Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

In this Quarterly Report on Form 10-Q (this "Quarterly Report"), unless otherwise specified, references to "we," "our," "us" and "our company" refer to Gyre Therapeutics, Inc. ("Gyre") and our majority indirectly owned subsidiary, Beijing Continent Pharmaceuticals Co., Ltd. (d/b/a Gyre Pharmaceuticals Co., Ltd.) ("Gyre Pharmaceuticals"). The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes that appear in this Quarterly Report and with the audited consolidated financial statements and related notes that are included as part of our Annual Report on Form 10-K for the year ended December 31, 2024 (the "Annual Report").

In addition to historical information, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are identified by words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially" "predict," "should," "will," or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding: the strategies, prospects, plans, expectations or objectives of management for future operations or the distribution of cash to Company stockholders, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our ability to protect intellectual property rights, our anticipated operations, financial position, revenues, costs or expenses, future economic conditions or performance, and statements of belief and any assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A - "Risk Factors," and in Part I - Item 1A - "Risk Factors" in the Annual Report. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this Report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a commercial-stage biotechnology company with a proven track record of financial success developing and commercializing small-molecule anti-inflammatory and anti-fibrotic drugs targeting organ diseases, focusing specifically on organ fibrosis. Fibrotic diseases represent a large patient population with significant unmet medical needs and involves a complex, multi-stage process with multiple pathways. While there are numerous potential targets for anti-fibrotic therapy, both established and emerging, addressing a single molecular pathway may not be sufficient to prevent, halt, or reverse fibrosis.

Our strategy is to build on our success in the development and commercialization of ETUARY® (pirfenidone) to expand into new indications and advance our pipeline of innovative drug candidates. Pirfenidone, the first anti-fibrotic drug approved for idiopathic pulmonary fibrosis ("IPF") in Japan, the European Union, the United States, and the People's Republic of China (the "PRC"), is a small molecule drug that inhibits the synthesis of TGF-ß1, Tumor Necrosis Factor-α, and other fibrosis and inflammation modulators. We have obtained approval for ETUARY® in the PRC for IPF.

Etorel

Gyre Pharmaceuticals successfully advanced pirfenidone from research and development to commercialization in the PRC for the treatment of IPF. In May 2024, Gyre Pharmaceuticals executed a comprehensive agreement with Jiangsu Wangao Pharmaceuticals Co., Ltd. to acquire the commercial rights to Etorel (nintedanib, ethanesulfonate soft capsules). Etorel has been approved for the treatment of patients with SSc-ILD and PF-ILD. Etorel is expected to provide patients with more choices and benefits. Gyre Pharmaceuticals successfully initiated a commercial launch of Etorel in the PRC in the second quarter of 2025, which has and we expect will continue to help offset declines in ETUARY® sales as a result of increased competition in the IPF treatment market and the fluctuations in the Chinese economy that have weakened overall healthcare spending. We believe that this launch can drive meaningful revenue growth, expand our market penetration, and enhance brand recognition within the respiratory disease space. Additionally, the commercialization of Etorel aligns with our broader strategy of building a comprehensive pulmonary care portfolio, potentially creating opportunities for synergies with our existing and future product offerings. We

expect to continue to invest in commercialization efforts, including market access, physician education, and patient support programs, to optimize uptake and maximize the long-term value of this product.

Pirfenidone

In addition to IPF, pirfenidone is undergoing one additional Phase 3 trial in the PRC for the treatment of pneumoconiosis to broaden its indications and market. In March 2025, we received approval from the PRC's National Medical Products Administration (the "NMPA") for a clinical trial application for the treatment of radiation-induced lung injury with or without immune-related pneumonitis. We are currently preparing to initiate the anticipated clinical trial in the second half of 2025.

Contiva

In March 2025, Gyre Pharmaceuticals initiated commercialization of Contiva in the PRC for thrombocytopenia ("TCP") in adults with chronic liver disease ("CLD") and immune thrombocytopenic purpura ("ITP"). Gyre Pharmaceuticals received approval from the NMPA for Contiva maleate tablets for the treatment of CLD-associated TCP and ITP. TCP is the most common hematologic complication in patients with CLD and can be life threatening in severe cases. Contiva is an oral thrombopoietin receptor agonist. Contiva was approved by the U.S. Food and Drug Administration for the treatment of adults with CLD-associated TCP in May 2018, and its indication was subsequently expanded to include the treatment of ITP in June 2019. Gyre Pharmaceuticals acquired Contiva under a transfer agreement with Nanjing Healthnice Pharmaceutical Technology, Co., Ltd. ("Nanjing Healthnice") in June 2021.

Hydronidone

Hydronidone, our lead development candidate in both the United States and the PRC, is a structural derivative of ETUARY®. It is a new oral chemical entity with an anti-fibrotic, TGF-ß1-targeting mechanism of action. Studies suggest that Hydronidone and its major metabolites have minimal drug-drug interaction risks. We are prioritizing Hydronidone for the treatment of liver fibrosis due to the large potential addressable market and significant unmet need.

Gyre Pharmaceuticals completed a pivotal Phase 3 trial of Hydronidone in the PRC evaluating its safety and efficacy for the treatment of liver fibrosis in patients with chronic hepatitis B ("CHB") associated liver fibrosis. The 52-week, multicenter, double-blind, placebo-controlled trial enrolled 248 patients with CHB fibrosis across 39 hospitals in the PRC. Patients were randomized 1:1 to receive either entecavir anti-viral therapy plus Hydronidone (270 mg/day, orally) or entecavir antiviral therapy alone. The trial met its primary endpoint, with a statistically significant proportion of patients receiving Hydronidone achieving a ≥1-stage regression in liver fibrosis compared to placebo (P=0.0002). In addition, Hydroindone met a key secondary endpoint with statistically significant inflammation improvement without fibrosis progression at Week 52 versus the placebo arm. Hydronidone was well tolerated with a comparable incidence of serious adverse events (4.88% vs. 6.45% in the placebo group) and no discontinuations due to adverse events in either group.

Based on these positive results, we plan to file a New Drug Application with the NMPA in the third quarter of 2025. In parallel, we are actively preparing to file an investigational new drug application ("IND") with the U.S. Federal Food and Drug Administration in the third quarter of 2025 and, subject to IND clearance, plan to initiate a Phase 2 trial in the United States evaluating Hydronidone for the treatment of MASH-associated fibrosis in the second half of 2025. A prior U.S. Phase 1 trial in healthy volunteers confirmed Hydronidone's tolerability and demonstrated a pharmacokinetic profile consistent with the results of clinical trials of Hydronidone in the PRC.

Other Product Candidates

We are also conducting a randomized, double-blind, placebo-controlled Phase 2 clinical trial in the PRC to assess the safety and efficacy of F573, a caspase inhibitor for the treatment of acute/acute on-chronic liver failure. Completion of the Phase 2 clinical trial is expected in 2026. In June 2025, we successfully dosed the first volunteer in a Phase 1 in the PRC trial evaluating F230, a selective endothelin receptor agonist, for the treatment of pulmonary arterial hypertension. We are also evaluating F528, a novel anti-inflammation agent that targets the inhibition of multiple

inflammatory cytokines, in preclinical studies as a potential first-line therapy for the treatment of chronic obstructive pulmonary disease.

Historical Business Combination Agreement

On December 26, 2022, Catalyst Biosciences, Inc., a Delaware corporation ("Catalyst") entered into a Business Combination Agreement, as amended on March 29, 2023 and August 30, 2023 (the "Business Combination Agreement") with GNI USA, Inc., a Delaware corporation ("GNI USA"), GNI Japan, GNI Hong Kong Limited ("GNI HK"), Shanghai Genomics, Inc., a company organized under the laws of the PRC (collectively with GNI USA, GNI Japan and GNI HK, the "Contributors," and each a "Contributor"), certain individuals and Continent Pharmaceuticals Inc., a Cayman Islands company limited by shares ("CPI"). On October 30, 2023 (the "Effective Time"), the Contributions (as defined below) became effective and Catalyst acquired an indirect controlling interest in Gyre Pharmaceuticals.

Pursuant to the Business Combination Agreement, at the Effective Time of the Contributions:

As a result of the GNI USA Contributions, Gyre directly and indirectly holds 100% of CPI's shares. Through Gyre's ownership of CPI, prior to the Minority Holder Contributions, Gyre held a 56.0% indirect interest in Gyre Pharmaceuticals. Upon completion of the Minority Holder Contributions, Gyre obtained additional indirect interests in Gyre Pharmaceuticals and holds, in aggregate, a 65.2% indirect interest in Gyre Pharmaceuticals. Each share of common stock and option to purchase common stock that was issued and outstanding at the Effective Time remained issued and outstanding, and such shares and options were unaffected by the Contributions.

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

The majority shareholder of Gyre Pharmaceuticals is BJContinent Pharmaceuticals Limited ("BJC"). The immediate holding company of BJC is CPI. Immediately following the GNI USA Contributions, the immediate holding company of CPI is Gyre. The majority stockholder of Gyre is GNI USA, which is indirectly wholly owned by GNI Japan.

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

As of the closing date of the GNI USA Contributions, the net assets of Catalyst were recorded at their acquisition-date relative fair values in the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report and the reported operating results prior to the GNI USA Contributions are those of CPI.

The Minority Holder Contributions were treated as an equity transaction, where we obtained additional indirect interests in and maintained our control over Gyre Pharmaceuticals.

Contingent Value Rights Agreement

Concurrent with the signing of the Business Combination Agreement on December 26, 2022, Catalyst and the Rights Agent (as defined in the CVR Agreement) executed a contingent value rights agreement (the "CVR Agreement"), as amended on March 29, 2023, pursuant to which each CVR Holder, excluding GNI Japan and GNI Hong Kong, received one contractual contingent value right (a "CVR") issued by the Company for each share of Catalyst common stock held by such holders. Each CVR entitles the CVR Holder thereof to receive certain cash payments in the future. For additional information, see Note 12 - Commitments and Contingenciesto the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Private Placement and Securities Purchase Agreement

On October 27, 2023, we entered into the Securities Purchase Agreement for a private placement with GNI USA (the "Private Placement"). Pursuant to the Securities Purchase Agreement, GNI USA agreed to purchase (i) 811 shares of our Series X Convertible Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock") and (ii) warrants to purchase up to 811 shares of Convertible Preferred Stock (the "Preferred Stock Warrants") for an aggregate purchase price of $5.0 million. The Private Placement closed immediately after the closing of the Contributions.

The Preferred Stock Warrants are exercisable at an exercise price of $4,915.00 per share of Convertible Preferred Stock and expire on October 30, 2033. In January 2024, all shares of Convertible Preferred Stock were converted into common stock. The Preferred Stock Warrants issued are considered freestanding financial instruments and classified as a liability.

Share Capital Increase Agreement

In the third quarter of 2025, pursuant to an agreement previously entered into by and among BJC, Gyre Pharmaceuticals and the other parties thereto, BJC increased its capital contribution in Gyre Pharmaceuticals by $1.28 million in exchange for 9,184,910 additional shares of Gyre Pharmaceuticals. As a result, our indirect interest in Gyre Pharmaceuticals increased from 65.2% to 69.7%.

Jiangsu Wangao Agreement

In May 2024, Gyre Pharmaceuticals entered into an agreement with Jiangsu Wangao Pharmaceuticals Co., Ltd. (the "Jiangsu Wangao Agreement"), effective from May 7, 2024 to May 6, 2035. Pursuant to the Jiangsu Wangao Agreement, Gyre Pharmaceuticals obtained the drug registration certificate for and became the marketing authorization holder of Etorel (nintedanib, ethanesulfonate soft capsules), a small-molecule drug for the treatment of SSc-ILD and PF-ILD, within the PRC. The total minimum payments under the Jiangsu Wangao Agreement are RMB 35.0 million, or approximately $4.9 million, based on the June 30, 2025 spot exchange rate. This includes an upfront transfer fee of RMB 15.0 million, or approximately $2.1 million, payable in three installments, and subsequent payments based on annual sales over eight years following the commencement of commercial sales. Additionally, Gyre Pharmaceuticals will bear the costs associated with relocating the production site to a designated location and will cover all expenses related to the manufacturing process. As of June 30, 2025, we had paid three installments totaling RMB 15.0 million, or approximately $2.1 million, based on the June 30, 2025 spot exchange rate.

Financial Operations Overview

During the three months ended June 30, 2025, we had net income of $1.6 million and net income attributable to common stockholders of $0.4 million. For the six months ended June 30, 2025, we had net income of $5.3 million and net income attributable to common stockholders of $3.1 million. During the three months ended June 30, 2024, we had net income of $4.5 million and net income attributable to common stockholders of $3.5 million. For the six months ended June 30, 2024, we had net income of $14.5 million and net income attributable to common stockholders of $11.1 million. As of June 30, 2025, we had an accumulated deficit of $70.3 million and cash and cash equivalents

of $36.5 million. As of December 31, 2024, we had an accumulated deficit of $73.5 million and cash and cash equivalents of $11.8 million.

Components of Results of Operations

Revenues

Sales of Pharmaceutical Products

We generate revenue primarily through sales of ETUARY®, Contiva, Etorel and certain generic drugs in the PRC. Distributors are our direct customers, and sales to distributors accounted for 100% of the revenue. Such distributors sell pharmaceutical products to certain outlets, including hospitals and other medical institutions, as well as pharmacies.

Operating Expenses

Cost of Revenue

Cost of revenue mainly consists of cost of sales representing direct and indirect costs incurred to bring the product to saleable condition. Cost of sales primarily consists of (i) raw material costs; (ii) staff costs for production employees; (iii) depreciation and amortization related to property and equipment and intangible assets used in production; (iv) taxes and surcharges; (v) transportation costs; and (vi) miscellaneous other costs.

Selling and Marketing Expenses

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

Research and Development Expenses

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services used in research and development are initially deferred and capitalized in prepaid and other current assets. The capitalized amounts are then expensed as the related goods are delivered or services are performed, or until it is no longer expected that the goods or services will be delivered.

Research and development costs consist primarily of costs related to the pre-clinical and clinical development of our product candidates, which include payroll and other personnel-related expenses, laboratory supplies and reagents, contract research and development services for pre-clinical research and clinical trials, materials, and consulting costs, as well as allocations of facilities, depreciation, and other overhead costs.

We manage our research and development expenses by identifying the research and development activities we expect to be performed during a given period and then prioritizing efforts based on anticipated probability of successful technical development and regulatory approval, market potential, available human and capital resources, scientific data and other considerations. We regularly review our research and development activities based on unmet medical need and, as necessary, reallocate resources among our research and development portfolio that we believe will best support the long-term growth of our business.

General and Administrative Expenses

General and administrative expenses consist of (i) accounting, IT, legal, administrative, and other internal service staff costs; (ii) stock-based compensation representing share options granted to our functional employees; (iii) professional service fees, primarily for legal and accounting services; and (iv) other miscellaneous expenses.

Other Income (Expense), Net

Change in Fair Value of Warrant Liability

In connection with the Private Placement, we issued the Preferred Stock Warrants, which are freestanding financial instruments classified as warrant liability since the underlying securities are contingently redeemable upon the

occurrence of events which are outside of our control. The Preferred Stock Warrants are recorded at fair value upon issuance and are subject to remeasurement at the end of each reporting period, with any change in fair value recognized in our statements of operations as other (income) expense.

Other (Expense) Income, Net

Interest income consists primarily of interest earned on our long-term certificates of deposit. Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Other income consists mostly of government grants. Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received, and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual installments or deducted from the carrying amount of the asset and released to profit or loss by way of a reduced depreciation charge.

Other expenses consist of any non-operating costs, such as loss from equity method investments.

Provision for Income Taxes

Provision for income taxes are comprised primarily of current income tax provision, mainly attributable to the profitable Gyre Pharmaceuticals operations in the PRC, and deferred income tax provision, mainly including deferred tax recognized for temporary differences in relation to research and development tax credit and net operating loss carryforwards for U.S. tax purposes, deemed income inclusions from controlled foreign corporations for U.S. tax purposes, and fixed and intangible assets, net of valuation allowances.

On July 4, 2025, the One Big Beautiful Bill Act (the "OBBBA") was enacted into law, including, among other things, provisions allowing accelerated tax deductions for qualified property and research expenditures. We are evaluating the future impact of the OBBBA on our financial statements.

Results of Operations

Comparison of the three months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods presented (in thousands, except percentage change):

Revenues

Revenues for the three months ended June 30, 2025 and 2024 were $26.8 million and $25.2 million, respectively. The $1.6 million, or 6%,increase was primarily due to a $1.6 million increase in revenue as a result of Etorel's commercial launch in June 2025 and a $1.5 million increase in revenue from the sales of Contiva. These increases were offset by a $1.5 million decline in ETUARY® sales.

We continue to anticipate revenue growth over the remainder of the year, driven by the commercial launch of Etorel in June 2025 and the continued expansion of Contiva.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2025 and 2024 was $1.2 million and $0.8 million, respectively. The $0.4 million, or 49%, increase was primarily attributable to a $0.2 million increase in the costs associated with Contiva and Etorel, in line with the corresponding increase in their sales, and a $0.2 million increase in ETUARY®'s cost due to the higher plant, property and equipment depreciation from a plant renovation.

Selling and Marketing Expenses

Selling and marketing expenses increased by $0.8 million, or 5%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase was primarily attributable to a $0.9 million increase in payroll costs, driven by higher headcount and increase of sales in the three months ended June 30, 2025, partially offset by $0.1 million decrease in promotion and conference expenses.

Research and Development Expenses

The table below details our costs for research and development for the periods presented (in thousands, except percentage change):

Research and development expenses increased by $0.1 million, or 2%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase was primarily attributable a $0.1 million increase in clinical trial costs, primarily related to data analysis costs for Hydronidone, and a $0.1 million increase in staff costs. These increases were partially offset by a $0.1 million decrease in materials and utilities expenses.

General and Administrative Expenses

General and administrative expenses increased by $1.4 million, or 41%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase was primarily driven by a $0.5 million increase in professional fees and a $0.9 million increase in functional and administrative department's personnel and stock compensation costs.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased $2.7 million, or 93%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The decrease was related to the remeasurement of the Preferred Stock Warrants liability.

Other Expense, Net

Other expense, net increased by $0.1 million, or 101%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase was primarily due to an increase in donation expense from Gyre Pharmaceuticals, offset by an increase in interest income.

Provision for Income Taxes

Provision for income taxes was $0.7 million and $1.5 million for the three months ended June 30, 2025 and 2024, respectively. The decrease was primarily attributable to a lower profit from Gyre Pharmaceuticals'operations for the three months ended June 30, 2025.

Comparison of the six months ended June 30, 2025 and 2024

The following table summarizes our results of operations for the periods presented (in thousands, except percentage change):

Revenues

Revenues for the six months ended June 30, 2025 and 2024 were $48.8 million and $52.4 million, respectively. The $3.6 million, or 7%,decrease was primarily due to a $6.8 million decline in ETUARY® sales, partially offset by the increase in new product sales of Contiva by $1.8 million and Etorel by $1.6 million. The decrease in ETUARY® sales was mainly due to lower sales volume compared to the first half of 2024, when revenues were elevated by a one-time rural marketing campaign that was not repeated in 2025. Additionally, weaker economic conditions in China and increased competition in the IPF treatment market also contributed to the decline. During the first half of 2025, marketing efforts were intentionally shifted to support the launches of Etorel and Contiva.

We continue to anticipate revenue growth over the remainder of the year, driven by the continued expansion of our Contiva and Etorel commercial franchises.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2025 and 2024 was $2.0 million and $1.7 million, respectively. The $0.3 million, or 17%, increase was driven by a $0.1 million increase in stock-based compensation and a $0.2 million increase in the costs of Etorel and Contiva, in line with the corresponding increase in their sales.

Selling and Marketing Expenses

Selling and marketing expenses decreased by $0.9 million, or 3%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease was primarily driven by a reduction in commission costs due to the decrease in sales.

Research and Development Expenses

The table below details our costs for research and development for the periods presented (in thousands, except percentage change):

Research and development expenses increased by $1.0 million, or 18%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increase was primarily attributable to a $1.5 million increase in clinical trial costs, primarily as a result of data analysis costs for Hydronidone. This increase was offset by a $0.3 million decrease in materials and utilities expenses and a $0.1 million decrease in facilities, depreciation and other.

General and Administrative Expenses

General and administrative expenses increased by $3.0 million, or 43%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increase was primarily driven by a $0.6 million increase in professional fees, a $1.6 million increase in functional and administrative department's personnel and stock compensation costs, and a $0.8 million increase in miscellaneous expense, mainly due to the increase for the annual meeting expense.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased $4.7 million, or 66%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease was related to the remeasurement of the Preferred Stock Warrants liability.

Other (Expense) Income, Net

Other expense, net increased by $0.1 million, or 176%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increase was primarily due to an increase in foreign currency exchange loss from Gyre Pharmaceuticals, offset by an increase in interest income.

Provision for Income Taxes

Provision for income taxes was $1.6 million and $4.0 million for the six months ended June 30, 2025 and 2024, respectively. The decrease was primarily attributable to a lower profit from Gyre Pharmaceuticals'operations for the six months ended June 30, 2025.

Recent Accounting Pronouncements

Refer to Note 2 - Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for more information about recent accounting pronouncements.

Liquidity and Capital Resources

Sources of Liquidity

As of June 30, 2025, we had cash and cash equivalents of $36.5 million, short-term bank deposits of $17.9 million and long-term certificates of deposit of $21.5 million, which are available to fund operations, and an accumulated deficit of $70.3 million. Our net income during the three and six months ended June 30, 2025 was $1.6 million and $5.3 million, respectively, while cash provided by operating activities was $2.1 million and $2.0 million, respectively. We believe that our existing cash and cash equivalents, cash flows from operations, and access to capital markets will be sufficient to fund our operating activities and obligations for at least the next 12 months following the filing date of this Quarterly Report and thereafter for the foreseeable future.

Future Funding Requirements

We expect to use cash flows from operations to meet our current and future financial obligations, including funding our operations, and capital expenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic, regulatory, and other factors, many of which we cannot control. In particular, following results from the PRC Phase 3 trial in CHB-associated liver fibrosis and pending approval of an IND submission, we expect to initiate a Phase 2 trial to evaluate Hydronidone for the treatment of MASH-associated liver fibrosis in 2025. We cannot guarantee that a Phase 2 trial will be initiated or estimate the funding needed for such trial at this time, but may need to raise additional capital to fund this program.

Factors that may affect financing requirements include, but are not limited to:

Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.

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

Cash Flows from Operating Activities

Cash provided by operating activities for the six months ended June 30, 2025 was $2.0 million, reflecting our net income of $5.3 million and non-cash items of $0.3 million, which primarily includes $1.4 million in stock-based compensation and $1.2 million in depreciation and amortization, offset by $2.5 million related to the change in the fair value of warrant liability. Additionally, cash used in operating activities reflected changes in net operating assets and liabilities of $3.6 million.

Cash used in operating activities for the six months ended June 30, 2024 was $2.6 million, reflecting our net income of $14.5 million, offset by non-cash items of $6.9 million primarily related to the change in fair value of warrant liability of $7.2 million. Additionally, cash used in operating activities reflected changes in net operating assets and liabilities of $10.1 million.

Cash Flows from Investing Activities

Cash used in investing activities for the six months ended June 30, 2025 was $1.1 million, which consisted of $11.2 million in purchases of certificates of deposit, $0.4 million in purchases of property and equipment, and $0.7 million in acquisition of intangible assets, partially offset by $11.2 million of proceeds from the maturity of certificates of deposit.

Cash used in investing activities for the six months ended June 30, 2024 was $15.5 million, which consisted of $14.1 million in purchases of certificates of deposit and $1.7 million in purchases of property and equipment, partially offset by $0.3 million in proceeds from sale of equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2025 was $23.7 million due to $23.0 million in proceeds from the issuance of common stock pursuant to our public offering of 2,555,555 shares of common stock, $2.0 million in proceeds from the exercise of stock options, and $0.5 million in proceeds from the issuance of common stock under our at-the-market offering program with Jefferies LLC, partially offset by $1.8 million of cash used in connection with deferred offering costs.

Cash provided by financing activities for the six months ended June 30, 2024 was $0.8 million due to $0.9 million in proceeds from the exercise of stock options, offset by $0.1 million in cash paid for offering cost.

Restricted Net Assets

Under PRC laws and regulations, Gyre Pharmaceuticals is subject to restrictions on foreign exchange and cross-border cash transfers, including to parent companies and U.S. stockholders. The ability to distribute earnings to the parent companies and U.S. stockholders is also limited. Current PRC regulations permit Gyre Pharmaceuticals to pay dividends to BJC only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. Amounts restricted include paid-in capital and the statutory reserves of Gyre Pharmaceuticals. The aggregate amounts of restricted capital and statutory reserves of the relevant subsidiaries not available for distribution were $64.7 million and $64.3 million as of June 30, 2025 and December 31, 2024, respectively. We do not expect the restrictions described above to have a material impact on our ability to meet our cash obligations.

Contractual Obligations and Other Commitments

Leases

We have entered into lease arrangements in (1) San Diego, California for our headquarters, which expires on the last day of the 38th full calendar month beginning on or after November 11, 2023, and (2) the PRC, for office and laboratory spaces through May 2027. As of June 30, 2025, our fixed lease payment obligations were $1.5 million, with $0.5 million payable within the remaining six months of 2025.

Other Contractual Obligations and Commitments

In September 2022, we entered into a transfer agreement with New Jiyuan (Beijing) Pharmaceutical Technology Co., Ltd. ("New Jiyuan"), an independent third party, pursuant to which New Jiyuan agreed to transfer to us the minocycline hydrochloride foam for the treatment of moderate to severe acne and all relevant technologies, complete product development and transfer to us all materials necessary for the application of marketing approval of the NMPA. Upon the completion of the transfer, we expect that we will be approved by the NMPA as the marketing authorization holder of the minocycline hydrochloride foam. In exchange, we will pay a total amount of $1.0 million and the payments will be made by installments conditioned upon certain milestones (e.g., the completion of bioequivalence study, or the registration application to the NMPA) being met. Process verification has been completed. As of June 30, 2025, we have made total payments of approximately $0.7 million.

In December 2022, we entered into a transfer agreement with Hangzhou Baicheng Pharmaceutical Technology Co., Ltd. ("Baicheng") and Zhejiang CDMO Pharmaceutical Co., Ltd., an independent third party, pursuant to which Baicheng agreed to transfer to us the acetylcysteine injection for the treatment of respiratory diseases with excessive thick mucus discharge and all relevant technologies; assist us in completing any research, trial and other required procedures; and transfer to us all materials necessary for the application of marketing approval of CDE. Upon the completion of this transfer agreement, we expect that we will be approved by the NMPA as the marketing authorization holder of the acetylcysteine injection. Gyre Pharmaceuticals filed Abbreviated New Drug Application to CDE in May 2025. As of June 30, 2025, we have made payments totaling approximately $0.5 million under this agreement. Upon receiving the NMPA's final approval, we will make an additional $40,000 in payments.

Research and Development Programs

As of June 30, 2025, we have committed to allocate $34.7 million toward future research and development activities for various programs.

Property and Equipment

Our commitments related to the purchase of property and equipment contracted but not yet reflected in the unaudited condensed consolidated financial statements were $4.0 million as of June 30, 2025 and are expected to be incurred within one year.

Etorel IP Rights

We are committed to annual payments to the Etorel IP Rights transferor over eight years following the commencement of commercial sales. See Note 12 - Commitments and Contingencies. As of June 30, 2025, the commercial sales of Etorel have commenced.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report.

Smaller Reporting Company and Accelerated Filer Status

We are a "smaller reporting company" as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Based on the aggregate market value of our common stock held by non-affiliates as of June 30, 2024, we remain a smaller reporting company, but became an "accelerated filer" as of December 31, 2024. As a result of our transition to accelerated filer status, we were required, pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), to include in our Annual Report an attestation report from our independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting, and we have complied with this requirement by including the attestation report in our Annual Report. However, we expect to continue to take advantage of the reduced reporting requirements applicable to smaller reporting companies.