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Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2025
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). The Company’s financial statements are presented on a condensed consolidated basis, which include the accounts of ARS Pharmaceuticals, Inc., ARS Pharmaceuticals Operations, Inc. and ARS Pharmaceuticals IRL, Limited. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s functional and reporting currency is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income in the condensed consolidated statements of operations and comprehensive loss. All adjustments considered necessary for a fair presentation have been included. Unaudited Interim Condensed Consolidated Financial Statements The accompanying condensed consolidated balance sheet as of June 30, 2025, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2025 and 2024, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2025 and 2024, and the condensed consolidated statements of cash flows for the six months ended June 30, 2025 and 2024, are unaudited. The balance sheet as of December 31, 2024 was derived from the audited financial statements as of and for the year ended December 31, 2024. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2024, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2025, the condensed consolidated results of its operations for the three and six months ended June 30, 2025 and 2024, and its cash flows for the six months ended June 30, 2025 and 2024. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2025 and 2024 are also unaudited. The condensed consolidated results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected for the full year ending December 31, 2025 or any other period. Use of Estimates The preparation of the Company’s condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s condensed consolidated financial statements are revenue recognized under collaboration agreements, accruals for variable components of product revenue, accruals for research and development expenses, and valuation of equity awards. These estimates and assumptions are based on current facts, historical experience and various other factors 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 and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Cash and Cash Equivalents Cash and cash equivalents include cash readily available in checking, money market mutual funds, and short-term investments with remaining maturities when purchased of 90 days or less. The Company considers all highly liquid investments with remaining maturities when purchased of 90 days or less to be cash equivalents. Accounts Receivable and Allowance for Credit Losses Accounts receivable includes trade accounts receivable from product sales to customers, partner receivables for reimbursable research and development costs, royalties, license fees, and milestone payments under the Company’s collaboration agreements, and partner receivables for supply of neffy under the Company’s supply agreements. Trade accounts receivable are recorded at wholesale acquisition cost (“WAC”), less purchase price discounts, prompt pay discounts, chargebacks, and an allowance for credit losses, if any. The allowance for credit losses is the Company’s estimate of losses over the life of the receivables. The Company determines the allowance for credit losses for accounts receivable based on each customer’s or partner’s accounts receivable balance and age, their financial condition, and the general economic environment. The Company must also use professional judgment for its allowance for credit losses on trade accounts receivable as neffy was commercially launched in September 2024 and historical data is limited. The Company is currently operating under the Title Agreement (as defined in Note 3 – Revenue) with its Title Agent (as defined in Note 3 – Revenue) and the Title Agent retains all credit and collection risk on product sales to the Company’s wholesale distributors and pharmacy customers. When the collectability of an invoice is no longer probable, the Company will create a reserve for that specific receivable. If a receivable is determined to be uncollectible, it is charged against the general credit loss reserve or the reserve for the specific receivable, if one exists. No allowance for credit losses was deemed necessary at June 30, 2025 or December 31, 2024. Investments The Company invests excess cash in investment grade fixed income securities. These investments are included in short-term investments on the condensed consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive (loss) gain, net. Realized gains and losses on the sale of securities are recognized in net loss. Fair Value of Financial Instruments Cash, cash equivalents, and short-term investments are carried at fair value. The carrying amounts of all accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, and contract liability are considered to be representative of their respective fair values because of the short-term nature of those instruments. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and limits its exposure to cash risk by placing its cash with high credit quality financial institutions. The Company reviews its financial instruments portfolio on a quarterly basis to determine if any unrealized losses have resulted from a credit loss or other factors. As part of the review, management considers factors such as historical experience, market data, issuer-specific factors, and current economic conditions. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. The Company is also subject to credit risk related to its accounts receivable from product sales and revenue under collaboration and supply agreements. neffy is distributed primarily through wholesale distributors and pharmacies. These entities are not obligated to purchase any set number of units and they distribute neffy on demand as orders are received. The Company enters into collaboration and supply agreements with pharmaceutical companies under which the Company is entitled to receive payments for royalties, license fees, milestone achievements, reimbursable costs for research and development services, and supply of neffy. The Company extends credit to its customers and partners in the normal course of business after evaluating their overall financial condition. As stated above, the Company is currently operating under the Title Agreement with its Title Agent and the Title Agent retains all credit and collection risk on sales to the Company’s wholesale distributors and pharmacy customers. The Company’s Title Agent accounts for 76% and 93% of the Company’s accounts receivable balance as of June 30, 2025 and December 31, 2024, respectively. One additional customer accounted for 22% of accounts receivable as of June 30, 2025. For the three and six months ended June 30, 2025, four and six customers accounted for 82% and 96% of the Company’s gross product sales, with each individual customer ranging from 15% to 23% and 10% to 25% of the Company’s gross product sales, respectively. For the three and six months ended June 30, 2025, one customer accounted for all revenue under collaboration agreements and supply agreements. For the three and six months ended June 30, 2024, one customer accounted for all revenue under collaboration agreements, and there was no product sales or revenue under supply agreements. Historically, the Company has not experienced any credit losses. Inventories Inventories consist of finished goods held for sale and distribution, raw materials and work in process, and include labor and overhead. Inventories are stated at the lower of cost or net realizable value, and are determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company periodically reviews its inventory to identify obsolete, slow-moving, or otherwise unsalable inventories, and establishes allowances for situations in which the cost of the inventory is not expected to be recovered. Such impairment charges, if any, are recorded in cost of goods sold on the condensed consolidated statements of operations. The Company capitalizes inventory costs after regulatory approval, when future commercialization is considered probable, and a future economic benefit is expected to be realized. Prior to regulatory approval, the Company records inventory costs as research and development expenses. As such, when regulatory approval is received, this may result in zero-cost inventory which does not have a carrying value. This inventory is available to the Company to utilize for commercial operations as well as ongoing research and development activities. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years. Repair and maintenance costs are charged to expense as incurred. Impairment of Long-Lived Assets Long-lived assets consist primarily of property and equipment and intangible assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate, including its eventual residual value. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value. The Company has not recognized any impairment losses from inception through June 30, 2025. Leases The Company determines the initial classification and measurement of its right-of-use (“ROU”) asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The lease liability is calculated by using the present value of all lease payments, with the present value determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment as well as a review of peer companies. Variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. Intangible Assets Intangible assets are measured at fair value as of the acquisition date or, in the case of commercial milestone payments, the date they become due. The evaluation of intangible assets includes assessing the amortization period for which the asset is expected to contribute to the future cash flows of the Company. Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis when the Company is unable to reliably estimate the pattern of cash flow. Revenue Recognition The Company’s revenues consist of product sales of neffy and revenue derived from its collaboration, out-licensing, and supply agreements. See Note 3 – Revenue for more detail on product revenue, and Note 8 – Collaboration and Out-Licensing for more detail on revenue from collaboration agreements, out-licensing agreements, and supply agreements. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The provisions of ASC 606 require the following steps to determine revenue recognition: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. At contract inception, the Company assesses the goods or services promised within each contract, determines whether each promised good or service is distinct and identifies those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Cost of Goods Sold Cost of goods sold primarily consists of direct and indirect costs related to the manufacture of neffy for commercial sale, including salaries and related expenses for personnel, stock-based compensation, third-party manufacturing costs, raw material and component costs, packaging services, freight, storage costs, distribution fees, amortization of capitalized in-licensed costs, supply agreement fees, and royalties on product sales. Prior to the FDA approval of neffy in August 2024, costs incurred for the manufacture of neffy were recorded as research and development expenses, which resulted in zero-cost inventory. As a result, the cost of goods sold related to neffy initially reflects a lower average per unit cost of materials, as previously expensed zero-cost inventory is utilized for commercial production and sold to customers. Research and Development Costs Research and development costs are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, external research and development costs incurred under agreements with contract research organizations, investigative sites and consultants to conduct clinical studies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates (including neffy prior to FDA approval in August 2024) for clinical trials, and other allocated expenses. Payments for research and development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying condensed consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. The Company uses judgments and estimates to determine the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. Selling, General and Administrative Costs Selling, general and administrative costs are expensed in the period incurred. Selling, general and administrative costs primarily consist of marketing-related expenses, salaries and related expenses for personnel, including meals and travel-related expenses incurred by the sales team, stock-based compensation, legal fees incurred relating to corporate and patent matters, professional fees incurred for accounting, auditing, tax, and other consulting services, and insurance costs. Advertising Costs for producing advertising are expensed when incurred. Costs for communicating advertising, such as search engine marketing, banner advertisements, social media advertisements, and print advertisements, are recorded as prepaid expenses and then expensed when the advertisement occurs. For the three and six months ended June 30, 2025, advertising costs were $20.9 million and $31.9 million, respectively. No advertising costs were incurred for the three and six months ended June 30, 2024. Patent Costs Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statements of operations and expensed as incurred since recoverability of such expenditures is uncertain. License Fees Costs incurred to acquire technology licenses and milestone payments made on existing agreements are expensed or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. Stock-Based Compensation Stock-based compensation expense represents the cost of the grant date fair value of stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company recognizes expense for awards subject to performance-based milestones over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur. In the event that stock-based awards are granted in contemplation of or shortly before a planned release of material non-public information, and such information is expected to result in a material increase in the share price of the Company’s common stock, the Company may consider whether an adjustment to the observable market price is required when estimating the grant date fair value. Comprehensive Loss Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss typically consists of the change in unrealized gains and losses on available-for-sale securities. Segment Reporting Operating segments are components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker for purposes of making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment. Net Loss Per Share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, stock options, warrants, and unvested restricted stock units, are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive. The following securities are excluded from the calculation of weighted-average dilutive common shares because their inclusion would have been anti-dilutive:
|  | As of June 30, |
|  | 2025 |  |  | 2024 |
Warrants to purchase common stock |  |  | 45,456 |  |  |  | 45,456 |
Common stock options granted and outstanding |  |  | 17,271,990 |  |  |  | 14,436,432 |
Unvested restricted stock units |  |  | 1,382 |  |  |  | 2,763 |
Total |  |  | 17,318,828 |  |  |  | 14,484,651 |
Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)–Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires issuers to make additional disclosures with respect to segment expenses, including required disclosure on an annual and interim basis for significant segment expenses and other segment items. ASU 2023-07 also permits the disclosure of more than one measure of a segment’s profit or loss. ASU 2023-07 was effective for the Company on January 1, 2024 for annual periods and on January 1, 2025 for interim periods. The adoption of ASU 2023-07 resulted in enhanced disclosures as included in Note 15 – Segment Information and did not impact the Company’s condensed consolidated financial statements. Recently Issued Accounting Pronouncements — Not Yet Adopted From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted as of the specified effective date. The Company believes the impact of recently issued standards, other than those noted below, and any issued but not yet effective standards will not have a material impact on our financial statements upon adoption. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)–Improvements to Income Tax Disclosures (“ASU 2023-09”). The new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The amendments in this update are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company does not expect to early adopt the new standard. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”). The amendments in this update require disclosure, in the notes to the financial statements, of specific expense categories present within expense captions presented on the face of the income statement within continuing operations of public business entities. The amendments in this update are effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any and all prior periods presented in the financial statements. The impact of adoption of this ASU on the Company’s disclosures is currently being evaluated.

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