our working capital requirements. To date, we have not elected to sell any shares of our common stock pursuant to the Sales Agreement. Even if we elect to sell the entire $50.0 million of shares under the Sales Agreement, we will need to obtain additional equity or debt financing in order to fund all of our long-term liquidity requirements. Accordingly, no assurance can be given that we will be able to obtain sufficient sources of equity and debt financing on terms that are acceptable to our Board of Directors and shareholders.

Presented below is an additional discussion about the ongoing requirements pursuant to our license agreements with XOMA and ActiveSite, along with additional information about our ongoing financing activities that impacted our liquidity and capital resources through March 31, 2025.

XOMA License Agreement

In December 2017, we entered into a license agreement (the “XOMA License Agreement”) with XOMA through its wholly-owned subsidiary, XOMA (US) LLC, pursuant to which XOMA granted an exclusive global license to develop and commercialize XOMA 358 (formerly X358 or RZ358, now ersodetug) for all indications. In January 2019, the XOMA License Agreement was amended with an updated payment schedule, as well as revised the amount we were required to expend on development of ersodetug and related licensed products, and revised provisions with respect to our diligence efforts in conducting clinical studies.

Upon the achievement of certain clinical and regulatory events, we will be required to make up to $37.0 million in aggregate milestone payments to XOMA. Milestone payments made to date include a $2.0 million payment in January 2022 for the enrollment of the last patient of the Phase 2 clinical study and $5.0 million paid in May 2024 related to the first patient enrollment in a Phase 3 study. We record a liability for milestone payments in our financial statements on the date that we achieve the milestone event. The next milestone payment of $5.0 million will be due upon the enrollment of the last patient in a Phase 3 study, which we believe will occur in the next twelve months. Additionally, upon the future commercialization of ersodetug, we will be required to pay royalties to XOMA based on the net sales of the related products, and milestone payments up to an additional $185.0 million if future annual sales related to ersodetug exceed targets ranging from $100.0 million to $1.0 billion. Through March 31, 2025, no events have occurred that would result in the requirement to make additional milestone payments and no royalties have been incurred.

ActiveSite License Agreement

In August 2017, we entered into a Development and License Agreement with ActiveSite (“ActiveSite License Agreement”) pursuant to which we acquired the rights to ActiveSite’s PKI portfolio. We are planning to use the PKI Program to develop, file, manufacture, market and sell products for diabetic macular edema and other therapeutic indications. The ActiveSite License Agreement requires various milestone payments ranging from $1.0 million to $10.0 million when milestone events occur, up to an aggregate of $46.5 million of aggregate milestone payments. The first milestone payment for $1.0 million was paid in December 2020 after completion of preclinical work and submission of an IND to the FDA for RZ402. The second milestone payment for $3.0 million became due upon dosing of the first patient in a Phase 2 study in February 2023. Remaining milestone payments under the ActiveSite License Agreement for various clinical and regulatory milestones amount to $25.0 million and milestones after commercial success or alternative indication approvals amount to $17.5 million. We will also be required to pay royalties equal to 2.0% of any sales of products that use the PKI Program. Through March 31, 2025, no events have occurred that would result in the requirement to make additional milestone payments and no royalties have been incurred.

Cash Flows Summary

Presented below is a summary of our operating, investing, and financing cash flows for the nine months ended March 31, 2025 and 2024 (in thousands):

Cash Used in Operating Activities

For the nine months ended March 31, 2025 and 2024, cash used in operating activities amounted to $47.1 million and $38.8 million, respectively. The key components in the calculation of our cash used in operating activities are as follows (in thousands):

For the nine months ended March 31, 2025, our net loss was $50.0 million compared to $45.5 million for the nine months ended March 31, 2024. For further discussion about changes in our operating results for the nine months ended March 31, 2025 and 2024, please refer to Results of Operations above.

For the nine months ended March 31, 2025 and 2024, our non-cash expenses of $5.2 million and $8.0 million, respectively, were primarily attributable to share-based compensation expense, loss in change of fair value of a warrant liabilities, and non-cash lease expense. For the nine months ended March 31, 2025 and 2024, accretion of discounts and amortization of premiums on marketable debt securities amounted to $2.1 million. For the nine months ended March 31, 2025, net changes in operating assets and liabilities decreased operating cash flow by $0.2 million, primarily driven by cash outflows resulting in a net increase in prepaid expense and other assets of $1.2 million. This amount was partially offset by a net increase of $1.0 million in accounts payable and other accrued liabilities. For the nine months ended March 31, 2024, net changes in operating assets and liabilities increased operating cash flow by $0.7 million, primarily driven by an increase of $1.3 million in accounts payable and other accrued liabilities. This amount was partially offset by cash outflows resulting from an increase in prepaid expenses and other assets of $0.6 million.

Cash Provided by or Used in Investing Activities

For the nine months ended March 31, 2025, our net cash used in investing activities amounted to $14.9 million. For the nine months ended March 31, 2025, we received proceeds of $85.8 million upon the maturity of certain marketable debt securities. These cash proceeds from maturities, along with certain proceeds from the 2024 Underwritten Offering in June 2024 and the 2024 Private Placement in July 2024, were used to purchase a total of $100.7 million of marketable debt securities.

For the nine months ended March 31, 2024, our net cash provided by investing activities amounted to $29.0 million, primarily related to the maturity of marketable debt securities of $85.8 million partially offset by cash outflows of $56.7 million to reinvest in marketable debt securities.

Cash Provided by or Used in Financing Activities

For the nine months ended March 31, 2025, our net cash provided by financing activities was $6.2 million. Cash inflows amounted to $6.8 million consisting of proceeds of $6.0 million from the 2024 Private Placement and $0.8 million from the exercise of stock options. These amounts were partially offset by cash outflows related to the payment of offering costs of $0.6 million incurred in connection with the 2024 Underwritten Offering.

For the nine months ended March 31, 2024, our net cash utilized in financing activities was $0.3 million and was solely attributable to deferred offering costs to put the Sales Agreement in place and register the underlying shares of common stock that may be issued.

Recent Accounting Pronouncements

Please refer to Note 1 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Report regarding the impact of recent accounting pronouncements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet transactions for the periods covered by this Report.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our Principal Executive and Financial Officer), of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Principal Executive and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Based on that assessment under those criteria, our management has determined that our internal control over financial reporting was effective as of March 31, 2025.

Changes in Internal Controls over Financial Reporting

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our Legacy Risk Factor Disclosures are set forth in (i) Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 filed with the Securities and Exchange Commission (“SEC”) on September 19, 2024, and (ii) in Part II, Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2024 filed with the SEC on February 12, 2025. As of the date of this Report, there have been no material changes with respect to the Legacy Risk Factor Disclosures except for the risk factor set forth below.

Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials.

Clinical failure can occur at any stage of clinical development. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of pharmaceutical companies have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical or preclinical testing.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including differences in trial protocols and design, the size and type of the patient population, adherence to the dosing regimen and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent and/or adequate efficacy and safety to obtain marketing approval for our product candidates.

On April 18, 2025, an independent data monitoring committee (“IDMC”) conducted a non-binding, interim analysis of our sunRIZE study for the treatment of congenital HI and reported that the sunRIZE study should continue as planned without any adjustment to the sample size of the sunRIZE study. There can be no assurances that the observations made at the interim analysis will be consistent with the final study results for various reasons, including that the final study results based upon the full sample size may not be consistent with the results achieved by the limited sample size used to conduct the interim analysis and the current sample size of patients with active RMS patients for each trial may not be sufficiently large to demonstrate efficacy.