Risk Factors Update Summary

• Outstanding options to purchase common stock increased from 8 to 18, with exercise price rising from $1.42 to $1.49.
• Uncertainty in regulatory approval despite positive results in earlier trials.
• Strategic alliances and collaborations pose risks, including revenue and cost synergies, disputes, and performance failures.
• The company may not have sufficient insurance coverage for significant losses due to disruptions in manufacturing facilities.
• Increased risk of substantial litigation expenses and diversion of resources due to intellectual property infringement claims in other jurisdictions.
• Sales of ETUARY accounted for 98.9% and 96.9% of total revenue in 2023 and 2022, respectively. A decrease in ETUARY sales could significantly impact business.
• Failure to achieve or maintain market acceptance for products may impact business profitability.
• Disclosed risks related to failure to comply with PRC regulations on employee equity incentive plans, potentially resulting in fines and legal sanctions.
• Added detailed regulations on Personal Information Protection Law in the PRC, including data storage requirements and fines of up to $7.2 million or 5% of annual revenues.
• Future proposals in the US could impact coverage and reimbursement of products, limiting future products.
• Results from preclinical or early-stage clinical trials may not predict later trial success.
• Phase 2 clinical trial for F351 expected to start in 2025 in the U.S.
• Inability to successfully conduct phase 3 clinical trials may impact future product development.
• Failure to maintain optimal inventory levels may lead to increased operating costs or unfulfilled customer orders.
• The company may need to increase production capacity to meet market demand, requiring significant capital investment.
• Risks related to patent infringement lawsuits, third-party submissions of prior art, and post-grant proceedings in various jurisdictions.
• Emphasizing the importance of compliance with procedural, documentary, and fee payment requirements for patent protection.
• Market share of ETUARY decreased from 78.8% in 2021 to 55.3% in 2022. Increased competition may negatively impact sales and profit margins.
• State Medicaid programs may request additional rebates, potentially exerting pricing pressure on future products.
• Provisions in the certificate of incorporation and bylaws may make acquisitions more difficult.
• Geopolitical events may impact third-party supply, potentially delaying or impairing development efforts.
• Intellectual property risks include challenges to patents, trade secret protection, and potential disclosure of proprietary information.
• Need to demonstrate substantial evidence through controlled trials before seeking marketing approvals.
• The company may not satisfy conditions for up to $50.0 million of common stock issuance.
• Disclosed risks related to compliance with the PRC's Cyber Security Law and Data Security Law, potentially increasing costs and limiting operations.
• Added risks related to compliance with SAFE Circular 37 for offshore special purpose vehicles, potentially leading to penalties and adverse effects on business operations.
• Adverse events or side effects may impact clinical trials, regulatory approvals, and market acceptance.
• Added risks related to PRC regulations on foreign exchange control, potentially affecting Gyre Pharmaceuticals' ability to fund operations and technology development.
• Reduction in additional sales in the public market could adversely affect financial condition.
• Highlighting the risk of abandonment or loss of patent rights due to non-compliance events such as failure to respond to official actions or non-payment of fees.
• Fluctuations in raw material prices and energy supply costs could adversely affect profitability if not passed on to customers.
• Gross margins were 95.9% and 95.3% in 2023 and 2022. Sustainability of high gross margins is uncertain due to market changes.
• Highlighted risks related to currency exchange restrictions in the PRC, impacting Gyre Pharmaceuticals' ability to raise capital and transfer funds.
• Potential delays in clinical trials could impact market acceptance and commercialization.
• The company's ability to utilize net operating loss carryforwards may be limited due to ownership changes.
• Uncertainty in product performance in future clinical trials compared to preclinical studies.
• The company's ability to attract and retain skilled professionals is crucial for competitiveness and growth.
• Changes in government regulations in the PRC may affect regulatory approval, increasing costs and delays.
• Disclosed uncertainties and risks related to indirect transfers of equity interests in PRC resident enterprises, potentially impacting Gyre Pharmaceuticals' restructuring transactions.
• Delays in clinical trials may increase costs, delay product development, and jeopardize commercialization.
• Increased emphasis on the uncertainty and complexity of patent litigation, potential adverse outcomes, and the impact on competitive advantage.
• Failure to comply with environmental laws could lead to fines or penalties, harming the business.
• Trade receivables turnover days were 50 days in 2023 and 46 days in 2022. Longer turnover days may indicate potential credit risks.
• The company is a "controlled company," exempt from certain corporate governance requirements.
• Potential negative impact on intellectual property protection due to changes in patent laws and regulations in the PRC and other jurisdictions.
• Uncertainty in completing clinical trials timely or cost-effectively may hinder regulatory approval.
• Expansion of risks related to patent protection uncertainty, including challenges in maintaining patent rights and uncertainties in patent positions.
• Inventories were valued at $4.3 million in 2023 and $6.1 million in 2022. Increased inventory levels may lead to higher risk of obsolescence.
• Breach in information system could expose sensitive data, leading to liability or reputational harm.
• Increased compliance costs due to evolving privacy and data protection laws could affect business operations.
• Government grants recognized under other income were $1.0 million in 2023 and $0.9 million in 2022. Future availability of government incentives is uncertain.
• Delisting from Nasdaq could result in negative implications, including increased volatility and difficulty in issuing securities.
• Changes in labor laws in the PRC may increase operating expenses and limit employment practices.
• Preferential corporate income tax rate of 15% for 2023 and 2022. Continuation of preferential tax treatment is not guaranteed.
• Product liability claims may result in reputational harm, financial strain, and business disruptions.
• Fluctuations in exchange rates may result in foreign currency exchange losses, impacting liquidity and cash flows.