Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~31, 2021,~~22, 2022, the registrant had ~~109,307,740~~ 121,608,388shares of common stock, $0.001 par value per share, outstanding.


	June 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
Assets
Current assets:
Cash and cash equivalents	$	76,941		$	69,587		$	22,139		$	35,202
Restricted cash		16,500			16,500			13,825			16,500
Short-term investments		53,283			138,636			1,189			10,207
Accounts receivable, net of chargebacks and other deductions of $14,523 and $12,552, respectively, and provision for credit losses of $9,421 and $9,637, respectively		22,218			23,603
Accounts receivable, net of chargebacks and other deductions of $26,662 and $22,868, respectively, and provision for credit losses of $9,795 and $9,196, respectively								33,824			26,286
Inventories		29,765			28,846			37,851			27,049
Prepaid expenses and other current assets		14,384			14,789			3,975			5,321
Discontinued operations, current portion								4,943			12,831
Total current assets		213,091			291,961			117,746			133,396
Property and equipment, net		45,685			34,388			4,194			5,181
Goodwill		69,216			38,891
Intangible assets, net		72,779			10,218			72,472			71,896
Operating lease right-of-use assets, net		7,019			7,921			4,885			5,509
Other assets		1,167			950			991			1,087
Discontinued operations, non-current portion								21,599			50,379
Total assets	$	408,957		$	384,329		$	221,887		$	267,448
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	19,467		$	18,673		$	21,397		$	14,519
Accrued expenses		35,612			38,273			39,285			23,892
Current portion of operating lease liabilities		3,119			3,185			2,077			2,393
Current portion of long-term debt and finance lease obligations		4,725			2,010			23,738			46,096
Discontinued operations, current portion								3,674			9,147
Total current liabilities		62,923			62,141			90,171			96,047
Long-term liabilities:
Long-term operating lease liabilities		5,317			6,355			3,898			4,411
Long-term debt and finance lease obligations		145,271			146,577			22,226			95,607
Royalty financing liability								75,006			—
Deferred tax liabilities		1,833			56			1,751			1,751
Contingent consideration		20,237			—			24,129			24,076
Other long-term liabilities		3,496			3,852			2,689			3,046
Discontinued operations, non-current portion								7,490			8,058
Total liabilities		239,077			218,981			227,360			232,996
Commitments and contingencies (See Note 17)
Commitments and contingencies (See Note 18)
Stockholders' equity:
Common stock, par value $0.001 per share, 250,000,000 shares authorized at June 30, 2021 and December 31, 2020; 110,980,660 and 95,066,195 shares issued at June 30, 2021 and December 31, 2020, respectively; 109,307,740 and 93,393,275 shares outstanding at June 30, 2021 and December 31, 2020, respectively		111			95
Common stock, par value $0.001 per share, 250,000,000 shares authorized at June 30, 2022 and December 31, 2021; 119,323,823 and 111,802,968 shares issued at June 30, 2022 and December 31, 2021, respectively; 117,650,903 and 110,130,048 shares outstanding at June 30, 2022 and December 31, 2021, respectively								119			111
Additional paid-in capital		966,666			901,864			980,819			972,404
Accumulated other comprehensive loss		(1,123	)		(1,134	)
Accumulated other comprehensive income (loss)								1,471			(487	)
Accumulated deficit		(772,968	)		(713,644	)		(962,989	)		(913,412	)
Less: treasury stock, at cost; 1,672,920 shares at June 30, 2021 and December 31, 2020		(7,485	)		(7,406	)
Less: treasury stock, at cost; 1,672,920 shares at June 30, 2022 and December 31, 2021								(7,485	)		(7,485	)
Total Athenex, Inc. stockholders' equity		185,201			179,775			11,935			51,131
Non-controlling interests		(15,321	)		(14,427	)		(17,408	)		(16,679	)
Total stockholders' equity		169,880			165,348
Total liabilities and stockholders' equity	$	408,957		$	384,329
Total stockholders' (deficit) equity								(5,473	)		34,452
Total liabilities and stockholders' (deficit) equity							$	221,887		$	267,448

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenue:
Product sales, net	$	21,385		$	40,167		$	41,745		$	58,714		$	25,786		$	20,394		$	54,154		$	38,881
License and other revenue		538			5			21,203			28,393			5,730			304			6,504			20,969
Total revenue		21,923			40,172			62,948			87,107			31,516			20,698			60,658			59,850
Cost of sales		19,663			33,006			36,068			52,578			23,092			19,117			45,613			34,158
Gross Profit		2,260			7,166			26,880			34,529			8,424			1,581			15,045			25,692
Operating expenses:
Research and development expenses		21,127			22,015			44,197			39,207			13,094			20,646			27,179			42,390
Selling, general, and administrative expenses		21,231			17,486			43,351			43,234			17,172			17,641			30,979			36,840
Total operating expenses		42,358			39,501			87,548			82,441			30,266			38,287			58,158			79,230
Operating loss		(40,098	)		(32,335	)		(60,668	)		(47,912	)		(21,842	)		(36,706	)		(43,113	)		(53,538	)
Interest income		132			185			161			598			46			32			122			61
Interest expense		5,684			1,565			10,592			3,238			4,307			5,608			8,820			10,538
Loss on extinguishment of debt		—			7,230			—			7,230
Loss before income tax (benefit) expense		(45,650	)		(40,945	)		(71,099	)		(57,782	)
Income tax (benefit) expense		(11,035	)		106			(10,881	)		2,987
(Gain) loss on partial extinguishment of debt														(2,051	)		—			1,450			—
Loss before income tax expense														(24,052	)		(42,282	)		(53,261	)		(64,015	)
Income tax expense (benefit)														(19	)		(11,035	)		8			(10,881	)
Net loss from continuing operations														(24,033	)		(31,247	)		(53,269	)		(53,134	)
Loss (gain) from discontinued operations (Note 4)														8,341			3,368			(2,963	)		7,084
Net loss		(34,615	)		(41,051	)		(60,218	)		(60,769	)		(32,374	)		(34,615	)		(50,306	)		(60,218	)
Less: net loss attributable to non-controlling interests		(341	)		(600	)		(894	)		(889	)		(217	)		(341	)		(729	)		(894	)
Net loss attributable to Athenex, Inc.	$	(34,274	)	$	(40,451	)	$	(59,324	)	$	(59,880	)	$	(32,157	)	$	(34,274	)	$	(49,577	)	$	(59,324	)
Unrealized (loss) gain on investment, net of income taxes		(19	)		117			(3	)		49
Unrealized gain (loss) on investment, net of income taxes														443			(19	)		470			(3	)
Foreign currency translation adjustment, net of income taxes		(263	)		(43	)		14			(481	)		953			(263	)		1,488			14
Comprehensive loss	$	(34,556	)	$	(40,377	)	$	(59,313	)	$	(60,312	)	$	(30,761	)	$	(34,556	)	$	(47,619	)	$	(59,313	)
Net loss per share attributable to Athenex, Inc. common stockholders, basic and diluted (See Note 14)	$	(0.33	)	$	(0.50	)	$	(0.60	)	$	(0.73	)
Weighted-average shares used in computing net loss per share attributable to Athenex, Inc. common stockholders, basic and diluted (See Note 14)		103,370,268			81,564,441			98,427,561			81,551,995
Basic and diluted loss per Athenex, Inc. common share (Note 15):
Net loss from continuing operations													$	(0.21	)	$	(0.30	)	$	(0.47	)	$	(0.53	)
Net (loss) gain from discontinued operations														(0.07	)		(0.03	)		0.03			(0.07	)
Net loss per share attributable to Athenex, Inc. common stockholders, basic and diluted (See Note 15)													$	(0.28	)	$	(0.33	)	$	(0.44	)	$	(0.60	)
Weighted-average shares used in computing net loss per share attributable to Athenex, Inc. common stockholders, basic and diluted (See Note 15)														113,006,158			103,370,268			111,762,029			98,427,561

The accompanying notes are an integral part of these condensed consolidated financial statements.

Common Stock

Additional

Accumulated
other

Treasury Stock

Total
Athenex,
Inc.

Non-

Total

Shares

Amount

paid-in
capital

Accumulated
deficit

comprehensive
loss

Shares

Amount

stockholders'
equity

controlling
interests

stockholders'
equity

Balance at January 1, 2020

83,231,063

$
83

$
763,648

$
(567,465
)

$
(635
)

(1,672,920
)

$
(7,406
)

$
188,225

$
(12,370
)

$
175,855

Stock-based compensation cost

—

—

1,864

—

—

—

—

1,864

—

1,864

Restricted stock expense

(3,000
)

—

397

—

—

—

—

397

—

397

Stock options exercised

70,200

—

344

—

—

—

—

344

—

344

Net loss

—

—

—

(19,429
)

—

—

—

(19,429
)

(289
)

(19,718
)
Other comprehensive loss, net of tax

—

—

—

—

(506
)

—

—

(506
)

—

(506
)
Balance at March 31, 2020 (unaudited)

83,298,263

83

766,253

(586,894
)

(1,141
)

(1,672,920
)

(7,406
)

170,895

(12,659
)

158,236

Sale of common stock and issuance of stock in connection with acquisition

51,691

—

269

—

—

—

—

269

—

269

Stock-based compensation cost

—

—

2,640

—

—

—

—

2,640

—

2,640

Restricted stock expense

—

—

413

—

—

—

—

413

—

413

Stock options exercised

12,500

—

125

—

—

—

—

125

—

125

Issuance of warrants, net

—

—

5,342

—

—

—

—

5,342

—

5,342

Non-controlling interests

—

—

—

—

—

—

—

—

198

198

Net loss

—

—

—

(40,451
)

—

—

—

(40,451
)

(600
)

(41,051
)
Other comprehensive income, net of tax

—

—

—

—

74

—

—

74

—

74

Balance at June 30, 2020 (unaudited)

$
83,362,454

$
83

$
775,042

$
(627,345
)

$
(1,067
)

(1,672,920
)

$
(7,406
)

$
139,307

$
(13,061
)

$
126,246

Common Stock

Additional

Accumulated
other

Treasury Stock

Total
Athenex,
Inc.

Non-

Total

Shares

Amount

paid-in
capital

Accumulated
deficit

comprehensive
loss

Shares

Amount

stockholders'
equity

controlling
interests

stockholders'
equity

Balance at January 1, 2021

95,066,195

$
95

$
901,864

$
(713,644
)

$
(1,134
)

(1,672,920
)

$
(7,406
)

$
179,775

$
(14,427
)

$
165,348

Stock-based compensation cost

—

—

2,205

—

—

—

—

2,205

—

2,205

Restricted stock expense

—

—

29

—

—

—

—

29

—

29

Stock options exercised

119,425

—

852

—

—

—

—

852

—

852

Net loss

—

—

—

(25,050
)

—

—

—

(25,050
)

(553
)

(25,603
)
Other comprehensive income, net of tax

—

—

—

—

293

—

—

293

—

293

Balance at March 31, 2021 (unaudited)

95,185,620

95

904,950

(738,694
)

(841
)

(1,672,920
)

(7,406
)

158,104

(14,980
)

143,124

Sale of common stock

33,373

—

133

—

—

—

—

133

—

133

Issuance of common stock in connection with acquisition of Kuur and settlement of transaction incentive liability assumed

15,601,667

16

58,412

—

—

—

—

58,428

—

58,428

Stock-based compensation cost

—

—

2,387

—

—

—

—

2,387

—

2,387

Restricted stock expense

—

—

57

—

—

—

—

57

—

57

Stock options exercised

160,000

—

727

—

—

—

—

727

—

727

Treasury stock repurchase

—

—

—

—

—

—

(79
)

(79
)

—

(79
)
Net loss

—

—

—

(34,274
)

—

—

—

(34,274
)

(341
)

(34,615
)
Other comprehensive loss, net of tax

—

—

—

—

(282
)

—

—

(282
)

—

(282
)
Balance at June 30, 2021 (unaudited)

110,980,660

$
111

$
966,666

$
(772,968
)

$
(1,123
)

(1,672,920
)

$
(7,485
)

$
185,201

$
(15,321
)

$
169,880

The accompanying notes are an integral part of these condensed consolidated financial statements.


	Six Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Cash flows from operating activities:
Net loss	$	(60,218	)	$	(60,769	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss from continuing operations							$	(53,269	)	$	(53,134	)
Net gain (loss) from discontinued operations								2,963			(7,084	)
Adjustments to reconcile net loss to net cash used in operating activities of continuing operations:
Depreciation and amortization		2,467			2,121			1,470			1,986
Stock-based compensation expense		4,678			5,314			3,477			4,678
Amortization of debt discount		1,533			553			1,029			1,533
Change in fair value of contingent consideration		398			—			53			398
Write off of deferred debt issuance costs		648			—
Loss on disposal of assets and impairment charges		—			173			78			—
Loss on extinguishment of debt		—			7,230
Loss on extinguishment of debt and write off of deferred issuance costs								1,450			648
Deferred income taxes		(10,940	)		51			—			(10,940	)
Changes in operating assets and liabilities, net of effect of acquisition:
Changes in operating assets and liabilities:
Receivables, net		1,385			(21,931	)		(7,538	)		520
Prepaid expenses and other assets		(327	)		1,044			1,443			(261	)
Inventories		(918	)		1,487			(10,802	)		(613	)
Accounts payable and accrued expenses		(7,796	)		(5,341	)		25,798			(8,579	)
Net cash used in operating activities		(69,090	)		(70,068	)
Cash flows from investing activities:
Net cash used in operating activities of continuing operations								(36,811	)		(63,764	)
Cash flows from investing activities of continuing operations:
Purchase of property and equipment		(10,459	)		(4,566	)		(360	)		(491	)
Payments for licenses		(1,588	)		(83	)		(668	)		(1,588	)
Cash acquired from Kuur acquisition		1,425			—			—			1,425
Purchases of short-term investments		(67,600	)		(23,571	)		(9,488	)		(67,600	)
Sales and maturities of short-term investments		152,950			46,345			18,976			152,950
Net cash provided by investing activities		74,728			18,125
Cash flows from financing activities:
Net cash provided by investing activities of continuing operations								8,460			84,696
Cash flows from financing activities of continuing operations:
Proceeds from sale of stock		133			269			4,663			133
Proceeds from issuance of debt		783			95,164
Proceeds from issuance of warrants		—			5,836
Costs incurred related to the issuance of debt and warrants		—			(6,125	)
Proceeds from issuance of royalty financing liability								80,000			—
Proceeds from exercise of stock options								—			1,579
Repurchase of treasury stock		(79	)		—			—			(79	)
Proceeds from exercise of stock options		1,579			469
Investment from non-controlling interest		—			198
Repayment of finance lease obligations and long-term debt		(967	)		(54,238	)
Net cash provided by financing activities		1,449			41,573
Net increase (decrease) in cash, cash equivalents, and restricted cash		7,087			(10,370	)
Costs incurred related to the issuance of royalty financing liability								(4,982	)		—
Costs incurred related to the prepayment of debt								(5,625	)		—
Repayment of finance lease obligations and long-term debt and royalty financing liability								(92,584	)		(99	)
Net cash (used in) provided by financing activities of continuing operations								(18,528	)		1,534
Net (decrease) increase in cash, cash equivalents, and restricted cash from continuing operations								(46,879	)		22,466
Net cash used in operating activities of discontinued operations								(7,535	)		(5,326	)
Net cash provided by (used in) investing activities of discontinued operations								37,747			(9,968	)
Net cash used in financing activities of discontinued operations								(792	)		(85	)
Net increase (decrease) in cash and cash equivalents from discontinued operations								29,420			(15,379	)
Cash, cash equivalents, and restricted cash, beginning of period		86,087			127,674			51,702			86,087
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		267			(403	)		1,721			267
Cash, cash equivalents, and restricted cash, end of period (See Note 3)	$	93,441		$	116,901
Cash, cash equivalents, and restricted cash, end of period (See Note 5)							$	35,964		$	93,441
Supplemental cash flow disclosures
Interest paid	$	7,715		$	3,081		$	7,702		$	7,708
Interest paid by discontinued operations							$	15		$	7
Non-cash investing and financing activities:
Accrued purchases of property and equipment	$	2,708		$	436
Accrued purchases of property and equipment from continuing operations							$	17		$	123
Accrued purchases of property and equipment from discontinued operations							$	1,213		$	2,585
Accrued purchases of licenses	$	1,600		$	500		$	1,925		$	1,600
Stock issued in connection with the acquisition of Kuur	$	52,786		$	—
Fair value of acquisition-related contingent consideration	$	19,839		$	—
Equipment purchased with capital lease obligation	$	—		$	564
Accrued cost of debt issuance	$	—		$	287
ROU assets derecognized from modification of operating lease obligations	$	—		$	(468	)	$	(128	)	$	—
ROU assets recognized in exchange for operating lease obligations	$	—		$	353		$	78		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

Goodwill in the amount of ~~$30.3~~$28.7 million was recorded for the excess of the purchase price over the fair value of the assets acquired and liabilities assumed. The goodwill recorded in connection with this acquisition is not deductible for income tax purposes. A deferred tax liability in the amount of ~~$12.7~~$12.5 million was recorded related to the future taxable income as a result of the book to tax basis difference arising from the IPR&D.

The fair value of the acquired IPR&D relates to two products, including (a) an allogenic product in which NKT cells are engineered with a CAR targeting CD19, and (b) an allogenic product in which NKT cells are engineered with a CAR targeting GPC3. These IPR&D projects were valued using an income approach, specifically a projected discounted cash flow method, adjusted for the probability of technical success (PTS). The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset including the following:

This acquisition was made to benefit the Company’s R&D efforts, providing synergies with other assets in the Company’s pipeline and therefore, is included in the Oncology Innovation Platform. The operating results of Kuur have been included within the Company’s Oncology Innovation Platform operating segment from the date of acquisition. Kuur added revenue of $0$0.1 for both the three and six months ended June 30, 2022 and contributed a net loss of $3.7 million and $6.1 million for the three and six months ended June 30, 2022, respectively. Kuur added revenue of $0 for both the three and six months ended June 30, 2021 and contributed a net loss of ~~$0.6~~$0.6 million for the three and six months ended June 30, 2021.

NaN acquisition-related costs were incurred during the six months ended June 30, 2022. Acquisition-related costs, including legal, regulatory, and consulting costs, amounted to ~~$3.5~~$3.5 million for the six months ended June 30, 2021, and are included within selling, general, and administrative expenses in the Company’s consolidated statement of operations and comprehensive loss.

The following table presents supplemental unaudited pro forma information for the acquisition as if it had occurred on January 1, ~~2020.~~2021. The unaudited pro forma financial results for the six months ended June 30, 2022 do not include proforma adjustments, as the results of Kuur have been consolidated within the Company's financial statements for that period. The unaudited pro forma financial results for the three and six months ended June 30, 2021 include the following adjustments: (1) removal of direct acquisition-related costs which would not have been incurred had the businesses been owned on the beginning of the prior reporting period, (2) the

deferred tax effect if the intangible assets and purchase accounting were recorded as of the beginning of the prior reporting period, and (3) the removal of the change in fair value of Kuur convertible debt which was converted prior to the consummation of the acquisition. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of either future results of operations of the combined entity or results that might have been achieved had the acquisitions been consummated as of the beginning of the prior reporting period. The following table presents the unaudited pro forma consolidated financial information for the three and six months ended June 30, ~~2021~~2022 (in thousands):

4. Discontinued Operations

On January 7, 2022, the Company entered into a definitive agreement (the “Dunkirk Agreement”) with ImmunityBio, Inc. (the "Dunkirk Buyer") whereby the Company agreed to sell to the Dunkirk Buyer its leasehold interest in a manufacturing facility in Dunkirk, New York (the “Dunkirk Facility”) and certain other related assets, as described below, in exchange for reimbursement of certain expenditures that the Company made in the Dunkirk Facility totaling $40.0 million. The transaction closed on February 14, 2022 and was subject to approval from the Company's lender, Oaktree. The provisions of this approval included prepayment of the senior secured loans, as described in Note 11 - Debt and Lease Obligations. The Dunkirk Buyer has agreed to manufacture 503B products for the Company on mutually agreed upon commercial terms.

In addition to the leasehold interest in the Dunkirk Facility, the Dunkirk Buyer purchased the Company’s interests in certain leased manufacturing equipment and personal property, and owned personal property and inventory at the Dunkirk Facility, along with the Company’s rights in and obligations under its agreements relating to the Dunkirk Facility with Empire State Development ("ESD"), Fort Schuyler Management Corporation ("FSMC"), and County of Chautauqua Industrial Development Agency ("CCIDA") and other parties (collectively, the "Dunkirk Operations"). The Dunkirk Buyer assumed all capital expenditure and hiring obligations of the Company related to the Dunkirk Operations pursuant to the Company’s existing agreements with ESD and FSMC. The Company did not assign any of its rights to its corporate headquarters in Buffalo, New York, under the Dunkirk Agreement and retained all of its rights and obligations with respect to its corporate headquarters.

As of June 30, 2022, the Dunkirk Operations met all conditions required to be classified as discontinued operations. Therefore, the operating results of the Dunkirk Operations are reported as gain (loss) from discontinued operations in the accompanying consolidated statements of operations and comprehensive loss. The assets and liabilities related to the Dunkirk Operations are reported as assets and liabilities of discontinued operations in the accompanying balance sheets as of June 30, 2022 and December 31, 2021. These assets are recorded at the lesser of cost or fair value less cost to sell. The Dunkirk Operations have historically been included within the Global Supply Chain Platform on the Company's consolidated financial statements.

Additionally, on July 7, 2022, the Company entered into an Equity Purchase Agreement with TiHe Capital (Beijing) Co. Ltd. (the "API Buyer") pursuant to which the Company agreed to sell 100% of the equity interests in Chongqing Taihao Pharmaceutical Co., Ltd. and Athenex Pharmaceuticals (Chongqing) Limited (the “Equity Interests”) for RMB124.4 million, or approximately $19 million (“EPA Purchase Price”). The Equity Interests primarily represent the Company’s ownership of its active pharmaceutical ingredient (“API”) manufacturing business in China, including the right to operate the Taihao API facility in Chongqing, China, and its lease for the Sintaho API facility in Chongqing, China, with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), (collectively "China API Operations"). At the closing of this transaction (“Closing Date”) the Buyer will pay at least 70% of the EPA Purchase Price to the Company in cash. The remainder of the EPA Purchase Price will be paid in cash, with 20% of the EPA Purchase Price to be paid within three months after the Closing Date and the remaining balance of the EPA Purchase Price to be paid within six months after the Closing Date. On the Closing Date, the Company and the Buyer are expected to enter into a supply agreement and an agreement granting the Buyer the right of first negotiation for certain of the Company’s products in China. The deal is subject to customary closing conditions, including obtaining certain regulatory approvals in China. Refer to Note 19 - Subsequent Events for additional information.

As of June 30, 2022, the China API Operations met all conditions required to be classified as discontinued operations. Therefore, the operating results of the China API Operations are reported within loss (gain) from discontinued operations in the accompanying consolidated statements of operations and comprehensive loss. The assets and liabilities related to the China API Operations are reported as assets and liabilities of discontinued operations in the accompanying balance sheets as of June 30, 2022 and December 31, 2021. These assets are recorded at the lesser of cost or fair value less cost to sell. The China API Operations have historically been included within the Global Supply Chain Platform on the Company's consolidated financial statements.

The following table presents the financial results of the discontinued operations (in thousands):


	Three Months Ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
Discontinued Dunkirk operations:
Selling, general, and administrative expenses	$	—		$	(2,425	)	$	(1,927	)	$	(3,808	)
Gain on sale of discontinued operations		—			—			14,464			—
(Loss) gain from discontinued Dunkirk operations		—			(2,425	)		12,537			(3,808	)
Discontinued China API operations:
Revenue	$	424		$	1,225		$	1,007		$	3,098
Cost of sales		(7,343	)		(546	)		(8,118	)		(1,910	)
Research and development expenses		(157	)		(481	)		(613	)		(1,807	)
Selling, general, and administrative expenses		(1,540	)		(1,165	)		(2,669	)		(2,703	)
Other income		280			24			832			46
Interest expense		(5	)		—			(13	)		—
Loss from discontinued China API operations	$	(8,341	)	$	(943	)	$	(9,574	)	$	(3,276	)
(Loss) gain from discontinued operations	$	(8,341	)	$	(3,368	)	$	2,963		$	(7,084	)

The Dunkirk operations selling, general, and administrative costs during the periods presented was comprised primarily of compensation and consultant expenses, as well as operating expenses needed to prepare the facility.

The gain on sale of the Dunkirk discontinued operation was the result of the $40.0 million cash proceeds from the sale, less the net book value of assets and liabilities transferred to the Dunkirk Buyer, including property and equipment of $27.1 million, accounts payable and accrued expenses of $1.3 million and current and long-term finance lease obligations of $0.2 million.

The revenue and cost of sales of the China API discontinued operation arose from the sales of API. Cost of sales of the China API discontinued operation includes a write-off of excess and obsolete inventory of $7.1 million for the three and six months ended June 30, 2022. Research and development costs of the China API discontinued operation represent development of API manufacturing methods and API product development for the Company's Orascovery platform. Other income of the China API discontinued operation includes the sale of pilot product which was previously developed at the facility and included within research and development expense.

The consolidated statements of cash flows include cash flows related to the discontinued operations due to the Company's centralized treasury and cash management processes. The following table presents additional cash flow information for the discontinued operations (in thousands):


	Six months ended June 30,
	2022			2021
Supplemental information for discontinued Dunkirk operations:
Depreciation expense	$	185		$	29
Cash paid for capital expenditures		(1,949	)		(7,185	)
Repayment of finance lease obligations		(7	)		(85	)
Supplemental information for discontinued China API operations:
Depreciation expense	$	30		$	348
Impairment of PPE		230			—
Write-off of inventory		7,120			—
Cash paid for capital expenditures		(327	)		(2,783	)
Proceeds from issuance of debt		—			783
Repayment of long-term debt		(785	)		(783	)

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of discontinued operations (in thousands):


	June 30,		December 31,
	2022		2021
Discontinued Dunkirk operations:
Prepaid expenses and other current assets	$	—	$	1,280
Property and equipment, net		—		26,848
Discontinued China API operations:
Accounts receivable		362		351
Inventories		2,204		7,636
Prepaid expenses and other current assets		2,393		3,564
Property and equipment, net		21,120		22,797
Operating lease right-of-use assets, net		463		734
Total assets attributable to discontinued operations	$	26,542	$	63,210
Discontinued Dunkirk operations:
Accounts payable	$	—	$	3,763
Accrued expenses		—		1,198
Current portion of finance lease obligation		—		101
Long-term finance lease obligation		—		126
Discontinued China API operations:
Accounts payable	$	2,725	$	2,223
Accrued expenses		716		561
Current portion of operating lease liabilities		233		516
Current portion of long-term debt		—		785
Long-term debt and lease obligations		7,490		7,932
Total liabilities attributable to discontinued operations	$	11,164	$	17,205

7. Intangible Assets, net

The Company’s identifiable intangible assets, net, consist of the following (in thousands):


	June 30, 2021										June 30, 2022
	Cost/Fair Value			Accumulated Amortization		Impairments		Net			Cost/Fair Value			Accumulated Amortization		Impairments		Net
Amortizable intangible assets:
Licenses	$	12,979		$	6,195	$	—	$	6,784		$	13,946		$	6,987	$	—	$	6,959
Polymed customer list		1,593			1,576		—		17
Polymed technology		3,712			1,804		—		1,908
Indefinite-lived intangible assets:
CDE in-process research and development (IPR&D)		728			—		—		728			728			—		78		650
Kuur IPR&D		63,500			—		—		63,500			64,900			—		—		64,900
Effect of currency translation adjustment		(158	)		—		—		(158	)		(37	)		—		—		(37	)
Total intangible assets, net	$	82,354		$	9,575	$	—	$	72,779		$	79,537		$	6,987	$	78	$	72,472


	December 31, 2021
	Cost/Fair Value			Accumulated Amortization		Impairments		Net
Amortizable intangible assets
Licenses	$	12,654		$	6,376	$	—	$	6,278
Indefinite-lived intangible assets:
CDE in-process research and development (IPR&D)		728			—		—		728
Kuur IPR&D		64,900			—		—		64,900
Effect of currency translation adjustment		(10	)		—		—		(10	)
Total intangibles, net	$	78,272		$	6,376	$	—	$	71,896

December 31, 2020

Cost/Fair
Value

Accumulated
Amortization

Impairments

Net

Amortizable intangible assets

Licenses

$
12,641

$
5,157

$
—

$
7,484

Polymed customer list

1,593

1,418

—

175

Polymed technology

3,712

1,685

—

2,027

Indefinite-lived intangible assets:

CDE in-process research and development (IPR&D)

728

—

—

728

Effect of currency translation adjustment

(196
)

—

—

(196
)
Total intangibles, net

$
18,478

$
8,260

$
—

$
10,218

In connection with the acquisition of Kuur, the Company identified three drug candidate projects and two were classified as ~~in-process research and development (“~~IPR~~&D”)~~&D and recorded at their fair value on the acquisition date. Included in the IPR&D is the historical know-how, cell treatment protocols, and procedures expected to be needed to complete the related phase of testing. The fair value of IPR&D was determined for each project, or unit of account, using unobservable, level 3 inputs ((see Note 3~~see Footnote 5~~ —Business Combination). IPR&D intangible assets are not amortized, but rather are reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party.

As of June 30, ~~2021,~~2022, licenses at cost include an Orascovery license of ~~$0.4~~ $0.4million, licenses purchased from Gland Pharma Limited (“Gland”) of ~~$4.4~~$3.8 million, a license purchased from MAIA Pharmaceuticals, Inc. (“MAIA”) for ~~$4.0~~$4.0 million, licenses purchased from Ingenus Pharmaceuticals, LLC (“Ingenus”) for ~~$3.0~~$3.0 million, and licenses of other specialty products with various licensors of ~~$0.8~~ $2.8million. The Orascovery license with Hanmi Pharmaceuticals Co. Ltd. (“Hanmi”) was purchased directly from Hanmi and is being amortized on a straight-line basis over a period of 12.75 years, the remaining life of the license agreement at the time of purchase. The licenses purchased from Gland are being amortized on a straight-line basis over a period of 5 years, the remaining life of the license agreement at the time of purchase. The license purchased from MAIA is being amortized over a period of 7 years, the remaining life of the license agreement at the time of purchase. Of the ~~$3.0~~$3.0 million licenses purchased from Ingenus, a ~~$2.0~~$2.0 million license is being amortized over a period of 5 years, the estimated useful life of the license agreement and a ~~$1.0~~$1.0 million license purchased from Ingenus is being amortized over a period of 3 years, the remaining life of the license agreement at the time of purchase.

The remaining intangible ~~assets were~~asset was acquired in connection with the acquisitions of ~~Polymed Therapeutics, Inc. (“Polymed”) and~~ Comprehensive Drug Enterprises (“CDE”). Intangible assets are amortized using an economic consumption model over their useful lives. The Polymed customer list and technology are amortized on a straight-line basis over 6 and 12 years, respectively. The CDE IPR&D will not be amortized until the related projects are completed. IPR&D is tested annually for impairment, unless conditions exist causing an earlier impairment test (e.g., abandonment of project). The Company recorded 0 impairment of a project within CDE IPR&D during the six months ended June 30, ~~2021.~~2022, amounting to $0.1 million, which is included within research and development expenses on the Company's condensed consolidated statements of operations and comprehensive loss. The weighted-average useful life for all intangible assets was ~~6.5~~6.0 years as of June 30, ~~2021.~~2022.

The Company recorded $0.3~~$0.5 million of amortization expense for each of the three-month periods ended June 30, 2021and 2020, and $1.1~~ million and ~~$0.9~~$0.5 million of amortization expense for the ~~six-month periods~~three months ended June 30, ~~2021 and 2020, respectively.~~ 2022 and 2021, respectively and recorded $0.6 million and $1.1 million of amortization expense for the six months ended June 30, 2022 and 2021, respectively.

The Company’s previous goodwill balance is the result of ~~current and~~ prior period acquisitions and is allocated to the Global Supply Chain Platform reporting unit and the Oncology Innovation Platform reporting unit. ~~Changes in goodwill balances reported within the unaudited condensed consolidated balance sheet as of June 30, 2021 are due to acquisition of Kuur on May 4, 2021, contributing goodwill of $30.3million, and the effect of foreign currency on goodwill from acquisitions of subsidiaries that have a functional currency other than USD.~~

During the ~~first~~fourth quarter of 2021, ~~due to the significant decrease in its market capitalization,~~ the Company ~~evaluated the impact on each of its reporting units to assess whether there was a triggering event requiring it to perform~~performed a goodwill impairment test ~~(ASC350-20-35). The Company determined a triggering event occurred~~ and, as such, performed an interim goodwill quantitative impairment test for its reporting units. It also considered certain qualitative factors, such as the Company’s performance, business forecasts, and expansion plans. It reviewed key assumptions, including revisions of projected cash flows and future revenue for reporting units against the results of the annual quantitative impairment test performed during the last quarter of 2020. Using both the income approach and the market approach for its Global Supply Chain Platform and Oncology Innovation Platform, with the discount rate selected considering and capturing the related risk associated with the forecast, the Company compared the fair value of the 2 reporting units to carrying value. Basedbased on the results, determined that the ~~fair~~carrying value of each of our reporting units exceeded their ~~carrying~~fair value and the goodwill was ~~not~~determined to be impaired. ~~However, there can be no assurances that goodwill will not be impaired in future periods. Estimating~~As a result, $26.6 million, representing the ~~fair value~~full amount of goodwill ~~requires~~allocated to the ~~use~~Global Supply Chain Platform, and $41.1 million, representing the full amount of ~~estimates and significant judgments that are based on a number~~goodwill allocated to the Oncology Innovation Platform was recorded as impairment expense during the fourth quarter of ~~factors. These estimates and judgments may not be within~~2021. No such impairments were recorded during the ~~control of the Company and accordingly it is reasonably possible that the judgments and estimates could change in future periods.~~ six months ended June 30, 2022.

7.8. Fair Value Measurements

Financial instruments consist of cash and cash equivalents, restricted cash, short-term investments, an available-for-sale equity investment, accounts receivable, accounts payable, accrued liabilities, contingent consideration, and debt. Short-term investments, the equity investment, and contingent consideration are stated at fair value. Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, and debt, are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date of such amounts. The Company believes that the carrying value of its long-term debt approximates fair value based on current interest rates.

ASC 820, Fair Value Measurements, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to

unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the ASC 820 are described as follows:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2—Inputs to the valuation methodology include:

•

~~Quoted prices for similar assets or liabilities in active markets;~~

•

Quoted prices for similar assets or liabilities in active markets;

•

~~Quoted prices for identical or similar assets or liabilities in inactive markets;~~

•

Quoted prices for identical or similar assets or liabilities in inactive markets;

•

~~Inputs other than quoted prices that are observable for the asset or liability;~~

•

Inputs other than quoted prices that are observable for the asset or liability;

•

~~Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and~~

•

Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

•

~~If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.~~

•

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are ~~unobservable,~~u0bservable, supported by little or no0 market activity, and are significant to the fair value measurement.

Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs. There were0 transfers between Levels 1, 2 or 3 for any of the periods presented.

The following tables represent the fair value hierarchy for those assets and liabilities that the Company measures at fair value on a recurring basis (in thousands):


	Fair Value Measurements at June 30, 2021 Using:								Fair Value Measurements at June 30, 2022 Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Financial assets included within cash and cash equivalents
Money market funds	$	19,711	$	19,711	$	—	$	—
Short-term investments - commercial paper		28,238		—		28,238		—
Financial assets included within short-term investments
Short-term investments - money market funds									$	2,561	$	2,561	$	—	$	—
Short-term investments - certificates of deposit		22,773		—		22,773		—		401		—		401
Short-term investments - commercial paper		30,299		—		30,299		—
Available-for-sale investment		211		211		—		—		1,189		1,189		—		—
Total assets	$	101,232	$	19,922	$	81,310	$	—	$	4,151	$	3,750	$	401	$	—
Liabilities:
Contingent consideration - Kuur	$	20,237	$	—	$	—	$	20,237	$	24,129	$	—	$	—	$	24,129
Total liabilities	$	20,237	$	—	$	—	$	20,237	$	24,129	$	—	$	—	$	24,129


	Fair Value Measurements at December 31, 2021 Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Financial assets included within cash and cash equivalents
Money market funds	$	7,937	$	7,937	$	—	$	—
Short-term investments - certificates of deposit		2,000		—		2,000		—
Short-term investments - commercial paper		10,446		—		10,446		—
Financial assets included within short-term investments
Short-term investments - certificates of deposit		9,488		—		9,488		—
Available-for-sale investment		719		719		—		—
Total assets	$	30,590	$	8,656	$	21,934	$	—

Liabilities:
Contingent Consideration - Kuur	$	24,076	$	—	$	—	$	24,076
Total assets	$	24,076	$	—	$	—	$	24,076

Fair Value Measurements at December 31, 2020 Using:

Total

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets:

Financial assets included within cash and cash equivalents

Money market funds

$
5,615

$
5,615

$
—

$
—

Short-term investments - certificates of deposit

4,070

—

4,070

—

Short-term investments - U.S. government bonds

5,000

—

5,000

—

Short-term investments - commercial paper

34,860

—

34,860

—

Financial assets included within short-term investments

Short-term investments - certificates of deposit

20,696

—

20,696

—

Short-term investments - U.S. government bonds

14,998

—

14,998

—

Short-term investments - commercial paper

102,715

—

102,715

—

Available-for-sale investment

227

227

—

—

Total assets

$
188,181

$
5,842

$
182,339

$
—

The Company classifies its money market funds within Level 1 because it uses quoted market prices to determine their fair value. The Company classifies its commercial paper, corporate notes, certificates of deposit, and U.S. government bonds within Level 2 because it uses quoted prices for similar assets or liabilities in active markets and each has a specified term and all Level 2 inputs are observable for substantially the full term of each instrument.

The Company owns 68,000 shares of PharmaEssentia, a company publicly traded on the Taiwan OTC Exchange. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s investment in PharmaEssentia was valued at the reported closing price on such dates. This investment is classified as a Level 1 investment and is recorded as an available-for-sale investment within short-term investments on the Company’s condensed consolidated balance ~~sheet.~~ sheets.

The Company accounted for the acquisition of Kuur as business combinations under the acquisition method of accounting. All assets and liabilities were measured at fair value as of the acquisition date. As a result of the purchases, the Company became liable for contingent consideration payable to certain previous owners of Kuur. This contingent consideration is measured at fair value using unobservable level 3 inputs, including (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the regulatory events on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases (decreases) in any of those inputs could result in a lower or higher fair value measurement, and such changes in fair value measurement could have an impact on future earnings. The total undiscounted amount of the milestone payments underlying this liability is ~~$115.0~~$115.0 million. These payments are contingent on the achievement of various regulatory milestones which are expected to occur between ~~2022~~2023 and 2027, and may be paid, at the Company’s sole discretion, in either cash or common stock (or a combination of both). The milestone payments have been adjusted based on a weighted average probability of occurrence of ~~28.3%~~40.4%, and the discount rates used to calculate the present value of future payments were based on risk-free rates plus risk-adjusted spreads based on the Company’s estimated incremental borrowing rate and was between ~~13.78%~~20.1% and ~~15.05%~~20.4% for the ~~initial~~ valuation of the contingent ~~consideration.~~consideration as of June 30, 2022. The acquisition of Kuur is described in Note 5—3—Business Combination and the fair value of the contingent consideration is discussed further in Note 1112 – Contingent Consideration.

Under the provisions of Section 382 of the Internal Revenue Code (“IRC”), net operating loss and credit carryforwards and other tax attributes may be subject to limitation if there has been a significant change in ownership of the Company, as defined by the IRC. During the six months ended June 30, 2021, the Company experienced such a change in ownership of its common stock. Currently, the limitations imposed by Sections 382 are not expected to impair the Company’s ability to fully realize its NOLs; however, the annual usage of NOLs incurred prior to the change in ownership is limited. In addition, if the Company earns net taxable income in the future, its ability to use the pre-change net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to the Company.

~~10.~~11. Debt and Lease Obligations

Debt

The Company’s debt as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, consists of the following (in thousands):

	June 30,		December 31,
	2021		2020		June 30,		December 31,
Current portion of mortgage	$	740	$	731
Current portion of bank loan		772		764
Current portion of senior secured loan and financing fees		2,848		70
					2022		2021
Current portion of senior secured loan					$	23,600	$	45,938
Current portion of finance lease obligations		365		445		138		158
Current portion of operating lease obligations		3,119		3,185		2,077		2,393
Long-term portion of finance lease obligations		424		537		152		207
Long-term portion of operating lease obligations		5,317		6,355		3,898		4,411
Chongqing Maliu credit agreement		7,728		7,641
Senior secured loan, net of debt discount and financing fees of $10,033 and $11,601 respectively		137,119		138,399
Senior secured loan, net of debt discount and financing fees of $11,825 and $8,663, respectively						22,074		95,400
Royalty financing liability, long-term, net of financing fees of $4,982						75,006		—
Total	$	158,432	$	158,127	$	126,945	$	148,507

Senior Credit Agreement

On June 19, 2020, ~~(“Closing Date”),~~ the Company entered into the Senior Credit Agreement with Oaktree to borrow up to ~~$225.0~~$225.0 million in 5 tranches, with a maturity date of June 19, ~~2026.~~2026. Three tranches (“Tranche A”, “Tranche B”, and “Tranche D”) of the term loans with an aggregate principal amount of ~~$150.0~~$150.0 million were drawn by the Company in 2020. ~~One tranche (“~~The last two tranches ("Tranche C”C" and "Tranche E"), amounting to an aggregate of ~~$25.0~~$75.0 million, ~~will be~~were dependent on the approval of oral paclitaxel for the treatment of mBC. Under the Third Amendment on January 19, 2022, the amount of these tranches was reduced to $0 and are no longer available to the Company from 90 days after the Closing Date through June 20, 2022, subject to the Company’s satisfaction of a certain regulatory milestone; and the last tranche of $50.0 million (“Tranche E”) will be available to the Company from 90 days after the Closing Date through June 19, 2023, also subject to the Company’s satisfaction of a certain commercial milestone. Company. The loan bears interest at a fixed annual rate of ~~11.0%~~11.0%. The Company allocated the proceeds of the drawn tranches between liability and equity components and the fair value of such equity components, along with the direct costs related to the issuance of the debt were recorded as an offset to long-term debt on the consolidated balance sheets. The debt discount and financing fees are amortized on a straight-line basis, which approximates the effective interest method, over the remaining maturity of the Senior Credit Agreement. The effective interest rate of Tranches A, B and D, including the amortization of debt discount and financing fees amounts to ~~13.3%~~13.3% annually. The Company is required to make quarterly interest-only payments until June 19, 2022, after which the Company is required to make quarterly amortizing payments, with the remaining balance of the principal plus accrued and unpaid interest due at maturity. Beginning on September 17, 2020, the Company was required to pay a commitment fee on any undrawn commitments equal to ~~0.6%~~0.6% per annum, payable on each subsequent funding date or the commitment termination date. ~~Prepayments~~These commitments were terminated pursuant to the Third Amendment.

Under the Third Amendment, the Company was required to make a mandatory prepayment of principal to Oaktree equal to 62.5% of the cash proceeds of the Dunkirk Transaction. The Company was also required to pay (i) accrued and unpaid interest and (ii) a 7.0% fee, allocated as a 2.0% Exit Fee and a 5.0% Prepayment Fee, on the principal amount being repaid. The Company was required to pay Oaktree an amendment fee of $0.3 million and certain related expenses upon the closing of the Dunkirk Transaction. The Third Amendment required the Company to make an additional mandatory prepayment of $12.5 million in principal plus the costs and fees described above by June 14, 2022, of which $5.0 million in principal was paid on June 14, 2022 and $7.5 million was paid on the closing date of the RIPA pursuant to the terms of the Fourth Amendment. Using proceeds from the RIPA, the Company made additional prepayments of principal to Oaktree of $42.5 million. The Company was also required to pay (i) accrued and unpaid interest and (ii) a 5.0% fee, allocated as a 2.0% Exit Fee and a 3.0% Prepayment Fee, on the principal amount being repaid. The Company made payments, inclusive of principal, interest, and fees, to Oaktree in the aggregate amount of $97.6 million pursuant to the Third Amendment, Fourth Amendment, and Fifth Amendment during the six months ended June 30, 2022. Additional prepayments of the loan, in whole or in part, will be subject to early prepayment fee which declines each year until ~~the fourth anniversary date of the Closing Date,~~June 2024, after which no prepayment fee is required. Upon the final payment, the Company must also pay an exit fee calculated based on a percentage of the aggregate principal amount of all tranches advanced to the Company, and as of June 30, ~~2021 and December 31, 2020,~~2022, the Company has reflected ~~a long-term~~an exit fee liability of ~~$3.0~~$1.2 million. As of June 30, 2022, the Company has classified $23.6 million ~~within~~of the senior secured loan as current portion of long-term debt, comprised of 1 quarterly payment of $3.1 million and ~~finance lease obligations~~three quarterly payments of $2.8 million each, due within 12 months of June 30, 2022, and $12.0 million expected to be due from funds received in connection with the sale of the China API operations (see Note 4 - Discontinued Operations). The Company has classified $22.1 million of the senior secured loan as long-term debt on the consolidated balance ~~sheet.~~sheet, comprised of the remaining principal due, less debt discount and financing fees of $11.8 million.

The Senior Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that were customarily required for similar financings. The Company is subject to certain financial covenants under the Senior Credit Agreement, including (1) a minimum liquidity amount in cash or permitted cash equivalent investments, ~~of $20.0~~which initially was $20.0 million from the closing date until the date on which the aggregate principal amount of loans outstanding is greater than or equal to ~~$150.0~~$150.0 million (the “First Step-Up Date”), ~~$25.0~~$25.0 million from the First Step-Up Date until the date on which the aggregate principal amount of loans outstanding balance is equal to ~~$225.0~~$225.0 million (the “Second Step-Up Date”), and ~~$30.0~~$30.0 million from the Second Step-up Date until the maturity date; (2) minimum revenue no less than ~~50%~~50% of target revenue beginning with the fiscal quarter ended on December 31, 2020 and with respect to each such subsequent fiscal quarter prior to the revenue covenant termination date; (3) leverage ratio covenant not to exceed 4.50 to 1.00 as of the last day of any fiscal quarter beginning with the first fiscal quarter following the revenue covenant termination date. AtThe minimum liquidity amount was decreased to $10.0 million under the Fifth Amendment. The minimum revenue targets were modified in the Fourth Amendment to reflect the Company's current business, and the minimum revenue covenant was similarly modified to require the Company to have minimum revenue of no less than 70% of target revenue at the end of any fiscal quarter in which the leverage ratio exceeds 4.50 to 1.00. As of June 30, ~~2021,~~2022, the Company was in compliance with all applicable debt covenants.

~~Revenue Interest~~Royalty Financing ~~Agreement~~Liability

On ~~August 4, 2020,~~June 21, 2022, the Company and the SPV entered into ~~a Revenue Interest Financing~~the RIPA with the Purchasers for the sale of revenues from U.S. and European royalty and milestone interests in Klisyri® (tirbanibulin) for an aggregate Purchase Price of $85.0 million. Of the total Purchase Price $5.0 million was placed into escrow to be paid to the Company upon the satisfaction of certain manufacture and supply milestones for Klisyri prior to December 31, 2025, $5.0 million was used to pay for transaction expenses, $52.5 million was used to pay down the Company's Senior Credit Agreement with ~~Sagard, pursuant~~Oaktree, and $7.5 million in segregated funds was deposited and held in a segregated account of the Company. Subject to ~~which Sagard agreed~~the satisfaction of certain conditions, the Segregated Funds will either be distributed to the Company as a cash payment or distributed to the Lenders to pay down the Company’s existing indebtedness under the Credit Agreement. The remaining proceeds were available for the Company's operations.

In connection with this transaction, the Company ~~$50.0~~formed the SPV and contributed its interest in the License Agreement with Almirall S.A. relating to Klisyri and certain related assets to the SPV. Oaktree and Sagard each own a 10% equity interest in the SPV. Pursuant to the RIPA, the SPV sold its right to the cash received in respect of certain royalties and certain milestone interests under the License Agreement to the Purchasers. The SPV retained the right to receive 50% of certain of the milestone interests under the License Agreement, equal to $155.0 million ~~to provide funding~~in the aggregate if those milestones are achieved, and 50% of the royalties paid under the License Agreement for ~~the Company’s development and commercialization~~sales of ~~Oral Paclitaxel upon receipt~~Klisyri once net sales of ~~marketing authorization for Oral Paclitaxel by the U.S. FDA for the treatment of metastatic breast cancer. In the event the Company is unable to do so before December 31, 2021, Sagard will have~~Klisyri exceed a ~~termination right.~~ certain dollar amount.

The Company ~~believes~~has evaluated the terms of the RIPA and concluded that ~~there is~~the features of the transaction, namely the Company's significant ~~uncertainty that it will be able to obtain marketing authorization for Oral Paclitaxel by~~involvement in the ~~U.S. FDA and draw funds from the Revenue Interest Financing,~~cash flows due to the ~~receipt~~Purchasers, are similar to those of a debt instrument. The Company received funds of $75.0 million, net of transaction costs of $5.0 million, during June 30, 2022, and the Company recorded such amount as long-term debt as of June 30, 2022. This purchase price of this transaction reflected its fair value. The $5.0 million which is held in escrow represents a loan commitment which the Company may be entitled to in the event that certain manufacturing and supply milestones are met.

The Company amortizes the royalty financing liability using the effective interest rate method over the estimated life of the ~~CRL~~revenue streams. The Company recognizes interest expense thereon using the effective rate, which is based on its current estimates of future revenues over the life of the arrangement. The Company periodically assesses its expected revenues using internal projections, imputes interest on the carrying value of the deferred royalty obligation, and records interest expense using the imputed effective interest rate. To the extent its estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the ~~Type A meeting~~Company will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of the deferred royalty obligation. The assumptions used in determining the expected repayment term of the royalty financing liability and amortization period of the issuance costs require that the Company makes significant estimates that could impact the short-term and long-term classification of the royalty financing liability, interest recorded on such liability, as well as the period over which such costs will be amortized. The Company's estimated royalty cash flows extend through 2035 and imply an effective annual interest rate of 28.6%. Changes to these estimates may have a material effect on the Company's financial statements. During the six months ended June 30, 2022, the Company received Klisyri royalties of $0.5 million, which were remitted to the Purchasers.

Gain/Loss on Extinguishment of Debt

The Company considered the combined effect of the RIPA and the Fourth and Fifth Amendment to the Senior Credit Agreement, both of which are held with Sagard and Oaktree under ASC 470. The Company performed a cash flow test on a lender-by-lender basis and concluded that these transactions represented an extinguishment of debt. The Company extinguished the previous balance of its Senior Credit Agreement commensurate with the ~~FDA. Therefore,~~prepayments under the Fourth and Fifth Amendments and recorded the surviving debt at its fair value. To determine the fair value of the remaining debt, the Company ~~has written off~~utilized an estimate of its ~~deferred~~incremental borrowing rate. As of June 30, 2022, the Company's incremental borrowing rate was 20.57%, which was utilized as the effective interest rate of the balance outstanding on the Senior Credit Agreement. Accordingly, the Company recorded a liability of $45.7 million, net of debt ~~issuance costs related to~~discount of $11.8 million. The extinguishment of debt and recording the ~~Revenue Interest Financing for $0.6~~surviving debt at its fair value resulted in a gain on extinguishment of debt of of $2.1 million ~~and has included such expense within interest expense on its condensed consolidated statement of operations and comprehensive loss for~~during the three months ended June 30, ~~2021.~~2022.

Credit Agreements, Bank Loan and Mortgage

During the second quarter of 2019, the Company entered into a credit agreement which amended the existing partnership agreement with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), for a Renminbi ~~¥50.0~~¥50.0 million (USD ~~$7.7~~$7.5 million at ~~December 31, 2020)~~June 30, 2022) line of credit to be used for the construction of the new API plant in China. The Company is required to repay the principal amount with accrued interest within three years after the plant receives the cGMP certification, with ~~20%~~20% of the total loan with accrued interest is due within the first twelve months following receiving the certification, ~~30%~~30% of the total loan with accrued interest due within twenty-four months, and the remaining balance with accrued interest due within thirty-six months. Interest accrues at the three-year loan interest rate by the People’s Bank of China for the same period on the date of the deposit of the full loan amount, which is expected to approximate ~~4.75%~~4.75% annually. If the Company fails to obtain the cGMP certification within three years upon the acceptance of the plant, it shall return all renovation costs with the accrued interest to CQ in a single transaction within the first ten business days. As of June 30, ~~2021,~~2022, the balance due to CQ was ~~$7.7 million.~~$7.5 million, which was included within long-term liabilities attributable to discontinued operations on the Company's condensed consolidated balance sheet.

On May 15, 2020, the Company entered into a credit agreement with China Merchants Bank, enabling the Company to draw up to a Renminbi ~~¥5.0~~¥5.0 million (USD ~~$0.8~~$0.8 million at June 30, ~~2021) during the period~~2022) through May 14, 2021. The Company drew the entire available credit in July 2020 and repaid the credit agreement in full on May 14, ~~2021.~~2021. On May 28, 2021, the Company entered into a credit agreement on the same terms as that which was repaid, and withdrew the full Renminbi ~~¥5.0~~¥5.0 million (USD ~~$0.8~~$0.8 million at June 30, ~~2021)~~2022) on that date. This loan ~~has~~had a maturity date of May 28, 2022 and ~~bears interest at a fixed rate~~was paid in full during the three months ended June 30, 2022. This repayment is included within net cash used in financing activities of ~~4.35% annually. The Company is required to pay~~discontinued operations on the ~~outstanding principal and all accrued interest at maturity.~~

~~The mortgage payments, assumed in connection with the acquisition~~Company's condensed consolidated statement of ~~CDE, extend through December 31, 2021.~~ cash flows.

Lease Obligations

The Company has operating leases for office and manufacturing facilities in several locations in the U.S., Asia, and Latin America and has ~~three~~a finance ~~leases~~lease for ~~manufacturing~~ equipment used in its ~~facilities near~~facility in Buffalo, NY. The components of lease expense are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating lease cost	$	538	$	607	$	1,099	$	1,213
Finance lease cost:
Amortization of assets		42		32		85		64
Interest on lease liabilities		9		2		19		6
Total net lease cost	$	589	$	641	$	1,203	$	1,283

Three Months
Ended June 30,

Six Months
Ended June 30,

2021

2020

2021

2020

Operating lease cost

747

$
768

1,494

$
1,523

Finance lease cost:

Amortization of assets

75

64

149

81

Interest on lease liabilities

22

20

46

26

Total net lease cost

$
844

$
852

$
1,689

$
1,630

The Company has elected to exclude short-term leases from its operating lease right-of-use (“ROU”) assets and lease liabilities. Lease costs for short-term leases were not material to the financial statements for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Variable lease costs for the three and six months ended June 30, ~~2021~~2022 were not material to the financial statements.

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):


	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Finance leases:
Property and equipment, at cost	$	1,535		$	1,535		$	1,203		$	1,203
Accumulated amortization, net		(497	)		(347	)		(901	)		(585	)
Property and equipment, net	$	1,038		$	1,188		$	302		$	618

Current obligations of finance leases	$	365		$	445		$	138		$	158
Long-term portion of finance leases		424			537			152			207
Total finance lease obligations	$	789		$	982		$	290		$	365

Weighted average remaining lease term (in years):
Operating leases		3.81			4.23			3.37			3.53
Finance leases		2.84			3.40			2.00			2.25

Weighted average discount rate:
Operating leases		12.8	%		12.8	%		13.0	%		12.9	%
Finance leases		10.8	%		10.4	%		10.1	%		9.8	%

Supplemental cash flow information related to leases is as follows (in thousands):


	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020			Six Months Ended June 30, 2022			Six Months Ended June 30, 2021
Cash paid for amount included in the measurements of lease liabilities:
Operating cash flows from operating leases	$	(1,696	)	$	(1,617	)	$	(1,309	)	$	(1,360	)
Operating cash flows from finance leases		(22	)		(26	)		(9	)	$	(10	)
Financing cash flows from finance leases		(192	)		(118	)		(79	)	$	(67	)

ROU assets derecognized from modification of operating lease obligations		—			(468	)	$	(128	)	$	—
ROU assets recognized in exchange for operating lease obligations	$	—		$	353		$	78		$	—

Future minimum payments and maturities of leases is as follows (in thousands):


Year ending December 31:	Operating Leases			Finance Leases			Operating Leases			Finance Leases
2021 (remaining six months)	$	1,716		$	234
2022		2,929			275
2022 (remaining six months)							$	1,117		$	73
2023		2,096			248			2,090			147
2024		2,002			177			2,034			109
2025		1,472			—			1,472			—
2026								347			—
Thereafter		478			—			132			—
Total lease payments		10,693			934			7,192			329
Less: Imputed interest		(2,257	)		(145	)		(1,217	)		(39	)
Total lease obligations		8,436			789			5,975			290
Less: Current obligations		(3,119	)		(365	)		(2,077	)		(138	)
Long-term lease obligations	$	5,317		$	424		$	3,898		$	152

Pursuant to the public-private partnership agreements with the State of New York, the Company will rent the manufacturing facilities in Dunkirk, NY. The facility is in the final stage of completion. However, no lease term had commenced as of June 30, 2021, as it was not yet operational and the Company could not direct the use of the facility. No lease costs were incurred related to the manufacturing facility during the three-month period ended June 30, 2021.21

On January 5, 2021, Chongqing Sintaho Pharmaceuticals Co., Ltd. (“CQ Sintaho”), a subsidiary of the Company in China, entered into a lease agreement with Chongqing International Biological City Development & Investment Co., Ltd (“CQ D&I”). Under the lease agreement, the provisions of which are consistent with those agreed upon in the 2015 Agreement, CQ Sintaho leased the newly constructed API facility, or Sintaho API Facility, of 34,517 square meters rent-free, for the first ~~10-year~~10-year term, with an option to extend the lease for an additional ~~10-year~~10-year term, during which, if CQ Sintaho is profitable, it will pay a monthly rent of 5 RMB per square meter of space occupied. The Company determined the lease commenced in the first quarter of 2021, as it was operational and CQ Sintaho could direct the use of the facility. The Company also evaluated the probability of exercising the renewal and purchase options, and determined that it is not reasonably certain whether it will exercise those options. Therefore, the lease term is comprised only of the rent-free period and the recognition of the right-of-use asset and liability did not have a significant effect on the Company’s consolidated financial statements. This lease is expected to be assumed by the China API Buyer, refer to Note 19 - Subsequent Events for additional information.

The Company exercises judgment in determining the discount rate used to measure the lease liabilities. When rates are not implicit within an operating lease, the Company uses its incremental borrowing rate as its discount rate, which is based on yield trends in the biotechnology and healthcare industry and debt instruments held by the Company with stated interest rates. The Company re-assesses its incremental borrowing rate when new leases arise, or existing leases are modified.

The fair value measurements of contingent consideration liabilities are determined using unobservable Level 3 inputs. These inputs include (a) the estimated amount and timing of projected cash flows; (b) the probability of the achievement of the factors on which the contingency is based; and (c) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant increases (decreases) in any of those inputs could result in a lower or higher fair value measurement. The Company expects that these milestones will be achieved at varying times between ~~2022~~2023 and 2027.

The increase of the contingent consideration was due to the time value of money from the initial measurement date (Kuur acquisition date) to June 30, ~~2021,~~2022, as well as updated probabilities of future cash flows related to R&D milestones. The discount rate used in measuring the fair value of this liability is the Company's incremental borrowing rate, which is updated on a quarterly basis. The probabilities of the R&D milestones represent the probability of technical success for each therapy to which the milestones are related, and these probabilities are updated on a quarterly basis, based on the clinical stage of the therapy, along with consideration of any additional clinical data obtained during each quarter. The adjustment to the contingent consideration liability is included within selling, general, and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive loss. Refer to Note 8 - Fair Value Measurements for additional information on the inputs used in the measurement of contingent consideration.

The Company has four equity compensation plans, adopted in 2017, 2013, 2007 and 2004 (the “Plans”) which, taken together, authorize the grant of up to 16,000,000 shares of common stock to employees, directors, and consultants. On May 23, 2019, the board of directors approvedthe amendment and restatement of the 2017 Omnibus Incentive Plan (the “2017 Plan”), which increases the number of shares available for issuance under the 2017 Plan by up to 3,500,000 shares, which was approved by the Company’s stockholders at the Company’s 2020 annual meeting of ~~stockholders~~.stockholders. On April 26, 2021, the board of directors approved an amendment to the 2017 Plan, which increases the number of shares available for issuance under the 2017 Plan by 5,000,000 shares, which was approved by the Company’s stockholders at the Company’s 2021 annual meeting of stockholders. The Company also has an employee stock purchase plan, the 2017 Employee Stock Purchase Plan (the “ESPP”), adopted on June 14, 2017, which authorizes the issuance of up to 1,000,000 shares of common stock for future issuances to eligible employees.

During 2022, the Company entered into Salary Deduction and Stock Purchase Agreements (the "Purchase Agreements") with certain of its directors and executive officers. Under the Purchase Agreements, on each payroll date, the Company is authorized by the director or executive officer, in advance, to deduct a certain amount of the individual's after-tax base salary. This deducted amount is used to purchase a number of shares of the Company’s common stock determined using the Nasdaq Official Closing Price per share on the applicable payroll date.

The total fair value of stock options vested and recorded as compensation expense during the three months ended June 30, 2022 and 2021 was $1.3 million and ~~2020,~~$2.3 million, respectively, and was $2.9 million and $4.5 million during the six months ended June 30, 2022 and 2021, ~~and 2020 was $2.3million, $2.5 million,~~ ~~$4.5 million, and $4.4 million,~~ respectively. As of June 30, ~~2021, $14.2~~2022, $10.2 millionof unrecognized cost related to non-vested stock options was expected to be recognized over a weighted-average period of approximately ~~1.7 years.~~1.2 Theyears. The total intrinsic value of options exercised was approximately ~~$0.2~~$0 and $~~million and $0.8~~0.2 million for the six months ended June 30, 2022 and 2021, ~~and 2020, respectively~~respectively..

The following table summarizes the status of the Company’s stock option activity granted under the Plans to employees, directors, and consultants (aggregate intrinsic value in thousands):

Stock
Options

Weighted-
Average
Exercise price

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic Value

Outstanding at December 31, 2020

12,496,888

$
9.26

5.42

$
22,463

Granted

28,500

9.75

—

—

Exercised

(279,425
)

5.64

—

—

Forfeited and expired

(219,365
)

8.33

—

—

Outstanding at June 30, 2021

12,026,598

$
9.39

5.07

$
—

Vested and exercisable at June 30, 2021

9,426,192

$
8.40

4.21

$
—


	Stock Options			Weighted- Average Exercise price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2021		12,662,070		$	8.96		4.88	$	—
Granted		171,500			0.60		—		—
Forfeited and expired		(647,365	)		7.84		—		—
Outstanding at June 30, 2022		12,186,205		$	8.90		4.45	$	—
Vested and exercisable at June 30, 2022		10,029,540		$	9.08		3.64	$	—

The Company determines the fair value of stock-based awards on the grant date using the Black-Scholes option pricing model, which is impacted by assumptions regarding several highly subjective variables. The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model during the periods indicated:


	Six Months Ended June 30,
	2022			2021
Weighted average grant date fair value	$	0.60		$	6.18
Expected dividend yield		0	%		0	%
Expected stock price volatility		66	%		68	%
Risk-free interest rate		2.72	%		1.45	%
Expected life of options (in years)		5.3			6.3

Six Months
Ended June 30,

2021

2020

Weighted average grant date fair value

$
6.18

$
7.60

Expected dividend yield

0
%

0
%
Expected stock price volatility

68
%

66
%
Risk-free interest rate

1.45
%

1.34
%
Expected life of options (in years)

6.3

6.2

Restricted Stock Awards

The ~~Company granted 48,000~~total fair value of restricted stock ~~units~~awards vested and recorded as compensation expense during the three months ended June 30, ~~2021.~~ 2022 and 2021 was $~~NaN~~ ~~restricted stock awards were granted during the three or six months ended June 30, 2020. Stock-based compensation related to the restricted stock awards~~

~~amounted to $0.1~~0.2 million and ~~$0.4~~$0.1 million, ~~for the three months ended June 30, 2021~~respectively. The total fair value of restricted awards vested and ~~2020, respectively, and $0.1 million and $0.8 million for~~recorded as compensation expense during the six months ended June 30, 2022 and 2021 ~~and 2020, respectively.~~was $0.5 million and $0.1 million, respectively. Restricted stock awards cliff vest on the anniversaries of their grant date. As of June 30, ~~2021, $0.5~~2022, $2.4 millionof unrecognized cost related to non-vested restricted stock awards were expected to be recognized over a weighted-average period of approximately ~~0.7 years~~2.90. years.

The following table summarizes the status of the Company's restricted stock awards.


	Shares of Restricted Stock			Weighted Average Fair Value
Nonvested at December 31, 2021		924,595		$	3.86
Granted		50,000			0.83
Forfeited		(151,540	)		3.64
Nonvested at June 30, 2022		823,055		$	3.52

Employee Stock Purchase Plan

The ESPP is available to eligible employees (as defined in the plan document). Under the ESPP, shares of the Company’s common stock may be purchased at a discount ~~(15%~~(15%) of the lesser of the closing price of the Company’s common stock on the first trading or the last trading day of the offering period. The current offering period extends from June 1, ~~2021~~2022 to November 30, ~~2021.~~2022. The Company expects to offer six-month offering periods after the current period. The ESPP reserved 1,000,000 shares of common stock for issuance under the ESPP. Stock-based compensation related to the ESPP amounted to less than ~~$0.1~~$0.1~~million and $0.1~~ million for each of the three months ended June 30, 2022 and 2021 and amounted to $~~and 2020, respectively, and $0.1~~0.1 million for each of the six months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~2021.

Stock-Based Compensation Cost

The components of stock-based compensation and the amounts recorded within cost of sales, research and development expenses and selling, general, and administrative expenses in the Company’s consolidated statements of operations and comprehensive loss consisted of the following for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Stock options	$	2,341	$	2,501	$	4,500	$	4,365	$	1,321	$	2,341	$	2,924	$	4,500
Restricted stock expense		57		413		86		810		245		57		496		86
Employee stock purchase plan		46		139		92		139		37		46		57		92
Total stock-based compensation expense	$	2,444	$	3,053	$	4,678	$	5,314	$	1,603	$	2,444	$	3,477	$	4,678
Cost of sales	$	59	$	55	$	115	$	109	$	52	$	59	$	78	$	115
Research and development expenses		671		1,012		1,272		1,958		395		671		964		1,272
Selling, general, and administrative expenses		1,714		1,986		3,291		3,247		1,156		1,714		2,435		3,291
Total stock-based compensation expense	$	2,444	$	3,053	$	4,678	$	5,314	$	1,603	$	2,444	$	3,477	$	4,678

Intersegment revenue is recognized by the selling segment when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. Upon consolidation, all intersegment revenue and related cost of sales are eliminated from the selling segment’s ~~ledger (in thousands).~~ledger.

Customer revenue and accounts receivable concentration amounted to the following for the identified periods. These customers relate to the Commercial Platform segment and the Global Supply Chain Platform segment.

The Company records revenue in accordance with ASC, Topic 606 “Revenue from Contracts with Customers.” Under Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the entity performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Below is a description of principal activities – separated by reportable segments – from which the Company generates its ~~revenue~~.revenue.

Oncology Innovation Platform

~~Oncology Innovation Platform~~

The Company out-licenses certain of its IP to other pharmaceutical companies in specific territories that allow the customer to use, develop, commercialize, or otherwise exploit the licensed IP. In accordance with Topic 606, the Company analyzes the contracts to identify its performance obligations within the contract. Most of the Company’s out-license arrangements contain multiple performance obligations and variable pricing. After the performance obligations are identified, the Company determines the transaction price, which generally includes upfront fees, milestone payments related to the achievement of developmental, regulatory, or commercial goals, and royalty payments on net sales of licensed products. The Company considers whether the transaction price is fixed or variable, and whether such consideration is subject to return. Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If any portion of the transaction price is constrained, it is excluded from the transaction price until the constraint no longer exists. The Company then allocates the transaction price to the performance obligation to which the consideration is related. Where a portion of the transaction price is received and allocated to continuing performance obligations under the terms of the arrangement, it is recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.

arrangement upon the launch of Klisyri^®~~(tirbanibulin)~~ in the U.S., and ~~$0.5~~$0.5 million was recognized for an upfront fee upon transferring IP to the customer upon execution of the second amendment to the 2011 PharmaEssentia license agreement. ~~For~~NaN such revenue was recorded for the ~~six-month period~~six months ended June 30, ~~2020, the Company recognized revenue of $28.3 million, net of $1.7 million value added tax (“VAT”) collected on behalf of the counterparty, upon transferring certain IP to the customer.~~ ~~NaN license revenue was recognized for the three-month period ended June 30, 2020. During the fourth quarter of 2020 and under~~2022. Under the collaboration agreement between Axis Therapeutics and PharmaEssentia, the Company received ~~$1.0 million, net of~~ $~~0.3~~2.0 million ~~withholding tax,~~ of upfront fees allocated to its performance obligation to deliver functional IP to the Customer. As of June 30, ~~2021,~~2022, the Company had not satisfied this performance obligation by delivering the license with the data necessary for the customer to benefit from the right to use the IP and, therefore, the amount was recorded as deferred revenue.

Other performance obligations included in most of the Company’s out-licensing agreements include performing development services to reach clinical and regulatory milestone events. The Company satisfies these performance obligations at a point-in-time, because the customer does not simultaneously receive and consume the benefits as the development occurs, the development does not create or enhance an asset controlled by the customer, and the development does not create an asset with no alternative use. The Company considers milestone payments to be variable consideration measured using the most likely amount method, as the entitlement to the consideration is contingent on the occurrence or nonoccurrence of future events. The Company allocates each variable milestone payment to the associated milestone performance obligation, as the variable payment relates directly to the Company’s efforts to satisfy the performance obligation and such allocation depicts the amount of consideration to which the Company expects to be entitled for satisfying the corresponding performance obligation. The Company re-evaluates the probability of achievement of such performance obligations and any related constraint and adjusts its estimate of the transaction price as appropriate. To date, no amounts have been constrained in the initial or subsequent assessments of the transaction price. During the three and six months ended June 30, 2022, the Company recognized license revenue of $5.0 million related to a line extension milestone in connection with its license agreement with Almirall. The Company did 0t0t recognize revenue from other performance obligations included in the Company’s out-licensing agreements during the three and ~~six-month periods~~six months ended June 30, ~~2021 and 2020.~~2021.

Certain out-license agreements include performance obligations to manufacture and provide drug product in the future for commercial sale when the licensed product is approved. For the commercial, sales-based royalties, the consideration is predominantly related to the licensed IP and is contingent on the customer’s subsequent sales to another commercial customer. Consequently, the sales- or usage-based royalty exception would apply. Revenue will be recognized for the commercial, sales-based milestones as the underlying sales occur. The Company recorded ~~$0.2~~$0.6 million and $1.2 million of royalty revenue related to sales of Tirbanibulin during the three and six months ended June 30, ~~2021. NaN royalty revenue was recorded during~~2022, respectively. During the three and six months ended June 30, ~~2020.~~2021, the Company recorded $0.2 million of royalty revenue related to sales of Tirbanibulin.

The Company exercises significant judgment when identifying distinct performance obligations within its out-license arrangements, determining the transaction price, which often includes both fixed and variable considerations, and allocating the transaction price to the proper performance obligation. The Company did not use any other significant judgments related to out-licensing revenue during the ~~three and six-month periods~~ six months ended June 30, ~~2021~~2022 and ~~2020~~.2021.

Global Supply Chain Platform

~~Global Supply Chain Platform~~

The Company’s Global Supply Chain Platform ~~manufactures API for use internally in its research and development activities as well as its clinical studies, and for sale to pharmaceutical customers globally. The Company~~ generates ~~additional~~ revenue ~~on this platform,~~ by providing small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech companies and selling pharmaceutical products under 503B regulations set forth by the U.S. FDA.

Revenue earned by the Global Supply Platform is recognized when the Company has satisfied its performance obligation, which is the shipment or the delivery of drug products. The underlying contracts for these sales are generally purchase orders and the Company recognizes revenue at a point-in-time. Any remaining performance obligations related to product sales are the result of customer deposits and are reflected in the deferred revenue contract liability balance.

Commercial Platform

The Company’s Commercial Platform generates revenue by distributing specialty products through independent pharmaceutical wholesalers. The wholesalers then sell to an end-user, normally a hospital, alternative healthcare facility, or an independent pharmacy, at a lower price previously established by the end-user and the Company. Upon the sale by the wholesaler to the end-user, the wholesaler will chargeback the difference, if any, between the original list price and price at which the product was sold to the end-user. The Company also offers cash discounts, which approximate 2.3% of the gross sales price, as an incentive for prompt customer payment, and, consistent with industry practice, the Company’s return policy permits customers to return products within a window of time before and after the expiration of product dating. Further, the Company offers contractual allowances, generally in the form of rebates or administrative fees, to certain wholesale customers, group purchasing organizations (“GPOs”), and end-user customers, consistent with pharmaceutical industry practices. Revenues are recorded net of provisions for variable consideration, including discounts, rebates, GPO allowances, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). As of June 30, 2022, and December 31, 2021, the Company’s total provision for chargebacks and other deductions included as a reduction of accounts receivable totaled $26.7 million and $22.9 million, respectively. The Company’s total provision for chargebacks and other revenue deductions was $43.2 million, and $26.9 million for the three months ended June 30, 2022, and 2021, respectively and was $80.9 million and $52.5 million for the six months ended June 30, 2022 and 2021, respectively.

The Company exercises significant judgment in its estimates of the variable transaction price at the time of the sale and recognizes revenue when the performance obligation is satisfied. Factors that determine the final net transaction price include chargebacks, fees for service, cash discounts, rebates, returns, warranties, and other factors. The Company estimates all of these variables based on historical data obtained from previous sales finalized with the end-user customer on a product-by-product basis. At the time of sale, revenue is recorded net of each of these deductions. Through the normal course of business, the wholesaler will sell the product to the end-user, determining the actual chargeback, return products, and take advantage of cash discounts, charge fees for services, and claim warranties on products. The final transaction price per product is compared to the initial estimated net sale price and reviewed for accuracy. The final prices and other factors are immediately included in the Company’s historical data from which it will estimate the transaction price for future sales. The underlying contracts for these sales are generally purchase orders including a single performance obligation, generally the shipment or delivery of products and the Company recognizes this revenue at a point-in-time.

Disaggregation of revenue

The following represents the Company’s revenue for its reportable segment by country, based on the locations of the customer.


	For the Three Months Ended June 30, 2022
	(In Thousands)
	Oncology Innovation Platform		Global Supply Chain Platform		Commercial Platform		Consolidated Total
United States	$	5,723	$	5,843	$	19,943	$	31,509
Other foreign countries		7		—		—		7
Total revenue	$	5,730	$	5,843	$	19,943	$	31,516


	For the Three Months Ended June 30, 2021
	(In Thousands)
	Oncology Innovation Platform		Global Supply Chain Platform		Commercial Platform		Consolidated Total
United States	$	288	$	4,600	$	15,791	$	20,679
China		9		—		—		9
Other foreign countries		10		—		—		10
Total revenue	$	307	$	4,600	$	15,791	$	20,698

The Company also disaggregates its revenue by product group which can be found in Note 16 – Business Segment, Geographic, and Concentration Risk Information.

Contract balances

The following table provides information about receivables and contract liabilities from contracts with customers by reportable segments. The Company has not recorded any contract assets from contracts with customers.


	June 30, 2022
	(In Thousands)
	Oncology Innovation Platform			Global Supply Chain Platform			Commercial Platform			Consolidated Total
Accounts receivable, gross	$	14,971		$	4,704		$	50,606		$	70,281
Chargebacks and other deductions		—			—			(26,662	)		(26,662	)
Provision for credit losses		(8,919	)		(642	)		(234	)		(9,795	)
Accounts receivable, net	$	6,052		$	4,062		$	23,710		$	33,824
Deferred revenue		2,739			42			—			2,781
Total contract liabilities	$	2,739		$	42		$	—		$	2,781


	December 31, 2021
	(In Thousands)
	Oncology Innovation Platform			Global Supply Chain Platform			Commercial Platform			Consolidated Total
Accounts receivable, gross	$	10,069		$	3,983		$	44,298		$	58,350
Chargebacks and other deductions		—			—			(22,868	)		(22,868	)
Provision for credit losses		(8,919	)		(180	)		(97	)		(9,196	)
Accounts receivable, net	$	1,150		$	3,803		$	21,333		$	26,286
Deferred revenue		2,739			60			—			2,799
Total contract liabilities	$	2,739		$	60		$	—		$	2,799

As of June 30, 2022 and December 31, 2021, the deferred revenue balancesrelate to customer deposits made by customers of the Oncology Innovation Platform and Global Supply Chain Platform and are included within accrued expenses on the condensed consolidated balance sheets.

There were no other material changes to contract balances during the six months ended June 30, 2022.

18. Commitments and Contingencies

Future minimum payments under the non-cancelable operating leases consists of the following as of June 30, 2022 (in thousands):


Year ending December 31:	Minimum payments
2022 (remaining six months)	$	1,117
2023		2,090
2024		2,034
2025		1,472
2026		347
Thereafter		132
	$	7,192

Legal Proceedings

Following our receipt of the CRL in February 2021 and the subsequent decline of the market price of the Company’s common stock, 2 purported securities class action lawsuits were filed in the U.S. District Court for the Western District of New York on March 3, 2021 and March 22, 2021, respectively, against the Company and certain members of its management team seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The complaints generally allege that between August 7, 2019 and February 26, 2021 (the purported class period), the Company and the individual defendants made materially false and misleading statements regarding the Company's business in connection with the Company’s development of Oral Paclitaxel for the treatment of metastatic breast cancer and the likelihood of FDA approval, and that the plaintiffs suffered losses when the Company’s stock price dropped after its announcement on February 26, 2021 regarding receipt of the CRL. The complaints seek class certification, damages, fees, costs, and expenses. On August 5, 2021, the Court consolidated the two actions and appointed a lead plaintiff and lead counsel. Pursuant to a stipulated scheduling order, the lead plaintiff filed an amended complaint on November 19, 2021. Defendants filed their motion to dismiss on January 25, 2022. Plaintiffs filed their opposition to that motion on March 28, 2022 and the defendants filed their reply brief on May 20, 2022. The motion to dismiss is now fully briefed and awaits the Court’s decision. The Company and the individual defendants believe that the claims in the consolidated lawsuits are without merit, and the Company has not recorded a liability related to these shareholder class actions as the risk of loss is remote. The Company and the individual defendants intend to vigorously defend against these claims but there can be no assurances as to the outcome.

Shareholder Derivative Lawsuit

On June 3, 2021, a shareholder derivative lawsuit was filed in the United States District Court for the District of Delaware by Timothy J. Wonnell, allegedly on behalf of the Company, that piggy-backs on the securities class actions referenced above. The complaint names Johnson Lau, Rudolf Kwan, Timothy Cook, and members of the Board as defendants, and generally alleges that they caused or failed to prevent the securities law violations asserted in the securities class actions. On September 13, 2021, the Court (i) granted the defendants’ motion to stay the derivative action until after resolution of the motion to dismiss the consolidated securities class actions, and (ii) administratively closed the derivative litigation, directing the parties to promptly notify the Court when the related securities class action has been resolved so the derivative action can be reopened. The Company and the individual defendants believe the claims in the shareholder derivative action are without merit, and the Company has not recorded a liability related to this lawsuit as the risk of loss is remote. The Company and the individual defendants intend to vigorously defend against these claims should the case be reopened, but there can be 0 assurances as to the outcome.

19. Subsequent Events

On July 7, 2022, the Company entered into an agreement to sell all of its equity interests in its China subsidiaries, which are primarily engaged in API manufacturing operations, to TiHe Capital (Beijing) Co., Ltd. for RMB 124.4 million, or approximately $19.0 million in cash. The Company will receive at least 70% of the proceeds on the Closing Date, followed by 20% within three months after the Closing Date, and the remaining balance within six months after the Closing Date. Proceeds from the transaction will be used in part toward repaying existing debt and operating the business. The transaction is subject to customary closing conditions, including obtaining certain regulatory approvals in China. The Company evaluated the China API Operations as a discontinued operation. Refer to Note 4 - Discontinued Operations for additional information. The Company has recorded this transaction as a discontinued operation and has recorded its discontinued assets at the lesser of cost or fair value less cost to sell.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021. Unless the context indicates otherwise, as used in this Quarterly Report, the terms “Athenex,” the “Company,” “we,” “us,” and “our” refer to Athenex, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II—Item 1A—Risk Factors below.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and section 27A of the Securities Act of 1933, as amended (the “Securities Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, ability to continue as a going concern, business strategy, the timing and results of clinical trials, our ability to maintain the listing of our common stock on Nasdaq, the impact of macroeconomic factors, such as the Russian invasion of Ukraine and the COVID-19 pandemic on our business, and potential regulatory approval of product candidates. In some cases, forward-looking statements may be identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “mission,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “will,” “would,” and similar expressions and variations thereof. These words are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2021 and the additional risk factors described herein. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business. In light of these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date hereof to conform these statements to actual results or to changes in our expectations, except as required by law.

Overview and Recent Developments

We are a biopharmaceutical company dedicated to becoming a leader in the discovery, development, and commercialization of next generation drugs for the treatment of cancer. Our mission is to improve the lives of cancer patients by creating more effective, safer, and accessible treatments. We have assembled a strong and experienced leadership team and have established operations across the pharmaceutical value chain to execute our goal of becoming a global leader in bringing innovative cancer treatments to the market and improving health outcomes.

We are organized around three operating segments: (1) our Oncology Innovation Platform, dedicated to the research and development of our proprietary drugs; (2) our Commercial Platform, focused on the sales and marketing of our specialty drugs and the market development of our proprietary drugs; and (3) our Global Supply Chain Platform, providing sterile injectable drugs to hospital pharmacies across the U.S. Our current clinical pipeline in the Oncology Innovation Platform is derived mainly from the following core technologies: (1) Cell Therapy, based on natural killer T ("NKT") cells, and (2) Orascovery, based on a P-glycoprotein (“P-gp”) pump inhibitor.

Oncology Innovation Platform Developments

Through our acquisition of Kuur Therapeutics, Inc. (formerly known as Cell Medica, “Kuur”) in 2021, we acquired rights to intellectual property to further the development of autologous and allogeneic, or “off-the-shelf”, NKT cell immunotherapies for the

treatment of solid and hematological malignancies. We are advancing the following product candidates: KUR-501, KUR-502, and KUR-503.

KUR-501 is an autologous product in which NKT cells are engineered with a chimeric antigen receptor (“CAR”) targeting GD2 (“GINAKIT” cells). GD2 is expressed on almost all neuroblastoma tumors and certain other malignancies. KUR-501 is currently being evaluated in a phase 1 clinical trial (GINAKIT2) treating children with relapsed-refractory (“R/R”) high risk neuroblastoma. The Company presented updated clinical data from this trial at the American Society of Gene & Cell Therapy (ASGCT) 2022 Annual Meeting in May 2022. The data demonstrated expansion of CAR-NKT cells post-transfer in all patients and objective responses in patients with relapsed/refractory neuroblastoma. Overall Response Rate (“ORR”) was 25%, or three out of twelve responses, and Disease Control Rate (“DCR”) was 58% with four stable disease (“SD”), two partial responses (“PR”) and one complete response (“CR”). There were two out of three responses at a dose of 100 million cells/m2. We also observed one durable complete response persisting 12 months. During this evaluation, KUR-501 was well-tolerated with no dose limiting toxicity (“DLT”). There was no evidence of immune effector cell-associated neurotoxicity syndrome (“ICANS”) in any of the patients at the first four dose levels and one case of grade 2 cytokine release syndrome (“CRS”). GINATKIT2 will continue enrolling patients at higher dose level cohorts with a goal to identify an optimal dose that we may take into a pivotal study.

KUR-502 is an allogeneic (“off-the-shelf”) product in which NKT cells are engineered with a CAR targeting CD19. KUR-502 is currently being evaluated in a phase 1 clinical trial (ANCHOR) treating adults with R/R CD19 positive malignancies, including B cell lymphoma, acute lymphoblastic leukemia (“ALL”), and chronic lymphocytic leukemia (“CLL”). The Company presented an interim data update on seven evaluable patients at the Tandem Meetings of the American Society of Transplantation and Cellular Therapy (ASTCT), and the Center for International Blood & Marrow Transplant Research (CIBMTR) in April 2022. In the lymphoma cohort, there were five patients and the data showed 2 CR and 1 PR for an ORR of 60%. Both complete responses were durable and persisted for more than 6 months, with one still ongoing at 34 weeks. The leukemia cohort consisted of two patients, and 1 CR and 1 PD for a 50% ORR was observed. Responses at the lowest doses in these heavily pre-treated patients were observed, and two responses (1 CR and 1 PR) were observed in patients who failed previous autologous CAR-T therapy. Allogeneic CD19 CAR-NKT cells were well tolerated with three cases of grade 1 CRS, all observed in the ALL patients. There were also no ICANS and no graft versus host disease (GvHD) attributable to CAR-NKT cells. In March 2022, the Company’s Investigational New Drug (“IND”) application to expand the ANCHOR study to a multi-center study was allowed to proceed by the FDA.

KUR-503 is an allogeneic (“off-the-shelf”) product in which NKT cells are engineered with a CAR targeting glypican-3 (“GPC3”). GPC3 is a molecule that is highly expressed on most hepatocellular carcinomas (“HCC”) but not normal liver or other non-neoplastic tissue. KUR-503 is currently in preclinical development, and we are planning to submit an IND application in 2023.

With respect to TCRT-ESO-A2, an autologous T cell receptor (“TCR”)-T cell therapy targeting solid tumors that are NY-ESO-1 positive in HLA-A*02:01 positive patients, we have made the strategic decision to de-prioritize the development and plan to close the U.S. Phase 1 clinical trial.

On February 26, 2021, we received a Complete Response Letter ("CRL") from the U.S. Food and Drug Administration (“FDA”) regarding our New Drug Application (“NDA”) for oral paclitaxel and encequidar (“Oral Paclitaxel”) for the treatment of metastatic breast cancer (“mBC”). Following the CRL, we held two Type A meetings with the FDA to discuss the deficiencies raised in the CRL, review a proposed design for a new clinical trial intended to address the deficiencies raised in the CRL, and discuss the potential regulatory path forward for Oral Paclitaxel in mBC in the U.S. In October 2021, after careful consideration of the FDA feedback, we determined to redeploy our resources to focus on our Cell Therapy platform and other ongoing studies of Oral Paclitaxel. On November 29, 2021, we announced the U.K. Medicines and Healthcare products Regulatory Agency (“MHRA”) validation of the Marketing Authorization Application (“MAA”) for Oral Paclitaxel, for review. The Phase 3 study of Oral Paclitaxel in mBC (KX-ORAX-001) served as the basis of the MAA.

We are continuing to evaluate Oral Paclitaxel in combination with check point inhibitors. In May 2022, we announced a clinical trial collaboration and supply agreement with Merck (known as MSD outside the US and Canada). The agreement applies to the expansion phase of the Phase 1 clinical trial evaluating Oral Paclitaxel in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) for certain non-small cell lung cancer (“NSCLC”) patients. Oral Paclitaxel is also being evaluated in combination with dostarlimab +/- carboplatin in neoadjuvant breast cancer, as part of the I-SPY2 TRIAL (Investigation of Serial studies to Predict Your Therapeutic Response with Imaging And moLecular analysis 2).

On June 21, 2022, the Company and ATNX SPV, LLC, its newly-formed subsidiary (the "SPV"), entered into a Revenue Interest Purchase Agreement (the “RIPA”) with affiliates of Sagard Healthcare Partners (“Sagard”) and funds managed by Oaktree Capital Management, L.P. (“Oaktree” and together with Sagard, the “Purchasers”), for the sale of revenues from U.S. and European royalty and milestone interests in Klisyri® (tirbanibulin) for an aggregate purchase price of $85.0 million (“Purchase Price”). On June 29, 2022, the Purchasers paid the Company the Purchase Price. Of the total Purchase Price, $5.0 million was placed into escrow to be paid to the Company upon the satisfaction of certain manufacture and supply milestones for Klisyri prior to December 31, 2025, $5.0 million was used to pay for transaction expenses, $42.5 million was used to pay down the Company's senior secured loan agreement and related security agreements (the "Senior Credit Agreement") with Oaktree, and $7.5 million was deposited and held in a segregated account of the Company (the “Segregated Funds”). Subject to the satisfaction of certain conditions, the Segregated Funds

will either be distributed to the Company as a cash payment or distributed to the Lenders to pay down the Company’s existing indebtedness under the Credit Agreement. The remaining proceeds were available for the Company's operations. Refer to Part I, Item 1. Note 1 - Company and Nature of Business and Note 11 - Debt and Lease Obligations for additional information.

In connection with this transaction, the Company formed the Subsidiary and contributed its interest in the License and Development Agreement with Almirall S.A. relating to Klisyri (the “License Agreement”) and certain related assets to the Subsidiary. Oaktree and Sagard each own a 10% equity interest in the Subsidiary. Pursuant to the RIPA, the Subsidiary will sell its right to the cash received in respect of certain royalties and certain milestone interests under the License Agreement to the Purchasers. The Subsidiary will retain the right to receive 50% of certain of the milestone interests under the License Agreement, equal to $155.0 million in the aggregate if those milestones are achieved, and 50% of the royalties paid under the License Agreement for sales of Klisyri once net sales of Klisyri exceed a certain dollar amount. Under its operating agreement, the Subsidiary will be governed by a five-member board of directors to which the Company will appoint three directors, Oaktree will appoint one director, and Sagard will appoint one director.

Global Supply Chain Platform Developments

We suspended production activities at our Taihao API facility in Chongqing, China, in May 2019, based on concerns raised by the Department of Emergency Management of Chongqing (“DEMC”) related to the location of our plant. We subsequently resumed producing API at the Taihao API facility primarily for our ongoing clinical studies and commercial launches of proprietary drugs in accordance with local regulatory guidance, while we started building out Sintaho, a new API facility in Chongqing. In July 2021, we received verbal notice from the DEMC that we will be required to terminate the production activities at its Taihao API facility. We are continuing to engage in dialogue with the DEMC. While we are able to continue producing certain API at the Taihao API facility in limited quantities and a certain extent of our operations are now being conducted at Sintaho, we are in the process of moving the remainder of the operations and production activities to Sintaho and exploring other sources of API, in the event we are unable to reach an agreement with the DEMC for the continued production activities of the Taihao API facility. The Sintaho facility continues to conduct and complete product qualification activities. On July 7, 2022, we entered into an agreement to sell all of our equity interests in our China subsidiaries, which are primarily engaged in API manufacturing operations (the "China API Operations"), to TiHe Capital (Beijing) Co. Ltd. ("China API Buyer") for RMB 124.4 million, or approximately $19.0 million in cash. The transactions is subject to customary closing conditions, including obtaining certain regulatory approvals in China. Athenex and the China API Buyer also plan to enter into a long-term supply agreement for the manufacture and supply of certain API products at or before the closing of the transaction. See Part I, Item 1. Note 19 - Subsequent Events for additional information.

On February 14, 2022, we completed the sale of our leasehold interest in the 409,000 square feet, newly constructed cGMP ISO Class 5 high potency pharmaceutical manufacturing facility located in Dunkirk, NY (the "Dunkirk Transaction"). We sold our interest in the Dunkirk facility and certain other assets to ImmunityBio, Inc. for approximately $40.0 million. Of these proceeds, we used approximately $27.4 million to make a mandatory prepayment of $25.0 million in principal, accrued and unpaid interest, and associated fees to the lenders under our Senior Credit Agreement with Oaktree. See “Liquidity and Capital Resources” below for more information about the Senior Credit Agreement.

The sale of the Dunkirk facility and the planned sale of our China API Operations are part of our strategy to dispose of non-core assets intended to extend our cash runway in 2022 as we pivot to focusing on our Cell Therapy platform.

COVID-19 related measures

With respect to our clinical development program, we have experienced and may continue to experience slowed enrollment for our clinical trials as well as suspensions in our clinical trials as healthcare resources are diverted to address the COVID-19 pandemic. We remain committed to advancing our pipeline in line with our Mission as described below while ensuring the safety of all participants as well as the integrity of the data. We will continue to monitor developments with respect to the COVID-19 pandemic as well as industry and regulatory best practices for continuing clinical development programs during the pandemic, including, if and where appropriate, the use of virtual communications, interviews, and visits as well as self-administration and remote monitoring techniques to address health and safety concerns while minimizing disruptions and delays to our clinical development timelines.

There is still uncertainty regarding the pandemic's overall duration and the severity of any future outbreaks, including any potential impact on our operations in China. The scope and impact of any such measures is not yet known and will depend on a number of factors, including but not limited to the ultimate spread and severity of the outbreaks and the scope, duration and impact of

containment measures on individuals and businesses. If our partners experience significant or extended disruptions to their business due to COVID-19, it could result in supply shortages and harm our specialty drug business, as well as our overall financial condition. We are actively monitoring our operations and supply chain across the globe and are making adjustments to respond to challenges that arise due to the pandemic where appropriate.

Going Concern Considerations

We have three operating segments: our Oncology Innovation Platform, Global Supply Chain Platform, and Commercial Platform. Since inception, we have devoted a substantial amount of our resources to research and development of our lead product candidates under our Orascovery and Cell Therapy platforms, while building up our commercial infrastructure. We have incurred significant net losses since inception.

We have incurred operating losses since inception and, as a result, as of June 30, 2022 and December 31, 2021, we had an accumulated deficit of $963.0 million and $913.4 million, respectively. We expect to incur significant expenses and operating losses for the foreseeable future. We project insufficient liquidity to fund our operations through the next twelve months beyond the date of this report and project that we will be in violation of a financial covenant included within the Senior Credit Agreement during the twelve-month period subsequent to the date of this filing. This projection does not reflect management's plans that are outside of the Company's control, pursuant to ASC 205. These conditions raise substantial doubt about our ability to continue as a going concern. See Part I, Item 1. Note 1—Company and Nature of Business for further information regarding our ability to continue as a going concern.

We have funded our operations to date primarily from the issuance and sale of our common stock through public offerings, senior secured loans, private placements, and to a lesser extent, from convertible bond financing, revenue, and grant funding. As of June 30, 2022, we had cash and cash equivalents of $22.1 million, restricted cash of $13.8 million, and short-term investments of $1.2 million.

On August 20, 2021, we entered into a sales agreement (the “Sales Agreement”) with SVB Securities LLC, in connection with the offer and sale of up to $100,000,000 of shares of our common stock, par value $0.001 per share (“ATM Shares”). The ATM Shares to be offered and sold under the Sales Agreement will be issued and sold pursuant to a registration statement on Form S-3 (File No. 333-258185) that became effective on August 12, 2021. During the year ended December 31, 2021, we sold 762,825 shares of our common stock for an average price of $1.49 per share under the Sales Agreement. During the six months ended June 30, 2022, we sold 7,147,892 shares of our common stock for an average price of $0.63 per share under the Sales Agreement.

Nasdaq Deficiency Notice

On March 18, 2022, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC indicating that, based upon the closing bid price of our common stock, we no longer meet the Nasdaq listing standard requiring listed companies to maintain a minimum bid price of at least $1.00 per share. Nasdaq Listing Rule 5810(c)(3)(A) provides a compliance period of 180 calendar days, or until September 14, 2022, in which to regain compliance with the minimum bid price requirement. If our common stock maintains a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days during the 180-day compliance period, we will automatically regain compliance. In the event we do not regain compliance with the $1.00 bid price requirement by September 14, 2022, we may be eligible for consideration of a second 180-day compliance period. To qualify for this additional compliance period, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq’s Global Select Market, other than the minimum bid price requirement. In addition, we would also be required to notify Nasdaq of our intent to cure the minimum bid price deficiency. We are diligently working to evidence compliance with the minimum bid price requirement for continued listing on Nasdaq. If we fail to regain compliance with the Nasdaq continued listing standards, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel.

The notification has no immediate effect on the listing of our common stock on Nasdaq’s Global Select Market. We intend to monitor the closing bid price of our common stock and consider our available options in the event the closing bid price of our common stock remains below $1.00 per share.

Outlook

Our Company’s mission is to become a leader in bringing innovative cancer treatments to the market and to improve patient health outcomes. We are focused on our innovative cell therapy platform, which is based on NKT cells. NKT cells have unique biology that has potential advantages over current T cell and NK cell-based technologies. We believe these advantages include the following:

(1)

There is still a major unmet need in hematological and solid tumors in that even in those indications where autologous CAR-T cells have been previously approved, up to 60% of patients receiving CAR-T therapy do not achieve long term durable responses.

(2)

Cellular therapies have generally not been effective in the treatment of solid tumors. NKT cells are an ideal platform for treatment of solid tumors because NKT cells home to tumors, and we have data demonstrating that CAR-NKT cells are superior in tumor homing compared to CAR-T cells.

(3)

Our allogeneic (“off-the-shelf”) CAR-NKT cell therapy products may be produced at larger scale than autologous products, potentially at lower cost.

(4)

Our allogeneic CAR-NKT cells are manufactured starting with the lymphocytes of healthy donors. Use of healthy donors, rather than patients (who are the source of autologous cell therapy starting materials), results in a more robust and consistent product, because patient lymphocytes are usually dysfunctional due to previous cancer therapy.

NKT cells demonstrate anti-tumor activity, even without a CAR. This is because NKT cells can kill immune suppressive cells in the local tumor microenvironment. Thus, when we add a CAR to NKT cells they are now equipped with two different anti-tumor mechanisms, which may lead to more potent anti-tumor activity and reduce the potential for relapse.

Advancing KUR-501 CAR-NKT Targeting GD2 – KUR-501 is an autologous product in which NKT cells are engineered with a CAR targeting GD2 and is currently being evaluated in a phase 1 clinical trial (GINAKIT2) treating children with R/R high risk neuroblastoma. Neuroblastoma is a rare pediatric cancer and patients with R/R high risk neuroblastoma have very poor outcomes. Therefore, we believe there is a significant unmet need for better treatment options. Interim data to be presented at the ASGCT 2022 Annual Meeting showed 25% overall response rate and 58% disease control rate, two out of three responses at dose level 4 (100 million cells/m2), and one durable complete response persisting 12 months. Previous data updates also demonstrated long-term persistence of CAR-NKT cells and CAR-NKT cell localization at the tumor site. The safety profile of KUR-501 was shown to be well-tolerated and the product is being administered in the outpatient setting. GINATKIT2 will continue enrolling patients at higher dose level cohorts with a goal to identify an optimal dose that we may take into a pivotal study.

Advancing KUR-502 CAR-NKT Targeting CD19 – Interim data, as presented at the ASTCT and CIBMTR Tandem Meetings in April of 2022, indicated that, of the first seven evaluable patients, there was a promising overall response rate of 57% and disease control rate of 71%, with two responses (1 CR and 1 PR) observed in patients who failed previous autologous CAR-T therapy. KUR-502 is an allogeneic, “off-the-shelf” product in which NKT cells are engineered with a CAR targeting CD19. Today, autologous CAR-T cell treatments are available to patients, but the patient-to-patient variability and long manufacturing lead times limit patient care options. As an allogeneic “off-the-shelf” product, KUR-502 leverages economies of scale and has the potential to significantly increase patient access to innovative CAR-NKT treatments. Our aim is to expand the phase 1 (ANCHOR) clinical trial treating adults with R/R CD19 positive malignancies currently being conducted at BCM to a phase 1 multicenter clinical trial (ANCHOR2). Our IND application to expand the ANCHOR study to a multi-center study was allowed to proceed by the FDA in March 2022.

Focusing on Specific Programs of Oral Paclitaxel – For Oral Paclitaxel, while our MAA submission is currently under review by the U.K. MHRA, we have focused our efforts on our ongoing combination clinical trials with checkpoint inhibitors where we believe there is an opportunity. Oral Paclitaxel is currently being evaluated in combination with pembrolizumab in NSCLC; and dostarlimab +/- carboplatin in neoadjuvant breast cancer, as part of I-SPY 2 TRIAL.

Licensing and Partnership Opportunities –We continue to increase the global reach of tirbanibulin 1% ointment by maintaining strong global partnerships with existing partners such as Almirall, Seqirus, and AVIR and by evaluating other strategic territories to launch the product. We recently monetized our royalty stream from the sale of Klisyri in the U.S. and Europe by entering into the RIPA. See Oncology Innovation Platform Developments above. Our team will continue to work closely with our partners to explore additional treatment regimens and indications for tirbanibulin 1% ointment. We will pursue strategic licensing and partnership opportunities that will create potential value for stockholders and support our business strategy and mission.

As we pursue these strategic priorities, we expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase as we seek to:

•

Advance the preclinical and clinical research program and development activities of our Cell Therapy technology platform;

��

Continue our preclinical and clinical research program and development activities related to our Mission;

•

Seek to identify additional research programs and product candidates within existing Cell Therapy platform; and

•

Maintain, expand, and protect our IP portfolio.

Key Components of Results of Operations

Revenue

We derive our consolidated revenue primarily from (i) the sales of generic injectable products by our Commercial Platform; (ii) licensing and collaboration projects conducted by our Oncology Innovation Platform, which generates revenue in the form of upfront payments, milestone payments, and payments received for providing research and development services for our collaboration projects and for other third parties; (iii) the sales of 503B and API products by our Global Supply Chain Platform; and (iv) grant awards from government agencies and universities for our continuing research and development efforts.

We do not anticipate revenue being generated from sales of our product candidates under development in our Oncology Innovation Platform until we have obtained regulatory approval. We cannot assure you that we will succeed in achieving regulatory approval for our drug candidates as planned, or at all.

Cost of Sales

Along with sourcing from third-party manufacturers, we manufacture clinical products in our cGMP facility in New York. Cost of sales primarily includes the cost of finished products, raw materials, labor costs, manufacturing overhead expenses and reserves for expected scrap, as well as transportation costs. Cost of sales also includes depreciation expense for production equipment, changes to our excess and obsolete inventory reserves, certain direct costs such as shipping costs, net of costs charged to customers, and royalty costs related to in-license agreements.

Research and Development Expenses

Research and development (“R&D”) expenses consist of the costs associated with in-licensing of product candidates, milestone payments, conducting preclinical studies and clinical trials, activities related to regulatory filings and correspondences, and other R&D activities. Our current R&D activities mainly relate to the regulatory and clinical development activities of our Oncology Innovation Platform.

We expense R&D costs as incurred. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment or clinical site activations. We do not allocate employee-related costs, depreciation, rental and other indirect costs to specific R&D programs because these costs are deployed across multiple product programs under R&D.

We cannot determine with certainty the duration, costs and timing of the current or future preclinical or clinical studies of our drug candidates. The duration, costs, and timing of clinical studies and development of our drug candidates will depend on a variety of factors, including:

•

The scope, rate of progress, and costs of our ongoing, as well as any additional, clinical studies and other R&D activities;

•

Future clinical study results;

•

Uncertainties in clinical study enrollment rates;

•

Significant and changing government regulation; and

•

The timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a drug candidate, could mean a significant change in the costs and timing associated with the development of that drug candidate.

R&D activities are central to our business model. We expect our R&D expenses to remain at a decreased level from prior periods, as the development of most non-Cell Therapy technologies has been suspended. R&D expenses related to our Cell Therapy platform are expected to increase as we prepare for additional clinical and preclinical studies for our Cell Therapy programs. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial, regulatory, and public health factors beyond our control will likely impact our clinical development programs and plans.

Selling, General and Administrative Expenses

Selling, general and administrative, (“SG&A”), expenses primarily consist of compensation, including salary, employee benefits and stock-based compensation expenses for sales and marketing personnel, and for administrative personnel that support our general operations such as executive management, legal counsel, financial accounting, information technology, and human resources personnel. SG&A expenses also include professional fees for legal, patent, consulting, auditing and tax services, as well as other direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in the selling, marketing, general and administrative activities. SG&A expenses also include costs associated with our commercialization efforts for our proprietary drugs,

such as market research, brand strategy and development work on market access, scientific publication, product distribution, and patient support.

We anticipate that our SG&A costs will decrease in future periods, without the commercialization of the Orascovery platform, the development of the facility in Dunkirk, NY, and the management of the China API Operations, if the sale of the China API Operations is completed. We expect that certain costs, including share compensation costs, insurance costs, and other administrative costs, will decrease as a result of the sale of our interest in the pharmaceutical manufacturing facility located in Dunkirk, NY and anticipated sale of the China API Operations. Meanwhile, we anticipate that cost related to legal, compliance, accounting and investor and public relations expenses associated with being a public company will remain consistent.

Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table sets forth a summary of our condensed consolidated results of operations for the three months ended June 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage. This information should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our operating results in any period are not necessarily indicative of the results that may be expected for any future period.


	Three Months Ended June 30,
	2022			2021			Change
	(in thousands)			(in thousands)			(in thousands)			%
Revenue
Product sales, net	$	25,786		$	20,394		$	5,392			26	%
License fees and other revenue		5,730			304			5,426		NM
Total revenue		31,516			20,698			10,818
Cost of sales		(23,092	)		(19,117	)		(3,975	)		21	%
Gross profit		8,424			1,581			6,843
Research and development expenses		(13,094	)		(20,646	)		7,552			-37	%
Selling, general, and administrative expenses		(17,172	)		(17,641	)		469			-3	%
Interest income		46			32			14			44	%
Interest expense		(4,307	)		(5,608	)		1,301			-23	%
Gain on extinguishment of debt		2,051			—			2,051		NM
Income tax benefit		19			11,035			(11,016	)		-100	%
Net loss from continuing operations		(24,033	)		(31,247	)		7,214			-23	%
Loss from discontinued operations		(8,341	)		(3,368	)		(4,973	)		148	%
Net loss		(32,374	)		(34,615	)		2,241
Less: net loss attributable to non-controlling interests		(217	)		(341	)		124			-36	%
Net loss attributable to Athenex, Inc.	$	(32,157	)	$	(34,274	)	$	2,117

*NM used to indicate a percentage change that is not meaningful

Revenue

Revenue from product sales increased to $25.8 million for the three months ended June 30, 2022, from $20.4 million for the three months ended June 30, 2021, an increase of $5.4 million or 26%. This increase was primarily attributable to an increase in APD specialty product sales, which increased by $4.2 million as the result of increases in shortage product sales and product launches during 2022. 503B product sales increased by $1.2 million from additional product launches. Fluctuations in the demand for shortage products and market demand may continue to significantly affect our product sales in the future.

License fees and other revenue increased by $5.4 million, to $5.7 million for the three months ended June 30, 2022. This increase was primarily due to the recognition of $5.0 million of license revenue pursuant to the 2017 Almirall License Agreement upon the commencement of a line extension trial for Klisyri in the U.S. Substantially all of the revenue earned under the Almirall License Agreement in the near future will be remitted to the Purchasers under the RIPA.

Cost of Sales

Cost of sales for the three months ended June 30, 2022 totaled $23.1 million, an increase of $4.0 million, or 21%, as compared to $19.1 million for the three months ended June 30, 2021. The increase was primarily due to an increase of $1.3 million in cost of APD product sales related to the increase in sales volume and an increase of $2.7 million in cost of 503B product sales related to the increase in sales volume, product costs, and overhead.

Research and Development Expenses

R&D expenses for the three months ended June 30, 2022 totaled $13.1 million, a decrease of $7.6 million, or 37%, as compared to $20.6 million for the three months ended June 30, 2021. This was primarily due to a decrease in Oral Paclitaxel product development and medical affairs costs, costs of clinical and regulatory operations, compensation costs, and costs of preclinical operations and included the following:

•

$3.3 million decrease in Oral Paclitaxel product development and medical affairs costs incurred in connection with the potential product launch costs of clinical operations after the completion of the Phase 3 studies for Oral Paclitaxel;

•

$2.4 million decrease in costs of clinical operations and regulatory affairs after the completion of the Phase 3 study for Oral Paclitaxel;

•

$2.0 million decrease in drug licensing costs related to a license milestone payment associated with Arginine deprivation therapy in 2021;

•

$1.7 million decrease in R&D related compensation expenses; and

•

$1.0 million decrease in preclinical operations, primarily related to the Orascovery platform;

The decrease in these R&D expenses was partially offset by a $2.4 million increase in cell therapy development costs and a $0.5 million increase in drug licensing costs related to licenses for specialty drug products.

Selling, General, and Administrative Expenses

SG&A expenses for the three months ended June 30, 2022 totaled $17.2 million, a decrease of $0.5 million, or 3%, as compared to $17.6 million for the three months ended June 30, 2021. This was primarily due to a $2.5 million decrease in costs for preparing to commercialize Oral Paclitaxel as the significant pre-launch activities slowed upon receipt of the Complete Response Letter in February 2021. Compensation related costs decreased by $0.2 million. These decreases were partially offset by a $2.2 million increase in operating costs, including professional fees and IT costs.

Interest Income and Interest Expense

Interest income consisted of interest earned on our short-term investments and totaled less than $0.1 million for both of the three months ended June 30, 2022 and 2021. Interest expense totaled $4.3 million and $5.6 million for the three months ended June 30, 2022 and 2021, respectively. Interest expense in both periods was incurred from the Senior Credit Agreement with Oaktree. The decrease in interest expense during the three months ended June 30, 2022 was due to principal repayments made to the Senior Credit Agreement.

Gain on extinguishment of debt

We recognized a $2.1 million gain on the extinguishment of debt during the three months ended June 30, 2022. This was due to the partial repayment we made to Oaktree upon the closing of the RIPA with Sagard and Oaktree.

Income Tax Expense

For the three months ended June 30, 2022, income tax benefit amounted to less than $0.1 million, compared to income tax benefit of $11.0 million for the three months ended June 30, 2021. We did not record a provision for U.S. federal income taxes for the three months ended June 30, 2022 or 2021 because we expect to generate a loss for the years ended December 31, 2022 and 2021. The income tax benefit in the prior period is primarily the result of a taxable temporary difference due to the deferred tax liability recognized for the indefinite lived intangible assets acquired in connection with the acquisition of Kuur’s IPR&D. This taxable temporary difference is considered a source of taxable income to support the realization of deferred tax assets from the acquirer which resulted in a reversal of our valuation allowance.

Loss from discontinued operations

Loss from discontinued operations for the three months ended June 30, 2022 totaled $8.3 million, as compared to $3.4 million for the three months ended June 30, 2021. This change was primarily due to the reserve of excess inventory held at our discontinued China API operations of $7.1 million, partially offset by general and administrative expenses related to the discontinued Dunkirk operation of $2.4 million, which was incurred in the three months ended June 30, 2021. Further, research and development costs at our discontinued China API operations decreased by $0.3 million and other income increased by $0.3 million due to the sale of pilot products in 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following table sets forth a summary of our condensed consolidated results of operations for the six months ended June 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage. This information should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our operating results in any period are not necessarily indicative of the results that may be expected for any future period.


	Six Months Ended June 30,
	2022			2021			Change
	(in thousands)			(in thousands)			(in thousands)			%
Revenue
Product sales, net	$	54,154		$	38,881		$	15,273			39	%
License fees and other revenue		6,504			20,969			(14,465	)		-69	%
Total revenue		60,658			59,850			808
Cost of sales		(45,613	)		(34,158	)		(11,455	)		34	%
Gross profit		15,045			25,692			(10,647	)
Research and development expenses		(27,179	)		(42,390	)		15,211			-36	%
Selling, general, and administrative expenses		(30,979	)		(36,840	)		5,861			-16	%
Interest income		122			61			61			100	%
Interest expense		(8,820	)		(10,538	)		1,718			-16	%
Loss on extinguishment of debt		(1,450	)		—			(1,450	)		100	%
Income tax (expense) benefit		(8	)		10,881			(10,889	)		-100	%
Net loss from continuing operations		(53,269	)		(53,134	)		(135	)		0	%
Gain (loss) from discontinued operations		2,963			(7,084	)		10,047			-142	%
Net loss		(50,306	)		(60,218	)		9,912
Less: net loss attributable to non-controlling interests		(729	)		(894	)		165			-18	%
Net loss attributable to Athenex, Inc.	$	(49,577	)	$	(59,324	)	$	9,747

Revenue

Revenue from product sales increased to $54.2 million for the six months ended June 30, 2022, from $38.9 million for the six months ended June 30, 2021, an increase of $15.3 million or 39%. This increase was primarily attributable to an increase in APD specialty product sales, which increased by $13.6 million as the result of increases in shortage product sales and product launches during 2022. 503B product sales increased by $1.6 million from additional product launches. Fluctuations in the demand for shortage products and market demand may continue to significantly affect our product sales in the future.

License fees and other revenue decreased by $14.5 million, to $6.5 million for the six months ended June 30, 2022. This decrease was primarily due to the recognition of $20.0 million of license revenue in 2021 pursuant to the 2017 Almirall License Agreement upon the launch of Klisyri in the U.S., partially offset by the recognition of $5.0 million of license revenue upon the commencement of a line extension trial for Klisyri in the U.S. during the six months ended June 30, 2022. Substantially all of the revenue earned under the Almirall License Agreement in the near future will be remitted to the Purchasers under the RIPA.

Cost of Sales

Cost of sales for the six months ended June 30, 2022 totaled $45.6 million, an increase of $11.5 million, or 34%, as compared to $34.2 million for the six months ended June 30, 2021. The increase was primarily due to an increase of $7.0 million in cost of APD product sales related to the increase in sales volume and an increase of $4.5 million in cost of 503B product sales related to the increase in sales volume, product costs, and overhead.

Research and Development Expenses

R&D expenses for the six months ended June 30, 2022 totaled $27.2 million, a decrease of $15.2 million, or 36%, as compared to $42.4 million for the six months ended June 30, 2021. This was primarily due to a decrease in Oral Paclitaxel product development and medical affairs costs, costs of clinical and regulatory operations, and costs of preclinical operations and included the following:

•

$9.6 million decrease in Oral Paclitaxel product development and medical affairs costs incurred in connection with the potential product launch costs of clinical operations after the completion of the Phase 3 studies for Oral Paclitaxel;

•

$3.6 million decrease in costs of clinical operations and regulatory affairs after the completion of the Phase 3 study for Oral Paclitaxel;

•

$2.5 million decrease in R&D related compensation expenses;

•

$2.0 million decrease in drug licensing costs related to a license milestone payment associated with Arginine deprivation therapy in 2021; and

•

$1.2 million decrease in costs of preclinical operations, primarily related to the Orascovery platform.

The decrease in these R&D expenses was partially offset by a $3.6 million increase in cell therapy development costs and a $0.1 million increase in costs of other product development.

Selling, General, and Administrative Expenses

SG&A expenses for the six months ended June 30, 2022 totaled $31.0 million, a decrease of $5.9 million, or 16%, as compared to $36.8 million for the six months ended June 30, 2021. This was primarily due to a $9.2 million decrease in costs for preparing to commercialize Oral Paclitaxel as the significant pre-launch activities slowed upon receipt of the Complete Response Letter in February 2021. Compensation related costs decreased by $0.3 million. These decreases were partially offset by a $3.6 million increase in operating costs, including professional fees, IT costs, and the change in fair value of contingent consideration.

Interest Income and Interest Expense

Interest income consisted of interest earned on our short-term investments and totaled $0.1 million for both of the six months ended June 30, 2022 and 2021. Interest expense totaled $8.8 million and $10.5 million for the six months ended June 30, 2022 and 2021, respectively. Interest expense in both periods was incurred from the Senior Credit Agreement with Oaktree. The decrease in interest expense during the six months ended June 30, 2022 was due to principal repayments made to the Senior Credit Agreement.

Loss on extinguishment of debt

During the six months ended June 30, 2022, we recognized a $1.5 million net loss on the extinguishment of debt. This was comprised of a loss of $3.5 million related to the prepayment we made to Oaktree upon the closing of the sale of our leasehold interest in the manufacturing facility in Dunkirk, New York. This was partially offset by a $2.1 million gain on the extinguishment of debt due to the partial repayment we made to Oaktree upon the closing of the RIPA with Sagard and Oaktree.

Income Tax Expense

For the six months ended June 30, 2022, income tax expense amounted to less than $0.1 million, compared to income tax benefit of $10.9 million for the six months ended June 30, 2021. We did not record a provision for U.S. federal income taxes for the six months ended June 30, 2022 or 2021 because we expect to generate a loss for the years ended December 31, 2022 and 2021. The income tax benefit in the prior period is primarily the result of a taxable temporary difference due to the deferred tax liability recognized for the indefinite lived intangible assets acquired in connection with the acquisition of Kuur’s IPR&D. This taxable temporary difference is considered a source of taxable income to support the realization of deferred tax assets from the acquirer which resulted in a reversal of our valuation allowance.

Gain (loss) from discontinued operations

Gain from discontinued operations for the six months ended June 30, 2022 totaled $3.0 million, as compared to a loss of $7.1 million for the six months ended June 30, 2021. This change was primarily due to the gain on the sale of the Dunkirk facility of $14.5 million, and a decrease in general and administrative expenses related to the discontinued Dunkirk operations of $1.9 million during the six months ended June 30, 2022. These were partially offset by a decrease in API product sales at the discontinued China API operations and the reserve of excess inventory held at our discontinued China API operations of $7.1 million. Further, research and development costs at our discontinued China API operations decreased by $1.2 million and other income increased by $0.8 million due to the sale of pilot products in 2022.

Liquidity and Capital Resources

Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our R&D programs, SG&A costs associated with our operations, and the development of our specialty drug operations in our Commercial Platform and 503B operations and the investment we made in our pre-launch activities in anticipation of commercializing our proprietary drugs. We incurred net losses of $50.3 million and $60.2 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $963.0 million. Our operating activities from continuing operations used $36.8 million and $63.7 million of cash during the six months ended June 30, 2022 and 2021, respectively. We intend to continue to advance certain of our various clinical and pre-clinical programs which could lead to increased cash outflow of R&D costs. While we expect our R&D expenses to remain at a decreased level from prior periods, as the development of most non-Cell Therapy technologies has been suspended, R&D expenses related to our Cell Therapy platform are expected to increase as we prepare for additional clinical and preclinical studies for our Cell Therapy programs. We intend to continue to diversify the product portfolio for specialty drug products in the Commercial Platform and 503B operations, which may require relatively more funding than we have previously dedicated to this portfolio. Our principal sources of liquidity as of June 30, 2022 were cash and cash equivalents totaling $22.1 million, restricted cash of $13.8 million, held in a controlled bank account in connection with the Senior Credit Agreement with Oaktree and the RIPA with Sagard, and short-term investments totaling $1.2 million, which are generally high-quality investment grade corporate debt securities.

Indebtedness

We had $126.9 million and $148.5 million of debt as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022 and 2021, this primarily consisted of the royalty financing liability under the RIPA (as described in Part I, Item 1. Note 11 - Debt and Lease Obligations), Senior Credit Agreement with Oaktree, a credit agreement with Chongqing Maliu Riverside Development and Investment Co., LTD, and finance and operating lease obligations.

The sale of the interest in U.S. and European royalties and milestones to Sagard and Oaktree in connection with the Revenue Interest Purchase Agreement was recorded as a royalty financing liability due to our significant continued involvement in the cash flows due to the Purchasers. The RIPA contains various representations and warranties, information rights, non-financial covenants, and indemnification obligations, however, this liability is not guaranteed by the Company. During the six months ended June 30, 2022, the Company received Klisyri royalties of $0.5 million, which were remitted to the Purchasers.

During the six months ended June 30, 2022, we made payments, inclusive of principal, interest, and fees, to Oaktree in the aggregate amount of $97.6 million pursuant to the Third Amendment, Fourth Amendment, and Fifth Amendment. See Part I, Item 1. Note 11—Debt and Lease Obligations for additional information regarding our Senior Credit Agreement with Oaktree.

As of June 30, 2022, we owe $57.5 million under the Senior Credit Agreement. We do not have access to additional tranches of funding available under the Senior Credit Agreement. Our obligations under the Senior Credit Agreement are guaranteed by us and certain of our existing domestic subsidiaries and subsequently acquired or organized subsidiaries subject to certain exceptions. Our obligations under the Senior Credit Agreement and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (i) a pledge of all of the equity interests of our direct subsidiaries, and (ii) a perfected security interest in all of our tangible and intangible assets.

The Senior Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with respect to product commercialization and development activities. In addition, the Senior Credit Agreement contains certain financial covenants, including, among other things, maintenance of minimum liquidity and a minimum revenue test, measured quarterly until the last day of the second consecutive fiscal quarter where the consolidated leverage ratio does not exceed 4.5 to 1, provided that thereafter we cannot allow our consolidated leverage ratio to exceed 4.5 to 1, measured quarterly. Failure of the Company to comply with the financial covenants will result in an event of default, subject to certain cure rights of the Company. At June 30, 2022, we were in compliance with all applicable covenants.

As of June 30, 2022, we owe $7.5 million under the line of credit with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), which is expected to be assumed by the China API Buyer if the sale of the China API Operations closes, and is included within non-current portion of liabilities of discontinued operations on our condensed consolidated balance sheet.

ATM Offering

On August 20, 2021, we entered into a sales agreement with SVB Securities LLC, in connection with the offer and sale of up to $100,000,000 of shares of our common stock, par value $0.001 per share, in an at-the-market offering (“ATM Offering”). During the six months ended June 30, 2022, we sold 7,147,892 shares of our common stock for an average price of $0.63 per share under the sales agreement, raising approximately $4.5 million in net proceeds. Since the inception of the ATM, we sold 7,910,717 shares of our common stock for an average price of $0.71 per share under the sales agreement, raising approximately $5.6 million in net proceeds. While we intend to continue selling shares of common stock in the ATM Offering, there can be no assurance that we will be able to sell shares of common stock at a price that is acceptable to our Board of Directors or that will be successful in raising significant capital in the offering.

Outlook

We expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements or by monetizing non-core assets, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders. In addition, we have borrowed and, in the future, may borrow additional capital from institutional and commercial banking sources to fund future growth. We may borrow additional funds on terms that may include restrictive covenants, including covenants that further restrict the operation of our business, liens on assets, high effective interest rates, financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets.

As of June 30, 2022, we had cash and cash equivalents of $22.1 million, restricted cash of $13.8 million, and short-term investments of $1.2 million. We are implementing cost savings programs and plan to monetize non-core assets and raise capital in order to extend our cash runway in 2022. If we are unable to raise additional capital or monetize assets, we believe that the existing cash and cash equivalents, restricted cash, and short-term investments will not be sufficient to fund our operations through the next twelve months beyond the date of the issuance of our unaudited condensed consolidated financial statements. We have concluded that this raises substantial doubt about our ability to continue as a going concern. See Part I, Item 1. Note 1—Company and Nature of Business for further information regarding our ability to continue as a going concern. We have based these estimates on assumptions that may prove to be wrong, and we could spend the available financial resources much faster than expected and need to raise additional funds sooner than anticipated. Although we plan to raise additional funds though the sale of non-core assets and selling equity securities, these plans are subject to market conditions which are outside of our control, and therefore cannot be deemed to be probable. There can be no assurance that additional financing, if available, can be obtained on terms acceptable to us. If we are unable to obtain such additional financing, we would need to reevaluate our future operating plans.

We anticipate that our expenses will cover the following activities as we:

•

Advance the preclinical and clinical research program and development activities of our Cell Therapy technology platform;

•

Continue our preclinical and clinical research program and development activities related to our Mission;

•

Seek to identify additional research programs and product candidates within existing Cell Therapy platform; and

•

Maintain, expand and protect our intellectual property (“IP”) portfolio.

We have made certain changes to our budgeted expenses in light of the CRL for Oral Paclitaxel we received in February 2021 and the Type A meetings with the FDA, including curtailing commercialization expenses and investing in additional products for our specialty drug product business. However, our expenses could increase as we continue to fund clinical and preclinical development of our research programs by advancing our Cell Therapy programs, certain candidates in our pipeline, our specialty drug products, working capital and other general corporate purposes. We have based our estimates on assumptions that might prove to be wrong and we might use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to accurately estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our drug candidates.

Our future capital requirements will depend on many factors, some or all of which may be impacted by the COVID-19 pandemic, including:

•

Our ability to generate revenue and profits from our Commercial Platform or otherwise;

•

The costs, timing and outcome of regulatory reviews and approvals;

•

Progress of our drug candidates to progress through clinical development successfully;

•

The initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our other programs and potential drug candidates;

•

The costs of construction and fit-out of planned drug manufacture at our API manufacturing facility;

•

The number and characteristics of the drug candidates we pursue;

•

The costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our IP rights and defending IP related claims;

•

The extent to which we acquire or in-license other products and technologies; and

•

Our ability to maintain and establish collaboration arrangements on favorable terms, if at all.

We expect to finance our cash needs through a combination of equity offerings, debt financings, sales of non-core assets, collaborations, strategic alliances, licensing arrangements, and government grants. We believe that the existing cash and cash equivalents, restricted cash, and short-term investments will not be sufficient to fund our operations through the next twelve months beyond the date of the issuance of our consolidated financial statements. Our estimates are based on relevant conditions that are known and reasonably knowable at the date of these consolidated financial statements being available for issuance and are subject to change due to changes in business, industry or macroeconomic conditions. We have based these estimates on assumptions that may prove to be wrong, and we could spend the available financial resources much faster than expected and need to raise additional funds sooner than anticipated. To the extent that we raise additional capital by issuing equity securities or convertible debt securities, our stockholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect rights of holders of common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and might require the issuance of warrants, which could potentially dilute the ownership interest of holders of common stock. If we are able to sell non-core assets, we may not realize in full the anticipated benefits, savings, and improvements in our strategic pivot efforts, we may not realize the cost savings we anticipate, the cost of disposing of the assets may exceed the cost savings generated, and the process of disposing of the assets may be disruptive to our daily operating activities and our execution of short- and long-term strategies. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies and grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we might be required to delay, limit, reduce, or terminate our product development efforts, reevaluate our future operating plans or cease operations.

Cash Flows

The following table provides information regarding our cash flows for the six months ended June 30, 2022 and 2021:


	Six Months Ended June 30,
	2022			2021
	(in thousands)
Net cash used in operating activities from continuing operations	$	(36,811	)	$	(63,764	)
Net cash provided by investing activities from continuing operations		8,460			84,696
Net cash (used in) provided by financing activities from continuing operations		(18,528	)		1,534
Net cash provided by (used in) discontinued operations		29,420			(15,379	)
Net effect of foreign exchange rate changes		1,721			267
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(15,738	)	$	7,354

Net Cash Used in Operating Activities from Continuing Operations

The use of cash in our operating activities resulted primarily from our net loss adjusted for non-cash charges and changes in components of working capital. The primary use of our cash in the periods presented was to fund our R&D, regulatory and other clinical trial costs, drug licensing costs, inventory purchases, pre-launch commercialization activities, and other expenditures related to sales, marketing and administration.

Net cash used in operating activities from continuing operations was $36.8 million for the six months ended June 30, 2022. This resulted primarily from our net loss from continuing operations of $53.3 million, adjusted for non-cash charges of $7.6 million and by cash provided by our operating assets and liabilities of $8.9 million. Our operating assets increased $7.5 million for accounts receivable mainly related to the increase in APD sales, decreased $1.4 million in prepaid expenses and other assets, and increased $10.8 million for inventory of all drug products. Our operating liabilities increased by $25.8 million mainly due to an increase in

accrued selling fees and rebates, accrued wages and benefits, accrued clinical expenses, and accrued inventory purchases. Our net non-cash charges during the six months ended June 30, 2022 primarily consisted of $3.5 million of stock-based compensation expense, $1.5 million loss on extinguishment of debt, $1.5 million depreciation and amortization expense, and $1.0 million amortization of debt discount.

Net cash used in operating activities from continuing operations was $63.7 million for the six months ended June 30, 2021. This resulted primarily from our net loss from continuing operations of $53.1 million, adjusted for non-cash charges of $9.3 million, non-cash income benefit of $10.9 million related to the reversal of our valuation allowance on our deferred tax assets to offset the deferred tax liability assumed in connection with the acquisition of Kuur’s IPR&D, and by cash used by our operating assets and liabilities of $8.9 million. Our operating assets decreased $0.5 million for accounts receivable mainly related to the decreased sales of specialty products, increased $0.3 million in prepaid expenses and other assets, and increased $0.6 million for inventory of all drug products. Our operating liabilities decreased by $8.6 million mainly due to a decrease in accrued selling fees and royalties on our specialty drugs and a decrease in accrued costs for product launch, partially offset by an increase in accrued license fees and accrued interest. Our net non-cash charges during the six months ended June 30, 2021 consisted of $4.7 million of stock-based compensation expense, $2.0 million depreciation and amortization expense, $1.5 million amortization of debt discount, $0.6 million write-off of deferred debt issuance costs related to the revenue interest financing, and $0.4 million change in fair value of contingent consideration.

Net Cash Provided by Investing Activities from Continuing Operations

Net cash provided by investing activities from continuing operations was $8.5 million for the six months ended June 30, 2022, compared to $84.7 million provided in the six months ended June 30, 2021. The difference was primarily due to less cash being provided by the net sales and maturities of short-term investments, partially offset by a decrease in cash paid for in-licenses fees related to our specialty drugs during the six months ended June 30, 2022 and cash acquired from the acquisition of Kuur in 2021.

Net Cash (Used in) Provided by Financing Activities from Continuing Operations

Net cash used in financing activities from continuing operations was $18.5 million for the six months ended June 30, 2022, which consisted of $92.6 million repayment of long-term debt, $5.6 million in costs related to the repayment of debt, and $5.0 million in costs related to the issuance of the royalty financing liability, partially offset by $80.0 million proceeds from the issuance of the royalty financing liability and $4.7 million in proceeds for the sale of common stock under the ATM Offering and the 2017 Employee Stock Purchase Plan.

Net cash provided by financing activities from continuing operations was $1.5 million for the six months ended June 30, 2021, which consisted of $1.7 million from the exercise of stock options and sale of common stock, partially offset by $0.1 million repayment finance lease obligations.

Net Cash Provided by (Used in) Discontinued Operations

Net cash provided by discontinued operations was $29.4 million for the six months ended June 30, 2022 and was primarily comprised of proceeds of the Dunkirk Transaction of $40.0 million, partially offset by purchases of property and equipment of $2.3 million and cash used in operating activities of discontinued operations of $7.5 million.

Net cash used in discontinued operations was $15.4 million for the six months ended June 30, 2021 and was primarily attributable to purchases of property and equipment of $10.0 million and cash used in operating activities of discontinued operations of $5.4 million.

Contractual Obligations

A summary of our contractual obligations as of June 30, 2022 is as follows:


	Payments Due by Period
	Within 1 Year		1 to 3 years		3 to 5 years		More than 5 years		Total Amounts Committed
	(in thousands)
Operating leases	$	2,253		4,131	$	948	$	—	$	7,332
Long-term debt		17,712		38,461		26,001		—		82,174
Finance lease obligations		147		184		—		—		331
Licensing fees		716		—		—		—		716
	$	20,828	$	42,776	$	26,949	$	—	$	90,553

Our operating and finance leases are principally for facilities and equipment. We currently lease office space in the U.S. and foreign countries to support our operations as a global organization. The operating leases in the above table include our several locations with the amounts committed by each location: (1) the rental of our global headquarters in the Conventus Center for Collaborative Medicine in Buffalo, NY; (2) the rental of our research and development facility in the IC Development Centre in Hong Kong; (3) the rental of the Commercial Platform headquarters in Chicago, IL; (4) the rental of our clinical research headquarters in Cranford, NJ; (5) the rental of our contract research organization throughout Latin America; (6) the rental of our Global Supply Chain distribution office in Houston, TX; (7) the rental of our Global Supply Chain API manufacturing facility in Chongqing, China; and (8) the rental of other facilities and equipment located mainly in Buffalo, NY. These locations represent $4.0 million, less than $0.1 million, $1.5 million, $0.2 million, less than $0.1 million, $0.1 million, $0.1 million, and $1.5 million, respectively, of the total amounts committed. In addition to the minimum rental commitments on our operating leases we may also be required to pay amounts for taxes, insurance, maintenance and other operating expenses.

The long-term debt includes our senior secured loan and the credit agreement with CQ. The finance lease obligations represent three leases of equipment in our 503B manufacturing facility outside of Buffalo, NY. The license fees in the above table represent the amount committed and accrued under in-license agreements for specialty drug products by the Commercial platform.

The Company is obligated to remit funds collected from certain Klisyri royalties and milestones under the License Agreement with Almirall to the Purchasers under the RIPA. The Company will retain the right to receive 50% of certain of the milestone interests under the License Agreement, equal to $155.0 million in the aggregate if those milestones are achieved, and 50% of the royalties paid under the License Agreement for sales of Klisyri once net sales of Klisyri exceed a certain dollar amount. The estimates of these cash flows are excluded from the above table.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the periods. We evaluate our estimates and judgments on an ongoing basis, including but not limited to, estimating the useful lives of long-lived assets, assessing the impairment of long-lived assets, stock-based compensation expenses, and the realizability of deferred income tax assets. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Changes in the accounting estimates are likely to occur from period to period. Actual results could be significantly different from these estimates. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgment and estimates.

Revenue Recognition

Oncology Innovation Platform

The Company’s contracts may contain one or multiple promises, including the license of IP and development services. The licensed IP is capable of being distinct from the other performance obligations identified in the contract and is distinct within the context of the contract, as upon transfer of the IP, the customer is able to use and benefit from it, and the customer could obtain the development services from other parties. The Company also considers the economic and regulatory characteristics of the licensed IP and other promises in the contract to determine if it is a distinct performance obligation. The Company considers if the IP is modified or enhanced by other performance obligations through the life of the agreement and whether the customer is contractually or practically required to use updated IP. The IP licensed by the Company has been determined to be functional IP. The IP is not modified during the license period and therefore, the Company recognizes revenues from any portion of the transaction price allocated to the licensed IP when the license is transferred to the customer and they can benefit from the right to use the IP. For the six month period ended June 30, 2021, the Company recognized license revenue of $21.0 million, of which $20.0 million was recognized upon the achievement of the first commercial milestone pursuant to the 2017 Almirall out-license arrangement upon the launch of Klisyri in the U.S., and $0.5 million was recognized for an upfront fee upon transferring IP to the customer upon execution of the second amendment to the 2011 PharmaEssentia license agreement. No such revenue was recorded for the six months ended June 30, 2022. Under the collaboration agreement between Axis Therapeutics and PharmaEssentia, the Company received $2.0 million of upfront fees allocated to its performance obligation to deliver functional IP to the Customer. As of June 30, 2022, the Company had not satisfied this performance obligation by delivering the license with the data necessary for the customer to benefit from the right to use the IP and, therefore, the amount was recorded as deferred revenue.

Other performance obligations included in most of the Company’s out-licensing agreements include performing development services to reach clinical and regulatory milestone events. The Company satisfies these performance obligations at a point-in-time, because the customer does not simultaneously receive and consume the benefits as the development occurs, the development does not create or enhance an asset controlled by the customer, and the development does not create an asset with no alternative use. The Company considers milestone payments to be variable consideration measured using the most likely amount method, as the entitlement to the consideration is contingent on the occurrence or nonoccurrence of future events. The Company allocates each variable milestone payment to the associated milestone performance obligation, as the variable payment relates directly to the Company’s efforts to satisfy the performance obligation and such allocation depicts the amount of consideration to which the Company expects to be entitled for satisfying the corresponding performance obligation. The Company re-evaluates the probability of achievement of such performance obligations and any related constraint and adjusts its estimate of the transaction price as appropriate. To date, no amounts have been constrained in the initial or subsequent assessments of the transaction price. During the three and six months ended June 30, 2022, the Company recognized license revenue of $5.0 million related to a line extension milestone in connection with its license agreement with Almirall. The Company did not recognize revenue from other performance obligations included in the Company’s out-licensing agreements during the three and six months ended June 30, 2021.

Certain out-license agreements include performance obligations to manufacture and provide drug product in the future for commercial sale when the licensed product is approved. For the commercial, sales-based royalties, the consideration is predominantly related to the licensed IP and is contingent on the customer’s subsequent sales to another commercial customer. Consequently, the sales- or usage-based royalty exception would apply. Revenue will be recognized for the commercial, sales-based milestones as the underlying sales occur. The Company recorded $0.6 million and $1.2 million of royalty revenue related to sales of Tirbanibulin during the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, the Company recorded $0.2 million of royalty revenue related to sales of Tirbanibulin.

Global Supply Chain Platform

The Company’s Global Supply Chain Platform generates revenue by providing small to mid-scale cGMP manufacturing of clinical and commercial products for pharmaceutical and biotech companies and selling pharmaceutical products under 503B regulations set forth by the U.S. FDA.

Commercial Platform

~~Commercial Platform~~

The Company’s Commercial Platform generates revenue by distributing specialty products through independent pharmaceutical wholesalers. The wholesalers then sell to an end-user, normally a hospital, alternative healthcare facility, or an independent pharmacy, at a lower price previously established by the end-user and the Company. Upon the sale by the wholesaler to the end-user, the wholesaler will chargeback the difference, if any, between the original list price and price at which the product was sold to the end-user. The Company also offers cash discounts, which approximate 2.3% of the gross sales price, as an incentive for prompt customer payment, and, consistent with industry practice, the Company’s return policy permits customers to return products within a window of time before and after the expiration of product dating. Further, the Company offers contractual allowances, generally in the form of rebates or administrative fees, to certain wholesale customers, group purchasing organizations (“GPOs”), and end-user customers, consistent with pharmaceutical industry practices. Revenues are recorded net of provisions for variable consideration, including discounts, rebates, GPO allowances, price adjustments, returns, chargebacks, promotional programs and other sales allowances. Accruals for these provisions are presented in the consolidated financial statements as reductions in determining net sales and as a contra asset in accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). As of June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the Company’s total provision for chargebacks and other deductions included as a reduction of accounts

receivable totaled ~~$14.5~~$26.7 million and ~~$12.6~~$22.9 million, respectively. The Company’s total provision for chargebacks and other revenue deductions was ~~$26.9~~$43.2 million, and ~~$20.2~~$26.9 million for the three months ended June 30, ~~2021,~~2022, and ~~2020,~~2021, respectively and ~~$52.5~~was $80.9 million and ~~$45.1~~$52.5 million for the six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively.

~~The following represents the Company’s revenue for its reportable segment by country, based on the locations of the customer.~~

~~The Company also disaggregates its revenue by product group which can be found in Note 15 –~~ ~~Business Segment, Geographic, and Concentration Risk Information~~.

~~The following table provides information about receivables and contract liabilities from contracts with customers. The Company has not recorded any contract assets from contracts with customers.~~

~~The following tables illustrate accounts receivable and contract asset balances by reportable segments.~~

~~As of June 30, 2021 and December 31, 2020, the deferred revenue balances~~relate to customer deposits made by customers of the Oncology Innovation Platform and Global Supply Chain Platform and are included within accrued expenses on the condensed consolidated balance sheets.

~~There were no other material changes to contract balances during the three~~Research and ~~six months ended June 30, 2021.~~Development Expenses

~~Future minimum payments under the non-cancelable operating leases consists of the following as of June 30, 2021 (in thousands):~~

~~Following~~development expenses represent costs associated with developing our ~~receipt of the CRL in February 2021~~proprietary drug candidates, our collaboration agreements for such drugs, and the subsequent decline of the market price of the Company’s common stock, 2 purported securities class action lawsuits were filed in the U.S. District Court for the Western District of New York on March 3, 2021 and March 22, 2021, respectively, against the Company and certain members of its management team seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The complaints generally allege that between August 7, 2019 and February 26, 2021 (the purported class period), the Company and the individual defendants made materially false and misleading statements regarding the Company's business in connection with the Company’s development of Oral Paclitaxel for the treatment of metastatic breast cancer and the likelihood of FDA approval, and that the plaintiffs suffered losses when the Company’s stock price dropped after its announcement on February 26, 2021 regarding receipt of the CRL. The complaints seek class certification, damages, fees, costs, and expenses. Motions to appoint a lead plaintiff and consolidate the two cases were fully briefed as of May 17, 2021, and are now pending before the court. The defendants expect that the court will issue an order consolidating these two lawsuits and appointing a lead plaintiff in the coming months. Additional similar lawsuits might be filed. The Company and the individual defendants believe that the claims in these lawsuits are without merit, and the Company has not recorded a liability related to this shareholder class action lawsuit as the risk of loss is remote. The Company and the individual defendants intend to vigorously defend against these claims but there can be 0 assurances as to the outcome.

The Company suspended production activities at its Taihao active pharmaceutical ingredient (API) facility in Chongqing, China, in May 2019, based on concerns raised by the Department of Emergency Management of Chongqing (DEMC) related to the location of our ~~plant. The Company subsequently resumed producing API at the Taihao facility primarily for its~~ ongoing clinical studies and commercial launches of its proprietary drugs in accordance with local regulatory guidance, while the Company started building out Sintaho, a new API facility in Chongqing. In July 2021, the Company received verbal notice from the DEMC that it will be required to terminate the production activities at its Taihao API facility at the end of 2021. The Company is seeking further dialogue with the DEMC. While a certain extent of its operations is now being conducted at Sintaho, its new API facility in Chongqing, the Company is beginning to explore plans to move remainder of the operations and production activities to Sintaho, in the event it is unable to reach an agreement with the DEMC for the continued production activities of the Taihao API facility.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~studies.

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020. Unless the context indicates otherwise, as used in this Quarterly Report, the terms “Athenex,” the “Company,” “we,” “us,” and “our” refer to Athenex, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2020.48

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and section 27A of the Securities Act of 1933, as amended (the “Securities Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, business strategy, potential market size, potential growth opportunities, the timing and results of clinical trials, the impact of COVID-19 on our business, and potential regulatory approval and commercialization of product candidates. In some cases, forward-looking statements may be identified by terminology such as “believe,” “may,” “will,” “should,” “predict,” “goal,” “strategy,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” “seek” and similar expressions and variations thereof. These words are intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section included in our Annual Report on Form 10-K for the year ended December 31, 2020 and the additional risk factors described herein. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business. In light of these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

WeClinical trial costs are a ~~biopharmaceutical company dedicated to becoming a leader in the discovery, development and commercialization~~significant component of next generation drugs for the treatment of cancer. Our mission is to improve the lives of cancer patients by creating more effective, safer and tolerable treatments. We have assembled a strong and experienced leadership team and have established operations across the pharmaceutical value chain to execute our ~~goal of becoming a global leader in bringing innovative cancer treatments to the market and improving health outcomes.~~

~~We are organized around three operating segments: (1) our Oncology Innovation Platform, dedicated to the~~ research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on our ~~proprietary drugs; (2) our Commercial Platform, focused on~~behalf in the ~~sales and marketing of our specialty drugs and the market~~ongoing development of our ~~proprietary drugs;~~drug candidates. Expenses related to clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are revised or the scope of a contract is revised, we will modify the accruals accordingly on a prospective basis and ~~(3) our Global Supply Chain Platform, dedicated to providing a stable and efficient supply of APIs for our clinical and commercial efforts. Our current clinical pipeline~~will do so in the Oncology Innovation Platform is derived from four different technologies: (1) Orascovery, based on a P-glycoprotein (“P-gp”) pump inhibitor, (2) Src Kinase Inhibition, (3) Cell Therapy, and (4) Arginine Deprivation Therapy.

~~The following table summarizes the development status of our current pipeline of product candidates as of June 30, 2021:~~

~~On July 19, 2021, we announced that our partner, Almirall (Almirall, S.A., BME: ALM), had received approval from the European Commission to market Klisyri~~^® (tirbanibulin) for the topical treatment of actinic keratosis (AK) of the face or scalp in adults. Almirall launched Klisyri in the U.S. in February 2021 after Athenex received approval from the FDA for the commercialization of Klisyri in the United States for the same drug indication usage in December 2020. Almirall will be launching the product in Europe. The launch in the U.S. resulted in a milestone payment of $20.0 million pursuant to the license agreement.

~~In June 2021, we held a Type A meeting with the FDA after receiving in February 2021 a Complete Response Letter (“CRL”),~~period in which the ~~agency indicated its concern~~facts that give rise to the revision become reasonably certain.

Intangible assets arising from a business acquisition are recognized at fair value as of ~~safety risk~~the acquisition date. The Company amortizes intangible assets using the straight-line method. When the straight-line method of amortization is utilized, the estimated useful life of the intangible asset is shortened to ~~patients in terms~~assure the recognition of ~~an increase in neutropenia-related sequelae on the Oral Paclitaxel arm compared~~amortization expense corresponds with the ~~IV paclitaxel arm~~expected cash flows. Other purchased intangibles, including certain licenses, are capitalized at cost and amortized on a straight-line basis over the license life, when a future economic benefit is probable and measurable. If a future economic benefit is not probable or measurable, the license costs are expensed as incurred within research and development expenses. In-process research and development ("IPR&D") intangible assets are not amortized, but rather are reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third party.

The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the ~~Phase III study, and also its concern~~carrying value of the ~~uncertainty over the results~~asset may not be recoverable. The assessment of the primary endpoint of objective response rate (ORR) at week 19 conducted by blinded independent central review (BICR), and recommended that we conduct a new adequate and well-conducted clinical trial in a patient population with metastatic breast cancer representative of the population in the U.S. The agency determined that adequate risk mitigation strategies to improve toxicity, which may involve dose optimization and / or exclusion of patients deemed to be at higher risk of toxicity, would be required in any new clinical trial of Oral Paclitaxel. At the Type A meeting, we provided additional analyses, including overall survival (OS) data on patient subgroups, to provide a more comprehensive summary of the risk/benefit assessment. We also proposed to collect additional OS data that could inform the design of a new clinical study. The FDA was supportive and encouraged the Company to continue development of oral paclitaxel and encequidar for the treatment of metastatic breast cancer. The FDA also agreed that a well-designed and well-conducted trial may adequately address the deficiencies raised in the CRL. We are evaluating the optimal design for a new clinical study which we intend to present to the FDA in the fourth quarter of 2021.

We are also evaluating Oral Paclitaxel in other indications and in combination with other therapies. We completed enrollment in our Phase 2 study of Oral Paclitaxel in the treatment of cutaneous angiosarcoma and intend to discuss a registration pathway with the FDA. Our Phase 1 study of Oral Paclitaxel in combination with pembrolizumab, or Keytruda, in patients with advanced solid malignanciespossible impairment is ~~ongoing. Athenex has an abstract accepted for poster presentation at the European Society of Medical Oncology~~

(ESMO) Congress 2021, taking place in September 2021, to present dose finding results from this study. We are proceeding into the expansion phase of the Oral Paclitaxel in combination with pembrolizumab study. The I-SPY 2 trial evaluating Oral Paclitaxel in combination with dostarlimab in neoadjuvant breast cancer patients is also ongoing.

In addition to our lead Orascovery product candidate, development of our other Orascovery product candidates is ongoing. We are planning Phase 2 studies for both oral irinotecan and encequidar (“Oral Irinotecan”) and oral docetaxel and encequidar (“Oral Docetaxel”). A Phase 1 study of oral eribulin and encequidar (“Oral Eribulin”) in patients with solid tumors is ongoing.

On May 4, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kuur Therapeutics, Inc., a Delaware corporation (formerly known as Cell Medica, “Kuur”). Kuur is a clinical-stage biopharmaceutical company focused on the development of allogeneic, or “off-the-shelf”, NKT (natural killer T) cell immunotherapies for the treatment of solid and hematological malignancies. Kuur’s immunotherapy platform engineers chimeric antigen receptors (“CARs”) expressed by invariant NKT cells, which combine features of T and NK cells, and is being developed in partnership with Baylor College of Medicine and Texas Children’s Hospital. Allogeneic cell therapy has the potential to be faster and less expensive than patient-specific autologous products, and NKT cells offer several advantages over other cell types for allogeneic immunotherapy applications. NKT cells have the cytotoxic and anti-tumor properties of conventional T cells, but with other biological attributes that are expected to improve their ability to attack hematological and solid tumors. These include amplification of the immune response, innate tissue and solid tumor homing properties, as well as endogenous anti-tumor activity based on the ability to ~~eliminate immune suppressive cells and activate host immune cells within~~recover the ~~tumor microenvironment.~~

Kuur has two principal agreements with Baylor College of Medicine (“Baylor”), an Amended and Restated Exclusive License and Option Agreement dated February 28, 2020 (the “Baylor License Agreement”) and an Amended and Restated Co-Development Agreement dated February 28, 2020 (the “Baylor Co-Development Agreement”), each entered into by Kuur Therapeutics Limited (f/k/a Cell Medica, Ltd.) (“Kuur Ltd”) to amend and restate agreements that have been in place since 2016. In August 2020, Kuur Ltd assigned its obligations under the Baylor License Agreement and the Baylor Co-Development Agreement to Cell Medica, Inc. (“Cell Medica”), a sister company to Kuur Ltd. and direct subsidiary of Kuur. Under the Baylor License Agreement and Baylor Co-Development Agreement, Kuur has an exclusive licensing and co-development agreement around cellular immunotherapy products for the treatment of cancer and pursuant to which the parties to the agreement have been advancing Kuur’s pipeline of three product candidates, KUR-501 and KUR-502 into the clinic, and in advancing KUR-503 into IND-enabling preclinical studies. Per the terms of the Baylor Co-Development Agreement, Baylor is responsible for the development activities, at Kuur’s cost pursuant to an annual budget, determined by and under the supervision of a joint steering committee that is composed of four Baylor appointees and four Kuur appointees. The Baylor Co-Development Agreement is coterminous with the Baylor License Agreement or on breach or at Kuur’s option upon twelve months’ notice with such termination effective no earlier than three years from the date of the agreement.

Under the terms and conditions of the Baylor License Agreement, Baylor has granted Kuur a royalty bearing, worldwide, exclusive license under its technology in the permitted fields of use to research, develop, commercialize, and manufacture the licensed products with options to extend the scope and Kuur will be responsible for the commercialization of the licensed product in their permitted fields of use. Kuur has agreed to pay Baylor payments up to $128.5 million in the event defined development and sales are achieved, as well as tiered royalties at single digit rates based on annual net sales of licensed products and tiered percentages of sublicensing revenue ranging from mid-single digits to royalty rates in the mid-teens.

The Baylor License Agreement will continue until the patent rights under the agreement expire on a country-by-country basis, unless terminated earlier in accordance with the terms of the Baylor License Agreement. The agreement may be terminated on a product-by-product basis or in its entirety upon the mutual agreement of the parties, by Kuur upon requisite notice, on insolvency of a party or by either party for material breach as set forth in the Baylor License Agreement.

KUR-501 is an autologous product in which NKT cells are engineered with a CAR targeting GD2, which is expressed on almost all neuroblastoma tumors, as well as other malignancies. KUR-501 is being tested in the phase 1 GINAKIT2 clinical study in patients with relapsed-refractory (R/R) high risk neuroblastoma. The single-arm study will evaluate six dose levels of KUR-501 with patients receiving pre-dose lymphodepletion chemotherapy consisting of cyclophosphamide and fludarabine. Neuroblastoma is a pediatric cancer and patients with R/R high risk neuroblastoma have a poor prognosis and a significant unmet medical need. The KUR-501 development program is also designed to provide autologous proof-of-concept for CAR-NKT cells in solid tumors using a validated target. The GINAKIT2 study is supported by Kuur Therapeutics and conducted by Kuur’s collaborator, Baylor College of Medicine (“BCM”), and is currently recruiting patients.

KUR-502 is an allogeneic product in which NKT cells are engineered with a CAR targeting CD19. KUR-502 is built on Kuur’s next-generation CAR-NKT platform with novel engineering capabilities that harness and enhance the unique properties of NKT cells. The NKT cells used in Kuur’s CAR-NKT platform have a semi-invariant TCR that does not distinguish between self- and non-self-tissues, making the cells unlikely to induce graft versus host disease (GvHD). As a result, KUR-502 cells are harvested and manufactured from healthy donors. The ANCHOR clinical study is a phase 1, first-in-human, dose escalation evaluation of KUR-502 in adults with R/R CD19 positive malignancies including B cell lymphomas, acute lymphoblastic leukemia (ALL), and chronic lymphocytic leukemia (CLL). The single-arm study will evaluate three dose levels with patients receiving lymphodepletion

chemotherapy consisting of cyclophosphamide and fludarabine followed by infusion with KUR-502. Patients with R/R CD19-positive malignancies have limited effective treatment options. While CD19-directed autologous CAR-T cells are now available for these patients, they are limited by a requirement for patient leukapheresis, delays to receive treatment due to the requirement for autologous manufacturing, limited access, and variable final product quality. Off-the-shelf KUR-502 is designed to overcome these limitations. The ANCHOR study is being sponsored and conducted by Kuur’s collaborator, BCM and is currently recruiting patients.

KUR-503 is a product, in which NKT cells are engineered with a CAR targeting GPC3 (glypican-3). GPC3 is a molecule that is highly expressed on most hepatocellular carcinomas (HCC), but not normal liver or other non-neoplastic tissue, making it an ideal target. Because NKT cells home to the liver, they are excellent candidates to deliver immune effector therapy for patients with HCC. HCC is now the fourth most common cause of cancer related death worldwide, with an estimated 750,000 new cases each year. Although there have been some recent approvals of new agents to treat advanced HCC, these patients still have poor outcomes and there is a significant unmet need. KUR-503 is currently in preclinical development and the company is planning to submit an IND in 2022.

We believe that the acquisition of Kuur can potentially launch its cell therapy product portfolio to be one of the leaders in cell therapy. Kuur’s pipeline enables us to expand the cell therapy R&D pipeline by adding to Athenex’s current T cell receptor (TCR)-T immunotherapy program. The first cell therapy product in the TCR-T immunotherapy program, TCRT-ESO-A2, is based on an autologous approach of transducing a patient’s T cells with a T cell receptor (TCR) that recognizes a cancer antigen derived from the protein NYESO-1. The broad applicability of NKT cells allow for insertion of a CAR to target hematological malignancies and a TCR to target solid tumors

Pursuant to the terms of the Merger Agreement, we paid $70.0 million upfront to Kuur shareholders and its former employees and directors, comprised primarily of equity in the Company’s common stock. Additionally, Kuur shareholders and its former employees and directors are eligible to receive up to $115.0 million of milestone payments, which may be paid, at the Company’s sole discretion, in either cash or additional common stock of the Company, or a combination of both (~~see Footnote 5 Business Combination~~).

The other technology in our Cell Therapy platform is our TCR-T immunotherapy technology under which we are advancing TCR affinity-enhancing specific T-cell (TAEST) therapy with our first T cell therapy product, TCRT-ESO-A2. We are planning to begin enrollment for the Phase 1 trial of TCRT-ESO-A2 in the third quarter of 2021. TCRT-ESO-A2, an autologous T cell receptor (TCR)-T cell therapy targeting solid tumors that are NY-ESO-1 positive in HLA-A*02:01 positive patients.

We are still in the process of evaluating the impact of the acquisition of Kuur on our business. Kuur is still in early stage development of its product candidates and we expect to incur significant research and development expenses as we advance the cell therapy business, including the payment of milestone payments and royalties under Kuur’s in-licensing arrangements. We are also in the early stages of integrating Kuur’s business and we may not recognize any synergies and other benefits of the acquisition in the near term as we work to integrate Kuur’s business.

~~With respect to Arginine deprivation therapy, the Phase 1 trial of PT01 for the treatment of patients with advanced malignancies is currently enrolling patients.~~

Since early 2020, after monitoring developments related to the spread of COVID-19, we have undertaken a number of measures in response to the COVID-19 pandemic, with a goal to prioritize the health and safety of our employees and ensure continuity in our business. These measures included implementing a work-from-home policy at various times and other efforts in accordance with recommendations by local authorities for certain of our personnel across the globe as well as imposing restrictions on travel and in-person meetings to protect the health and safety of our workforce while we continue to advance our clinical programs and operations. We have continued to add additional safety procedures and tools in all our locations. We adhere to all state and federal requirements as the same may be in force from time to time.

We have been deemed an “essential business” by New York State and, as a result, we have experienced minimal disruptions at our New York-based operations in Clarence and Buffalo. Despite these efforts, we may from time to time experience additional disruptions related to the COVID-19 pandemic resulting from employees falling ill with COVID-19. We have supplied our employees with face coverings and other necessary personal protective equipment and have taken other measures to reduce the risk of the spread of COVID-19 at our work sites. We are actively monitoring our operations and supply chain across the globe and are making adjustments to respond to logistical challenges that arise due to the COVID-19 pandemic where appropriate, particularly due to the emergence and spread of the COVID-19 Delta variant, which has already impacted our operations and supply chain in the first half of 2021 as discussed further below. We have continued to produce medicines that are used to treat COVID-19 as part of our commitment to contribute to the COVID-19 relief effort.

With respect to our clinical development program, for our earlier stage product candidates, we have experienced and expect to continue to experience slowed enrollment for our clinical trials as well as suspensions in our clinical trials as healthcare resources are

diverted to address the COVID-19 pandemic. We remain committed to advancing our pipeline while ensuring the safety of all participants as well as the integrity of the data. We will continue to monitor developments with respect to the COVID-19 pandemic as well as industry and regulatory best practices for continuing clinical development programs during the pandemic, including, if and where appropriate, the use of virtual communications, interviews and visits as well as self-administration and remote monitoring techniques to address health and safety concerns while minimizing disruptions and delays to our clinical development timelines.

We also put in place a number of measures intended to adjust or allocate resources towards prioritizing key business operations such as clinical and regulatory activities for later-stage product candidates and pre-launch commercial activities, and to delay or defray compensation costs in order to preserve our cash on hand and liquidity during a volatile period in the U.S. and global capital markets.

However, a lack of sustained recovery or further deterioration in market conditions related to the general economy and the industries in which we operate, a sustained trend of weaker than anticipated financial performance, further decline in our share price for a sustained period of time, or an increase in the market-based weighted average cost of capital, among other factors, could significantly impact the impairment analysis and may result in future impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations.

While the disruptions to our business caused by the pandemic are currently expected to be temporary, there is still uncertainty regarding the pandemic's overall duration and the severity of any future outbreaks. The surge of COVID-19 cases in the last couple of months in India, a country where we source supplies and maintain partnerships that are key to our specialty drug business, including API, presents business and supply chain disruption risks for us to the extent the virus is not able to be contained, there is widespread sickness and disruptions on operations and also in the event state governments in India impose additional lockdowns, restrictions on the operations of businesses and other containment measures to combat the spread of the virus. The scope and impact of any such measures is not yet known and will depend on a number of factors, including the ultimate spread and severity of the outbreaks in India and the scope, duration and impact of containment measures on individuals and businesses. If our partners in India experience significant or extended disruptions to their business due to COVID-19, it could result in substantial supply shortages and harm our special drug business, as well as our overall financial condition and results of operations.

As a result of the significant decrease in our market capitalization since we last performed a goodwill impairment test in the fourth quarter of 2020, we evaluated the impact on each of its reporting units to assess whether there was a triggering event during the first quarter of 2021, requiring it to perform a goodwill impairment test (ASC350-20-35). We determined a triggering event occurred and, as such, performed an interim goodwill quantitative impairment test for our reporting units. We compared the faircarrying value of ~~our Global Supply Chain Platform and Oncology Innovation Platform reporting units to carrying value. Based on~~ the ~~results, the fair value of each of our reporting units exceeded their carrying value, and the goodwill was not impaired (see Note 6 Intangible Assets, Net~~). However, there can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors. These estimates and judgments may not be within our control and accordingly it is reasonably possible that the judgments and estimates could change in future periods.

We have three operating segments: our Oncology Innovation Platform, Global Supply Chain Platform and Commercial Platform. Since inception, we have devoted a substantial amount of our resources to research and development of our lead product candidates under our Orascovery and Src Kinase Inhibition technology platforms, as well as under the Cell Therapy platform and Arginine Deprivation Therapy technology, and to buildup of our commercial infrastructure. We have incurred significant net losses since inception.

For the six months ended June 30, 2021, our net loss was $59.3 million, compared to $60.8 million for the same period in 2020. As of June 30, 2021 and December 31, 2020, we had an accumulated deficit of $773.0 million and $713.6 million, respectively. We expect to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will cover the following activities as we:

We have borrowed and, in the future, may borrow additional capital from institutional and commercial banking sources to fund future growth, including pursuant to our Senior Credit Agreement and Revenue Interest Financing Agreement, or potentially pursuant to new arrangements with different lenders. We may borrow funds on terms that may include restrictive covenants, including covenants that restrict the operation of our business, liens on assets, high effective interest rates, financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.

We have funded our operations to date primarily from the issuance and sale of our common stock through public offerings, senior secured loans, private placements, and to a lesser extent, from convertible bond financing, revenue, and grant funding. As of June 30, 2021, we had cash and cash equivalents of $76.9 million, restricted cash of $16.5 million, and short-term investments of $53.3 million.

Research and development (“R&D”) expenses consist of the costs associated with in-licensing of product candidates, milestone payments, conducting preclinical studies and clinical trials, activities related to regulatory filings and correspondences, and other R&D activities. Our current R&D activities mainly relate to the clinical development of our Oncology Innovation Platform.

A change in the outcome of any of these variables with respect to the development of a drug candidate, including without limitation delays caused by the ongoing COVID-19 pandemic, could mean a significant change in the costs and timing associated with the development of that drug candidate.

R&D activities are central to our business model. We expect our R&D expenses to continue to increase for the foreseeable future as we continue to support the clinical and regulatory development activities of our Orascovery platform product candidates, our Src kinase inhibition platform product candidates, our Cell therapy platform product candidates, as well as initiate and prepare for additional clinical and preclinical studies, including for our arginine biologics products and other small molecule programs. We also expect spending to increase in the R&D for API, 503B and specialty products. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial, regulatory and public health, including the ongoing COVID-19 pandemic, factors beyond our control will likely impact our clinical development programs and plans.

Selling, general and administrative, (“SG&A”), expenses primarily consist of compensation, including salary, employee benefits and stock-based compensation expenses for sales and marketing personnel, and for administrative personnel that support our general operations such as executive management, legal counsel, financial accounting, information technology, and human resources personnel. SG&A expenses also include professional fees for legal, patent, consulting, auditing and tax services, as well as other direct and allocated expenses for rent and maintenance of facilities, development of the facility in Dunkirk, NY, insurance and other supplies used in the selling, marketing, general and administrative activities. SG&A expenses also include costs associated with our commercialization efforts for our proprietary drugs, such as market research, brand strategy and development work on market access, scientific publication, product distribution, and patient support.

We anticipate that our SG&A expenses will increase in future periods to support increases in our research and development. We expect these increases will likely result in increased headcount, increased share compensation charges, expanded infrastructure and increased costs for insurance. We also anticipate increases to legal expenses due to the on-going class action lawsuit (~~see Note 17 Commitments and Contingencies), insurance premium, compliance, accounting and investor and public relations expenses associated with being a public company.~~

~~Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020~~

The following table sets forth a summary of our condensed consolidated results of operations for the three months ended June 30, 2021 and 2020, together with the changes in those items in dollars and as a percentage. This information should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our operating results in any period are not necessarily indicative of the results that may be expected for any future period.

Revenue from product sales decreased to $21.4 million for the three months ended June 30, 2021, from $40.2 million for the three months ended June 30, 2020, a decrease of $18.8 million or 47%. This decrease was primarily attributable to a decrease in APD product sales of $20.4 million primarily as the result of a decrease in demand for COVID-19 related drugs from the prior year, including some significant non-recurring orders of approximately $14.1 million. In addition, in the first half of 2021, we experienced significant COVID-related challenges in our Indian supply chain and to a lesser extent in China. As a result, we did not receive some inventory from our partners located in these countries for a certain period of time. We also experienced a higher amount of product sales in 2020 because we started fulfilling demand for certain drugs used to treat patients hospitalized with COVID in the U.S. and demand for FDA shortage products. As a result, the product revenues in the second quarter of last year were particularly high, given the COVID pandemic had just started. Fluctuations in the infection rate and the spread of the global health pandemic and market demand may continue to significantly affect our product sales in the future. API product sales decreased by $0.2 million. These were partially offset by an increase in 503B and contract manufacturing revenue of $1.5 million and $0.4 million, respectively.

License fees and other revenue increased by $0.5 million, for the three months ended June 30, 2021. This increase was primarily due to $0.2 million grant revenue and $0.2 million in royalties received from Almirall for the sales of Klisyri after the product launch in the U.S. in February 2021.

Cost of sales for the three months ended June 30, 2021 totaled $19.7 million, a decrease of $13.3 million, or 40%, as compared to $33.0 million for the three months ended June 30, 2020. The decrease was primarily due to a decrease of $13.1 million in cost of APD product sales, generally in-line with the decrease in the product sales. Additionally, cost of sales related to royalties for license income decrease by $1.2 million from the royalty payment incurred in 2020 on the license revenue from Xiangxue. Cost of API product sales decreased by $0.3 million. Cost of 503B product sales increased by $1.3 million as production levels increased.

R&D expenses for the three months ended June 30, 2021 totaled $21.1 million, a decrease of $0.9 million, or 4%, as compared to $22.0 million for the three months ended June 30, 2020. This was primarily due to a decrease in regulatory costs, clinical operations, and preclinical operations and included the following:

The decrease in these R&D expenses was partially offset by a $3.3 million increase in oral paclitaxel and encequidar API costs in preparation for product launch, a $2.6 million increase in drug licensing costs, primarily due to a license milestone payment related to Arginine deprivation therapy, a $0.9 million increase in R&D related compensation expenses, and a $0.3 million increase in 503B and cell therapy development costs.

SG&A expenses for the three months ended June 30, 2021 totaled $21.2 million, an increase of $3.7 million, or 21%, as compared to $17.5 million for the three months ended June 30, 2020. This was primarily due to a $3.5 million increase in professional fees and other expenses related to the acquisition of Kuur, a $1.2 million increase in compensation related costs, a $0.4 million increase from the change in fair value of contingent consideration, and an increase of $0.3 million in operating costs including insurance costs and IT costs. These increases were partially offset by a $1.7 million decrease of costs for preparing to commercialize Oral Paclitaxel as significant pre-launch activities occurred in 2020 and slowed upon receipt of the Complete Response Letter in February 2021.

Interest income consisted of interest earned on our short-term investments totaled $0.1 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively. Interest expense totaled $5.7 million and $1.6 million for the three months ended June 30, 2021 and 2020, respectively. Interest expense in the current period was incurred from the Senior Credit Agreement with Oaktree and the write-off of deferred debt issuance costs related to the revenue interest financing, while interest expense in the prior period was primarily incurred from debt under a former credit agreement with Perceptive Advisors LLC and its affiliates.

For the three months ended June 30, 2021, income tax benefit amounted to $11.0 million, compared to income tax expense of $0.1 million for the same period in 2020. The income tax benefit is primarily the result of taxable temporary difference due to the deferred tax liability recognized for the indefinite lived intangible assets acquired in connection with the acquisition of Kuur’s IPR&D. This taxable temporary difference is considered a source of taxable income to support the realization of deferred tax assets from the ~~acquirer which resulted in a reversal~~expected future cash flows (undiscounted and without interest expense) of ~~our valuation allowance. The income tax expense in~~ the ~~prior year was primarily attributable to foreign income tax withholdings on our revenue earned under our out-license arrangements.~~

~~The following table sets forth a summary~~related operations. If these cash flows are less than the carrying value of ~~our condensed consolidated results of operations~~such assets, an impairment loss for the ~~six months ended June 30, 2021 and 2020, together with~~difference between the changes in those items in dollars and as a percentage. This information should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Our operating results in any period are not necessarily indicative of the results that may be expected for any future period.

~~Revenue from product sales decreased to $41.7 million for the six months ended~~ ~~June 30~~, 2021, from $58.7 million for the six months ended June 30, 2020, a decrease of $17.0 million or 29%. This decrease was primarily attributable to a significant prior year increase in APD product sales of $22.7 million as the result of increased demand for COVID-19 related drugs and for FDA shortage products during 2020, including some significant non-recurring orders.In addition, in the first half of 2021, we experienced significant COVID-related challenges in our Indian supply chain and to a lesser extent in China. As a result, we were not able to receive some inventory from our partners located in these regions for a certain period of time. Fluctuations in the infection rate and the spread of the global health pandemic and market demand may continue to significantly affect our product sales in the future. This decrease was partially offset by an increase in 503B product sales, contract manufacturing revenue, and API product sales of $4.4 million, $0.8 million, and $0.6 million, respectively.

License fees and other revenue decreased to $21.2 for the six months ended June 30, 2021, from $28.4 million for the six months ended June 30, 2020, a decrease of $7.2 million, or 25%. For the six months ended June 30, 2021, we recorded $20.0 million of license revenue pursuant to the 2017 Almirall License Agreement upon the launch of Klisyri in the U.S. in February 2021, and $0.5 million related to the upfront fee pursuant to the Second Amendment to the 2011 PharmaEssentia License Agreement. For the six months ended June 30, 2020 we recognized $28.3 million in license revenue, net of $1.7 million value added tax (“VAT”), pursuant to the 2019 Xiangxue License Agreement.

~~Cost of sales for the six months ended June 30, 2021 totaled $36.1 million, a decrease of $16.5 million, or 31%, as compared to $52.6 million for the six months ended June 30, 2020.~~ ~~The decrease was primarily due to a decrease of $14.4 million in cost of APD product sales, generally in-line with the decrease in the product sales~~. Cost of sales related to royalties for license income also decreased by $3.2 million from the royalty payment incurred in 2020 on the license revenue from Xiangxue. Cost of 503B product sales increased by $1.3 million as production levels increased.

R&D expenses for the six months ended June 30, 2021 totaled $44.2 million, an increase of $5.0 million, or 13%, as compared to $39.2 million for the six months ended June 30, 2020. This was primarily due to an increase in costs related to Oral Paclitaxel, drug licensing costs, compensation, and preclinical operations, and included the following:

~~The increase in these R&D expenses was partially offset by a decrease of $5.4 million~~ ~~in clinical operations after completion of the Phase 3 studies for tirbanibulin ointment and Oral Paclitaxel, a decrease of $4.1 million in~~ ~~regulatory costs in connection with our NDA preparations, and decrease of $0.1 million in 503B product development.~~

SG&A expenses for the six months ended June 30, 2021 totaled $43.4 million, an increase of $0.1 million, or 0%, as compared to $43.2 million for the six months ended June 30, 2020. This was primarily due to ~~a $3.5 million increase in professional fees and other expenses related to the acquisition of Kuur,~~ ~~a $1.9 million increase in compensation related costs, an increase of $1.2 million in operating costs including insurance costs and IT costs, and~~ ~~a $0.4 million increase from the change in~~estimated fair value ~~of contingent consideration. These increases were partially offset by a $6.1 million decrease of costs for preparing to commercialize Oral Paclitaxel as significant pre-launch activities occurred in 2020~~ and ~~slowed upon receipt of the Complete Response Letter in February 2021.~~

Interest income consisted of interest earned on our short-term investments and decreased to $0.2 million from $0.6 million for the six months ended June 30, 2021 and 2020, respectively. Interest expense totaled $10.6 million and $3.2 million for the six months ended June 30, 2021 and 2020, respectively. Interest expense in the current period was incurred from the Senior Credit Agreement with Oaktree and the write-off of deferred debt issuance costs related to the revenue interest financing, while interest expense in the prior period was primarily incurred from debt under a former credit agreement with Perceptive Advisors LLC and its affiliates.

~~We recognized $7.2 million loss on the extinguishment of debt related to the termination of the senior secured loan agreement with Perceptive for the six-months ended June 30, 2020.~~

For the six months ended June 30, 2021, income tax benefit amounted to $10.9 million, compared to income tax expense of $3.0 million for the same period in 2020. The income tax benefit in the current yearcarrying value is primarily the result of taxable temporary difference due to the deferred tax liability recognized for the indefinite lived intangible assets acquired in connection with the acquisition of Kuur’s IPR&D. This taxable temporary difference is considered a source of taxable income to support the realization of deferred tax assets from the acquirer which resulted in a reversal of our valuation allowance. The income tax expense in the prior year was primarily attributable to foreign income tax withholdings on our revenue earned under our out-license arrangementsrecorded..

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our R&D programs, SG&A costs associated with our operations, and the development of our specialty drug operations in our Commercial Platform and 503B operations and the investment we made in our pre-launch activities in anticipation of commercializing our proprietary drugs. We incurred net losses of $60.2 million and $60.1 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $773.0 million. Our operating activities used $69.1 million and $70.1 million of cash during the six months ended June 30, 2021 and 2020, respectively. We intend to continue to advance our various clinical and pre-clinical programs which we expect will lead to continuous cash outflow of R&D costs and though we have reduced our planned expenditures in 2021 while there is uncertainty around the best path forward for Oral Paclitaxel, we expect to increase our investments in commercialization activities for our proprietary drugs, if approved. In addition, we can provide no assurance that our funding requirements to diversify our product portfolio for specialty drug products in our Commercial Platform and 503B operations will decline in the future. Our principal sources of liquidity as of June 30, 2021 were cash and cash equivalents totaling $76.9 million, restricted cash of $16.5 million, held in a controlled bank account in connection with the Senior Credit Agreement with Oaktree, and short-term investments totaling $53.3 million, which are generally high-quality investment grade corporate debt securities.Business Acquisitions

Our obligations under the Senior Credit Agreement are guaranteed by us and certain of our existing domestic subsidiaries and subsequently acquired or organized subsidiaries subject to certain exceptions. Our obligations under the Senior Credit Agreement and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (i) a pledge of all of the equity interests of our direct subsidiaries, and (ii) a perfected security interest in all of our tangible and intangible assets.

The Senior Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with respect to product commercialization and development activities. In addition, the Senior Credit Agreement contains certain financial covenants, including, among other things, maintenance of minimum liquidity and a minimum revenue test, measured quarterly until the last day of the second consecutive fiscal quarter where the consolidated leverage ratio does not exceed 4.5 to 1, provided that thereafter we cannot allow our consolidated leverage ratio to exceed 4.5 to 1, measured quarterly. Failure of the Company to comply with the financial covenants will result in an event of default, subject to certain cure rights of the Company. At ~~June 30, 2021, we were in compliance with all applicable covenants.~~

We have borrowed and, in the future, may borrow additional capital from institutional and commercial banking sources to fund future growth, including pursuant to the Senior Credit Agreement, or potentially pursuant to new arrangements with different lenders. We may borrow additional funds on terms that may include restrictive covenants, including covenants that further restrict the operation of our business, liens on assets, high effective interest rates, financial performance covenants and repayment provisions that reduce cash resources and limit future access to capital markets. In addition, we expect to continue to opportunistically seek access to the equity capital markets to support our development efforts and operations. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. To the extent that we raise additional funds through collaboration or partnering arrangements, we may be required to relinquish some of our rights to our technologies or rights to market and sell our products in certain geographies, grant licenses on terms that are not favorable to us, or issue equity that may be substantially dilutive to our stockholders.

As of June 30, 2021, we had cash and cash equivalents of $76.9 million, restricted cash of $16.5 million, and short-term investments of $53.3 million. We believe that the existing cash and cash equivalents, restricted cash, and short-term investments will enable us to meet our current operational liquidity needs and fund operations into the fourth quarter of 2022. The Company’s estimates are based on relevant conditions that are known and reasonably knowable at the date of these consolidated financial statements being available for issuance and are subject to change due to changes in business, industry or macroeconomic conditions. Further, we do not expect to have access to additional capital under the Senior Credit Agreement and the Revenue Interest Financing Agreement, and will need to find alternative sources of financing until such time as Oral Paclitaxel is approved or will need to renegotiate these arrangements. We have based these estimates on assumptions that may prove to be wrong, and it could spend the available financial resources much faster than expected and need to raise additional funds sooner than anticipated.

We have made certain changes to our budgeted expenses in light of the CRL for Oral Paclitaxel we received in February 2021 and the Type A meeting with the FDA, including curtailing commercialization expenses and investing in additional products for our specialty pharma business. However, we expect that our expenses will increase as we continue to fund clinical and preclinical development of our research programs by advancing certain product candidates in our pipeline, including product candidates on our Orascovery and Src Kinase Inhibition technology platforms, our cell therapy programs, our specialty drug products, working capital and other general corporate purposes. Capital expenditure at both Dunkirk and Sintaho facilities will continue to grow and be significant as we build out both plants to manufacture drugs including 503B, Tirbanibulin APIs and injectable products. We have based our estimates on assumptions that might prove to be wrong and our estimates are also subject to change depending on the outcome of our discussions with the FDA with respect to Oral Paclitaxel, and we might use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to accurately estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our drug candidates.

~~Our future capital requirements will depend on many factors, some or all of which may be impacted by the COVID-19 pandemic, including:~~

Until we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and government grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights of holders of common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and might require the issuance of warrants, which could potentially dilute the ownership interest of holders of common stock. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we might have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that might not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we might be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.

~~The following table provides information regarding our cash flows for the six months ended June 30, 2021 and 2020:~~

~~Net cash used in operating activities decreased $1.0 million, or 1%, for the six months ended June 30, 2021.~~

Net cash used in operating activities was $69.1 million for the six months ended June 30, 2021. This resulted primarily from our net loss of $60.2 million, adjusted for non-cash charges of $9.7 million, non-cash income benefit of $10.9 million related to the reversal of our valuation allowance on our deferred tax assets to offset the deferred tax liability assumed in connection with the acquisition of Kuur’s IPR&D, and by cash used by our operating assets and liabilities of $7.6 million. Our operating assets decreased $1.4 million for accounts receivable mainly related to the decreased sales of specialty products, increased $0.3 million in prepaid expenses and other assets, and increased $0.9 million for inventory of all drug products. Our operating liabilities decreased by $7.8 million mainly due to a decrease in accrued selling fees and royalties on our specialty drugs and a decrease in accrued costs for product launch, partially offset by an increase in accrued license fees and accrued interest. Our net non-cash charges during the six months ended June 30, 2021 consisted of $4.7 million of stock-based compensation expense, $2.5 million depreciation and amortization expense, $1.5 million amortization of debt discount, $0.6 million write-off of deferred debt issuance costs related to the revenue interest financing, and $0.4 million change in fair value of contingent consideration.

Net cash used in operating activities was $70.1 million for the six months ended June 30, 2020. This resulted primarily from our net loss of $60.8 million, adjusted for non-cash charges of $15.4 million, and by cash used by our operating assets and liabilities of $24.7 million. Our operating assets increased $21.9 million for accounts receivable mainly related to the contract asset recognized from license revenue in the current period and the increased sales of specialty products during the six-months ended June 30, 2020, and decreased by $1.5 million for inventory of all drug products, and $1.0 for prepaids and other assets. Our operating liabilities increased by $5.3 million mainly due to an increase in accrued selling costs and rebates, and an increase in accrued wages and benefits, and other operating liabilities. Our net non-cash charges during the six months ended June 30, 2020 primarily consisted of $7.2 million of loss on extinguishment of debt, $5.3 million of stock-based compensation expense, and $2.1 million depreciation and amortization expense.

Net cash provided by investing activities was $74.7 million for the six months ended June 30, 2021, compared to $18.1 million in the six months ended June 30, 2020. The difference was primarily due to more cash being provided by the sales and maturities of short-term investments and cash acquired from the acquisition of Kuur, partially offset by an increase in cash paid for property and equipment at our API and Dunkirk facilities and cash paid for in-licenses fees related to our specialty drugs during the six months ended June 30, 2021.

Net cash provided by financing activities was $1.4 million for the six months ended June 30, 2021, which consisted of $1.6 million from the exercise of stock options, and $0.8 million proceeds from the issuance of debt, partially offset by $1.0 million repayment of debt and finance lease obligations.

Net cash provided by financing activities was $41.6 million for the six months ended June 30, 2020, which primarily consisted of $94.2 million from the draw downs of debt from our credit facility with Oaktree and $1.0 million to fund our new API plant in China, $5.8 million from the issuance of warrants to Oaktree, and $0.8 million from the exercise of stock options and sale of common stock, partially offset by $54.1 million repayment of Perceptive debt and $6.1 million issuance costs of the new Oaktree debt.

The above table includes the Company’s operating leases and the amounts committed under those leases by each location: (1) the rental of our global headquarters in the Conventus Center for Collaborative Medicine in Buffalo, NY; (2) the rental of our R&D facility in the IC Development Centre in Hong Kong; (3) the rental of the Commercial Platform headquarters in Chicago, IL; (4) the rental of our clinical research headquarters in Cranford, NJ; (5) the rental of our clinical data management center in Taipei, Taiwan; (6) the rental of eight facilities of our contract research organization throughout Latin America; (7) the rental of our Global Supply Chain distribution office in Houston, TX; (8) the rental of our Global Supply Chain API manufacturing facility in Chongqing, China; and (9) the rental of other facilities and equipment located mainly in Buffalo, NY.

The long-term debt is comprised of (1) the principal and fees related to the three tranches drawn on our Senior Credit Agreement with Oaktree; (2) our credit arrangement with Chongqing Maliu Riverside Development and Investment Co., LTD; and (3) our mortgage assumed in connection with the acquisition of CDE.

~~The finance lease obligations represent the lease of various equipment for our facilities in and near Buffalo, NY.~~

~~The license fee obligations are due in connection with our in-licensing arrangements for certain of the Commercial Platform’s specialty products.~~

We do not maintain any off-balance sheet partnerships, arrangements, or other relationships with unconsolidated entities or others, often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with R&D expenses, chargebacks, stock-based compensation and inventory reserves have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

The Company accounts for acquired businesses using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Identifiable amortizing intangible assets are recorded on the consolidated balance sheet at fair value and amortized over their estimated useful lives. Acquisition-related costs are expensed as incurred. Any excess of the consideration transferred over the estimated fair values of the net assets acquired is recorded as goodwill.

Contingent consideration arising from a business acquisition is included as part of the purchase price and is recorded at fair value as of the acquisition date. Subsequent to the acquisition date, the Company remeasures contingent consideration arrangements at fair value at each reporting period until the contingency is resolved. The changes in fair value are recognized within selling, general, and administrative expenses in the Company’s consolidated statement of operations and comprehensive loss. Changes in fair values reflect new information about the likelihood of the payment of the contingent consideration and the passage of time.

The Company treats the liability related to the sale of future royalties, as discussed further in Part I, Item 1. Note 11 - Debt and Lease Obligations, as a debt instrument, amortized under the effective interest rate method over the estimated life of the revenue streams. The Company recognizes interest expense thereon using the effective rate, which is based on its current estimates of future revenues over the life of the arrangement. The Company periodically assesses its expected revenues using internal projections, imputes interest on the carrying value of the deferred royalty obligation, and records interest expense using the imputed effective interest rate. To the extent its estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of the deferred royalty obligation. The assumptions used in determining the expected repayment term of the royalty financing liability and amortization period of the issuance costs require that the Company makes significant estimates that could impact the short-term and long-term classification of the royalty financing liability, interest recorded on such liability, as well as the period over which such costs will be amortized.

In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, the SEC, or other authoritative accounting bodies to determine the potential impact they may have on our condensed consolidated financial statements.

A significant portion of our business is located outside the United States and, as a result, we generate revenue and incur expenses denominated in currencies other than the U.S. dollar, a majority of which is denominated in Chinese Renminbi (“RMB”). In the six months ended June 30, 2022 and 2021, respectively, approximately 1% and ~~2020, approximately~~ 0% ~~and 1%, respectively,~~ of our sales, respectively, excluding intercompany sales and including sales from discontinued operations, were denominated in foreign currencies. As a result, our revenue can be significantly impacted by fluctuations in foreign currency exchange rates. As of June 30, 2022, we had cash and cash equivalents of approximately $1.5 million at our Chinese subsidiaries. We expect that foreign currencies will represent a lower percentage of our sales in the future due to the anticipated growth of our U.S. business. Our international selling, marketing, and administrative costs related to these sales are largely denominated in the same foreign currencies, which somewhat mitigates our foreign currency exchange risk rate exposure.

A portion of our revenues and expenses, and a portion of our assets and liabilities are denominated in RMB. ~~The People’s Republic of China (“PRC”)~~On January 1, 1994, the Chinese government ~~uses~~abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China, (“PBOC”). ~~The PRC imposes a number~~However, the unification of ~~procedural requirements~~exchange rates does not imply that ~~limit~~ the ~~ability to~~RMB may be readily ~~convert RMB~~convertible into U.S. dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approvals of foreign currency payments by the PBOC or other institutions require submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

Additionally, the value of the RMB is subject to changes in ~~PRC~~ central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.

We had cash and cash equivalents of $22.1 million, restricted cash of $13.8 million, and short-term investments of ~~$146.7~~$1.2 million as of June 30, ~~2021.~~2022, which consisted primarily of certificates of deposit with financial institutions. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in U.S. market interest rates is not expected to have a material impact on our condensed consolidated financial condition or results of operations. We do not believe that our cash or cash equivalents have significant risk of default or illiquidity.

We had cash and cash equivalents of $22.1 million and marketable securities of $1.2 million at June 30, 2022. Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk.

We make periodic assessments of the recoverability of trade and other receivables and amounts due from related parties. Our historical experience in collection of receivables falls within the recorded allowances, and we believe that we have made adequate provision for uncollectible receivables.

Our management, with the participation of our Chief Executive Officer and Board Chairman (Principal Executive Officer) and our Chief Financial Officer (Principal Financial and Accounting Officer), evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2021,~~2022, our Chief Executive Officer and ~~Board Chairman (Principal Executive Officer) and~~ our Chief Financial Officer ~~(Principal Financial and Accounting Officer)~~ concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, our Chief Executive Officer and Chief Financial Officer identified a material weakness in internal control related to our control over the ~~Company entered into the Merger Agreement with Kuur Therapeutics, Inc., a Delaware corporation (“Kuur”) whereby it acquired 100%~~review of the ~~outstanding shares~~annual goodwill impairment analysis. The Company’s goodwill was fully impaired in fiscal 2021 and therefore, no longer requires an impairment analysis under ASC 350. Given the Company’s disclosure controls and procedures over the accounting for and measurement of ~~Kuur. Under~~goodwill impairment associated with the ~~terms~~material weakness are no longer relevant to the Company’s determination of the Merger Agreement, the Company’s wholly owned subsidiary, Athenex Pharmaceuticals LLC, a Delaware limited liability company, merged with and into Kuur, with Kuur surviving as a wholly owned subsidiaryeffectiveness of the Company. We are currently integrating Kuur into our operations and internal control processes and, pursuant to the Securities and Exchange Commission staff interpretative guidance that assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of our internal controls over financial reporting, ~~at June 30, 2021 does not include Kuur.~~no remediation was necessary.

Except ~~for internal controls related to integration activities associated with our acquisition of Kuur,~~as noted above, there were no changes in the Company's internal controls over financial reporting during the fiscal quarter ended June 30, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome, litigation can have an adverse impact on us because of prosecution, defense and settlement costs, unfavorable awards, diversion of management resources and other factors.

Following our receipt of the CRL in February 2021 and the subsequent decline of the market price of the Company’s common stock, two purported securities class action lawsuits were filed in the U.S. District Court for the Western District of New York on March 3, 2021 and March 22, 2021, respectively, against the Company and certain members of its management team seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The complaints generally allege that between August 7, 2019 and February 26, 2021 (the purported class period), the Company and the individual defendants made materially false and misleading statements regarding the Company's business in connection with the Company’s development of Oral Paclitaxel for the treatment of metastatic breast cancer and the likelihood of FDA approval, and that the plaintiffs suffered losses when the Company’s stock price dropped after its announcement on February 26, 2021 regarding receipt of the CRL. The complaints seek class certification, damages, fees, costs, and expenses. ~~Motions to appoint~~On August 5, 2021, the Court consolidated the two actions and appointed a lead plaintiff and ~~consolidate~~lead counsel. Pursuant to a stipulated scheduling order, the ~~two cases were~~lead plaintiff filed an amended complaint on November 19, 2021. Defendants filed their motion to dismiss on January 25, 2022. Plaintiffs filed their opposition to that motion on March 28, 2022 and the defendants filed their reply brief on May 20, 2022. The motion to dismiss is now fully briefed ~~as of May 17, 2021,~~ and ~~are now pending before~~awaits the ~~court. The defendants expect that the court will issue an order consolidating these two lawsuits and appointing a lead plaintiff in the coming months. Additional similar lawsuits might be filed.~~Court’s decision. The Company and the individual defendants believe that the claims in ~~these~~the consolidated lawsuits are without merit, and the Company has not recorded a liability related to ~~this~~these shareholder class ~~action lawsuit~~actions as the risk of loss is remote. The Company and the individual defendants intend to vigorously defend against these claims but there can be no assurances as to the outcome.

From time to time, the Company may become subject to other legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any other material legal proceedings, nor is it aware of any pending or threatened litigation that, in the Company’s opinion, would have a material adverse effect on the business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

For a discussion of the Company’s potential risks or uncertainties, please see: (i) “Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the ~~SEC; (ii) “Part II—Item 1A—Risk Factors”~~SEC and ~~“Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report~~ ~~on Form 10-Q for the quarter ended March 31, 2021~~ ~~filed with the SEC; and (iii)~~ the additional risks described below.

We ~~face litigation and legal proceedings and, while we cannot predict~~are currently not in compliance with the ~~outcomes of such proceedings and other contingencies with certainty, some of these outcomes could adversely affect our business and financial condition.~~

~~Following our receipt~~continued listing standards of the ~~CRL in February 2021~~Nasdaq Global Market, and ~~the subsequent decline of the market price of the Company’s~~if we are unable to regain compliance, our common stock ~~two purported class action lawsuits were filed in~~will be delisted from the ~~U.S. District Court~~exchange.

Our common stock is currently listed for trading on the ~~Western District~~Nasdaq Global Market under the symbol “ATNX”. The continued listing of ~~New York~~our common stock on March 3, 2021 and March 22, 2021, respectively, against the Company and certain members of its management team. Defending against these and any future lawsuits and legal proceedings may involve significant expense, be disruptiveNasdaq is subject to our business operations and divert our management's attention and resources. Negative publicity surrounding such legal proceedings may also harm our reputation, our stock price, and adversely impact our business and financial condition.

~~Further, we cannot predict~~compliance with certainty the outcomes of these legal proceedings. The outcome of some of these legal proceeding could require us to take, or refrain from taking, actions which could negatively affect our operations or could require us to pay substantial amounts of money adversely affecting our financial condition and results of operations.

~~The resurgence of COVID-19 in India and other countries where we source supplies may create supply chain risk and disruption risks.~~

The recent surge of COVID-19 cases in India during the first quarter and continuing throughout the second quarter, a country where we source supplies and maintain partnerships that are key to our generics business, including API, presents business and supply chain disruption risks for the Company to the extent the virus is not able to be contained, there is widespread sickness and disruptions on operations and also in the event state governments in India impose additional lockdowns, restrictions on the operations of businesses and other containment measures to combat the spread of the virus. The scope and impact of any such measures is not yet

~~known and will depend on~~ a number of ~~factors, including~~listing standards. On March 18, 2022, we received a letter from the ~~ultimate spread and severity~~Listing Qualifications Staff of The Nasdaq Stock Market LLC indicating that we no longer met the ~~outbreaks in India~~requirements of Nasdaq Listing Rule 5450(a)(1), which requires listed companies to maintain a minimum bid price of at least $1.00 per share. In January 2022, our shares began trading below $1.00, and the ~~scope, duration and impact~~trading price of ~~containment measures on individuals and businesses. If~~ our partners in India experience significant or extended disruptions to their business due to COVID-19, it could result in substantial supply shortages and harm our generics business, as well as our overall financial condition and results of operations.

~~The Kuur acquisition will increase our capital requirements and failure to successfully integrate Kuur’s business and operations may adversely affect the combined Company’s future results.~~

~~We believe~~shares has not yet risen above that the acquisition of Kuur will result in certain benefits, including certain cost synergies, drive product innovations, and operational efficiencies. However, to realize these anticipated benefits, the businesses of will depend on the Company’s ability to successfully integrate Kuur’s business. We may fail to realize the anticipated benefits of the acquisition in our expected time frame, if at all,price for a ~~variety~~minimum of ~~reasons and~~10 consecutive business days, as required by the ~~acquisition subjects the Company~~listing standards to ~~a number of additional risks, including the following:~~

The integration may result in additional and unforeseen expenses or delays. If Athenex is not able to successfully integrate Kuur’s business and operations, or if there are delays in combining the businesses, the anticipated benefits of the Merger may notregain compliance. There can be ~~realized fully or at all or may take longer to realize than expected.~~

Our access to additional capital under the Senior Credit Agreement, Sagard Revenue Interest Financing Agreement and our out-licensing agreements is dependent on the fulfillment of certain conditions, where applicable, and achievement of certain milestones, some of which may be difficult to achieve in the near term, if at all.

Under our senior secured loan agreement, dated June 19, 2020 and related securities agreements with Oaktree Fund Administration, LLC, as administrative agent, and the lenders party thereto (the “Senior Credit Agreement”), the Revenue Interest Financing Agreement entered into with Sagard on August 4, 2020 (the “Revenue Interest Financing Agreement”) and our out-licensing arrangements, our ability to access additional capital is dependent on our ability to achieve various regulatory and commercial milestones related to our Oral Paclitaxel program, and there is substantial uncertainty whether we will be able to achieve such milestones. Our Senior Credit Agreement provides that we must meet funding conditions related to the approval and commercialization of Oral Paclitaxel to draw down the remaining $75.0 million of commitments under Senior Credit Agreement. Each of the Senior Credit Agreement and the Revenue Interest Financing Agreement entered into with Sagard on August 4, 2020 (the “Revenue Interest Financing Agreement”) also require bringdowns of various representations and warranties as a condition to funding and our access to funding under the Revenue Interest Financing Agreement is dependent on the approval of Oral Paclitaxel. The Revenue Interest Financing Agreement also provides Sagard with a termination right in the event we do not receive a marketing authorization for Oral Paclitaxel by December 31, 2021. Given that the FDA is requiring us to complete an additional clinical trial, there is a substantial likelihood that we will not be able to receive FDA approval by this date, the agreement will be subject to Sagard’s right of termination and we will generally not be able to access additional funds under our financing arrangements until we receive FDA approval of Oral Paclitaxel.

Further, in the event we do not meet the funding conditions and/or achieve the various commercial and regulatory milestones in our out-licensing agreements, in which case we will need to raise additional capital and can provide no ~~assurances~~assurance that we will be able to ~~do so when needed~~regain compliance with these requirements or that our common stock will continue to be listed on ~~acceptable terms. In the event~~Nasdaq.

If we are unable to ~~access additional capital~~regain compliance by September 14, 2022, we may be eligible for consideration of a second 180-day compliance period. There can be no assurance that, if we were to effect a reverse stock split after obtaining the required approvals and intending to regain compliance, the reverse stock split would cause our common stock to meet the bid price requirement. If we fail to regain compliance with the Nasdaq continued listing standards, Nasdaq will provide notice that our common stock will be ~~forced~~subject to ~~delay, reduce~~delisting.

Such a delisting or ~~eliminate~~even notification of failure to comply with such requirements would likely have a negative effect on the price of our ~~research~~common stock and ~~drug development programs~~would impair your ability to sell or ~~commercialization efforts.~~purchase our common stock when you wish to do so. In addition, the ~~failure to meet these conditions and milestones would have broader implications on the value and prospects~~delisting of our ~~Company~~common stock could lead to a number of other negative implications such as a loss of media and ~~could impair~~analyst coverage, a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and likely result in a reduced level of trading activity in the secondary trading market for our securities, and materially adversely impact our ability to raise ~~such additional necessary~~ capital ~~grow~~on acceptable terms or at all. Delisting from Nasdaq could also have other negative results, including the potential loss of confidence by our ~~business, retain key employees~~current or prospective third-party providers and ~~continue our operations.~~

~~The FDA may require a trial design that is cost prohibitive to our ability to commercialize Oral Paclitaxel for MBC.~~

~~During~~collaboration partners, the ~~second quarter~~loss of ~~2021,~~institutional investor interest, and fewer licensing and partnering opportunities. In the Company held a Type A meeting with the FDA in response to its CRL regarding the Company’s NDA for Oral Paclitaxel. The Company’s ability to potentially commercialize Oral Paclitaxel for the treatment of metastatic breast cancer, and the timing of such potential commercialization, is dependent on our ability to reach an agreement with the FDA on the path forward for the program, the requirements and progressevent of a ~~potential new clinical study,~~delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action would allow our common stock to become listed again, stabilize the ~~Company’s resubmission~~market price or improve the liquidity of ~~its NDA, ultimate FDA approval, and potentially additional capital. The FDA may require a trial design~~our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

If our common stock were no longer listed on Nasdaq, investors might only be able to trade on one of the over-the-counter markets. There is no assurance, however, that ~~will~~prices for our common stock would be ~~cost prohibitive~~quoted on one of these other trading systems or ~~significantly delay any FDA approval~~that an active trading market for ~~MBC such that we decide not to continue~~ our ~~efforts to commercialize Oral Paclitaxel for this indication,~~common stock would exist, which ~~could have~~would materially and adversely impact ~~our prospects. For additional information, please see “Financial Statements—Note 1—Company and Nature of Business”.~~

~~Manufacturing risks, including our inability to manufacture API used in~~ the ~~clinical trials~~market value of our ~~proprietary product candidates could adversely affect our~~common stock and your ability to ~~commercialize~~sell our ~~products and product candidates.~~common stock.

Our business strategy depends on our ability to manufacture API in sufficient quantities and on a timely basis so as to meet our needs to manufacture our product candidates for our clinical trials and to meet consumer demand for our products, while adhering to product quality standards, complying with regulatory requirements and managing manufacturing costs. We are subject to numerous risks relating to our manufacturing capabilities, including:

In addition, we conduct manufacturing operations at our facilities in Chongqing, China to manufacture API. As a result, our business is subject to risks associated with those facilities in particular and doing business in China generally, including:

We recently received verbal notice from the DEMC in July 2021 that we will be required to terminate the production activities at our Taihao API facility at the end 2021. We are engaging in a dialogue with the DEMC but if we are unable to continue production activities, we will need to incur significant capital expenditures to move production lines, including that of our tirbanibulin API, to our Sintaho API facility, and we may experience supply chain issues as a result which could impair our ability to meet our supply obligations to our partners.

These risks are likely to be exacerbated by our limited experience with our current products and manufacturing processes. If, as we expect, our need for API increases, or demand for our products increase, we will have to invest additional resources to purchase components, hire and train employees and enhance our manufacturing processes and may have to use alternate suppliers of API to meet our needs. If we fail to increase our production capacity efficiently, our sales may not increase in line with our forecasts and our operating margins could fluctuate or decline. Any of these factors may affect our ability to manufacture our product and could reduce our revenues and profitability.

~~On May 4, 2021 we consummated the acquisition~~Under Salary Deduction and Stock Purchase Agreements with certain of ~~Kuur,~~our executive officers and ~~in connection with such acquisition~~directors, we issued ~~in a private placement: (i) 14,228,066~~an aggregate of 244,968 shares ~~of common stock of~~to those executive officers and directors during the ~~Company to the stockholders of Kuur, valued at $52,786,124 based on a per share price of$3.71;and (ii) 1,373,601~~quarter ended June 30, 2022. We issued these shares ~~of common stock of the Company to certain key employees and certain directors of Kuur valued at $5,645,500 based on a per share price of $4.11. The shares were issued~~ in reliance upon ~~the exemption under~~ Section 4(a)(2) of the Securities ~~Act. For additional information, please see “Part I, Item 1, Note 5—Business Combination~~Act of 1933, as amended, and Nasdaq Listing Rule 5635(c)(2). These shares were issued in exchange for after-tax payroll deductions of approximately $0.1 million from the executive officers and directors, using the Nasdaq Official Closing Price on the applicable payroll date. Any proceeds from the issuance of these shares were used for our working capital and general corporate purposes..”

The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth below.

** Certain portions of this exhibit have been omitted (indicated by [*]) pursuant to Item 601(b)(10)(iv) of Regulation S-K because the omitted information is (i) not material and (ii) the type of information that the Company treats as private or

confidential.

# Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Delaware~~	~~43-1985966~~
Delaware	43-1985966
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1001 Main Street, Suite 600 Buffalo, NY	14203
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ATNX	The Nasdaq Global Select Market


Large accelerated filer	☒☐	Accelerated filer	☐☒

Non-accelerated filer	☐	~~Small~~☐	Smaller reporting company	☐☒

Emerging growth company	☐


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	2
	Condensed Consolidated Statements of Stockholders’ ~~Equity~~Deficit (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	45
	Notes to Condensed Consolidated Financial Statements (Unaudited)	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2732
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4250
Item 4.	Controls and Procedures	4251
PART II.	OTHER INFORMATION	4352
Item 1.	Legal Proceedings	4352
Item 1A.	Risk Factors	4352
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4653
Item 3.	Defaults Upon Senior Securities	4653
Item 4.	Mine Safety Disclosures	4654
Item 5.	Other Information	4654
Item 6.	Exhibits	4754
Signatures		4856

	June 30, 2021		December 31, 2020
Raw materials and purchased parts	$	2,944	$	6,498
Work in progress		2,500		776
Finished goods		24,321		21,572
Total inventories	$	29,765	$	28,846

	Common Stock					Additional					Accumulated other			Treasury Stock						Total Athenex, Inc.			Non-			Total
	Shares			Amount		paid-in capital		Accumulated deficit			comprehensive loss			Shares			Amount			stockholders' equity			controlling interests			stockholders' equity
Balance at January 1, 2020		83,231,063		$	83	$	763,648	$	(567,465	)	$	(635	)		(1,672,920	)	$	(7,406	)	$	188,225		$	(12,370	)	$	175,855
Stock-based compensation cost		—			—		1,864		—			—			—			—			1,864			—			1,864
Restricted stock expense		(3,000	)		—		397		—			—			—			—			397			—			397
Stock options exercised		70,200			—		344		—			—			—			—			344			—			344
Net loss		—			—		—		(19,429	)		—			—			—			(19,429	)		(289	)		(19,718	)
Other comprehensive loss, net of tax		—			—		—		—			(506	)		—			—			(506	)		—			(506	)
Balance at March 31, 2020 (unaudited)		83,298,263			83		766,253		(586,894	)		(1,141	)		(1,672,920	)		(7,406	)		170,895			(12,659	)		158,236
Sale of common stock and issuance of stock in connection with acquisition		51,691			—		269		—			—			—			—			269			—			269
Stock-based compensation cost		—			—		2,640		—			—			—			—			2,640			—			2,640
Restricted stock expense		—			—		413		—			—			—			—			413			—			413
Stock options exercised		12,500			—		125		—			—			—			—			125			—			125
Issuance of warrants, net		—			—		5,342		—			—			—			—			5,342			—			5,342
Non-controlling interests		—			—		—		—			—			—			—			—			198			198
Net loss		—			—		—		(40,451	)		—			—			—			(40,451	)		(600	)		(41,051	)
Other comprehensive income, net of tax		—			—		—		—			74			—			—			74			—			74
Balance at June 30, 2020 (unaudited)	$	83,362,454		$	83	$	775,042	$	(627,345	)	$	(1,067	)		(1,672,920	)	$	(7,406	)	$	139,307		$	(13,061	)	$	126,246

Initial Allocation of Consideration:
Stock issued (14,228,066 shares at $3.71)	$	52,786

Allocation of Consideration:
Stock issued (14,228,066 shares at $3.71)				$	52,786
Contingent consideration		19,839			19,839
Purchase price:	$	72,625		$	72,625
Net assets acquired:
Cash and cash equivalents	$	1,425		$	1,425
Prepaid expenses and other current assets		133			133
In-process research & development		63,500			64,900
Accounts payable		(39	)		(39	)
Accrued expenses		(1,037	)		(1,037	)
Deferred income tax liability		(12,717	)		(12,543	)
Transaction incentive liability		(8,925	)		(8,925	)
Total identifiable net assets		42,340			43,914
Goodwill		30,285			28,711
Total purchase price allocation	$	72,625		$	72,625


Unaudited pro forma financial information	Three Months Ended June 30,						Six Months Ended June 30,
(Athenex and Kuur Consolidated)	2022			2021			2022			2021
Consolidated revenue	$	31,516		$	20,698		$	60,658		$	59,850
Consolidated net loss	$	(32,157	)	$	(31,261	)	$	(49,577	)	$	(58,197	)


	June 30, 2022		December 31, 2021
Raw materials and purchased parts	$	8,637	$	5,490
Work in progress		69		66
Finished goods		29,145		21,493
Total inventories	$	37,851	$	27,049


Balance as of May 4, 2021	$	19,839	$	19,839
Adjustment to fair value		398		4,237
Balance as of June 30, 2021	$	20,237
Balance as of December 31, 2021				24,076
Adjustment to fair value				53
Balance as of June 30, 2022			$	24,129

	For the Three Months Ended June 30, 2020
	(In Thousands)
	Oncology Innovation Platform		Global Supply Chain Platform		Commercial Platform		Consolidated Total
United States	$	—	$	2,720	$	23,281	$	26,001
United Kingdom		—		—		12,933		12,933
South Korea		—		1,060		—		1,060
China		5		120		—		125
Other foreign countries		—		53		—		53
Total revenue	$	5	$	3,953	$	36,214	$	40,172

	For the Six Months Ended June 30, 2021
	(In Thousands)
	Oncology Innovation Platform		Global Supply Chain Platform		Commercial Platform		Consolidated Total
United States	$	20,444	$	9,829	$	29,050	$	59,323
South Korea		—		1,112		—		1,112
India		—		906		—		906
China		17		841		—		858
Other foreign countries		510		239		—		749
Total revenue	$	20,971	$	12,927	$	29,050	$	62,948

	For the Six Months Ended June 30, 2020
	(In Thousands)
	Oncology Innovation Platform		Global Supply Chain Platform		Commercial Platform		Consolidated Total
United States	$	—	$	4,700	$	38,822	$	43,522
China		28,314		324		—		28,638
United Kingdom		—		—		12,933		12,933
South Korea		—		1,693		—		1,693
Other foreign countries		79		242		—		321
Total revenue	$	28,393	$	6,959	$	51,755	$	87,107

	Six Months Ended June 30
	2021			2020
	(in thousands)
Net cash used in operating activities	$	(69,090	)	$	(70,068	)
Net cash provided by investing activities		74,728			18,125
Net cash provided by financing activities		1,449			41,573
Net effect of foreign exchange rate changes		267			(403	)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	7,354		$	(10,773	)

		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number	Exhibit Title	Form	File	Exhibit	Filing Date

10.1	Agreement and Plan of Merger, by and among Athenex, Inc., Athenex Pharmaceuticals LLC, Kuur Therapeutics, Inc., the holders of the shares of Series C Preferred Stock or Series C-1 Preferred Stock (the “Merger Stockholders”), Kevin S. Boyle, Sr., Kurt C. Gunter and Melinda K. Lackey (the “Key Employees”), the members of the Company Board (as defined therein) (the “Independent Company Directors”) and Shareholder Representative Services LLC, solely as representative, agent and attorney-in-fact of the Merger Stockholders, Key Employees and Individual Company Directors, dated May 4, 2021.	Form 8-K	001-38112	10.1	May 5, 2021

10.2	Lock-Up Agreement between Athenex, Inc. and Touchstone Innovations Businesses LLP (IP Group), dated May 4, 2021.	Form 8-K	001-38112	10.2	May 5, 2021

10.3	Lock-Up Agreement between Athenex, Inc. and each of the parties named therein, dated as of May 4, 2021.	Form 8-K	001-38112	10.3	May 5, 2021

10.4	First Amendment and Limited Waiver to Credit and Guaranty Agreement between Athenex and Oaktree, dated June 3, 2021.	—	—	—	Filed herewith

10.5	Amended and Restated Co-Development Agreement between Baylor College of Medicine and Kuur Therapeutics Limited, dated February 28, 2020.	—	—	—	Filed herewith

10.6	Amended and Restated Exclusive License and Option Agreement between Baylor College of Medicine and Kuur Therapeutics Limited, dated February 28, 2020.	—	—	—	Filed herewith

31.1	Certification of the Chief Executive Officer and Board Chairman (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

31.2	Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

32.1	Certification of the Chief Executive Officer and Board Chairman (Principal Executive Officer) and the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	—	—	—	Filed herewith

101.SCH	Inline XBRL Taxonomy Extension Schema Document.	—	—	—	Filed herewith

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	—	—	—	Filed herewith

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	—	—	—	Filed herewith

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	—	—	—	Filed herewith

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	—	—	—	Filed herewith

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)	—	—	—	Filed herewith


		Incorporated by Reference (Unless Otherwise Indicated)
Exhibit Number	Exhibit Title	Form	File	Exhibit	Filing Date

10.1**#	Revenue Interest Purchase Agreement, by and among ATNX SPV, LLC, Athenex, Inc., and the Purchaser parties thereto, dated as of June 21, 2022.	—	—	—	Filed herewith

10.2#	Fourth Amendment to Credit and Guaranty Agreement, Second Amendment to the Warrants and Partial Release of Collateral, by and among Athenex, Inc., the Lenders and Warrant Holders party thereto, and Oaktree Fund Administration, LLC, as administrative agent for the Lenders, dated as of June 21, 2022.	—	—	—	Filed herewith

10.3	Fifth Amendment to Credit and Guaranty Agreement, by and among Athenex, Inc., the Lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent for the Lenders, dated as of June 29, 2022.	—	—	—	Filed herewith

10.4#	Equity Purchase Agreement, by and among TiHe Capital (Beijing) Co. Ltd., Athenex API Limited, Athenex Pharmaceuticals (China) Limited, Polymed Therapeutics, Inc., and Athenex, Inc., dated as of July 7, 2022.	—	—	—	Filed herewith

31.1	Certification of the Chief Executive Officer and Board Chairman (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

31.2	Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

32.1	Certification of the Chief Executive Officer and Board Chairman (Principal Executive Officer) and the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	—	—	—	Filed herewith

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	—	—	—	Filed herewith

101.SCH	Inline XBRL Taxonomy Extension Schema Document.	—	—	—	Filed herewith

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.	—	—	—	Filed herewith

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	—	—	—	Filed herewith

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	—	—	—	Filed herewith

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	—	—	—	Filed herewith

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)	—	—	—	Filed herewith


	Athenex, Inc.

Date: ~~August 5, 2021~~July 29, 2022	By:	/s/ Johnson Y.N. Lau
		Chief Executive Officer and Board Chairman (Principal Executive Officer)

Date: ~~August 5, 2021~~July 29, 2022	By:	/s/ ~~Randoll Sze~~Joe Annoni
		Chief Financial Officer (Principal Financial and Accounting Officer)