Soleno Therapeutics: Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "appears," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, any projections of financial information; any statements about our continued commercialization of VYKAT XR, any statements regarding the closing of the tender offer by Neurocrine Biosciences, Inc. to purchase all of our issued and outstanding common stock, any statements about historical results that may suggest trends for our business; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectation or belief regarding future events, our products, product sales, expenses, liquidity, cash flow, market growth rates or enforceability of our intellectual property rights and related litigation expenses; and any statements of assumptions underlying any of the foregoing. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. All forward-looking statements are based on information and estimates available to us at the time of filing this Quarterly Report on Form 10-Q and are not guarantees of future performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

The interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2025, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2025.

Business Overview

We are a biopharmaceutical company developing novel therapeutics for the treatment of rare diseases. On March 26, 2025, we announced that our lead product candidate, VYKAT XR (diazoxide choline) extended-release tablets, formerly known as DCCR, had been approved by the U.S. Food and Drug Administration (FDA). VYKAT XR is indicated to treat hyperphagia in adults and pediatric patients four years of age and older with Prader-Willi syndrome (PWS).

We began commercial marketing and sales and recognizing revenue during the three months ended June 30, 2025. The transaction price that we recognize as revenue for VYKAT XR sales includes an estimate of variable consideration, which includes rebates, discounts, returns, and copay assistance that are offered within our contract with our specialty pharmacy. Refer to Note 3 of the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

On April 6, 2026, we announced that we had entered into an Agreement and Plan of Merger (the Merger Agreement) with Neurocrine Biosciences, Inc. (Neurocrine) and Sigma Merger Sub, Inc. (Merger Sub) on April 5, 2026, pursuant to which Neurocrine, through Merger Sub, agreed to commence a cash tender offer (the Offer) to purchase all of our issued outstanding shares of common stock at a price per share of $53.00 per share. The Offer commenced on April 20, 2026 and is expected to close during the three months ending June 30, 2026, pursuant to the terms of the Merger Agreement, with the result being that we will become a wholly-owned subsidiary of Neurocrine.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our

critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in 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. Actual results may differ from these estimates under different assumptions and conditions.

There have been no significant changes during the three months ended March 31, 2026 compared to those previously disclosed in "Critical Accounting Policies and Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2025. Our significant accounting policies are more fully described in Note 3 of our most recent Annual Report on Form 10-K.

Results of Operations

Comparison of the three months ended March 31, 2026 and 2025 (in thousands)

Product revenue, net

Product revenue, net was $94.6 million for the three months ended March 31, 2026, due to sales of VYKAT XR after FDA approval was obtained in March 2025, compared to zero for the three months ended March 31, 2025.

Cost of goods sold

Cost of goods sold was $1.2 million for the three months ended March 31, 2026, due to sales of VYKAT XR after FDA approval was obtained in March 2025, compared to zero for the three months ended March 31, 2025. Prior to receiving FDA approval, costs associated with the manufacturing of VYKAT XR were expensed as research and development expense. As such, a portion of the cost of inventory sold during the period was expensed prior to FDA approval.

Research and development expense

Research and development expenses were $11.3 million for the three months ended March 31, 2026, a decrease of $2.2 million from the three months ended March 31, 2025. Pre-commercial launch and development costs, 2025 MAA submission in Europe, supply chain activities, and clinical activities decreased $2.2 million between comparable periods. The cadence of our research and development expenditures will fluctuate depending upon the state of our clinical programs, the timing of manufacturing and other projects necessary to support the submission of our regulatory filings and research activities.

Selling, general and administrative expense

Selling, general and administrative expenses were $50.4 million for the three months ended March 31, 2026, an increase of $21.1 million from the three months ended March 31, 2025. Personnel costs including hiring expense and other associated headcount costs increased $12.7 million as we have hired additional employees in support of our commercial launch and increased business activities. New program costs associated with commercial launch activities, including disease state education, analytics, other

marketing programs, medical affairs and patient advocacy activities increased $7.1 million and costs for international expansion increased $1.2 million. Selling, general and administrative expenses are anticipated to increase as we continue commercialization of VYKAT XR.

Change in fair value of contingent consideration

We are obligated to make cash payments up to a maximum of $20.9 million to the former Essentialis stockholders upon the achievement of certain commercial milestones associated with the sales of VYKAT XR in accordance with the terms of our 2017 merger agreement with Essentialis. We achieved the first commercial milestone of $100 million in cumulative revenue in our fourth quarter 2025 and subsequently paid $4.0 million during the three months ended March 31, 2026 and recorded $2.9 million for the remainder in accounts payable. We achieved the second and final commercial milestone of $200 million in cumulative revenue in our first quarter 2026. The fair value of the second and final payment was $13.8 million as of March 31, 2026. During the three months ended March 31, 2025, the fair value increased by $3.0 million from the $14.8 million fair value as of December 31, 2024.

Other income (expense), net

We had other income (expense), net of $3.6 million in the three months ended March 31, 2026, compared to $2.0 million during the three months ended March 31, 2025. The increase was primarily due to an increase in interest income driven by higher cash and cash equivalents and marketable securities.

Liquidity and Capital Resources

We had net income of $31.4 million, generated $26.0 million of net cash from operating activities during the three months ended March 31, 2026 and had an accumulated deficit of $400.0 million at March 31, 2026 as a result of losses incurred prior to 2025. We had $133.0 million in cash and cash equivalents, $396.0 million of marketable securities and $268.3 million of working capital on March 31, 2026. We had lease obligations totaling $4.4 million to be paid through August 2029, consisting of two operating leases for office space in Redwood City, California.

As of March 31, 2026, we had $50.0 million outstanding under our loan and security agreement with Oxford. Under the terms of the loan agreement with Oxford, following FDA approval of VYKAT XR, an additional $50 million became available through September 30, 2025, but was not drawn down. Following the amendment of our loan and security agreement in November 2025, the final three tranches of an aggregate of $100 million may be made available upon mutual consent with Oxford. As a result of a milestone achieved in 2025, the loan carries an interest-only period of 60 months and a total term of 72 months. The term loan accrues interest at a floating rate equal to, subject to certain conditions, (a) 1-month term SOFR plus (b) 5.50%.

In July 2025, we closed an underwritten public offering of 2,705,882 shares of our common stock at a public offering price of $85.00 per share, which included the exercise in full by the underwriters of their option to purchase additional shares of our common stock. The gross proceeds of the public offering were $230.0 million, before deducting the underwriter discount and other offering expenses, totaling approximately $14.3 million.

We believe that our existing cash, cash equivalents and marketable securities and cash flows from operations will be sufficient to meet the company's working capital needs for the next twelve months. Our long-term capital requirements will depend on several factors, most notably the timing and degree of success of our continued commercialization of VYKAT XR. We believe that we will continue to have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means, but the access to such capital resources is uncertain and is not assured.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):

Net cash provided by (used in) operating activities

During the three months ended March 31, 2026, operating activities provided net cash of $26.0 million, which was primarily due to net income of $31.4 million which included $16.1 million of stock-based compensation, $0.5 million of depreciation and amortization, $0.1 million of non-cash lease expense, non-cash expense of $0.5 million for the change in fair value of contingent consideration, and $0.2 million added back for accretion of premium/discount on marketable securities. Additionally, there was a $22.4 million net increase in cash used during the three months ended March 31, 2026 due to changes in operating assets and liabilities.

During the three months ended March 31, 2025, operating activities used net cash of $32.8 million, which was primarily due to net loss of $43.8 million which included $14.7 million of stock-based compensation, $0.5 million of depreciation and amortization, $0.2 million of non-cash lease expense, non-cash expense of $3.0 million for the change in fair value of contingent consideration, and $1.0 million added back for accretion of premium/discount on marketable securities. Additionally, there was a $6.4 million net increase in cash used during the three months ended March 31, 2025 due to changes in operating assets and liabilities.

Net cash provided by investing activities

During the three months ended March 31, 2026, we used $101.3 million for purchases of marketable securities. We received proceeds of $139.3 million from maturities of marketable securities.

During the three months ended March 31, 2025, we used $45.4 million for purchases of marketable securities. We received proceeds of $68.3 million from maturities of marketable securities.

Net cash provided by (used in) financing activities

During the three months ended March 31, 2026, we paid $1.1 million in milestone payments equal to the amount of contingent consideration liability recognized at the Essentialis acquisition date related to achieving the first commercial milestone partially offset by $0.1 million of proceeds from the exercise of stock options.

During the three months ended March 31, 2025, we received $3.0 million from the exercise of common stock warrants. We also received $0.3 million from the exercise of stock options. We paid $0.1 million of debt issuance costs.

Off-Balance Sheet Arrangements

As of March 31, 2026 and December 31, 2025, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by the SEC.

Recent Accounting Pronouncements

See "Recent Accounting Pronouncements" described in Note 3, Basis of Presentation and Summary of Significant Accounting Policies within Notes to the Condensed Consolidated Financial Statements.