Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes included in our final prospectus for our initial public offering ("IPO") filed with the Securities and Exchange Commission ("SEC") pursuant to Rule 424(b)(4) under the Securities Act on July 31, 2026 (the "IPO Prospectus"). References to the "Company," "Apnimed," "we," "our," "us" or similar terms refer to Apnimed, Inc. as the context may require. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon our current plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, strategies, objectives, expectations, intentions and beliefs. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this Quarterly Report. The sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" should be read carefully to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

We are a late stage clinical pharmaceutical company dedicated to the discovery, development and commercialization of novel oral therapies that address the neurobiology of sleep-related breathing diseases. Our sole clinical product candidate, AD109 ("Oxnimbi"), is an investigational, fixed-dose anti-apneic neuromuscular modulator, combining a novel anti-muscarinic and a selective norepinephrine reuptake inhibitor ("NRI") for the treatment of obstructive sleep apnea ("OSA"). Oxnimbi is designed to target the neuromuscular defect of OSA by improving upper airway muscle activity to help maintain airway patency and prevent airway collapse during sleep. Based on results from two registrational trials, we submitted a New Drug Application ("NDA") for Oxnimbi to the FDA in April 2026, which was accepted for review by the FDA in July 2026. The registrational trials, LunAIRo and SynAIRgy, were Phase 3 randomized, double-blind, placebo-controlled, parallel-arm trials in adults with mild to severe OSA, which together enrolled approximately 1,300 patients and represent one of the largest and most diverse cohorts ever studied in an OSA pharmacologic trial. LunAIRo was conducted in the United States and SynAIRgy was conducted in the United States and Canada. All other trials for Oxnimbi were conducted in the United States.

Oxnimbi met its primary endpoint and several key secondary endpoints in both Phase 3 trials, SynAIRgy and LunAIRo. Under the treatment policy estimand, mean apnea hypopnea index reductions at week 26 (≥4% (desaturation criterion for hypopneas) were 44.1% in SynAIRgy and 33.7% in LunAIRo vs 17.6% and 7.3% with placebo, respectively (p≤0.0001). Under the on-treatment estimand, reductions were 55.6% and 46.8% from baseline (p<0.0001 vs placebo). Under the treatment policy estimand, hypoxic burden, a metric associated with cardiovascular risk and all-cause mortality, was reduced by 44.7% and 37.4% from baseline (p<0.001 vs placebo), and under the on-treatment estimand by 60.5% and 58.2% (p<0.0001 vs placebo), in SynAIRgy and LunAIRo, respectively. Oxnimbi was generally well-tolerated, with AEs predominantly mild across both trials, with no drug-related serious adverse events in the Oxnimbi group reported in either LunAIRo or SynAIRgy. Clinical trial results are preliminary in nature, and such results may not be replicated in subsequent clinical trials. The FDA review cycle is targeted to be 10-months from our NDA submission in April 2026, and the FDA has issued a Prescription Drug User Fee Act ("PDUFA") goal date of February 28, 2027, although the duration of the review may vary based on various factors.

In addition, we entered into a joint venture with Shionogi & Co., Ltd. ("Shionogi"), known as Shionogi-Apnimed Sleep Science, LLC ("SASS"), to develop novel therapies for OSA and other sleep breathing disorders in November 2023. SASS initiated several discovery and development-stage programs in 2024 and continued development in 2025.

In April 2026, we sold to Shionogi (i) all of our membership interests in SASS, and (ii) certain intellectual property and other assets directly related to SASS's development programs, including the asset purchase and license agreement (the "Desitin APA") with Desitin Arzneimittel GmbH ("Desitin") and Cereus Pharma AB ("Cereus"), pursuant to the Membership Interest and Asset Purchase Agreement (the "MIPA") with Shionogi and SASS, dated March 23, 2026, as amended (the "SASS Disposition"). In addition, at the closing of the SASS Disposition, we converted certain exclusive licenses to our intellectual property relevant to the use of compounds in sleep disorders that were within the scope of SASS's pre-closing activities (each, a "JV Compound") and in existence as of the effective date of the MIPA into perpetual, irrevocable, non-exclusive and royalty-free licenses solely with respect to a specified set of products that incorporate one or more JV Compound. As partial consideration under the MIPA, we received an upfront payment of $100.0 million (the "Closing Payment"). In addition, we are eligible to receive a one-time milestone payment of $50.0 million (the "Milestone Payment") subject to the earlier achievement of (i) the first subject being enrolled into the second clinical trial of a sulthiame product sponsored by Shionogi, SASS or either of their licensees, sublicensees, or affiliates (each an "Earnout Party" and collectively, the "Earnout Parties") (the "MIPA Clinical Development Milestone") and (ii) FDA acceptance of an NDA for a sulthiame product submitted by an Earnout Party (the "MIPA Regulatory Milestone").

In August 2026, we completed our IPO, in which we sold an aggregate of 13,800,000 shares of our common stock, including 1,800,000 shares issued pursuant to the full exercise of the underwriters' overallotment option, at a public offering price of $16.00 per share, resulting in aggregate net proceeds of approximately $200.4 million, after deducting underwriting discounts, commissions and other offering expenses.

We have a history of operating losses and, prior to our IPO, we had limited capital resources. In addition, as of June 30, 2026, we had an accumulated deficit of $203.7 million and had cash and cash equivalents of $172.8 million. For the six months ended June 30, 2026 and 2025, we used $37.9 million and $45.8 million of cash in operations, respectively. We expect to continue to generate operating losses and negative cash flows for the foreseeable future as we continue to develop Oxnimbi and any future product candidates.

We believe that the net proceeds from our IPO, together with our cash and cash equivalents as of June 30, 2026, will enable us to fund our operating expenses and capital expenditure requirements through the middle of 2028. However, our forecast for the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. See the sections titled "Liquidity and Capital Resources" below and "Risk Factors-Risks Related to Our Operating History, Financial Condition and Need for Additional Capital" included elsewhere in this Quarterly Report.

We do not expect to generate any revenue from commercial product sales unless we successfully complete development and obtain regulatory approval for Oxnimbi or any future product candidate, which may never occur. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

In addition, if we obtain regulatory approval for Oxnimbi or any future product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. If Oxnimbi is approved, the earliest we would expect to generate revenue from product sales is 2027. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Our net losses may fluctuate significantly quarter-to-quarter and year-to-year depending on commercialization progress of Oxnimbi, if approved, as well as the timing of our clinical trials and our expenditures on other research and development activities.

Because of the numerous risks and uncertainties associated with therapeutic product development, we may never achieve profitability, and unless and until we are able to develop and commercialize Oxnimbi or any future product candidates, we will need to continue to raise additional capital. Even if we generate revenue from product sales, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves. See the section titled "Liquidity and Capital Resources" below.

Key Components of Our Operating Results

Revenue - Related Party

In accordance with FASB ASC Topic 606, Revenue from Contracts with Customers and its related amendments (collectively known as "ASC 606"), we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized, for agreements within the scope of ASC 606, we perform the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the separate performance obligations in the contract; and (v) recognize revenue associated with performance obligations as they are satisfied. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to the customer.

As discussed in Notes 4 and 10 to our unaudited condensed consolidated financial statements, upon formation of SASS, we entered into multiple agreements with SASS. Based on the nature of these agreements, we concluded that SASS represented a customer and analyzed the agreements between us and SASS in accordance with ASC 606. We evaluated the promised goods and services under the agreements and determined that the agreements included one performance obligation: a combined performance obligation including the exclusive license, know-how and services to be performed under the Master Services Agreement we entered into with SASS in November 2023, as amended in January 2025 (the "SASS MSA") in accordance with SASS's research and development plan. We recognized revenue as we fulfilled performance obligations based on an input method of expected costs incurred in accordance with SASS's research and development plan.

The transaction price associated with the formation of SASS was determined to be $75.0 million at the time of execution, which represented the fair value of our equity interest in SASS as of the closing date of the transaction. We allocated the full transaction price to the combined performance obligation and recorded $75.0 million as deferred revenue. As we fulfilled our performance obligation to SASS, using an input method based on expected costs incurred to provide the services under the SASS MSA in accordance with SASS's research and development plan, which we believe was the best measure of progress towards satisfying the performance obligations as this method provides the most faithful depiction of the entity's performance in transferring control of the goods and services promised to SASS.

In April 2025, we entered into a joint ownership and license agreement with Shionogi (the "Joint Ownership Agreement"), pursuant to which Shionogi obtained a joint interest in the Joint Ownership IP (as defined below in the section titled "Loss from Discontinued Operations").

In April 2025, in connection with entering the Joint Ownership Agreement, we entered into the SASS CAI and SNRI/CAI Contribution Agreement (the "Contribution Agreement") with Shionogi and SASS, pursuant to which we and Shionogi granted to SASS an exclusive license of the Joint Ownership IP subject to the Joint Ownership Agreement. SASS agreed to use the Joint Ownership IP only for the conduct of each program, in accordance with the terms of the Amended and Restated Limited Liability Company Agreement dated November 1, 2023, as amended by Amendment No. 1 to Amended and Restated Limited Liability Company Agreement, dated April 23, 2025 (the "JV Agreement") and for the research, development and commercialization of the Joint Ownership IP. The Contribution Agreement was recorded as a contract modification of the original SASS revenue arrangement discussed further in Note 10 to our unaudited consolidated financial statements. The modified contract comprises one performance obligation in accordance with ASC 606 as described in Note 10 to our unaudited consolidated financial statements.

During the six months ended June 30, 2026, we revised our estimate of the total expected costs to be incurred to provide the services pursuant to the SASS MSA, as amended, primarily due to entering into the MIPA, discussed in Note 15 to our unaudited condensed consolidated financial statements. As a result of the change in estimate, the measure of progress toward completion of the one performance obligation was adjusted in accordance with ASC 606 under the cumulative catch-up method. The change in accounting estimate resulted in an increase in revenue of $81.3 million, an increase in net income of $81.3 million, an increase in basic net income per share of $16.94, and an increase in diluted net loss per share of $2.53, in each case for the six months ended June 30, 2026.

During the six months ended June 30, 2026, we recognized revenue of $96.9 million, of which $93.5 million was included in deferred revenue as of the beginning of 2026. During the six months ended June 30, 2025, we recognized revenue of $20.2 million, of which $17.2 million was included in deferred revenue as of the beginning of 2025.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our research and discovery efforts and the development of Oxnimbi or any future product candidates. We expense research and development costs as incurred, which include:

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and clinical sites and analyzing the progress of clinical trials or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.

External costs include fees paid to consultants, contractors and vendors, including CMOs and CROs, in connection with our clinical activities. We do not track our internal research and development costs on a program-by-program basis.

The successful development of Oxnimbi or any future product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of Oxnimbi or any future product candidates, due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of Oxnimbi or any future product candidates, if approved.

The duration, cost and timing of the clinical development of Oxnimbi or any future product candidates will depend on a variety of factors that include, but are not limited to, the following:

A change in the outcome of any of these variables with respect to the development of Oxnimbi or any future product candidates would significantly change the costs and timing associated with the development of such product candidates. We may never obtain regulatory approval for Oxnimbi or any future product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate would be required for the completion of clinical development of any future product candidates, or if we experience significant delays in our clinical trials due to slower than expected patient enrollment or for other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may never obtain regulatory approval for Oxnimbi or any future product candidates, and, even if we do, successful commercialization of any approved product candidates may take several years and we expect to incur significant development costs.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and employee-related costs for our finance, human resources and other administrative personnel, including salaries, benefits and other related costs, as well as expenses for outside professional services, including legal, accounting and audit services and other consulting fees, rent expense, other general administrative expenses and stock-based compensation.

We expect our general and administrative expenses will increase in the future in connection with increasing our headcount to support our potential commercialization efforts, building a commercial organization and sales marketing team, and increasing costs as a result of being a public company. These increases will likely include additional costs related to the hiring of new personnel, including higher stock-based compensation expenses, and fees to outside consultants, as well as other expenses. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs, as well as stockholder and public relations expenses associated with operating as a public company.

Cost of Services - Related Party

Cost of services consisted of our costs to provide services for drug discovery required under performance obligations with SASS. These costs primarily included materials costs, service hours performed by our employees and costs from third-party CROs and service providers. During the six months ended June 30, 2026 and 2025 we recognized cost of services to SASS of $3.4 million and $3.0 million, respectively. These pass through costs consisted of expenses incurred under the SASS MSA and were reimbursed to us on a monthly basis and included both third party vendor services and services performed by our employees, which were reimbursed on an agreed upon hourly rate as outlined in the SASS MSA, which approximates actual personnel costs incurred.

In April 2026, we amended and restated the SASS MSA (the "A&R SASS MSA") to reflect the change in relationship under the MIPA, pursuant to which we will continue to perform certain services for SASS under existing statements of work ("SOWs") through 2026 and certain other services through 2027, each at mutually agreed rates pursuant to the A&R SASS MSA.

Other Income (Expense)

Other income (expense) consists of interest income received on our cash equivalents, gain on reversal of deposit liability, changes in fair value of our long-term debt, revenue interest liability, contingent asset and convertible notes, gain on sale of equity method investment, and other income (expense).

Loss from Discontinued Operations

Loss from discontinued operations represents our share of the losses recorded by SASS. In April 2026, we completed the disposition of our equity method investment in SASS pursuant to the MIPA discussed in Note 15 to our unaudited condensed consolidated financial statements. The divestiture represents a strategic monetization of our investment in SASS as we focus on the advancement and potential commercialization of Oxnimbi. For the six months ended June 30, 2026 and 2025, we recorded $2.8 million and $65.8 million, respectively, as our share of SASS net loss recorded as loss from discontinued operations within the unaudited condensed consolidated statements of operations.

Desitin APA

In April 2025, we entered into the Desitin APA with Desitin and Cereus, pursuant to which we (i) purchased certain patents and know-how related to sulthiame (the "Purchased Sulthiame IP") and (ii) obtained a perpetual, irrevocable exclusive, and fully paid-up

license to know-how controlled by Desitin concerning the manufacturing of products using sulthiame in the field of diagnosis, prevention, treatment, mitigation or control of sleep apnea and all other sleep diseases, disorders and conditions in humans including obesity hypoventilation syndrome (the "Licensed Sulthiame IP") in exchange for an upfront cash consideration of $50.0 million, (collectively the "Desitin IP"). In April 2026, we completed the SASS Disposition pursuant to the MIPA and concurrently all of our rights and obligations under the Desitin APA were transferred to Shionogi.

Shionogi Agreements

In November 2023, we entered into the Right of First Negotiation Agreement with Shionogi (the "ROFN Agreement"). Pursuant to the ROFN Agreement, we granted Shionogi a right of first negotiation over certain of our development candidates in return for a lump sum cash payment equal to $37.5 million. Oxnimbi was not subject to the restrictions of the ROFN Agreement. In evaluating the nature of the ROFN Agreement under ASC 606, we concluded the ROFN Agreement did not represent a contract with a customer because we were not legally or contractually obligated to transfer any goods or services at the time the ROFN Agreement was signed. Therefore, the cash consideration received upon signing the ROFN Agreement was recognized as a deposit liability. The deposit liability recognized represented our obligation to transfer either goods or services in the future if an agreement was executed. The deposit liability was expected to be recognized as revenue in future periods only if an ASC 606 contract was entered. As of December 31, 2025, the deposit liability totaled $57.1 million. In April 2026, the ROFN Agreement was terminated. The termination of the ROFN Agreement was completed without entering into a customer contract in accordance with ASC 606. As no revenue generating arrangement was made related to the remaining rights under the ROFN Agreement prior to its termination, and we do not have any future negotiation obligation upon the termination of the ROFN Agreement, the deposit liability of $57.1 million as of June 30, 2026 was derecognized and recorded as gain on reversal of deposit liability in April 2026.

In July 2024, Shionogi exercised its ROFN with respect to certain intellectual property covered under the ROFN Agreement (the "Optioned Selective NRI/CAI IP"). Negotiations ensued pursuant to the exercise of such right of first negotiation with respect to the Optioned Selective NRI/CAI IP and in April 2025, we and Shionogi entered into the Desitin APA, the Joint Ownership Agreement and the Contribution Agreement. Shionogi paid us $55.0 million upon execution of the Joint Ownership Agreement.

Pursuant to the Joint Ownership Agreement, in April 2025, we granted to Shionogi (i) a 50% joint ownership interest in the Purchased Sulthiame IP, (ii) a co-exclusive license under the Licensed Sulthiame IP and (iii) a co-exclusive license under certain intellectual property in respect of the compound atomoxetine (Atomoxetine Licensed IP, and together with the intellectual property described in subsections (i) and (ii), the "Joint Ownership IP"). In addition to rights in the Joint Ownership IP, Shionogi was granted an exclusive right, exercisable at any time during the term of the Contribution Agreement to negotiate for additional rights over the Joint Ownership IP controlled by SASS to develop, manufacture or commercialize a product in Japan, South Korea, and Taiwan and the People's Republic of China (the "Shionogi Option"). Shionogi paid us $55.0 million upon execution of the Joint Ownership Agreement.

Pursuant to the Contribution Agreement, we and Shionogi contributed the intellectual property subject to the Joint Ownership Agreement to SASS and in exchange the milestone payments and the earnout payments due pursuant to the Desitin APA were assigned to SASS.

The accounting for the Desitin APA, the ROFN Agreement exercise, the Joint Ownership Agreement and the Contribution Agreement, collectively, within the audited consolidated financial statements as of and for the year ended December 31, 2025 was as follows:

In April 2026, we completed the SASS Disposition pursuant to the MIPA. We have recorded our equity method investment in SASS as assets held for sale within our condensed consolidated balance sheets as of June 30, 2026 as discussed in Note 15 to our unaudited condensed consolidated financial statements for the six months ended June 30, 2026.

Results of Operations

Comparison of three months ended June 30, 2026 and 2025

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

Revenue - Related Party

During the three months ended June 30, 2026, we recognized revenue from related party of $12.1 million compared to $17.1 million for the comparable prior year period. The decrease of $5.0 million is primarily driven by a decrease in research and development services provided to SASS due to the winding down of the RESTEADY trial.

Research and Development Expenses

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

Research and development expenses for the three months ended June 30, 2026 were $9.9 million, compared to $16.0 million for the comparable prior year period. The decrease of $6.1 million, or 38%, was primarily due to $7.6 million lower clinical trial expense related to Oxnimbi as LunAIRo and SynAIRgy trials were completed in 2025, and $0.1 million decrease in other projects expense. This decrease was partially offset by an increase of $1.6 million in medical affairs expense due to increased Key Opinion Leader ("KOL") engagement in 2026.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):

General and administrative expenses include items related to personnel, including bonus and benefit related expenses, legal services, rent and utilities, general consulting services and other office-related expenses. General and administrative expenses for the three months ended June 30, 2026 were $7.0 million, compared to $4.0 million for the comparable prior year period, representing an increase of $3.0 million, or 77%, primarily due to legal services incurred related to business consulting and contract negotiations, and increased salary expense due to increased headcount.

Commercial marketing expense was $4.8 million for the three months ended June 30, 2026, compared to $0.9 million for the comparable prior year period. The increase of $3.9 million, or 462%, was due to an increase in infrastructure to prepare us, the market, and our brand for the expected launch of Oxnimbi, if approved, including in key areas such as education on the unmet needs in OSA, pricing strategy, forecast estimates, market access planning, product positioning and stakeholder messaging.

Stock-based compensation was $0.8 million for the three months ended June 30, 2026, compared to $0.5 million for the comparable prior year period. The increase of $0.3 million, or 55%, is consistent with increased headcount.

We expect general and administrative expenses will continue to increase as we hire additional personnel to prepare our company for future growth and to operate as a public company.

Cost of Services - Related Party

The following table summarizes our related-party cost of services for each of the periods presented (in thousands):

During the three months ended June 30, 2026, we recognized cost of services of $1.2 million related to SASS, compared to $1.7 million of related-party cost of services for the comparable prior year period. This decrease of $0.5 million, or 30% is due to decreased services provided to SASS as the RESTEADY trial is winding down.

Other Income

The following table summarizes our other income for each of the periods presented (in thousands):

Other income for the three months ended June 30, 2026 was $137.8 million, compared to $0.3 million for the comparable prior year period. The increase of $137.5 million, or >100%, was due to a $57.1 million gain on reversal of deposit liability due to the termination of the ROFN, an $85.4 million gain on sale of equity method investment related to the MIPA in April 2026, and a $0.6 million increase in interest income. These increases were partially offset by an increase in expense of $2.9 million driven by the changes in fair value of our long-term debt, revenue interest liability, and convertible notes, and an increase in other expense of $2.7 million primarily related to 2.9 million long-term debt and revenue interest liability issuance costs, partially offset by $0.1 million change in fair value of our contingent asset.

Loss from Discontinued Operations

Loss from discontinued operations represents our share of the losses recorded by SASS. Our loss from discontinued operations for the three months ended June 30, 2026 was $0.2 million, compared to $63.8 million for the comparable prior year period. This decrease of $63.6 million, or 100%, is primarily driven by $62.2 million incurred related to SASS expensing of IPR&D related to the contribution of the Desitin IP and the Atomoxetine Licensed IP during the three months ended June 30, 2025. Additionally, as a result of the SASS Disposition pursuant to the MIPA on April 6, 2026, we recognized only six days of SASS-related losses during the three months ended June 30, 2026.

Comparison of six months ended June 30, 2026 and 2025

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

Revenue - Related Party

During the six months ended June 30, 2026, we recognized revenue for research and development services for SASS of $96.9 million compared to $20.2 million for the comparable prior year period. The increase of $76.7 million is primarily driven by the change in estimated costs to be incurred in providing services pursuant to the SASS MSA, as amended, as a result of entering into the MIPA. As a result of the change in estimate, the measure of progress toward completion of the one performance obligation was adjusted in accordance with ASC 606 under the cumulative catch-up method. The change in accounting estimate resulted in an increase in revenue of $81.3 million. The increase was partially offset by a reduction in research and development services provided to SASS due to the MIPA and the winding down of the RESTEADY trial.

Research and Development Expenses

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

Research and development expenses for the six months ended June 30, 2026 were $18.0 million, compared to $39.4 million for the comparable prior year period. The decrease of $21.4 million, or 54%, was primarily due to $20.0 million of lower expenses related to Oxnimbi as the LunAIRo and SynAIRgy trials were completed in 2025, $0.8 million of decreased preclinical activity as we continued to prioritize commercialization efforts for Oxnimbi, if approved, $0.4 million decrease in personnel costs due to decreased headcount, specifically in clinical operations as a result of the October 2025 reduction in force, and $0.2 million decrease in medical affairs due to timing of KOL engagement in 2025, including medical communication and medical congresses.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):

General and administrative expenses include items related to personnel, including bonus and benefit related expenses, legal services, rent and utilities, general consulting services and other office-related expenses. General and administrative expenses for the six months ended June 30, 2026 were $11.7 million, compared to $8.2 million for the comparable prior year period, representing an increase of $3.5 million, or 42%. This increase was primarily due to legal services incurred related to business consulting and contract negotiations, and increased salary expense due to increased headcount.

Commercial marketing expense was $6.1 million for the six months ended June 30, 2026, compared to $1.6 million for the comparable prior year period. The increase of $4.5 million was primarily due to an increase in infrastructure to prepare us, the market and our brand for the expected launch of Oxnimbi, if approved, including in key areas such as education on the unmet needs in OSA, pricing strategy, forecast estimates, market access planning, product positioning and stakeholder messaging.

Stock-based compensation was $1.4 million for the six months ended June 30, 2026, compared to $1.0 million for the comparable prior year period. The increase of $0.4 million, or 38%, is consistent with increased headcount.

We expect general and administrative expenses will continue to increase as we hire additional personnel to prepare our company for future growth and to operate as a public company.

Cost of Services - Related Party

The following table summarizes our related-party cost of services for each of the periods presented (in thousands):

During the six months ended June 30, 2026, we recognized cost of services of $3.3 million, compared to $3.0 million for the comparable prior year period. The increase of $0.3 million, or 11%, was primarily driven by increased research and development activities related to sulthiame before the MIPA.

Other Income

The following table summarizes our other income for each of the periods presented (in thousands):

Other income for the six months ended June 30, 2026 was $140.1 million, compared to $0.7 million for the comparable prior year period. The increase of $139.4 million was primarily due to a gain on reversal of deposit liability of $57.1 million due to the termination of the ROFN, a gain on sale of equity method investment of $85.4 million related to the MIPA, and $1.3 million gain resulting from a change in the fair value of our convertible notes, and a $0.4 million increase in interest income. These increases were partially offset by $2.1 million of expenses driven by the changes in fair value of the long-term debt and revenue interest liability, as well as an increase in other expenses of $2.7 million primarily related to 2.9 million long-term debt issuance costs, partially offset by $0.1 million change in fair value of our contingent asset.

Loss from Discontinued Operations

Loss from discontinued operations represents our share of the losses recorded by SASS. Our loss from discontinued operations for the six months ended June 30, 2026 was $2.8 million, compared to $65.8 million for the comparable prior year period. This decrease of $63.0 million, or 96%, is primarily driven by $62.2 million incurred in April 2025 related to SASS expensing of IPR&D related to the contribution of the Desitin IP and the Atomoxetine Licensed IP, partially offset by the MIPA in April 2026, resulting in fewer months of equity method losses incurred in the six months ended June 30, 2026.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred operating losses and negative cash flows from our operations. We have not recognized any sales revenue, other than revenue generated from services provided to SASS, and have not commercialized any products.

From inception, we have funded our operations primarily through equity financings and debt. As of June 30, 2026, we have raised aggregate gross proceeds of approximately $539.1 million, consisting of $389.1 million from the sale of shares of our preferred stock, common stock, Convertible Notes and entry into the ROFN Agreement, $49.0 million from our Credit Agreement, and $100.0 million from SASS, and $1.0 million from a license option agreement with Morningside Venture Investments Limited. As of June 30, 2026, we had cash and cash equivalents of $172.8 million.

In August 2026, we raised aggregate net proceeds of $200.4 million from the sale of shares of common stock in our IPO, after deducting underwriter discounts and commissions and other estimated offering expenses.

Credit Agreement

In April 2026, we entered into the Credit Agreement with the Agent and the Lenders. The Credit Agreement provides for up to $150.0 million of term loans (the "Term Loans"), available to us in multiple tranches. Additionally, in connection with the Credit Agreement, we issued warrants to purchase 100,163 shares of our common stock (the "Warrants") to the Lenders. In April 2026, the Lenders advanced $50.0 million of Term Loans (the "Tranche A Term Loan") to us. Additionally, we will be entitled to receive an advance of $50.0 million (the "Tranche B Term Loan") upon our receipt of regulatory authorization from the FDA for Oxnimbi with a labeled indication for the treatment of OSA in any adult population (the "Tranche B Milestone Event") and an additional advance of $50.0 million (the "Tranche C Term Loan") if, on or prior to June 30, 2028, the trailing twelve-month net sales of the products covered by the Amended and Restated Exclusive Patent License Agreement with BWH dated December 29, 2020 (as further amended on July 27, 2023, the "BWH License") equals or exceeds $175.0 million (the "Tranche C Milestone Event"), in each case subject to certain other conditions as set forth in the Credit Agreement. The Tranche B Term Loan is available through June 30, 2027, subject to the satisfaction of the conditions specified in the Credit Agreement. The Tranche C Term Loan is available through September 30, 2028, subject to the satisfaction of the conditions specified in the Credit Agreement. The Term Loans mature on April 2, 2031. Pursuant to a Security Agreement we entered into in April 2026 with the Agent and the Lenders (the "Security Agreement"), our obligations under the Credit Agreement are secured by a lien on substantially all of our assets, including our intellectual property (the "Collateral").

Outstanding Term Loans accrue interest at an annual rate equal to the Three-Month Term SOFR (as defined in the Credit Agreement) plus 5.75%, subject to potential reductions of up to one percent upon completion of certain events specified in the Credit Agreement (the "Credit Agreement Interest Rate"). In addition to interest on the outstanding Term Loans, we agreed to pay an additional revenue interest on each quarterly payment date, beginning May 15, 2026, calculated as a percentage of our net revenues equal to a low single digit percentage on the portion of annual net revenues up to $200.0 million and an amount below one percent on the portion of annual net revenues between $200.0 million and $500.0 million, in each case until the earlier of the ten-year anniversary of the first commercial sale of Oxnimbi or earlier extinguishment pursuant to the terms of the Credit Agreement (collectively, the "Revenue Interest Payments").

We are permitted to voluntarily prepay the Term Loans from time to time, in whole and in part and are required to prepay the Term Loans upon receipt of proceeds from certain asset sales, extraordinary receipts and debt incurrences, subject, in each case, to certain exceptions set forth in the Credit Agreement. All prepayments (other than prepayments upon a change of control as such term is defined in the Credit Agreement) are subject to a prepayment premium equal to a make-whole amount (reflective of all interest that would have accrued on such prepaid amount from April 2, 2026 to April 2, 2028) plus 5.0% if made on or prior to April 2, 2028, 4.00% if made after April 2, 2028 and on or prior to April 2, 2029, 2.50% if made after April 2, 2029 and on or prior to April 30, 2029, and 0.00% thereafter. Mandatory prepayments are required from net cash proceeds from dispositions, involuntary dispositions, extraordinary receipts and debt issuances. In addition, upon any prepayment or repayment (other than in connection with a change of control), we are required to pay a final payment premium equal to 4.0% of the portion of the applicable Term Loan amount being repaid.

The Credit Agreement contains various affirmative and negative covenants, which are subject to customary exceptions, that limit our ability to engage in specified types of transactions without the prior written consent of the Lenders. In addition, we are required to deposit into controlled accounts all cash or other payments received with respect to any and all of our accounts receivable or any other contract or right and interest and, at all times, to maintain a minimum aggregate balance of $20.0 million in cash in one or more such controlled accounts. These accounts are required to be maintained as cash collateral accounts securing our obligations under the Credit Agreement. Until our obligations under the Credit Agreement have been discharged, our ability to use the cash amounts held in these controlled accounts in the operation of our business will be limited.

In the event of a default, including, among other things, our failure to make any payment when due or our failure to comply with any provision of the Credit Agreement, subject to customary grace periods, the Lenders may elect to declare all amounts outstanding to be immediately due and payable, terminate all commitments to extend further credit and exercise other remedies available to secured lenders in accordance with law. If we are unable to repay the amounts due under the Credit Agreement or otherwise perform our obligations under the Credit Agreement, the Lenders could proceed against the Collateral granted to them to secure our obligations under the Credit Agreement, as further specified under the Security Agreement, potentially requiring us to renegotiate our Credit Agreement on terms materially less favorable to us or to immediately cease operations, which would have a material adverse effect on our business, financial condition and results of operations.

Notes

In September 2025, we issued the Convertible Notes in the aggregate principal amount of $35.0 million, as amended by the First Amendment to the Convertible Notes, entered in March 2026 (the "Note Amendment"). The Convertible Notes bore an interest rate of 8% annually through March 31, 2026. Thereafter, the Convertible Notes bear an interest rate of 15% annually until such time as the Convertible Notes are repaid or converted. The outstanding amount of the Convertible Notes was automatically converted into an aggregate of 2,646,838 shares of our common stock immediately prior to the closing of our IPO, at a conversion price of $14.40 per share, which is a 10% discount to the purchase price per share at which shares of our common stock were sold to the public in our IPO (before underwriting discounts and commissions).

SASS MIPA

In April 2026, we completed the SASS Disposition pursuant to the MIPA. As partial consideration under the MIPA, we received the Closing Payment of $100.0 million. In addition, we are eligible to receive a one-time Milestone Payment of $50.0 million, payable upon the earlier of (i) the MIPA Clinical Development Milestone or (ii) the MIPA Regulatory Milestone and the Earnout Payments (as defined below in this section).

We are also entitled to receive earnout payments equal to a mid to low single digit percentage of net sales of products that incorporate a JV Compound and are further developed or commercialized by the Earnout Parties (each, an "Earnout Product") with the percentage of net sales varying based on the JV Compound used in the applicable Earnout Product (the "Earnout Payments" and, together with the Closing Payment and the Milestone Payment, the "Purchase Price"). The calculation of net sales of any Earnout Product that is a combination of one or more JV Compounds and one or more proprietary compounds is subject to an apportionment process as between the JV Compound(s) and the proprietary compound(s) used in such Earnout Product.

Future Funding Requirements

As of June 30, 2026, we had cash and cash equivalents of $172.8 million. We expect to incur significant expenses and operating losses for the foreseeable future as we seek regulatory approval and pursue commercialization of Oxnimbi and advance any future product candidates through preclinical and clinical development. We expect that our general and administrative costs will increase substantially in connection with our planned commercialization activities. In addition, we expect to incur additional costs associated with operating as a public company.

In April 2026, we received the Closing Payment of $100.0 million pursuant to the MIPA and an advance from the Lenders of $50.0 million under the Credit Agreement. Pursuant to the MIPA, we may receive the Milestone Payment, subject to the achievement of (i) the MIPA Clinical Development Milestone or (ii) the MIPA Regulatory Milestone, and the Earnout Payments, based on net sales of the applicable Earnout Product. Pursuant to the Credit Agreement, we will be entitled to receive (i) the Tranche B Term Loan, equal to $50.0 million, upon the achievement of the Tranche B Milestone Event and (ii) the Tranche C Term Loan, equal to $50.0 million, upon the achievement of the Tranche C Milestone Event, in each case subject to certain other conditions as set forth in the Credit Agreement. Since we will only be eligible to receive these amounts upon the occurrence of the events described above, there is no guarantee we will receive any of these additional funds. We otherwise do not have any committed external source of funds. Until we can generate a sufficient amount of revenue from the commercialization of Oxnimbi or any future product candidates, if ever, or from collaboration agreements with third parties, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. The sale of equity or convertible debt securities may result in dilution to our stockholders and, in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock. The Credit Agreement subjects us to and any future debt financings may subject us to additional covenant limitations or restrictions on our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our ability to raise additional funds may be adversely impacted by deteriorating global economic conditions and the disruptions to and volatility in the credit and financial markets in the United States and fluctuations in interest rates, resulting from factors that include but are not limited to, inflation, global and regional conflicts and other factors, diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any necessary additional debt or equity financings more difficult, more costly and more dilutive. If we raise additional funds through future collaborations, licenses, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, product candidates, research programs intellectual property or proprietary technology, or grant licenses on terms that may not be favorable to us or may reduce the value of our common stock. For example, under the terms of the MIPA, we are subject to a five year worldwide non-competition obligation in relation to the exploitation of any product containing a JV Compound for the treatment, prevention or mitigation of sleep disorders.

There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us. If we are unable to obtain adequate financing when needed or on terms favorable or acceptable

to us, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market Oxnimbi or any future product candidates ourselves or on less favorable terms than we would otherwise choose.

We expect our expenses to increase substantially if we receive regulatory approval for Oxnimbi as we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates. Our future capital requirements will depend on a number of factors, including:

A change in the outcome of any of these or other variables could significantly change our costs and timing associated with the development of Oxnimbi or any future product candidates. Furthermore, our operating plans may change in the future and we may need additional funds to meet operational needs and capital requirements associated with such change.

Cash Flows

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

Cash Flows from Operating Activities

We have experienced negative operating cash outflows as we continue clinical development of Oxnimbi. Our net cash used in operating activities primarily results from our net loss adjusted for non-cash expenses and changes in working capital components. Our primary uses of cash from operating activities are amounts due to CROs to conduct our clinical programs and employee-related expenditures for research and development, and general and administrative activities. Our cash flows from operating activities will continue to be affected by spending to advance and support our clinical development and other operating and general administrative activities.

Net cash used in operating activities was $37.9 million for the six months ended June 30, 2026, primarily consisting of the net changes in operating assets and liabilities of $154.8 million, primarily driven by decreases in deferred revenue of $93.6 million and deposit liabilities of $57.1 million, as well as a non-cash gain on sale of equity method investment of $85.4 million. These uses of cash were partially offset by our net income of $193.7 million and other non-cash charges of $8.6 million, primarily related to changes in the fair value of financial instruments, stock-based compensation, debt issuance costs, and loss from discontinued operations.

Net cash used in operating activities was $45.8 million for the six months ended June 30, 2025, primarily consisting of our net loss of $98.1 million related to clinical development activities and net changes in operating assets and liabilities of $15.2 million. These uses of cash were partially offset by non-cash charges of $65.8 million related to loss from discontinued operations, and $1.7 million related to stock-based compensation.

Cash Flows from Investing Activities

Net cash provided by investing activities was $99.7 million for the six months ended June 30, 2026, primarily consisting of net proceeds from the sale of equity method investment. We did not have any cash flows from investing activities for the six months ended June 30, 2025.

Cash Flows from Financing Activities

Net cash provided by financing activities was $69.2 million for the six months ended June 30, 2026, primarily driven by $45.4 million of net proceeds received from our Credit Agreement, $24.8 million of net proceeds received from the issuance of our Series D-1 preferred stock, $0.7 million net proceeds received from issuance of Warrants and $0.1 million proceeds received from exercise of stock options, partially offset by $1.8 million of initial public offering costs paid.

Net cash provided by financing activities was $16.3 million for the six months ended June 30, 2025, driven by the issuance of net proceeds from the issuance of our Series D preferred stock.

Contractual Obligations and Commitments

As of June 30, 2026, there have been no material changes to our contractual obligations or commitments as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Registration Statement.

Critical Accounting Policies and Significant Judgments and Estimates

This management's discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our estimates are based on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under

different assumptions or conditions. See the section titled to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Registration Statement for further information on our critical accounting estimates and policies.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2-"Summary of Significant Accounting Policies" to our audited consolidated financial statements and our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Emerging Growth Company Status and Smaller Reporting Company Status

We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our consolidated financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the time that we are no longer an "emerging growth company." We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a "large accelerated filer" under the rules of the SEC, which means, among other things, the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We are also a "smaller reporting company" as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies for so long as either (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.