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

Management's Discussion and Analysis of Financial 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"), its directly owned subsidiary, Cullgen Inc. ("Cullgen"), 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, 2025 (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 biopharmaceutical company focused on the development and commercialization of small-molecule therapies for the treatment of organ fibrosis and inflammatory diseases. We operate through our majority indirectly owned subsidiary, Gyre Pharmaceuticals, in the People's Republic of China (the "PRC"), and through our U.S. operations headquartered in San Diego, California.

In May 2026, we acquired Cullgen Inc., a Delaware corporation ("Cullgen"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated March 2, 2026 (the "Merger Agreement"), by and among the Company, Helix Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of the Company ("Merger Sub"), and Cullgen. Pursuant to the Merger Agreement, among other matters, Merger Sub merged with and into Cullgen, with Cullgen continuing as a wholly owned subsidiary of the Company and the surviving corporation of the merger (the "Merger"). The related transaction costs were expensed as incurred.

Cullgen is a clinical-stage biopharmaceutical company focused on the discovery and development of targeted protein degrader and degrader-antibody conjugate therapies designed to improve the lives of patients suffering from critical conditions such as pain, cancer and inflammatory diseases. Cullgen has created a portfolio of highly selective targeted protein degrader product candidates designed to potently and efficiently eliminate therapeutically relevant proteins in patients. By leveraging its expertise in targeted protein degraders, Cullgen believes its product candidates have many distinct advantages over other therapeutic modalities, including higher selectivity, improved therapeutic profile and avoidance of known toxicities.

As always, we are in the process of reviewing our programs and evaluating our pipeline and clinical development strategy, including in connection with the Cullgen acquisition, to optimize capital allocation and prioritize programs across the organization. As a result of the Cullgen acquisition, we intend to leverage Cullgen's capabilities in the PRC for the development and early-stage clinical trials of various product candidates.

Our Commercial Portfolio

ETUARYTM (pirfenidone)

Pirfenidone is a small-molecule anti-fibrotic therapy for the treatment of idiopathic pulmonary fibrosis ("IPF"). It was first approved in Japan and subsequently approved in the PRC, the European Union ("EU"), and the United States. These approvals were obtained by different sponsors in their respective jurisdictions under separate regulatory frameworks.

In the PRC, we conducted independent research and development to support our regulatory submission and received first-in-class approval in 2011 as a National Category 1.1 New Drug. We commercialized pirfenidone under the brand name ETUARYTM, which was included in the National Reimbursement Drug List in 2017 and has since maintained a leading market position.

In addition to IPF, we are pursuing potential label expansion into additional indications in the PRC, including pneumoconiosis, for which, in 2025, we completed enrollment of 272 patients in our 52-week Phase 3 trial, and radiation-induced lung injury ("RILI"), including cases with or without immune-related pneumonitis, for which the National Medical Products Administration ("NMPA") approved our clinical trial application in March 2025, and we initiated an adaptive Phase 2/3 study in April 2026.

EtorelTM (nintedanib esilate soft capsules)

In May 2024, Gyre Pharmaceuticals entered into a comprehensive agreement with Jiangsu Wangao Pharmaceuticals Co., Ltd. to obtain the drug registration certificate for EtorelTM (nintedanib) and become the marketing authorization holder in the PRC. EtorelTM is approved as a standard-of-care therapy for IPF, systemic sclerosis-associated interstitial lung disease ("SSc-ILD"), and progressive pulmonary fibrosis ("PPF"). The addition of EtorelTM to our commercial portfolio expanded treatment options for patients and strengthened Gyre's leading position in the pulmonary fibrosis market. Commercialization of EtorelTM in the PRC commenced in June 2025.

On November 7, 2025, the National Healthcare Security Administration in the PRC released the Announcement of the Winning Bids for the National Centralized Drug Procurement, under which EtorelTM was selected. As a result, we signed direct procurement contracts with various participating hospitals under the National Centralized Drug Procurement Program, and implementation commenced in March 2026.

ContivaTM (avatrombopag maleate tablets)

In June 2021, Gyre Pharmaceuticals acquired avatrombopag maleate tablets pursuant to a transfer agreement with Nanjing Healthnice Pharmaceutical Technology Co., Ltd. Avatrombopag is an oral thrombopoietin receptor agonist. In June 2024, the NMPA approved avatrombopag maleate tablets for the treatment of thrombocytopenia ("TP") associated with chronic liver disease ("CLD") in adult patients undergoing elective diagnostic procedures or therapy. In January 2025, the NMPA approved an additional indication for chronic immune thrombocytopenic purpura ("ITP"). Gyre Pharmaceuticals commenced commercialization of avatrombopag under the brand name ContivaTM in the PRC in March 2025.

Our Product Candidate Pipeline

F351 (hydronidone)

F351 is our lead development candidate for the treatment of liver fibrosis. It is a structurally modified derivative of pirfenidone designed to optimize metabolic properties while targeting the transforming growth factor ("TGF")-β1 signaling pathway, a key mediator of fibrogenesis. We are developing F351 for two primary indications: chronic hepatitis B ("CHB")-associated liver fibrosis in the PRC and metabolic dysfunction-associated steatohepatitis ("MASH")-associated liver fibrosis in the United States. F351 represents our primary liver-focused development program and reflects our commitment to advancing therapies targeting both viral- and metabolic-associated liver fibrosis.

CHB-Associated Liver Fibrosis (PRC)

For CHB-associated liver fibrosis, antiviral therapy may suppress viral infection but is not able to prevent, slow or reverse fibrosis progression, and anti-fibrotic treatment is recommended for intermediate and advanced liver fibrosis and early-stage cirrhosis. As of December 31, 2025, no small molecule or biologic drugs treating CHB-associated liver fibrosis have been approved globally. In recognition of the severity of the disease, lack of current therapies and the preliminary clinical evidence generated to date, the Center for Drug Evaluation ("CDE") of the NMPA granted F351 Breakthrough Therapy designation in March 2021.

We conducted a Phase 3 randomized, double-blind, placebo controlled, entecavir-based, multi-center trial in the PRC assessing F351 in CHB-associated liver fibrosis. This trial was designed to randomize 248 patients, with a primary endpoint of ≥1-stage reduction in Ishak fibrosis score at Week 52 for F351 in combination with entecavir.

In May 2025, we reported that in the pivotal Phase 3 trial, F351 met its primary endpoint and also met a key secondary endpoint with statistically significant inflammation improvement without fibrosis progression at Week 52 versus placebo. F351 was well tolerated in the study, with a comparable incidence of serious adverse events and no patient discontinuations due to adverse events in the F351 group.

The CDE of the NMPA granted priority review status to the New Drug Application ("NDA") for F351 in March 2026. On March 22, 2026, Gyre Pharmaceuticals submitted its NDA to the CDE of the NMPA to seek conditional approval for F351, the Company's lead product candidate, for the treatment of CHB-induced liver fibrosis. On May 12, 2026, the Company announced that the NMPA accepted its NDA.

MASH-Associated Liver Fibrosis (United States)

In the United States, we have completed a Phase 1 clinical trial in healthy volunteers evaluating F351's safety, tolerability, and pharmacokinetics ("PK"). We continue to engage with the U.S. Food and Drug Administration regarding investigational new drug ("IND") requirements for a Phase 2 clinical trial in MASH-associated liver fibrosis.

Pipeline Assets Following Cullgen Acquisition

On May 4, 2026, Gyre Therapeutics acquired Cullgen Inc. in an all-stock transaction valued at approximately $300 million, and Cullgen became a wholly owned subsidiary of Gyre. Upon the closing of this transaction, Cullgen's former Chief Executive Officer ("CEO"), Dr. Ying Luo, was appointed President and CEO of Gyre and joined Gyre's Board. Additionally, Yue Xiong, former Chief Scientific Officer ("CSO") of Cullgen, was appointed CSO of Gyre, and Thomas Eastling, former Chief Financial Officer ("CFO") of Cullgen, was appointed CFO of Gyre, and Ping Zhang was named Executive Chairman. The combined company remains headquartered in San Diego with subsidiaries in Beijing and Shanghai, roughly 740 employees, and numerous announced therapeutic programs spanning inflammation/pain and cancer.

TRKA Degrader for Pain (CG001419)

Gyre acquired Cullgen's most advanced legacy product candidate, CG001419, an oral tropomyosin receptor kinase A ("TRKA") degrader. CG001419 has been in development as a non-opioid alternative for pain management and, separately, as a treatment for various indications within oncology.

In December 2025, Cullgen completed a Phase 1 study (NCT06636500) that was a single-center, randomized, placebo-controlled, double-blind, single-ascending-dose/food-effect (with or without food) and multiple-ascending-dose trial that evaluated the safety, tolerability and PK characteristics of CG001419 in 78 healthy volunteers. The study was conducted in Australia after receiving ethics committee approval in early 2025. Results from the study showed that all doses were well-tolerated with no drug-related serious adverse events observed.

TRKA Degrader for Solid Tumors (CG001419)

CG001419 is also currently being studied in a Phase 1 trial for the treatment of solid tumors. TRK proteins also act as oncogenic drivers when mutated or rearranged, leading to uncontrolled cell growth and tumor development. Cullgen's TRK degrader for cancer is being developed as a selective, clinically active oral TRK degrader for the treatment of adult cancer patients with neurotrophic TRK gene abnormalities. For this indication, CG001419 is being evaluated in a Phase 1 clinical trial in China.

GSPT1 Degrader for AML (CG009301)

Gyre acquired Cullgen's second product candidate, CG009301, a highly selective degrader targeting the GSPT1 protein for the treatment of cancer, with development initially focused on hematologic malignancies. GSPT1 is a protein translation termination factor and plays a vital role in cancer cell survival and proliferation. Rapidly dividing hematologic cancer cells such as leukemia, including AML and acute lymphoblastic leukemia, high-risk myelodysplastic syndrome ("MDS") and leukemia stem cells rely on GSPT1 to maintain protein synthesis during oncogenesis. These tumor cells are highly sensitive to GSPT1 depletion, which leads to impaired protein translation, activation of the integrated stress response and TP53-independent cell death. Cullgen initiated a Phase 1, dose-escalation trial in China of CG009301 in patients with high-risk hematologic malignancies in April 2025.

CDK2-Cyclin E Dual Degrader for Solid Tumors (CG923308)

We are developing CG923308, a highly potent and selective dual degrader of both the cyclin dependent kinase 2 ("CDK2") and cyclin E proteins. In preclinical models of breast cancer resistant to endocrine therapies alone or in combination with a CDK4/6 inhibitor or other solid tumors characterized by cyclin E amplification, CG923308 demonstrated precise target degradation and outperformed the leading, late-stage clinical CDK2 inhibitors in development in blocking cell proliferation and achieving durable tumor suppression. Furthermore, CG923308 exhibits a favorable PK and safety profile. We plan to develop CG923308 for the treatment of solid tumors with CCNE1 amplification or HR+ / HER2- advanced breast cancer with resistance to current therapies. We intend to submit an IND application for CG923308 in the first quarter of 2027.

TYK2-JAK1 Degrader for Autoimmune Diseases (CG620953)

We are developing CG620953, a highly potent and selective dual degrader of Tyrosine kinase 2 ("TYK2") and Janus kinase 1 ("JAK1") while sparing JAK2. In preclinical studies, CG620953 demonstrated selective target degradation and outperformed commercialized TYK2 selective inhibitors in reducing disease activity. CG620953 also exhibits a favorable PK and safety profile, providing rationale for further evaluation in the clinic. We intend to submit an IND application for CG620953 in the first quarter of 2027.

Degrader - Antibody Conjugates ("DACs") as the Next-Generation of Antibody-Drug Conjugates ("ADCs")

We are developing a robust suite of DACs that target both solid tumors and hematological malignancies by pairing distinct protein degraders with tumor-specific antibodies. These preclinical DAC candidates demonstrate tumor associated antigen ("TAA")-dependent cytotoxicity in vitro and drive potent, durable tumor regression in vivo, including success in models resistant to standard therapies.

Other Product Candidates

We have completed a Phase 1 clinical trial of F573 in healthy volunteers in the PRC and are currently evaluating it in a multi-stage Phase 2 clinical trial initiated in March 2023 in patients with liver injury and liver failure.

F230 is our clinical-stage product candidate for the treatment of pulmonary arterial hypertension ("PAH") in the PRC. F230 is a selective endothelin receptor A antagonist designed to address vascular remodeling and elevated pulmonary arterial pressure associated with PAH. F230 complements our broader organ-focused portfolio by expanding our development efforts into pulmonary vascular disease while remaining aligned with our strategy of targeting fibrotic and inflammatory pathways across organ systems. We submitted an IND application for F230 to the NMPA in March 2024, and the IND was approved in May 2024. The first subject was enrolled in the Phase 1 clinical trial in June 2025.

F528 is our preclinical-stage product candidate for the treatment of chronic obstructive pulmonary disease in the PRC. F528 is an anti-inflammatory small-molecule compound designed to inhibit multiple inflammatory cytokines and potentially modify disease progression. F528 expands our pulmonary-focused development efforts beyond fibrosis and vascular disease into chronic inflammatory respiratory conditions, supporting our broader strategy of addressing organ diseases driven by inflammatory and fibrotic pathways. We anticipate submitting an IND application to the NMPA for F528 in 2026.

EtorelTM IP Rights

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 EtorelTM (nintedanib, ethanesulfonate soft capsules), a small-molecule drug for the treatment of IPF, SSc-ILD and progressive pulmonary fibrosis, within the PRC. The total minimum payments under the Jiangsu Wangao Agreement are Chinese Renminbi ("RMB") 35.0 million, or approximately $5.1 million, based on the June 30, 2026 spot exchange rate. This includes an upfront transfer fee of RMB 15.0 million, or approximately $2.2 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, 2026, we had paid four installments totaling RMB 23.0 million, or approximately $3.4 million, based on the June 30, 2026 spot exchange rate.

Long-Term Investment Measured Under Equity Method

On June 28, 2024, Gyre Pharmaceuticals entered into a partnership agreement as a limited partner and is obligated to pay $4.4 million for an 18.93% equity interest in the partnership. In April 2025, a new investor joined the partnership agreement, and as a result, Gyre Pharmaceuticals' equity interest was adjusted to 18.35%. Pursuant to the partnership agreement, Gyre Pharmaceuticals, as a limited partner, shall not participate in any activities related to the management of the investment business. However, Gyre Pharmaceuticals may appoint a member to the advisory committee of the partnership.

As of June 30, 2026 and December 31, 2025, our total investment into the partnership was $1.8 million and $1.7 million, respectively, and the carrying value of the Company's long-term investment in this affiliate was $1.6 million and $1.6 million, respectively.

Financial Operations Overview

During the three months ended June 30, 2026, we had a net loss of $14.3 million and net loss attributable to common stockholders of $11.7 million. For the six months ended June 30, 2026, we had net loss of $32.8 million and net loss attributable to common stockholders of $24.8 million. During the three months ended June 30, 2025, we had net loss of $2.2 million and net loss attributable to common stockholders of $2.0 million. For the six months ended June 30, 2025, we had net income of $2.7 million and net income attributable to common stockholders of $0.1 million. As of June 30, 2026, we had an accumulated deficit of $138.0 million and cash and cash equivalents of $43.3 million. As of December 31, 2025, we had an accumulated deficit of $112.6 million and cash and cash equivalents of $49.2 million.

Components of Results of Operations

Revenues

Sales of Pharmaceutical Products

We generate revenue primarily through sales of ETUARYTM, ContivaTM, EtorelTM 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 our pharmaceutical products to certain outlets, including hospitals and other medical institutions, as well as pharmacies.

Collaborations

We also generate revenue through collaboration and license agreements with a strategic partner. Revenue consists of upfront nonrefundable payments and reimbursements for research and development services provided under the agreement and is recognized over time as the related research activities are performed.

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, including stock-based compensation; (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 our products for their use in hospitals; and staff costs primarily consisting of salaries, benefits and stock-based compensation 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, including stock-based compensation, 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 record accrued expenses for estimated costs of the research and development activities conducted by third party service providers, which include outsourced research and development expenses, stock-based compensation and professional services. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in current liabilities and within research and development expense.

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. Although we do track and allocate certain operational research and development costs, as described above, we do not fully track and allocate research and development expenses at the individual product candidate level.

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, Net

Change in Fair Value of Warrant Liability

In connection with a private placement conducted in October 2023 with GNI USA, Inc., we issued (i) 811 shares of our Series X Convertible Preferred Stock, par value $0.001 per share (the "Series X Preferred Stock") and (ii) warrants to purchase up to 811 shares of Series X Preferred Stock (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.

Other 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 is 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 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, which introduced several U.S. income tax provisions that have and may continue to potentially impact our provision for income taxes. The provisions include, but are not limited to, the immediate expensing of domestic research and development expenses beginning in 2025, as well as a modification to the Global Intangible Low-Taxed Income effective in 2026. We have recognized the effects of the OBBBA provisions on our financial results to the extent they are applicable to the six months ended June 30, 2026. We will continue to evaluate the impact of the OBBBA on our unaudited condensed consolidated financial statements.

Results of Operations

Comparison of the three months ended June 30, 2026 and 2025

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

*Not meaningful

Revenues

Revenues for the three months ended June 30, 2026 and 2025 were $29.1 million and $29.7 million, respectively, representing a decrease of $0.6 million, or 2%. Gyre Pharmaceuticals revenue increased during the period, primarily driven by higher ETUARYTM sales volumes resulting from ETUARYTM focused marketing efforts, despite lower ContivaTM and EtorelTM product revenues earned following the implementation of China's national centralized procurement program. The increase was offset by a $3.0 million decrease in collaboration revenue from the Astellas Agreement which ended in March 2026, resulting in an overall decrease in revenues of $0.6 million, or 2%, compared to the prior-year period.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2026 and 2025 were $2.2 million and $1.2 million, respectively. The $1.0 million, or 92%, increase was primarily driven by a $0.7 million increase in production costs associated with EtorelTM products, a $0.2 million increase in production costs for the ETUARYTM, and a $0.1 million increase in stock-based compensation expense.

Selling and Marketing Expenses

Selling and marketing expenses decreased $1.4 million, or 9%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The decrease was primarily attributable to a $2.5 million decrease in promotional and conference expenses as certain promotional objectives were achieved in the first quarter of 2026, reducing spending in the second quarter, partially offset by a $0.6 million increase in stock-based compensation expenses, and a $0.5 million increase in personnel-related costs, primarily due to increased sales commissions resulting from higher sales volumes during the second quarter of 2026.

Research and Development Expenses

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

*Not meaningful

Research and development expenses increased by $10.8 million, or 129%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily related to a $4.7 million increase in external clinical research expenses, mainly contributed to the F351 Phase 3C experimental review expense; a $4.8 million increase for the milestone payment Gyre Pharmaceuticals owed to GNI related to China's NMPA acceptance of NDA for F351 as a treatment for CHB induced liver fibrosis; a $0.7 million increase in pre-clinical expenses, and a $0.6 million increase in facilities, depreciation and other expenses.

General and Administrative Expenses

General and administrative expenses increased by $0.6 million, or 8%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily driven by a $0.9 million increase in personnel costs related to the Company's internal restructuring, and a $0.2 million increase in miscellaneous expenses, partially offset by a $0.2 million decrease in stock-based compensation expenses and a $0.3 million decrease in professional fees.

Transaction Costs

For the three months ended June 30, 2026, $0.5 million in transaction costs were incurred in connection with the acquisition of Cullgen closed in early May 2026.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased by $80 thousand, or 38%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The decrease was related to the remeasurement of the preferred stock warrants liability.

Other (loss) Income, Net

Interest income decreased by $0.2 million, or 21%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The decrease was related to decreased interest rates on the Company's bank deposits.

Other expense, net increased by $0.5 million, or 93%, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily due to higher foreign currency exchange loss.

Provision for Income Taxes

Benefit for income taxes was $0.2 million and provision for income taxes was $0.7 million for the three months ended June 30, 2026 and 2025, respectively. The change in income tax provision and effective tax rate was primarily due to the retrospective presentation of the common-control combination with Cullgen and increased research and development expenditures.

Comparison of the six months ended June 30, 2026 and 2025

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

*Not meaningful

Revenues

Revenues for the six months ended June 30, 2026 and 2025 were $53.5 million and $60.3 million, respectively, representing a decrease of $6.8 million or 11%. Revenue from Gyre Pharmaceuticals increased during the period, primarily driven by higher ETUARYTM sales volumes resulting from ETUARYTM focused marketing efforts, despite lower ContivaTM and EtorelTM product revenues following the implementation of China's national centralized procurement program. The overall increase in revenue from Gyre Pharmaceuticals is offset by a $9.6 million decrease in collaboration revenue under the Astellas Agreement which ended in March 2026.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2026 and 2025 was $3.4 million and $2.0 million, respectively. The $1.4 million, or 68%, increase was primarily attributable to higher EtorelTM product costs of $1.1 million and increased stock-based compensation expense of $0.3 million.

Selling and Marketing Expenses

Selling and marketing expenses increased by $1.9 million, or 7%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily attributable to a $1.6 million increase in stock-based compensation expense, and a $0.4 million increase in promotional and conference expenses, partially offset by a $0.1 million decrease in travel and other expense.

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 $14.2 million, or 86%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily related to an $8.9 million increase in external clinical research expenses, mainly contributed to the F351 Phase 3C experimental review expense; a $0.4 million increase in personnel-related expenses including stock-based compensation expenses, a $4.8 million increase for the milestone payment Gyre Pharmaceuticals owed to GNI related to China's NMPA acceptance of NDA for F351 as a treatment for CHB induced liver fibrosis; a $0.5 million increase in pre-clinical expenses, and a $0.4 million increase in materials and utilities expenses, partially offset by a $0.8 million decrease in facilities, depreciation and other expenses.

General and Administrative Expenses

General and administrative expenses increased by $2.6 million, or 17%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily driven by a $2.7 million increase in personnel costs related to the Company's internal restructuring, a $0.9 million increase in miscellaneous expenses, a $0.6 million increase in stock-based compensation expenses, partially offset by a $1.6 million decrease in professional fees.

Transaction costs

For the six months ended June 30, 2026, $3.8 million in transaction costs were incurred in connection with the termination of proposed merger between Cullgen and Pulmatrix, Inc. in February 2026, and $3.1 million were incurred related to the acquisition of Cullgen, which transaction closed in early May 2026, totaling $6.9 million.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased by $2.2 million, or 91%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The decrease was related to the remeasurement of the preferred stock warrants liability.

Other (loss) income, Net

Interest income decreased by $0.3 million, or 17%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The decrease was related to decreased interest rates in the current year.

Other expense, net increased by $0.5 million, or 176%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase in other expense, net was primarily due to higher foreign currency exchange loss.

Provision for Income Taxes

Provision for income taxes was $0.4 million and $1.6 million for the six months ended June 30, 2026 and 2025, respectively. The decrease was due to the retrospective presentation of the common-control combination with Cullgen, increased research and development expenditures, and the impact of valuation allowance on deferred tax assets, resulting in a negative effective tax rate for the period.

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, 2026, we had cash and cash equivalents of $43.3 million, short-term bank deposits of $14.1 million, short-term investment of $17.5 million, and long-term certificates of deposit of $28.4 million, which are available to fund operations, and an accumulated deficit of $138.0 million. Our net loss during the six months ended June 30, 2026 was $32.8 million, while cash used in operating activities was $13.5 million. 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 provided by operating activities, short-term deposits, and long-term certificates of deposits, as well as potential cash issuances to meet our current and future financial obligations, including funding our operations, research and development activities, clinical pipelines, 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 addition, we anticipate that we will incur expenses related to and in connection with the integration between our business and Cullgen. 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 used in operating activities for the six months ended June 30, 2026 was $13.5 million, reflecting our net loss of $32.8 million and offset by non-cash items of $5.2 million, which was primarily driven by a $4.7 million increase in stock-based compensation. Additionally, $14.1 million cash provided by changes in net operating assets and liabilities was primarily driven by an $11.5 million decrease in receivables and prepaid and other assets, $4.8 million increase in related party payable, partially offset by an increase in inventories and a decrease in various payables and accrued liabilities.

Cash used in operating activities for the six months ended June 30, 2025 was $7.6 million, reflecting our net income of $2.7 million and non-cash charges of $1.6 million, which primarily included $1.9 million in stock-based compensation and $1.5 million in depreciation and amortization, partially offset by a $2.5 million change in the fair value of warrant liability. Additionally, $11.9 million cash used in changes in net operating assets and liabilities was primarily driven by a $8.2 million increase in accounts receivable, inventories, prepaid and other assets and a $10.5 million decrease in deferred revenue, income tax payable, and other operating lease liabilities, partially offset by a $3.9 million decrease in notes receivable and a $2.9 million increase in accounts payable and accrued liabilities.

The increase in cash used in operating activities for the six months ended June 30, 2026 compared with cash used in operating activities for the six months ended June 30, 2025 was primarily attributable to less cash received under the Astellas Agreement that ended in March 2026 combined with the transaction costs associated with the Merger that closed in May 2026, as well as overall higher spending in clinical and other research programs.

Cash Flows from Investing Activities

Cash provided by investing activities for the six months ended June 30, 2026 was $6.7 million, which consisted primarily of $13.0 million of proceeds from available-for-sale securities and $13.0 million of proceeds from the maturity of certificates of deposit, partially offset by $15.9 million in purchases of certificates of deposit, $1.0 million in acquisitions of intangible assets, $2.0 million in purchases of available-for-sale securities, and $0.4 million in purchases of property and equipment.

Cash provided by investing activities for the six months ended June 30, 2025 was $3.3 million, which consisted primarily of $23.2 million of proceeds from the maturity of certificates of deposit and $11.7 million of proceeds from available-for-sale securities, partially offset by $19.2 million in purchases of certificates of deposit, $11.2 million in purchases of available-for-sale securities, $0.7 million in acquisitions of intangible assets, and $0.5 million in purchases of property and equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2026 was $13 thousand, primarily due to proceeds from stock options exercised, partially offset by listing expense.

Cash provided by financing activities for the six months ended June 30, 2025 was $21.6 million, primarily due to $23.0 million in proceeds from the issuance 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 ATM program with Jefferies LLC, partially offset by $2.1 million in payments of listing expenses and $1.8 million of cash used for deferred financing costs.

Restricted Net Assets

Under PRC laws and regulations, Gyre Pharmaceuticals and Cullgen are 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 $131.6 million and $128.1 million as of June 30, 2026 and December 31, 2025. 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

We expect to satisfy these contractual obligations and commitments through a combination of cash on hand, cash provided by operating activities, short-term deposits, and long-term certificates of deposits.

Leases

We have entered into lease arrangements in (1) San Diego, California for our headquarters and subsidiary, the latest of which expires in July 2028, and (2) the PRC, for office and laboratory spaces through February 2037. As of June 30, 2026, our fixed lease payment obligations were $4.3 million, with $0.9 million payable within the remaining six months.

Research and Development Programs

As of June 30, 2026, we have committed to allocate $53.0 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 $1.2 million as of June 30, 2026 and are expected to be incurred within one year.

EtorelTM IP Rights

The Company is committed to annual payments to the EtorelTM IP Rights transferor over eight years following the commencement of commercial sales. See Note 11 - Commitments and Contingencies to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Critical Accounting Policies and Estimates

Please refer to Note 2 - Summary of Significant Accounting Policies in the accompanying notes to the unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a description of significant accounting policies.

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, 2026, we remain a smaller reporting company and continue to qualify as an "accelerated filer". 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.