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

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

Forward-Looking Statements

Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of current or historical fact contained in this report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "should," "project," "will," "would," and similar expressions are generally intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:

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the termination of our license agreement for AJ201 with AnnJi Pharmaceutical Co., Ltd. ("AnnJi"), and disposal of our equity interest in Baergic Bio, Inc. ("Baergic") and rights to BAER-101;

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the uncertainty related to the timing and amounts expected to be realized from future milestone and royalty payments, if at all;

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the fact that we currently have no drug products for sale and that our success is dependent on our current or future product candidates receiving regulatory approval and being successfully commercialized;

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the possibility that serious adverse or unacceptable side effects are identified during the development of our current or future product candidates, such that we would need to abandon or limit development of some of our product candidates;

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our ability to successfully develop, partner, or commercialize any of our current or future product candidates including IV tramadol and ATX-04;

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the substantial doubt raised about our ability to continue as a going concern, which may hinder our ability to obtain future financing;

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the significant losses we have incurred since inception and our expectation that we will continue to incur losses for the foreseeable future;

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our need for substantial additional funding, which may not be available to us on acceptable terms, or at all, which unavailability could force us to delay, reduce or eliminate our product development programs or commercialization efforts;

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our reliance on third parties for several aspects of our operations;

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our reliance on clinical data and results obtained by third parties that could ultimately prove to be inaccurate, unreliable, or unacceptable to regulatory authorities;

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the possibility that we may not receive regulatory approval for any or all of our current or future product candidates, or that such approval may be significantly delayed due to scientific or regulatory reasons;

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the fact that even if one or more of our current or future product candidates receives regulatory approval, they will remain subject to substantial regulatory scrutiny;

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the effects of current and future laws and regulations relating to fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations;

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the effects of competition for our current or future product candidates and the potential for new products to emerge that provide different or better therapeutic alternatives for our targeted indications;

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the possibility that the government or third-party payors fail to provide adequate coverage and payment rates for our current or future product candidates;

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our ability to establish sales and marketing capabilities or to enter into agreements with third parties to market and sell our current or future product candidates;

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our exposure to potential product liability claims;

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the protection of our intellectual property and our potential inability to maintain sufficient patent protection for our technology and products;

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our ability to maintain compliance with the obligations under our intellectual property licenses and funding arrangements with third parties, without which licenses and arrangements we could lose rights that are important to our business;

	●	the fact that Fortress Biotech, Inc. ("Fortress") controls a majority of the voting power of our outstanding capital stock and has rights to receive significant share grants annually;
	●	the fact that the OTCID Market is a thinly traded market lacking in liquidity, and subject to volatility;

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our common stock may be considered a "penny stock" and, therefore, may be subject to certain rules that make it difficult for brokers, dealers, or investors to sell the shares; and

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the risks described under the section titled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K").

The forward-looking statements contained in this report reflect our views and assumptions as of the effective date of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Except as required by law, we assume no responsibility for updating any forward-looking statements to reflect events or circumstances that may arise after the date of this report, except as required by applicable law.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Overview

Avenue Therapeutics, Inc. ("Avenue" or the "Company") is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Our product candidates include ATX-04, a selective β2-adrenergic agonist for Pompe disease and an intravenous tramadol ("IV tramadol"), a schedule IV opioid for the treatment of post-operative acute pain. We may in the future acquire additional product candidates.

Our net loss for the nine months ended September 30, 2026 and 2025 was approximately $2.1 million and $2.2 million, respectively. As of September 30, 2026, we had an accumulated deficit of approximately $107.6 million. Substantially all our net losses resulted from costs incurred for research and development, and general and administrative purposes.

We expect to continue to incur research and development costs and general and administrative costs and incur operating losses for at least the next several years as we continue the development of our product candidates.

We intend to obtain additional capital through the sale of debt or equity securities or other arrangements to fund our operations, research and development activity or regulatory approval activity; however, there can be no assurance that we will be able to raise the necessary capital under acceptable terms, if at all. The sale of additional equity or securities convertible into or exercisable for equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of our common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. We may also seek financing through strategic partnerships for some or all of our portfolio assets. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

We are a majority-controlled subsidiary of Fortress. For related party transactions, see Note 4 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Avenue Therapeutics, Inc. was incorporated in Delaware on February 9, 2015. Our executive offices are located at 1111 Kane Concourse, Suite 301, Bay Harbor Islands, FL 33154. Our telephone number is (781) 652-4500, and our email address is [email protected].

Current Product Candidates

ATX-04

In February 2026, we entered into a license agreement with Duke University ("Duke"), pursuant to which we obtained an exclusive worldwide license (the "ATX-04 License") from Duke to certain patents and know-how pertaining to clenbuterol ("ATX-04") for the treatment of lysosomal storage diseases.

Under the ATX-04 License, we made upfront payments totaling approximately $19,000 to Duke and have an obligation to make development, regulatory, and commercial milestone payments upon the achievement of certain milestones. In addition, we are obligated to pay a tiered low single-digit royalty on future net sales of ATX-04. Beginning with calendar year 2028 and until the first regulatory approval, we are obligated to make minimum annual royalty payments. In the event the ATX-04 License is terminated, minimum royalty obligations will cease, and we will only be responsible for amounts due up to the termination date.

ATX-04 was studied in a 52-week Phase I/II clinical study conducted at Duke in patients with Pompe disease on baseline ERT and demonstrated that ATX-04 treatment was associated with meaningful improvements across multiple clinically and biologically relevant domains. Treatment with ATX-04 resulted in improvements in six-minute walk distance, reflecting enhanced functional capacity, as well as increased respiratory muscle strength, including maximal inspiratory pressure. ATX-04 was also associated with reductions in muscle glycogen burden assessed by biopsy, increased GAA activity with improved intracellular trafficking, and broad normalization of disease-relevant gene expression. The therapy was generally well tolerated with chronic, titrated dosing.

Based on this data, Avenue is currently in discussions with the FDA regarding a pivotal study design for Pompe disease, and subsequent to those discussions, will seek to raise the necessary capital to fund the pivotal study and initiate the trial.

IV Tramadol

We participated in a Type C meeting with the FDA in March 2023 to discuss a proposed study protocol to assess the risk of respiratory depression related to opioid stacking on IV tramadol relative to an approved opioid analgesic. We announced in April 2023 that we received official meeting minutes from the Type C meeting with the FDA. The Type C meeting minutes indicated that we were in agreement with the FDA on a majority of the proposed protocol. The minutes indicated that the FDA also agreed that a successful study will support the submission of a complete response to the second Complete Response Letter for IV tramadol pending final agreement on a statistical analysis plan and a full review of the submitted data in the complete response as well as concurrence from the FDA's Division of Anesthesia, Analgesia, and Addiction Products.

In January 2024, we announced that we reached final agreement with the FDA on the Phase 3 safety study protocol and statistical analysis approach, including the primary endpoint. The final non-inferiority study is designed to assess the risk of opioid-induced respiratory depression related to opioid stacking on IV tramadol compared to IV morphine. The study will randomize approximately 300 post bunionectomy patients to IV tramadol or IV morphine for pain relief administered during a 48-hour post-operative period. Of note, this study design was used in the first of two Phase 3 trials. In a Phase 3 safety study, patients would have access to IV hydromorphone, a Schedule II opioid, for rescue of breakthrough pain. The primary endpoint is a composite of elements indicative of respiratory depression.

We are currently evaluating the path forward for IV tramadol as a product candidate. The initiation of the study is subject to the Company obtaining the necessary financing or partnership.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are 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 judgments that involve a significant level of estimation uncertainty and affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other 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. Actual results may differ from these estimates under different assumptions or conditions.

For a discussion of our critical accounting estimates, see the Management's Discussion and Analysis of the Results of Operations in the 2025 Form 10-K. There were no material changes in our critical accounting estimates or accounting policies from December 31, 2025.

Accounting Pronouncements

See Note 2, "Significant Accounting Policies", to our unaudited consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Smaller Reporting Company Status

We are a "smaller reporting company," meaning that either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we chose to present only the two most recent fiscal years of audited financial statements in the 2025 Form 10-K, have reduced disclosure obligations regarding executive compensation and certain other matters, and smaller reporting companies are permitted to delay adoption of certain recent accounting standards.

Basis of Presentation and Principles of Consolidation

The Company's consolidated financial statements have been prepared in conformity with U.S. GAAP, include all adjustments necessary for the fair presentation of the Company's financial position for the periods presented and are stated in U.S. dollars. Prior to the sale of Baergic in November 2025, the Company's consolidated financial statements included the accounts of the Company and the accounts of the Company's subsidiary, Baergic. All intercompany balances and transactions were eliminated. Because the Company owned less than 100% of Baergic, the Company recorded net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in Baergic by the respective non-controlling parties.

Results of Operations

General

At September 30, 2026, we had an accumulated deficit of $107.6 million. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our product candidates are still in development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenues.

Comparison of the Three Months Ended September 30, 2026 and 2025

		For The Three Months Ended
		September 30,								Change
($ in thousands)		2026				2025				$				%
Operating expenses:
Research and development		$	212			$	177			$	35				20	%
General and administrative			492				547				(55	)			(10	)%
Total operating expenses			704				724				(20	)			(3	)%
Income (loss) from operations			(704	)			(724	)			20				(3	)%
Other income:
Interest income			13				34				(21	)			(62	)%
Change in fair value of warrant liabilities			-				(2	)			2				(100	)%
Total other income			13				32				(19	)			(59	)%
Net income (loss)			(691	)			(692	)			1				(0	)%
Net loss attributable to non-controlling interests			-				(9	)			9				100	%
Net income (loss) attributable to common stockholders		$	(691	)		$	(683	)		$	(8	)			1	%

Research and Development Expenses

For the three months ended September 30, 2026 and 2025, research and development expenses were relatively consistent at approximately $0.2 million and $0.2 million, respectively, reflecting increased consulting costs offset by a decrease in personnel-related expenses.

We expect our research and development activities to increase as we begin to develop ATX-04 and attempt to gain regulatory approval for our existing product candidates, reflecting costs associated with employee-related expenses, license fees and milestone payments related to in-licensed product and technology, expenses incurred under agreements with contract research organizations ("CROs"), investigative sites and consultants that conduct our clinical trials, the cost of acquiring and manufacturing clinical trial materials, and costs associated with non-clinical activities, and regulatory interactions, submissions, and approvals.

General and Administrative Expenses

For the three months ended September 30, 2026 and 2025, general and administrative expenses were relatively consistent at approximately $0.5 million and $0.5 million, respectively, reflecting increased professional service-related costs, offset by decreased personnel-related expenses.

Interest Income

Interest income was $13,000 and $34,000 for the three months ended September 30, 2026 and 2025, respectively.

Change in Fair Value of Warrant Liabilities

There was no material change in fair value for the three months ended September 30, 2026. The change in fair value of warrant liabilities was a loss of approximately $2,000 for the three months ended September 30, 2025. Warrants to purchase common stock that are required to be classified as a liability are valued at fair market value at each reporting period. The change in the fair value of warrant liabilities was primarily due to the fluctuation in our stock price.

Comparison of the Nine Months Ended September 30, 2026 and 2025

		For the Nine Months Ended
		September 30,								Change
($ in thousands)		2026				2025				$						%
Revenue
Other revenue		$	-			$	1,404			$	(1,404	)			(100	)%
Operating expenses:
Research and development			659				780				(121	)			(16	)%
General and administrative			1,466				2,955				(1,489	)			(50	)%
Total operating expenses			2,125				3,735				(1,610	)			(43	)%
Loss from operations			(2,125	)			(2,331	)			206				9	%
Other income:
Interest income			48				96				(48	)			(50	)%
Change in fair value of warrant liabilities			1				14				(13	)			(93	)%
Total other income			49				110				(61	)			(55	)%
Net loss			(2,076	)			(2,221	)			145				7	%
Net loss attributable to non-controlling interests			-				(21	)			21				100	%
Net loss attributable to common stockholders		$	(2,076	)		$	(2,200	)		$	124				6	%

Revenue

No revenue was recognized for the nine months ended September 30, 2026. For the nine months ended September 30, 2025, we generated $1.4 million of net revenue related to the AnnJi license termination and program transfer.

Research and Development Expenses

For the nine months ended September 30, 2026 and 2025, research and development expenses were $0.7 million and $0.8 million, respectively. The decrease of $0.1 million was associated with a $0.2 million decrease in personnel related costs, including salaries, benefits and stock-based compensation, partially offset by a $0.1 million increase in consulting costs.

We expect our research and development activities to increase as we begin to develop ATX-04 and attempt to gain regulatory approval for our existing product candidates, reflecting costs associated with employee-related expenses, license fees and milestone payments related to in-licensed product and technology, expenses incurred under agreements with CROs, investigative sites and consultants that conduct our clinical trials, the cost of acquiring and manufacturing clinical trial materials, and costs associated with non-clinical activities, and regulatory interactions, submissions, and approvals.

General and Administrative Expenses

For the nine months ended September 30, 2026 and 2025, general and administrative expenses were $1.5 million and $3.0 million, respectively. The decrease of $1.5 million is related to a decrease of $0.8 million in legal expenses due to costs incurred related to the AnnJi License Agreement termination in 2025, a $0.5 million decrease in personnel-related costs, including salaries, severance, benefits and stock-based compensation, a $0.1 million decrease in equity fees to Fortress associated with financing activities in 2025, and a $0.1 million decrease in consulting costs.

Interest Income

Interest income was $48,000 and $96,000 for the nine months ended September 30, 2026 and 2025, respectively.

Change in Fair Value of Warrant Liabilities

The change in fair value of warrant liabilities was a gain of approximately $1,000 and $14,000 for the nine months ended September 30, 2026 and 2025, respectively. Warrants to purchase common stock that are required to be classified as a liability are valued at fair market value at each reporting period. The change in the fair value of warrant liabilities was primarily due to the fluctuation in our stock price.

Liquidity and Capital Resources

At September 30, 2026, we had $1.5 million in cash and cash equivalents. To date, we have funded our operations primarily with proceeds from various public and private offerings of our common stock. We expect that our expenses will continue for the foreseeable future as we continue to advance our product candidates through clinical development and ultimately regulatory approval, and seek opportunities to license or acquire additional products. We will require additional financing to carry out our business plan and implement our strategy, and continue to analyze various alternatives, including potentially obtaining lines of credit, debt or equity financings. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Since March 2025, our common stock has been quoted on the over-the-counter market ("OTCID") under the symbol "ATXI". Being listed on the OTCID may make it more difficult for us to obtain additional funding. For example, we are no longer eligible to use our shelf registration statement on Form S-3, which means we cannot access our ATM facility under the At the Market Offering Agreement (the "ATM Agreement") with H.C. Wainwright & Co. LLC dated May 10, 2024. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product candidates or marketing territories. Without additional capital, we do not expect our cash will be sufficient to fund our projected operating requirements or allow us to fund our operating plan for more than 12 months from the date of issuance of the accompanying unaudited consolidated financial statements. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure.

Cash Flows for the Nine Months Ended September 30, 2026 and 2025

		For the Nine Months Ended
		September 30,
($ in thousands)		2026				2025
Total cash and cash equivalents provided by (used in):
Operating activities		$	(1,335	)		$	(979	)
Financing activities			-				2,094
Net increase (decrease) in cash and cash equivalents		$	(1,335	)		$	1,115

Operating Activities

Net cash and cash equivalents used in operating activities was $1.3 million for the nine months ended September 30, 2026, primarily comprised of our $2.1 million net loss, partially offset by increases of $0.6 million in operating assets and liabilities and $0.2 million in share-based compensation.

Net cash and cash equivalents used in operating activities was $1.0 million for the nine months ended September 30, 2025, primarily comprised of our $2.2 million net loss, partially offset by an increase of $0.7 million in operating assets and liabilities and $0.5 million in share-based compensation.

Financing Activities

During the nine months ended September 30, 2026, no net cash and cash equivalents was used in or provided by financing activities.

Net cash and cash equivalents provided by financing activities was $2.1 million for the nine months ended September 30, 2025 primarily due to $2.1 million in net proceeds from the sale of common stock pursuant to the ATM Agreement.

Contractual Obligations

We enter into contracts in the normal course of business with licensors, CROs, contract manufacturing organizations ("CMOs") and other third parties for the procurement of various products and services, including without limitation biopharmaceutical development, biologic assay development, commercialization, clinical and preclinical development, clinical trials management, pharmacovigilance and manufacturing and supply. These contracts typically do not contain minimum purchase commitments (although they may) and are generally terminable by us upon written notice. Payments due upon termination or cancelation/delay consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation; in certain cases, our contractual arrangements with CROs and CMOs include cancelation and/or delay fees and penalties.

We have obligations under various license agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory, and commercial milestones (such as clinical trial development, product approval by the FDA or other regulatory agencies, product launch, or product sales). These commitments include:

We are party to a license agreement with Revogenex, pursuant to which we maintain a worldwide exclusive license to make, market and sell IV tramadol. A regulatory milestone of $3.0 million is payable on approval and high single-digit to low double-digit royalties are payable on net sales.

We are party to a license agreement with Duke, pursuant to which we maintain a worldwide exclusive license to develop ATX-04. A regulatory milestone of $0.3 million is payable on approval and low single-digit royalties are payable on net sales. Additionally, beginning with calendar year 2028, we are obligated to make minimum annual royalty payments. In the event the ATX-04 License is terminated, minimum royalty obligations will cease, and we will only be responsible for amounts due up to the termination date.

We are party to a share repurchase agreement with InvaGen, which requires us to pay InvaGen seven and a half percent (7.5%) of the proceeds of future financings, as defined in the agreement, up to $4.0 million in aggregate. For the nine months ended September 30, 2025, the Company made payments totaling $0.2 million to InvaGen. No such payments were made during the nine months ended September 30, 2026. Approximately $1.4 million in aggregate has been paid to InvaGen under the share repurchase agreement as of September 30, 2026.