Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

1. Nature of Business

Description of Business

ARS Pharmaceuticals, Inc. ("ARS", "ARS Pharma" or the "Company") is a biopharmaceutical company focused on the commercialization and development of neffy (previously referred to as ARS-1 and currently identified in the EU by the trade name EURneffy) for the needle-free intranasal delivery of epinephrine for the emergency treatment of Type I allergic reactions, including anaphylaxis. neffy is the first and only FDA and European Commission-approved needle-free epinephrine product, and the first new delivery method for epinephrine in more than 35years.

The Company incorporated in Delaware in January 2016 and is located in San Diego, California. The Company has a wholly owned subsidiary, ARS Pharmaceuticals Operations, Inc., incorporated in Delaware in August 2015, through which it conducts substantially all its operations. ARS Pharmaceuticals Operations, Inc. has a wholly owned subsidiary in Ireland, ARS Pharmaceuticals IRL, Limited, to facilitate the filing of regulatory approval for neffy in European countries.

Liquidity and Capital Resources

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net operating losses since its inception and had an accumulated deficit of $173.2million as of September 30, 2024. The Company had cash, cash equivalents, and short-term investments of $204.6million as of September 30, 2024 and has not generated positive cash flows from operations. To date, the Company has funded its operations primarily with proceeds from the merger with Silverback in November 2022 (the "Merger"), the issuance of convertible preferred stock, payments earned under collaboration agreements, bank debt, and product sales. The Company's currently available cash, cash equivalents, and short-term investments as of September 30, 2024 are sufficient to meet its anticipated cash requirements for at least the 12 months following the date these financial statements are issued.

From August 5, 2015 (inception) through September 30, 2024, the Company has devoted substantially all of its efforts to developing intellectual property, conducting product development and clinical trials, organizing and staffing our company, business planning, raising capital, building infrastructure, pre-commercial and commercial activities, and providing general and administrative support for these operations. The Company has a limited operating history, and the sales and income potential of the Company's business and market are unproven. Management expects operating expenses to increase for the foreseeable future and there can be no assurance that the Company will ever achieve profitability, or if achieved, that it will be sustained on a continuing basis.

The Company's ability to raise additional capital may be adversely impacted should the global economic conditions worsen or as a result of further disruptions to, and volatility in, the credit and financial markets in the United States, including bank failures, future health epidemics or pandemics, geopolitical actions or other macroeconomic factors. If such further disruption occurs, the Company could experience an inability to access additional capital. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company's business, results of operations, and future prospects.

2. Summary of Significant Accounting Policies

The accompanying condensed consolidated balance sheet as of September 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, the condensed consolidated statements of stockholders' equity for the nine months ended September 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023, are unaudited. The balance sheet as of December 31, 2023 was derived from the audited financial statements as of and for the year ended December 31, 2023. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2023, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company's financial position as of September 30, 2024, the condensed consolidated results of its operations for the three and nine months ended September 30, 2024 and 2023, and its cash flows for the nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2024 and 2023 are also unaudited. The condensed consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024or any other period.

The Company is also subject to credit risk related to its trade accounts receivable from product sales. neffyis distributed primarily through wholesale distributors and pharmacies. These entities are not obligated to purchase any set number of units and they distribute neffy on demand as orders are received. The Company extends credit to its customers in the normal course of business after evaluating their overall financial condition. As stated above, the Company is currently operating under the Title Agreement with its 3PL Agent (as defined in Note 3 - Revenue) and the 3PL Agent retains all credit and collection risk on sales to the Company's wholesale distributors and pharmacy customers. For the three and nine months ended September 30, 2024, the Company's three largest customers combined made up approximately 81% of its gross product sales. As of September 30, 2024 the Company's three largest customers combined made up 83% of its trade accounts receivable balance. Historically, the Company has not experienced any credit losses from product sales.

The Company capitalizes inventory costs after regulatory approval, when future commercialization is considered probable and a future economic benefit is expected to be realized. Prior to regulatory approval, the Company records inventory costs as research and development expenses. As such, when regulatory approval is received, this may result in zero-cost inventory which does not have a carrying value. This inventory is available to the Company to utilize for commercial operations as well as ongoing research and development activities.

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company's comprehensive loss typically consists of the change in unrealized gains and losses on available-for-sale securities.

Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker for purposes of making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as oneoperating segment.

3. Revenue

The Company's revenues consist of product sales of neffy and revenue derived from its collaboration and out-licensing agreements. See Note 7 - Collaboration and Out-Licensingfor further discussion related to those arrangements.

Product Revenue

neffy was approved by the FDA in August 2024, and the Company began generating product revenue from sales of neffy in September 2024. The Company uses a third party logistics provider ("3PL Agent") to fulfill orders of neffy to the Company's customers. The 3PL Agent provides services to the Company that include warehousing, distribution, order and accounts receivable management, and data management.

The Company entered into a title model agreement ("Title Agreement") with the 3PL Agent so that the 3PL Agent may purchase and take title to neffy and then sell it to the Company's wholesale distributors and pharmacy customers that have contracted to make a purchase. Under the Title Agreement, the economic substance of the transaction is such that the Company does not recognize revenue until neffy is sold and title has transferred from the 3PL Agent to a wholesale distributor or pharmacy.

The Company also entered into sales agreements with pharmacies that are not subject to the Title Agreement. Under these agreements, the pharmacy holds neffy under consignment. Under the consignment model, the Company recognizes revenue when neffyis sold to a patient, at which point title transfers from the Company directly to the patient.

Product revenue is recorded with each sale at the transaction price, net of reserves for variable components, including but not limited to distribution service fees, prompt pay discounts, product returns, chargebacks, rebates, and co-payment assistance, which are collectively referred to as "Gross-to-Net Adjustments". Estimates for Gross-to-Net Adjustments are reassessed each reporting period, and adjustments are recorded on a cumulative catch-up basis, which would affect product revenue and net income in the period of adjustment. Trade accounts receivable due to the Company from contracts with its customers are stated separately in the balance sheet, net of various allowances as described in the Trade Accounts Receivable and Allowance policy in Note 2 - Summary of Significant Accounting Policies.

The Company utilizes the expected value method when estimating the amount of variable consideration to include in the transaction price with respect to each of the foregoing variable components. Variable consideration is included in the transaction price only to the extent it is probable that a significant revenue reversal will not occur when the uncertainty associated with the variable consideration is resolved.

In accordance with ASC 606, the Company must make significant judgments to determine the estimate for certain Gross-to-Net Adjustments. The specific considerations that the Company uses in estimating the amounts related to Gross-to-Net Adjustments are as follows:

Distribution services fees- The Company pays distribution service fees to its wholesale distributors. These fees are a contractually fixed percentage of WAC and are calculated at the time of sale based on the purchased amount. These fees are recorded as other current liabilities on the condensed consolidated balance sheets.

Commercial pharmacy discounts- The Company provides discounts to its pharmacy customers. These discounts are a contractually fixed percentage of WAC and are a direct reduction from the WAC price they are charged. They are calculated at the time of sale based on the purchased amount. These discounts are recorded as contra trade accounts receivable on the condensed consolidated balance sheets.

Prompt pay discounts- The Company incentivizes on time invoice payments through prompt pay discounts. Prompt pay discounts are typically taken by customers, so an estimate of the discount is recorded at the time of sale based on the purchased amount. Prompt pay discount estimates are recorded as contra trade accounts receivable on the condensed consolidated balance sheets.

Chargebacks- Certain government entities and covered entities (e.g. Veterans Administration, 340B covered entities) can purchase the product at a price discounted below WAC. The difference between the government or covered entity purchase price and WAC will be charged back to the Company. The Company estimates the amount of chargebacks based on the expected number of claims and the related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Estimated chargebacks are recorded as contra trade accounts receivable on the condensed consolidated balance sheets.

Rebates- The Company plans to provide commercial and Medicare rebates to pharmacy benefit managers and managed care organizations and is subject to mandatory discount obligations under the Medicare, Medicaid, and Tricare programs. The rebate amounts for these programs are determined by contractual arrangements or statutory requirements. Rebates are owed after the product has been dispensed to a patient and the Company has been invoiced. The Company estimates the amount in rebates based on the expected number of claims and the related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Rebate estimates are recorded as other current liabilities on the condensed consolidated balance sheets.

Co-payment program- The Company offers a co-payment assistance program to commercially insured patients whose insurance requires a co-payment to be made when filling their prescription. The Company estimates the amount of co-payment assistance based on the expected volume and the average buy down rate associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Co-payment programs estimates are recorded as other current liabilities on the condensed consolidated balance sheets.

Product returns- Customers have the right to return damaged product, product that is within six months or less of the labeled expiration date, or product that is past the expiration date by no more than twelve months. neffy was commercially launched in September 2024 and due to the lack of historical sales and returns data, the Company used professional judgment and industry data to estimate returns. A reserve for potential product returns is recorded as other current liabilities on the condensed consolidated balance sheets.

4. Inventories

The Company began to capitalize the inventory costs associated with neffy upon FDA approval in August 2024 when future commercialization was considered probable and it was determined that the inventory had a probable future economic benefit. These inventory costs consist primarily of purchased materials, third-party manufacturing costs, and packaging and serialization services.

Prior to FDA approval in August 2024, costs incurred for the manufacture of neffy were recorded as research and development expenses, which upon approval resulted in zero-cost inventory. The Company had $13.0million in zero-cost inventory remaining as of September 30, 2024.

5. Fair Value Measurements

The Company categorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance that establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

There were notransfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the periods presented. During the three and nine months ended September 30, 2024, the Company purchased $41.5million and $192.6million, respectively, in short-term investments, and there was $61.0million and $191.0million, respectively, in maturities of short-term investments. During the three and nine months ended September 30, 2023, the Company purchased $106.6million and $238.0million, respectively, in short-term investments, and there was $60.0million and $125.0million, respectively, in maturities of short-term investments.

The Company's short-term investments portfolio contains investments in U.S. Treasury securities that have an effective maturity date that is less than one year from the respective balance sheet date. The Company's money market mutual fund holdings are highly liquid and invest primarily in cash and U.S. Treasury securities.

For the three and nine months ended September 30, 2024, there was a $0.5million and $0.3million unrealized gain on available-for-sale securities, respectively. For the three and nine months ended September 30, 2023, there was a negligible and $0.6million unrealized loss on available-for-sale securities, respectively. For the nine months ended September 30, 2023, $0.3million was reclassified from accumulated other comprehensive gain to other income. Management determined that the gross unrealized losses on the Company's available-for-sale securities as of September 30, 2024 were primarily attributable to current economic and market conditions and not credit risk. As of September 30, 2024and December 31, 2023, noallowance for credit losses was recorded. It is neither management's intention to sell nor is it more likely than not that the Company will be required to sell any investments prior to recovery of its amortized cost basis, which is expected to be at maturity.

Accrued interest on the Company's available-for-sale securities was $0.5million as of September 30, 2024 and is included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

6. Balance Sheet Details

Depreciation expense was negligible and $0.1million for the three and nine months ended September 30, 2024 and 2023, respectively.

Accounts payable and accrued liabilities consisted of the following (in thousands):

7. Collaboration and Out-Licensing

The Company has entered into collaboration and licensing agreements, including supply and distribution, to license certain rights to neffy to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees; clinical, regulatory, and/or commercial milestone payments; payment for clinical and commercial supply and royalties or a transfer price on the net sales of licensed products.

Licenses of Intellectual Property. If the license to the Company's intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from non-refundable, up-front payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If the license is not a distinct performance obligation, the Company evaluates the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments. At the inception of each arrangement that includes clinical, regulatory or commercial milestone payments, the Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within the Company's control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized when the underlying performance obligation has been met.

Research and Development Revenues. For arrangements that contain research and development commitments, any arrangement consideration allocated to the research and development work is recognized as the underlying services are performed over the research and development term.

Clinical and Commercial Supply. Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee's discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations. The Company has not earned revenues for clinical or commercial supply sales as of September 30, 2024.

Royalty/Transfer Price Revenues. For arrangements that include sales-based royalties or transfer price, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). The Company has not received any royalty or transfer price revenues as of September 30, 2024.

Alfresa Agreement

In March 2020, the Company signed a Letter of Intent ("LOI") with Alfresa Pharma Corporation ("Alfresa") for the right to negotiate a definitive agreement for the exclusive license and sublicensable right to develop, register, import, manufacture and commercialize neffy in Japan in exchange for an upfront payment of $2.0million. In April 2020, the Company entered into a Collaboration and License Agreement for the rights pursuant to the LOI. Under the agreement, the Company delivered a license to neffy technology, completed a required clinical study, and remains obligated to use commercially reasonable efforts to develop and commercialize neffyin Japan. The parties agreed to share the cost of any additional clinical studies required for approval of neffy in Japan. Alfresa is solely responsible for regulatory and commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use in Japan. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue until the later of (i) expiration of the last-to-expire patent in Japan; or (ii) 10years after the commercial sale of neffy in Japan.

In addition to the $2.0million received under the LOI, the Company is eligible to receive up to $13.0million of milestone payments upon achievement of certain clinical and regulatory milestones. Further, the Company is eligible to receive a negotiable transfer price expected to be in the low double-digit percentage on net sales subject to the regulatory approval to commercialize neffy in Japan. In July 2020, the Company earned a $5.0million milestone payment upon the completion of a clinical milestone in Japan.

At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy and research and development services, both of which have been completed. The Company determined the initial transaction price to be $7.0million, which includes a clinical milestone as it was deemed not probable of significant reversal at the inception of the agreement. Due to the uncertainty in the achievementof the regulatory and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be reassessed at each reporting period. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. The Company recognized norevenue and less than $0.1million in revenue for the three and nine months ended September 30, 2024 and 2023, respectively, in the accompanying condensed consolidated statements of operations and comprehensive loss. There was nocontract liability as of September 30, 2024.

Recordati Agreement

In September 2020, the Company entered into a License and Supply Agreement (the "Recordati Agreement") with Recordati Ireland, Ltd. ("Recordati") for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in Europe and certain European Free Trade Association, Russia/the Commonwealth of Independent States, Middle East and African countries (the "Recordati Territory").

Under the terms of the Recordati Agreement, the Company received an upfront payment of $11.8million and a regulatory milestone payment of $6.0million during 2020.

At the commencement of this collaboration, the Company identified the following performance obligations: the license for neffy in the defined territory and the research and development services. The Company determined the initial transaction price to be the $11.8million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, at inception of the contract, the variable consideration associated with future milestone payments was fully constrained and excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. The transaction price was allocated to the performance obligations based on the estimated stand-alone selling price of each performance obligation. In November 2020, the Company earned a regulatory milestone of $6.0million.

On February 22, 2023, the Company and Recordati entered into a termination agreement (the "Recordati Termination Agreement"), pursuant to which, among other things, the Company and Recordati agreed to terminate the Recordati Agreement. Pursuant to the Recordati Termination Agreement, the Company reacquired all of the Recordati rights, paid Recordati a one-time upfront payment of €3.0million ($3.3million in U.S. dollars), and has agreed to pay additional payments upon achievement of certain milestones including: (i) an EMA regulatory milestone payment of €2.0million, (ii) a milestone payment of €5.0million upon first commercial sale of a Recordati Licensed Product in the Recordati Territory, and (iii) royalty payments of up to €5.0million in the aggregate from sales of Recordati Licensed Product(s) in the Recordati Territory (collectively, the "Recordati Rights").

The Company determined that the Recordati Rights at the time of entering into the Recordati Termination Agreement had no alternative future use and therefore recorded the €3.0million upfront payment to Recordati as an IPR&D expense presented within research and development expense. The Recordati Termination Agreement ended the Company's performance obligations pursuant to the Recordati Agreement and consequently the existing contract liability of $3.1million previously received from Recordati was recorded against IPR&D expense presented within research and development expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Accordingly, norevenue has been recognized subsequent to the Recordati Termination Agreement. In June 2024, the EMA regulatory milestone was met and a €2.0million ($2.1million in U.S. dollars) expense was recorded in research and development expense in the accompanying condensed consolidated statements of operations and comprehensive loss. The Company paid the EMA regulatory milestone in July 2024.

Pediatrix Agreement

In March 2021, the Company entered into a Collaboration and Distribution Agreement with Pediatrix Therapeutics, Inc. ("Pediatrix") for the exclusive license and sublicensable right to develop, import, manufacture or have manufactured commercial product, file and hold regulatory approvals and commercialize neffy in the People's Republic of China, Taiwan, Macau, and Hong Kong. Under the agreement, Pediatrix is responsible, at its sole cost and expense, for all ongoing development work that is necessary for or otherwise supports regulatory approval in the defined territory, including all clinical trials, and activities related to post approval commitments and commercialization tests. In addition, Pediatrix is responsible for commercialization activities and may elect to assume responsibility for manufacturing and supplying drug product for commercial use. The Company is responsible for the manufacturing of product for clinical studies as well as commercial supply, all at a negotiated transfer price. Either party may terminate the agreement for certain breaches of the agreement. Unless terminated earlier by either or both parties, the term of the agreement will continue as long as Pediatrix has commercial sales of neffy in the region, or 10years after the first commercial sale.

Under the terms of the agreement, the Company received an upfront payment of $3.0million. In addition, the Company is eligible to receive up to $84.0million of milestone payments upon achievement of certain regulatory and commercial sales milestones. Subject to regulatory approval, the Company will earn tiered royalties in the low double-digits on annual net sales in the region and will receive a per unit supply price for the sale of commercial supply to Pediatrix.

At the commencement of this collaboration, the Company identified performance obligations related to the delivery of the license for neffy in the defined territory and manufacturing of product for clinical studies and commercial supply. The Company concluded that the license was distinct from potential supply obligation. The supply provisions are effectively options granted to Pediatrix to purchase future goods and would only constitute a performance obligation if they contain a material right. The Company determined the option to purchase the clinical and commercial supply was not at a significantly discounted price and does not represent a material right, therefore does not constitute a performance obligation. The Company determined the initial transaction price to be the $3.0million. Due to the uncertainty in the achievement of all the developmental and commercial milestones, the variable consideration associated with these future milestone payments has been fully constrained and is excluded from the transaction price until such time that the Company concludes that it is probable that a significant reversal of previously recognized revenue will not occur. These estimates will be reassessed at each reporting period. The Company recognized revenue of the full $3.0million during the year ended December 31, 2021.

Seqirus Agreement

In March 2024, the Company entered into a License and Distribution Agreement (the "Seqirus Agreement") with Seqirus Pty, Ltd. ("Seqirus") for the exclusive license to commercialize neffy in Australia and New Zealand (the "Seqirus Territory"). Under the Seqirus Agreement, the Company is responsible for the transfer of know-how, which includes regulatory materials, regulatory data, and commercialization data, and also for the manufacturing of product for commercial supply which is available to Seqirus at a negotiated price. Seqirus is solely responsible for all regulatory and commercialization activities in the Seqirus Territory. Either party may terminate the Seqirus Agreement for certain breaches. Unless terminated earlier by either or both parties, the initial term of the Seqirus Agreement is 15 years from the first commercial sale of neffyin the Seqirus Territory. The Seqirus Agreement will automatically renew for two-year periods unless either party gives a notice to terminate at least 12 months prior to the end of the initial or any renewal term.

Under the terms of the Seqirus Agreement, the Company received an upfront payment of $0.5million in May 2024. In addition, the Company is eligible to receive up to $4.5million of milestone payments upon achievement of certain event milestones. Subject to regulatory approval in Australia and New Zealand, the Company will also receive a per unit supply price for the sale of commercial supply to Seqirus.

8. Commitments and Contingencies

Leases

In October 2021, the Company entered into a 38-monthnoncancelable lease for its current headquarters location consisting of 4,047rentable square feet of office space in San Diego, California. Under the terms of the agreement, there is no option to extend the lease, and the Company is subject to additional charges for common area maintenance and other costs.Monthly rental payments due under the lease commenced on December 6, 2021 and escalate through the lease term. The Company prepaid the first month's rent upon execution of the lease, and the lease agreement provided full rent abatement for the second and third months of the rental term. As of September 30, 2024, the remaining lease term of the Company's operating lease was 5 months, and the discount rate on the Company's operating lease was 8%. As there was not an implicit rate within the lease, the discount rate was determined by using a set of peer companies incremental borrowing rates. The Company's operating lease expense was $0.1million and $0.2million for the three and nine months ended September 30, 2024 and 2023, respectively. The Company's variable lease expense was immaterial for the three and nine months ended September 30, 2024 and 2023. Cash paid for amounts included in the measurement of lease liabilities was $0.1million and $0.2million for the three and nine months ended September 30, 2024 and 2023, respectively.

Contingencies

From time to time, the Company may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.

On August 12, 2021, Amphastar Pharmaceuticals, Inc. ("Amphastar") filed a Petition for Inter Partes Review with the United States Patent and Trademark Office ("USPTO"), seeking to invalidate claims 1-20 of United States Patent No. 10,682,414 (the "'414 patent"). The '414 patent issued on June 16, 2020 and is entitled "Intranasal Epinephrine Formulations and Methods for the Treatment of Disease." The claims of the '414 patent are directed to methods of treating a type-1 hypersensitivity reaction, including anaphylaxis, using an aqueous nasal spray pharmaceutical formulation containing epinephrine or a salt thereof in a single dose. On February 9, 2023, the USPTO issued a Final Written Decision finding claims 3-6 and 18-20, which encompass the Company's neffy product candidate, patentable, and claims 1-2 and 7-17 unpatentable. On April 12, 2023, Amphastar filed a notice of appeal with the United States Court of Appeals for the Federal Circuit. On May 15, 2023, the Company filed a motion to dismiss for lack of standing, which will be heard along with the merits of the case. Briefing on both the motion to dismiss and the merits is complete, and a decision from the Federal Circuit is expected in 2025. The results of any appeal proceedings are inherently unpredictable and uncertain, and could result in the Federal Circuit finding some or all of claims 1-20 of the '414 patent to be invalid or unenforceable.

On July 24, 2023, Aera A/S, an IP consultancy firm in Denmark representing an unidentified opponent, filed a notice of opposition with the European Patent Office (the "EPO") in respect of EP 3678649 (the "EP '649 Patent"), which is a patent directed to a nasal spray formulation of epinephrine, and uses thereof. The Company filed a response to the notice of opposition on December 15, 2023, and the Company will continue to vigorously defend the EP '649 Patent. The results of any notice of opposition are inherently unpredictable and uncertain, and could result in the EPO finding the patent to be invalid or unenforceable.

Regardless of the outcome, involvement in legal proceedings may have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. The Company cannot predict the outcome of these suits, and failure by the Company to obtain favorable resolutions could have a material adverse effect on its business, results of operations, and financial condition. The Company's chances of success on the merits of these suits are still uncertain and any possible loss or range of loss cannot be reasonably estimated and as such the Company has not recorded a liability as of September 30, 2024.

Except as described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or other body pending or, to the knowledge of the Company's executive officers, threatened against or affecting the Company, the Company's common stock, any of its subsidiaries or its subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Unconditional Purchase Obligations and Commitments

Unconditional purchase obligations and commitments are defined as agreements to purchase goods or services that are enforceable and legally binding (non-cancelable, or cancelable only in certain circumstances). In the normal course of business, we enter into arrangements with suppliers, manufacturers, and various other companies that supply goods or services. These arrangements can include unconditional purchase obligations and commitments.

The total amount of unconditional purchase obligations related to the supply of raw materials is $34.1million as of September 30, 2024. Payments by year are as follows: 2024 and 2025 ($6.8million in the aggregate), 2026 ($7.6million), 2027 ($8.9million), and 2028 ($10.8million).

The total amount of unconditional purchase obligations related to hosted software license subscription fees is $3.9million as of September 30, 2024. Payments by year are as follows: 2024 ($0.6million), 2025 ($1.4million), 2026 ($1.5million), and 2027 ($0.4million).

The total amount of commitments related to a corporate sponsorship agreement with Food Allergy Research and Education, Inc. is $8.0million as of September 30, 2024. Payments by year are as follows: 2024 ($1.0million), 2025 ($4.0million), 2026 ($3.0million).

The amounts above do not represent the entire anticipated spend in the future but represent only those items for which we are contractually obligated. For this reason, these amounts do not provide an indication of our expected future cash outflows related to purchases and commitments.

9. In-Licensing and Supply

License Agreement with Aegis

In June 2018, the Company entered into a License Agreement (the "Aegis Agreement") with Aegis Therapeutics, LLC ("Aegis"). Under the Aegis Agreement, the Company licensed the exclusive, worldwide, royalty-bearing, sublicensable, rights to certain proprietary Aegis technology, patent rights and know-how to develop and commercialize epinephrine products. The Company utilizes this technology in its sole commercial product, neffy. As consideration for the license, the Company paid an upfront license fee of $50,000, which was recorded in research and development expenses in the condensed consolidated statement of operations.

The Company is required to make aggregate milestone payments of up to $20.0million upon achievement of certain regulatory and commercial milestones. Regulatory milestone payments under the Aegis Agreement are recorded upon completion of the required events, as the triggering events are not considered to be probable until they are achieved. Prior to the FDA approval of neffy in August 2024, regulatory milestone payments were recorded as research and development expenses in the condensed consolidated statement of operations. The Company made a $0.5million milestone payment to Aegis upon the achievement of a regulatory milestone during 2019, and a $1.0million milestone payment to Aegis upon the FDA's acceptance of the Company's NDA submission for neffy, which occurred in the third quarter of 2022. Since the approval of neffy in August 2024, regulatory milestone payments have been capitalized as intangible assets in the accompanying condensed consolidated balance sheets. Amortization expense has been recorded to cost of goods sold, in the accompanying condensed consolidated statements of operations and comprehensive loss, on a straight-line basis over the estimated life of the intellectual property of 14.5years. In August 2024, a $2.5million milestone was met for achieving FDA approval of neffy. In September 2024, a $5.0million milestone was met for the first commercial sale of neffy. As a result, the Company capitalized $7.5million as intangible assets in the accompanying condensed consolidated balance sheets as of September 30, 2024. The Company paid the $2.5million milestone for achieving FDA approval of neffy in September 2024, and paid the $5.0million milestone for the first commercial sale of neffy in October 2024. The next milestone payment of $2.0million is due upon the achievement of certain annual net sales.

The Company also pays royalties based on net product sales in the low to mid-single digits on its or its sublicensees' net sales of the Licensed Products (as defined in the Aegis Agreement) on a product-by-product basis. Royalties are recorded to cost of goods sold in the period the related product revenue is recognized.

The Company is responsible for reimbursing Aegis for patent costs incurred in connection with prosecuting and maintaining patent rights that are specific to epinephrine or epinephrine products. There were noexpenses recognized in connection with legal patent fees for the nine months ended September 30, 2024 and 2023.

The Company may terminate the Aegis Agreement with 30 days written notice or either party may terminate the Aegis Agreement for certain breaches of the Aegis Agreement. Unless terminated earlier by either or both parties, the term of the Aegis Agreement will continue until the final expiration of all royalty obligations under the Aegis Agreement.

In conjunction with the Aegis Agreement, the Company also entered into a Supply Agreement (the "Supply Agreement") with Aegis that allows the Company to purchase materials for preclinical, development and commercial use at predetermined prices. The Company may elect to have Aegis supply minimum quantities but there are no minimum or maximum purchase obligations under the Supply Agreement unless this election is made. The parties may terminate the Supply Agreement at any time by mutual agreement. In addition, the parties may terminate the Supply Agreement in the event of certain breaches of the Supply Agreement or upon the earlier of the expiration or termination of the Aegis Agreement or June 2028. The Supply Agreement term may be extended by mutual written agreement. Under the Supply Agreement, $0.4million and $0.7million in expense was recognized in the three and nine months ended September 30, 2024, respectively, and noexpense and $0.3million in expense was recognized in the three and nine months ended September 30, 2023, respectively, in the accompanying condensed consolidated statements of operations and comprehensive loss.

Manufacturing Agreement with Renaissance

In September 2020, the Company entered into a manufacturing agreement with Renaissance Lakewood, LLC ("Renaissance"), which was subsequently amended in July 2023 and September 2024 (the "Renaissance Agreement"). Pursuant to the Renaissance Agreement, Renaissance agreed to manufacture for, and provide to the Company, neffy nasal unit dose sprays ("Renaissance Products"). The Company is obligated to provide Renaissance with certain supplies to manufacture the Renaissance Products and to purchase from Renaissance a mid double-digit percentage of the Company's annual aggregate Renaissance Product requirements in the E.U., and a high double-digit percentage of the Company's annual aggregate Renaissance Product requirements in the U.S. The Renaissance Agreement contains conventional commercial pharmaceutical manufacturing provisions including certain minimum purchase amounts to be determined in the future based on forecast needs and minimum batch size projections. The Company may also request Renaissance to perform certain services related to the Renaissance Product, for which the Company will pay reasonable compensation to Renaissance.

10. Common Stock and Stockholders' Equity

Authorized Shares

The Company's current Amended and Restated Certificate of Incorporation authorizes 200,000,000shares of common stock, par value $0.0001per share, and 10,000,000shares of preferred stock, par value $0.0001per share.

Common Stock

During the nine months ended September 30, 2024 and 2023, $0.1million and nostock compensation expense was capitalized into inventory, respectively.

As of September 30, 2024, the total unrecognized stock-based compensation expense related to outstanding employee options was $37.0million, which is expected to be recognized over a remaining weighted-average period of approximately 2.57years.

There were 4,144restricted stock units outstanding as of December 31, 2023 and 2,763 restricted stock units outstanding as of September 30, 2024.

Equity Incentive Plans

In September 2018, ARS Pharma adopted the 2018 Equity Incentive Plan. As a result of the Merger, on November 8, 2022 ARS Pharma assumed Silverback's 2016 and 2020 Equity Incentive Plans, and Employee Stock Purchase Plan ("ESPP"). During the nine months ended September 30, 2024 and 2023, there were 43,679and 21,899shares of common stock purchased under the ESPP, respectively.

As of September 30, 2024, the 2016 and 2020 Equity Incentive Plans authorized a total of 20,839,408shares, of which 6,371,928shares are available for future grant, and 10,229,843shares are outstanding. As of September 30, 2024, the 2018 Equity Incentive Plan authorized a total of 6,634,333shares, of which 297,345shares are available for future grant, and 4,951,323shares are outstanding. The Company does not intend to grant future stock options or other equity awards under the 2016 or 2018 Equity Incentive Plans.

Stock Options

Stock options granted under the Company's equity incentive plans expire no later than 10years from the date of grant and generally vest over a four-year period, with vesting either occurring at a rate of 25% at the end of the first year and thereafter in 36 equal monthly installments or on a monthly basis. In the case of awards granted to our non-employee board members, vesting generally occurs on a monthly basis over three years or in full on an annual basis. The Company issues new shares of common stock upon the exercise of stock options.

The exercisable shares subject to options outstanding at September 30, 2024 in the table above include vested and early exercisable awards. The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company's common stock for all options that were in-the-money at September 30, 2024. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2024 and 2023was $5.5million and $7.9million, respectively.

The weighted-average grant date fair value per share of option grants for the nine months ended September 30, 2024 and 2023was $5.57and $6.31, respectively. The total fair value of shares vested during the nine months ended September 30, 2024 and 2023was $12.0million and $2.0million, respectively.

The fair value of stock options was determined using the Black-Scholes assumptions below. Each of these inputs is subjective and generally requires significant judgment.

12. Employee Benefit Plans

In June 2022, the Company adopted a retirement plan, which is qualified under section 401(k) of the Internal Revenue Code of 1986, as amended, for the Company's U.S. employees. The plan allows eligible employees to defer, at the employee's discretion, pretax compensation up to the Internal Revenue Service (the "IRS") annual limits. The Company matches up to 5% of an employee's pay that they contribute to the plan, subject to IRS limitations. Expenses associated with the Company's matching contribution totaled $0.1million and $0.3million for the three and nine months ended September 30, 2024and 2023, respectively.

13. Related-Party Transactions

In September 2015, the Company entered into a consulting agreement, superseded in July 2022, for regulatory and development services with Pacific-Link Regulatory Consulting, Inc., an entity owned by the President/Chief Executive Officer/director and his spouse, the Chief Medical Officer of the Company. The Company incurred consulting expense related to this agreement totaling $0.4million and $1.7million during the three and nine months ended September 30, 2024, respectively, and $0.4million and $1.5million during the three and nine months ended September 30, 2023, respectively.

In September 2018, the Company entered into a consulting agreement with Marlinspike Group, LLC ("Marlinspike Group") to provide management, business consulting services and business development support. The managing member of Marlinspike Group is the Chair of the Board of Directors of the Company and one of its stockholders. The Company incurred expenses related to this agreement totaling $0.1million and $0.2million for the three and nine months ended September 30, 2024 and 2023, respectively.

In April 2021, the Company entered into a consulting agreement, as amended in April 2022, with a member of the Board of Directors of the Company for general advice and assistance with the development of neffyand any future product candidates. As compensation for the consulting services the Company granted the member of the Board of Directors 590,950stock options that vest over a four-year period. The Company incurred less than $0.1million and $0.1million in stock-based compensation expense related to this agreement for the three and nine months ended September 30, 2024 and 2023, respectively.

14. Subsequent Events

Ompi Supply Agreement

On October 8, 2024, the Company entered into a supply agreement ("Ompi Supply Agreement") with Nuova Ompi S.r.l. ("Ompi") pursuant to which Ompi has agreed to supply glass microvials to support the Company's manufacture and commercialization of neffy. Pursuant to the Ompi Supply Agreement, the Company has committed to purchase, and Ompi has committed to supply, specified annual minimum quantities of glass microvials. As partial consideration for the supply arrangement, the Company is obligated to pay Ompi an upfront payment of €3.0million (approximately $3.3million in U.S. dollars).

ALK Collaboration, License and Distribution Agreement

On November 9, 2024, the Company entered into a collaboration, license and distribution agreement (the "ALK Collaboration Agreement") with ALK-Abelló A/S to commercialize neffy in Europe, Canada and certain other geographies outside the U.S. Under the terms of the ALK Collaboration Agreement, the Company will receive an upfront payment of $145.0million, and is eligible to receive up to an additional $20.0million in regulatory and commercialization milestones and up to $300.0million in sales-based milestones, provided that $55.0million of such sales-based milestones are contingent upon the Company obtaining regulatory approval in Canada by a specified time. The Company will also receive tiered double-digit royalties in the teens on net sales in the licensed geographies.