Perspective Therapeutics, Inc. (CATX)

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes appearing at the end of this Annual Report on Form 10-K (“Annual Report” or “Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless the context otherwise requires, references in this Annual Report to the “Company,” “Perspective,” “we,” “us” and “our,” except where the context requires otherwise, refer to Perspective Therapeutics, Inc. and its subsidiaries. References to “Viewpoint” refer to Viewpoint Molecular Targeting, Inc., a wholly owned subsidiary, and references to “Isoray” refer to Isoray Medical, Inc., a wholly owned subsidiary.

Overview

We are a radiopharmaceutical development company that is pioneering advanced treatment applications for cancers throughout the body. We have proprietary technology that utilizes the alpha-emitting isotope Lead-212 (212Pb) to deliver powerful radiation specifically to cancer cells via specialized targeting moieties. We are also developing complementary imaging diagnostics that incorporate the same targeting moieties, which provides the opportunity to personalize treatment and optimize patient outcomes. This theranostic approach enables the ability to see the specific tumor and then treat it to potentially improve efficacy and minimize toxicity.

Our melanoma (VMT01) and neuroendocrine tumor (VMT-α-NET) programs are in Phase 1/2a imaging and therapy trials for the treatment of metastatic melanoma and neuroendocrine tumors in the U.S. We are growing our regional network of drug product finishing facilities, enabled by our proprietary 212Pb generator, to deliver patient-ready products for clinical trials and commercial operations.

VMT-α-NET

We designed VMT-α-NET to target and deliver 212Pb to target cancer-specific receptors on tumor cells expressing somatostatin receptor type 2 (SSTR2), a protein that is overexpressed in neuroendocrine tumors (NETs) and other cancers. [212Pb]VMT-α-NET is a TAT in development for patients with unresectable or metastatic SSTR2-expressing tumors who have not previously received peptide-targeted radiopharmaceutical therapy, such as Lutathera. NETs are a group of rare, heterogeneous tumors that develop in different organs of the body and arise from specialized cells in the neuroendocrine system.

We have initiated dosing of patients in Cohorts 1 and 2 of our Phase 1/2a study of [212Pb]VMT-α-NET in patients with unresectable or metastatic SSTR2-expressing NETs. In April 2024, we announced that this program was selected by the U.S. Food and Drug Administration (FDA) to participate in the Chemistry, Manufacturing, and Controls (CMC) Development and Readiness Pilot (CDRP) Program. The FDA’s CDRP Program was initiated in 2022 to facilitate alignment of CMC development of novel products under investigational new drug (IND) applications with expedited clinical development timeframes based upon the anticipated clinical benefits of earlier patient access. The observation period was completed for dose limiting toxicity (DLT) in seven patients enrolled in Cohort 2 during the second quarter of 2024. Subsequently, the safety monitoring committee (SMC) determined that the safety data observations during the DLT period supported proceeding with dose escalation to Cohort 3 and increasing the number of patients dosed at 5 mCi. Based on interactions with the FDA prior to the initiation of patient dosing in this study, which occurred in late 2023, the decision to open Cohort 3 will follow consultation and alignment with the agency. FDA interactions are ongoing with regards to the initiation of the next dosing cohort.

In June 2024, we announced multiple updates featuring our alpha-particle radiopharmaceuticals at the Society of Nuclear Medicine and Molecular Imaging 2024 Annual Meeting (SNMMI). The data presentations highlighted favorable safety profiles and potential benefits of our lead clinical candidates. Specifically, we reported on a Phase 0 imaging trial that is evaluating the optimal imaging timepoint(s) for diagnostic/dosimetric performance of Lead-203 ([203Pb]) VMT-α-NET in neuroendocrine tumors. Investigators analyzed 48 lesions across nine patients, and the results showed that tumor uptake of [203Pb]VMT-α-NET peaked at approximately four hours post-injection, with 98% of maximum uptake observed at one hour. The results suggest that imaging with [203Pb]VMT-α-NET at four hours post-injection has the best overall diagnostic performance, followed closely by imaging at one hour.

Also at SNMMI, an investigator reported on [212Pb]VMT-α-NET planning based on [203Pb]VMT-α-NET predictive dosimetry in an investigator-sponsored trial. The investigators applied patient-specific dosimetry in a Phase 0 imaging trial (NCT05111509) of [203Pb]VMT-a-NET and in the first cohort of a Phase 1 absorbed-dose escalation study (NCT06148636) of [212Pb]VMT-α-NET. Ten patients with β-peptide receptor radionuclide therapy (PRRT)-relapsed or refractory gastroenteropancreatic (GEP)-NETs received [203Pb]VMT-α-NET (5 mCi) followed by sequential blood sampling, planar imaging and quantitative single-photon emission computed tomography/computed tomography (qSPECT/CT) imaging at 1 hour, 4 hours, 24 hours and 48 hours post-administration. Three of 10 patients received amino acid infusions while seven patients did not receive amino acids.

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The dosimetry showed that the average renal doses for patients who received amino acids was 0.46±0.20 Gy/mCi, as compared to 0.56±0.16 Gy/mCi for patients who did not receive amino acids; the difference was not statistically significant. For the three patients who received [212Pb]VMT-α-NET treatment, based upon their individual dosimetry results, they were prescribed 5.3, 7.3, and 13.3 mCi cumulative activity (delivered over two cycles), respectively, to reach the cohort target renal dose of 3.5 Gy. Higher levels of targeted renal-absorbed doses are in the protocol for subsequent cohorts.

Additionally at SNMMI, the lead investigator reported on an exploratory first-in-human use of [212Pb]VMT-α-NET in adult patients with histologically confirmed metastatic NETs and medullary thyroid carcinomas in an investigator-led research study in India. The investigator reported updated safety and anti-tumor activity of [212Pb]VMT-α-NET administered at 67 µCi/kg (2.5 MBq/kg) every eight weeks in 13 patients as of the data cut-off date of May 31, 2024. All patients received prior treatments, eight of whom received prior PRRT treatment. Six patients remained eligible for further treatments as of the data cut-off date.

The investigator concluded that the toxicity profile suggests the potential for dose escalation to achieve optimal treatment responses. Confirmed tumor response per RECIST 1.1 was reported to be observed in eight of the 13 patients, while unconfirmed responses were observed in two additional patients who eventually had progressive disease and died. Median progression free survival was reported to be 16.4 months (95% confidence interval: 3.5 to NA). The investigator also reported higher absorbed doses in the tumors compared to select other tissues.

Subsequently, in October 2024, at the 37th Annual Congress of the European Association of Nuclear Medicine (EANM) in Hamburg, Germany, the investigator presented an update on a subset of the previously reported investigator-led research study in India. The cut-off date was September 15, 2024, and the study focused on 10 patients with well-differentiated GEP-NETs. These patients were treated with [212Pb]VMT-α-NET at a dosage of 67 µCi/kg (2.5 MBq/kg), with an interval of eight weeks for up to six cycles. Treatment was well tolerated with a modest and manageable adverse effect profile. Confirmed tumor response per RECIST 1.1 was observed in six of the 10 GEP-NETs patients. The investigator again concluded that the toxicity profile suggests the potential for dose escalation to achieve optimal treatment responses. Long-term survival data will mature with continued follow up.

Additionally, dosimetry estimates were collected from five of the 10 GEP-NETs patients discussed above. The results demonstrated that SPECT/CT imaging with [212Pb]VMT-α-NET showed prompt tumor accumulation, high tumor retention and rapid renal excretion in all patients. Overall, the findings suggest that post-treatment imaging of [212Pb]VMT-α-NET is feasible and can potentially serve as a valuable tool to evaluate and monitor patients through a full course of treatment.

In November 2024, at the North American Tumor Society’s NANETS Multidisciplinary NET Medical Symposium, we announced initial results from our multi-center open-label dose escalation, dose expansion study (clinicaltrials.gov identifier NCT05636618) of [212Pb]VMT-α-NET in patients with unresectable or metastatic SSTR2-positive NETs who have not received prior radiopharmaceutical therapy and have shown radiological evidence of disease progression in the 12 months prior to enrollment. The data cut-off date for the presentation was October 31, 2024.

Per the study protocol, the two patients who made up Cohort 1 received administered activity of 2.5 mCi per dose regardless of body weight. Based on their respective body weights, the median administered activity per kilogram of weight was 45.5 µCi/kg per dose. The seven patients who made up Cohort 2 received administered activity of 5.0 mCi per dose regardless of body weight. Based on their respective body weights, the median administered activity per kilogram of weight was 62.1 µCi/kg per dose, ranging from 31.8 µCi/kg to 84.6 µCi/kg per dose. One patient in Cohort 2 received two doses of 84.6 µCi/kg per dose, then received the third and fourth doses at a reduced activity level of 42.4 µCi/kg per dose due to an adverse event that was determined by the investigator to be unrelated.

No DLTs were observed among any patients. No grade 4 or 5 treatment emergent or serious adverse events (AEs) were observed. Two grade 3 AEs – one case of diarrhea and one case of syncope – were observed. No decline in renal function was observed. Hematologic AEs, such as decreased lymphocyte count and anemia, were all grades 1 and 2. No treatment discontinuations due to AEs occurred.

Eight of nine patients had durable control of disease. Six of nine patients had measurable reduction of tumor volume, one of whom had a confirmed response as defined by RECIST v1.1. The patient who experienced an objective response received the first two doses at 84.6 µCi/kg per dose, then received the remaining two doses at a reduced activity level of 42.4 µCi/kg. One patient was deemed to have progressive disease after one dose under RECIST v1.1, by unambiguous progression of non-target lesions.

In January 2025, we announced updated interim results from this same clinical trial at the 2025 American Society of Clinical Oncology Gastrointestinal Cancers Symposium with a data cut-off date of January 10, 2025. All nine patients in Cohort 1 and Cohort 2 had completed treatments per the study protocol, and the study team had at least one scan for all patients after their final treatments. No DLTs, grade 4 or 5 treatment emergent or serious AEs were reported since the start of the study. No new grade 3 AEs were observed aside from the two events discussed earlier. No decline in renal function was observed. Hematologic AEs, such as decreased lymphocyte count and anemia, were all grades 1 and 2. No treatment discontinuations due to AEs occurred.

Further anti-tumor activities have been observed with longer follow up, and there were two unconfirmed responses and one confirmed response as defined by RECIST v1.1 in Cohort 2. As of the January 10, 2025, data cut-off date, the patient who experienced a confirmed objective response has been in response for 17 weeks and remains in the study. This patient received the first two [212Pb]VMT-α-NET

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doses at administered dose of 5.0 mCi (equivalent to 84.6 µCi/kg), then received the remaining two doses at the next lower activity level of 2.5 mCi (equivalent to 42.4 µCi/kg) due to an adverse event that was determined by the investigator to be unrelated to [212Pb]VMT-α-NET.

One patient was observed to experience an initial (unconfirmed (as of January 10, 2025)) response in the fifth scan after their first dose, which was the first scan conducted after the end of their treatment period. This patient experienced gradual tumor regression throughout the study, with the magnitude of change meeting the criteria for response on their most recent scan. This patient received four doses of 5.0 mCi (equivalent to 68.7 µCi/kg) of [212Pb]VMT-α-NET.

A third patient was observed to experience an initial (unconfirmed (as of January 10, 2025)) response in the seventh scan after their first dose, which was the third scan conducted after the end of their treatment period. This patient received four doses of 5.0 mCi (equivalent to 31.7 µCi/kg) of [212Pb]VMT-α-NET. Gradual tumor regression was first observed in the fifth scan after their first dose, with the magnitude of change meeting the criteria for response on their most recent scan.

Five patients continued to have stable disease. One patient was deemed to have progressive disease after one dose under RECIST v1.1, by unambiguous progression of non-target lesions.

After Cohort 2 reopened for enrollment in August 2024 and through year-end 2024, an additional 11 patients were dosed. Thus, a total of 18 patients received treatment in Cohort 2 through December 31, 2024. Since the start of 2025 through the end of February 2025, an incremental 12 patients have been dosed. Thus, a total of 30 patients have received treatment in Cohort 2 as of February 28, 2025. Cohort 2 remains open for recruitment.

VMT01

We are also leveraging our TAT platform with our second program candidate, VMT01, which is currently in Phase 1/2a clinical trials. We designed VMT01 to target and deliver 212Pb to tumor sites expressing melanocortin 1 receptor (MC1R), a protein that is overexpressed in melanoma cancers. [212Pb]VMT01 is a TAT in development for second-line or later treatment of patients with progressive MC1R-positive metastatic melanoma.

In preclinical experiments [212Pb]VMT01 demonstrated efficacy via two distinct mechanisms of action: direct cell killing at high radiation doses and through immunostimulatory low-dose induction of immune-mediated cell death. Efficacy was augmented by immune checkpoint inhibitors. In September 2024, we announced that on the basis of these results, the FDA granted Fast Track Designation for the clinical development of [212Pb]VMT01. This study is a multi-center, open-label dose escalation, dose expansion study (clinicaltrials.gov identifier NCT05655312) in patients with histologically confirmed melanoma and MC1R-positive imaging scans. Patients were required to have already received standard of care. Eligible patients may receive up to three treatments with [212Pb]VMT01, eight weeks apart.

In March 2024, we entered into a clinical trial collaboration with Bristol Myers Squibb to evaluate the safety and tolerability of [212Pb]VMT01 in combination with Bristol Myers Squibb’s checkpoint inhibitor nivolumab in patients with histologically confirmed melanoma and positive MC1R imaging scans. A protocol amendment was submitted in July 2024 to explore the combination of nivolumab with [212Pb]VMT01 in patients with histologically confirmed melanoma and positive MC1R imaging scans in our ongoing Phase 1/2a clinical study of [212Pb]VMT01.

In October 2024, we announced initial results from the first two dosing cohorts. Three patients were enrolled in Cohort 1 (who received 3 mCi of [212Pb]VMT01), while seven patients were enrolled in Cohort 2 (who received 5 mCi of [212Pb]VMT01). Patients in each cohort received a median of five prior lines of systematic therapy, including a median of three prior lines of immunotherapy. No DLTs were observed among any patients, and no AEs led to treatment discontinuation. Treatment emergent AEs were mostly grades 1 and 2. None of the four cases of grade 3 treatment emergent AEs were deemed to be treatment related. There were no grade 4 or 5 treatment emergent AEs. No renal toxicities had been reported as of October 11, 2024 (there were no clinically significant changes in blood urea nitrogen or serum creatinine) in spite of dosimetry estimated renal radiation that approached the higher end of conventional dosing.

All patients in Cohort 1 completed three treatments, with one patient experiencing an unconfirmed RECIST version 1.1 objective response after completion of treatment, and two patients experiencing stable disease at 9 and 11 months from the start of treatment, respectively, as reported on October 11, 2024. In Cohort 2, patients progressed after either the first cycle (three patients) or the second cycle (four patients). These findings are consistent with published and ongoing preclinical studies showing immunostimulatory effects at lower radiation doses.

The SMC reviewed these findings and recommended exploring a lower dose level of 1.5 mCi per dose, both as a single agent and in combination with the anti-PD-1 antibody, nivolumab. The SMC’s recommendation would allow for the monotherapy and combination cohorts to proceed concurrently. An amendment to further explore lower dose levels for monotherapy has been approved and cohort 3 at 1.5 mCi per dose is active and open for enrollment. The combination cohort at 1.5 mCi per dose with nivolumab is also active and open for enrollment. On March 17, 2025, we announced that the first patient was dosed in the combination cohort.

PSV359

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Tumor stroma cells do not typically express cancer-specific markers like SSTR2 or MC1R. FAP-α is primarily expressed on tumor stroma cells, but also on some cancer cells. FAP-α is a pan-cancer target that is highly expressed in many cancers. Our in-house discovery team discovered PSV359, a novel cyclic peptide targeting human FAP-α, via phage display methods. We believe PSV359 is an optimized peptide with potential best-in-class characteristics that has been demonstrated in preclinical models. In March 2024, we released the first-in-human clinical SPECT/CT imaging which suggested very favorable tumor targeting and retention by the PSV359 compound, while clearing from normal organs rapidly and completely.

In October 2024, we announced first-in-human SPECT/CT images of [203Pb]PSV359 from an independent investigator revealed strong tumor uptake, fast clearance through the renal system, low accumulation in normal organs, and long tumor retention in three patients with FAP-α expressing cancers.

Preclinical results for PSV359 were presented during the SNMMI and the EANM meetings in June and October 2024, respectively. Researchers presented a novel cyclic peptide targeting human FAP-α, which was discovered by us via phage display methods. FAP-α is a protein abundantly expressed in certain cancer cells as well as cancer-associated fibroblasts in tumor lesions and involved in promoting disease progression. The peptide was conjugated to a lead (Pb)-specific chelator via a molecular linker to form a novel construct, PSV359. The purpose of this study was to evaluate the in vitro and in vivo performance of [203/212Pb]PSV359 in preclinical xenograft models. Overall, strong anti-tumor clinical activity of [212Pb]PSV359 was found in both HT1080-human FAP-α (FAP-α on cancer cells) and U87MG (FAP-α in stromal tissues) xenograft models.

We filed an IND application for PSV359 in December 2024, and we received a “study may proceed” letter (i.e., approval to conduct the trial) from the FDA in the first quarter of 2025. We expect to initiate dosing in mid 2025.

Other Pipeline Candidates

In January 2024, we announced that we have a license agreement with Mayo Clinic for the rights to Mayo Clinic’s prostate-specific membrane antigen (PSMA) Alpha-PET DoubLET platform technology for the treatment of PSMA-expressing cancers, with an initial focus on prostate. This radiopharmaceutical platform provides detailed PET imaging-based diagnosis and dosimetry using long-lived Copper-64 for imaging and alpha-particle targeted therapies using 212Pb. Preclinical studies are ongoing to assess whether this new molecular entity meets the hurdle for progressing into the clinic.

Also in January 2024, we entered into an exclusive in-licensing of Stony Brook University’s Cuburbit[7]uril-admantane (CB7-Adma) pre-targeting platform which covers the global intellectual property rights to such platform. Pre-targeting using the CB7-Adma platform involves two steps. First, an antibody that binds with high specificity to a cancer-specific protein is administered via intravenous injection. This antibody is chemically modified to include the CB7 chemical entity and accumulates over time at the tumor site. Then, a radionuclide held tightly by our proprietary chelator attached to an Adma group is administered. The Adma group binds to the CB7 group that was previously attached to the cancerous cells with specificity, delivering radiation dose selectively to the tumor sites. Central to this innovation is CB7-Adma (host-guest) complex formation, driving the interaction between the antibody and radioligand. The chosen host-guest pair, CB7-Adma, has demonstrated promising in vivo stability, modularity and low immunogenicity. The platform’s potential was validated through in vivo profiling of ligands, employing a CB7-modified carcinoembryonic antigen targeting antibody. The agreement with Stony Brook University will expire on the later of the expiration date of the last to expire licensed patents or 20 years from the date of the first sale of a product utilizing the intellectual property. Preclinical optimization of this platform is underway, and initial targeting antibodies are being identified for further investigation.

Intellectual Property (IP)

Two patents have recently been granted on key assets for which we have exclusive licenses from the University of Iowa. US 12,128,115, granted by the United States Patent and Trademark Office on October 29, 2024, is directed to the use of compounds comprising PSC for performing chelating reaction with divalent metals, including Pb2+, and the use of such compounds for diagnosing and treating diseases. AU 2017281940, granted by IP Australia on October 31, 2024, is directed to melanoma-targeting radiopharmaceutical compounds and the use of such compounds for treating melanoma. In addition, since the end of 2024, a patent has been issued in Australia which pertains to the creation of radiopharmaceutical compounds using lead-specific chelators. The full term of this patent expires in April 2039. We believe these patents further strengthen our IP portfolio.

Funding Requirements

We have had recurring losses since inception. We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our program candidates. Our costs are also expected to increase as we:

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continue the development of our clinical-stage assets, including VMT01, VMT-α-NET and PSV359;

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continue the development of our other program candidates;

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continue to initiate and progress other supporting studies required for regulatory approval of our program candidates;

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initiate preclinical studies and clinical trials for any additional indications for our current program candidates and any future program candidates that we may pursue;

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continue to build our portfolio of program candidates through the acquisition or in-license of additional program candidates or technologies;

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continue to develop, maintain, expand and protect our intellectual property portfolio;

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pursue regulatory approvals for our current and future program candidates that successfully complete clinical trials;

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continue to build our manufacturing capabilities;

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support our marketing and distribution infrastructure to commercialize any future program candidates for which we may obtain marketing approval; and

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hire additional clinical, medical, development and other personnel.

As of December 31, 2024, we had cash, cash equivalents and short-term investments of $226.9 million. We believe our cash, cash equivalents and short-term investments will be sufficient to fund our current planned operations for at least the next 12 months from the date the consolidated financial statements in this report were issued and into late 2026. Monthly operating expenses are budgeted to increase for research and development and general and administrative expenses as management works to implement its strategy to advance our clinical assets in their clinical trials and to progress our preclinical assets towards clinical trials. Management anticipates a significant increase in expenses, particularly in research and development, as we undertake these activities.

Manufacturing Equipment

On September 18, 2024, we entered into a Master Equipment and Services Agreement (MESA) and statements of work (SOWs) thereunder with Comecer SpA (Comecer), pursuant to which we agreed to purchase from Comecer manufacturing equipment for the production of our radiopharmaceutical products including, but not limited to, isotope processing hot cells and production suites and related equipment (collectively, the Deliverables) and services for installation and validation of the Deliverables at several of our production facilities in the United States. The aggregate consideration for such equipment and services pursuant to the MESA and SOWs is approximately €49.0 million payable in cash, excluding certain incidental costs such as taxes, customs and duties, local transport, insurance and rigging. We may also elect to purchase certain additional equipment and services pursuant to the SOWs. The MESA provides for the payment of certain amounts in installments over the course of the production, installation and validation of the Deliverables.

Facility Acquisitions

On July 15, 2024, August 2, 2024 and October 31, 2024, we purchased a building in the Houston, TX, metropolitan area for $4.7 million, a building in the Chicago, IL, metropolitan area for $5.0 million, and a building in the Los Angeles, CA, metropolitan area for $11.0 million, respectively, which we intend to use for the manufacture of our program candidates upon completion of modifications and installation of equipment.

In March 2024, we acquired the assets and associated lease of Lantheus’ radiopharmaceutical manufacturing facility in Somerset, NJ. We have begun to convert the facility, which has three production suites, to manufacture finished radiopharmaceutical products. As a Current Good Manufacturing Practice (CGMP) compliant facility, we intend to utilize the facility to manufacture clinical supply of high quality 203Pb-labeled tumor-specific peptides to visualize and diagnose tumors, and 212Pb-labeled radiopharmaceuticals to treat target tumors with TAT. As of October 2024, this facility became operational to supply investigational products to support our clinical studies, in addition to the Coralville, IA, facility which has been producing our investigational products since 2023. Moreover, with three CGMP suites at the facility, we expect to have the capacity to meet future clinical trial and commercial demands at major cancer treatment centers throughout the Northeastern U.S. We intend to continue to expand our manufacturing and supply network in the future as we anticipate increasing our clinical trial activities.

We continue to evaluate the suitability of additional facilities as we look to expand our research and development capabilities.

2024 At-the-Market (ATM) Agreement

On August 13, 2024, we entered into a Controlled Equity OfferingSM Sales Agreement (2024 ATM Agreement) with Cantor Fitzgerald & Co. and RBC Capital Markets, LLC (each, an ATM Agent, and together, the ATM Agents) pursuant to which we, from time to time, may offer and sell shares (2024 ATM Shares) of our Common Stock, through or to the ATM Agents having an aggregate sales price of up to $250.0 million.

Subject to the terms and conditions of the 2024 ATM Agreement, each ATM Agent is required to use its commercially reasonable efforts to sell the ATM Shares from time to time, based upon our instructions. We have provided the ATM Agents with customary indemnification rights, and the ATM Agents will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of the ATM Shares effectuated through or to the applicable ATM Agent selling the ATM Shares.

Sales of the 2024 ATM Shares, if any, under the 2024 ATM Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended. We have no obligation to sell any of the 2024 ATM Shares and may at any time suspend offers under the 2024 ATM Agreement or terminate the 2024 ATM Agreement.

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The Common Stock to be sold under the 2024 ATM Agreement, if any, will be issued and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-279692) (the May 2024 Registration Statement), which became effective upon filing with the SEC on May 24, 2024, as amended from time to time. On August 13, 2024, we filed a prospectus supplement to the May 2024 Registration Statement with the SEC in connection with the offer and sale of the 2024 ATM Shares pursuant to the 2024 ATM Agreement.

As of December 31, 2024, we had not completed any transactions pursuant to the 2024 ATM Agreement. On February 18, 2025, we sold 3,379,377 shares of our common stock under the 2024 ATM Agreement at an average price of approximately $3.02 per common share, resulting in gross proceeds of approximately $10.2 million.

Amended and Restated Equity Incentive Plan

On May 31, 2024, we held our 2024 Annual Meeting of Stockholders (Annual Meeting). At the Annual Meeting, our stockholders approved our Third Amended and Restated 2020 Equity Incentive Plan (the Amended and Restated Plan) which, among other things, (a) increased the aggregate number of shares of Common Stock authorized for issuance under the Amended and Restated Plan by 4,870,092 for a total of 12,500,000 shares of Common Stock, and (b) adjusted the “evergreen” provision included therein, such that the number of shares of Common Stock available for the grant of awards under the Amended and Restated Plan automatically increases on January 1 of each year in an amount equal to 5% of the number of shares of Common Stock issued and outstanding on December 31 of the immediately preceding year (subject to adjustment in the event of stock splits and other similar events); provided, however, that our Board of Directors may act prior to January 1 of a given year to provide that there will be no increase in the share limit for such year or provide that the increase for such year will be a lesser number of shares of Common Stock. On August 14, 2024, we filed a Form S-8 to register 4,870,092 additional shares of Common Stock authorized for issuance under the Amended and Restated Plan as approved by stockholders at the Annual Meeting. On January 1, 2025, the number of shares of Common Stock available for grant increased by 3,533,573 pursuant to the “evergreen” provision in the Amended and Restated Plan. We anticipate filing a Form S-8 to register these additional shares during 2025.

Brachytherapy Divestiture

On April 12, 2024 (GT Medical Closing Date), we completed the sale of substantially all of the assets (GT Medical Closing) of Isoray to GT Medical Technologies, Inc. (GT Medical). As previously disclosed, on December 7, 2023, we entered into an Asset Purchase Agreement (the GT Medical APA) with Isoray and GT Medical. Pursuant to the GT Medical APA, Isoray sold to GT Medical, and GT Medical purchased from Isoray, all of Isoray’s right, title and interest in and to substantially all of the assets of Isoray related to Isoray’s commercial Cesium-131 business including equipment, certain contracts and leases, inventory and intellectual property. Subject to limited exceptions set forth in the GT Medical APA, GT Medical did not assume the liabilities of Isoray.

Pursuant to the terms of, and subject to the conditions specified in, the GT Medical APA, at the GT Medical Closing, (i) GT Medical issued to Isoray 279,516 shares of GT Medical’s common stock, par value $0.0001 per share, representing 0.5% of GT Medical’s issued and outstanding capital stock on a fully diluted basis as of the GT Medical Closing Date and (ii) Isoray has the right to receive, and GT Medical is obligated to pay, certain cash royalty payments during each of the first four years beginning upon the GT Medical Closing Date (each such year, a Measurement Period), as summarized below:

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with respect to GT Medical’s net sales of Cesium-131 brachytherapy seeds for cases that do not utilize GT Medical’s GammaTile Therapy: (a) if such net sales for a Measurement Period are $10.0 million or less, 3.0% of such net sales; (b) if such net sales for a Measurement Period are greater than $10.0 million and less than $15.0 million, 4.0% of such net sales; and (c) if such net sales for a Measurement Period are $15.0 million or more, 5.0% of such net sales; and

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with respect to GT Medical’s net sales of GT Medical’s GammaTile Therapy utilizing Cesium-131 brachytherapy seeds: 0.5% of such net sales for a Measurement Period.

As a result of the transaction, we have effectively exited the brachytherapy segment and are focused exclusively on our radiopharmaceutical development segment, our only operating segment and reporting segment. The sale of the brachytherapy segment represents a strategic shift that had a major effect on our operations. We accounted for the transaction as discontinued operations on the date the divestiture was announced. Accordingly, we are reporting the results of the brachytherapy segment operations and cash flows, and balance sheet classifications for the current and comparative periods as discontinued operations. Prior to the consummation of the sale, we were neither actively marketing the brachytherapy business for sale nor had intentions to abandon it.

For additional information regarding our brachytherapy divestiture, see our Forms 8-K filed with the SEC on December 12, 2023, April 3, 2024 and April 16, 2024.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. On an ongoing basis, management evaluates

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past estimates and judgments, including those related to accrued liabilities, derivative liabilities and contingencies. Management bases its estimates on historical experience and on various other assumptions 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.

While our significant accounting policies are described in greater detail in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements in this Form 10-K, we believe the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we estimate our accrued research and development expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, based on a pre-determined schedule or when contractual milestones are met, but some require advance payments. If timelines or contracts are modified based upon changes in the protocol or scope of work to be performed, we modify our estimates and accruals accordingly on a prospective basis.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Legal Contingencies

We may, in the ordinary course of business, be involved in legal proceedings involving securities, contractual and employment relationships, product liability claims, patent rights, environmental matters, and a variety of other matters, the outcomes of which are not within our complete control and may not be known for extended periods of time. Legal costs associated with defending these matters are expensed as incurred.

We record a liability in our consolidated financial statements for damages and/or costs related to claims, settlements and judgments where we have assessed that the loss is probable and an amount can be reasonably estimated.

Goodwill and In-Process Research and Development (IPR&D)

The fair value of acquired intangible assets is determined using an income-based approach referred to as the multi-period excess-earnings approach.

Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. We test goodwill and indefinite-lived intangibles for impairment at least annually in the fourth quarter by assessing qualitative factors to determine whether it is more likely than not that the fair value of the assets is below their carrying value. We will also test these assets more frequently whenever events or circumstances change that would more likely than not reduce the fair value below the carrying amount. Such events or changes in circumstance include significant deterioration in overall economic conditions, changes in the business climate or a decline in our market capitalization. To test goodwill and indefinite-lived intangible assets for impairment, we may perform both a qualitative assessment and quantitative assessment. For the qualitative assessment, we consider operating results and scientific data from clinical and preclinical studies as well as circumstances impacting the operations or cash flows of the reporting unit or indefinite-lived intangible assets, including macroeconomic conditions and industry and market conditions. If a qualitative assessment indicates the fair value of the asset is more likely than not less than its carrying value, then a quantitative assessment is performed which is based on an income-based valuation approach for indefinite-lived intangible assets or a comparison of the estimated fair value of the entity using market inputs for goodwill. If it is determined that an impairment exists, we recognize an impairment loss for the amount by which the carrying amount of the reporting unit or indefinite-lived intangible asset exceeds its estimated fair value. Fair value estimates are based on assumptions believed to be reasonable at the time, but such assumptions are subject to inherent uncertainty, and actual results may differ materially from those estimates.

IPR&D assets represent the fair value of incomplete research and development (R&D) projects that had not reached technological feasibility as of the date of the acquisition. Initially, these assets are classified as IPR&D and are not subject to amortization. IPR&D assets that reach commercialization are amortized on a straight-line basis over their estimated useful life. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. IPR&D is tested for impairment at least

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annually or more frequently if events occur or circumstances change that would indicate a potential reduction in the fair values of the assets below their carrying value. Impairment charges are recognized to the extent the carrying value of IPR&D is determined to exceed its fair value. Post-acquisition R&D expenses related to these projects are expensed as incurred.

We performed our annual qualitative impairment analysis as of October 31, 2024. We noted that we continue to invest in our IPR&D assets and that these assets continue to progress in clinical and preclinical studies. In addition, there have been no material delays in our anticipated timelines regarding our IPR&D assets. Based on these results, we determined there was no impairment to our IPR&D assets.

We also performed our annual qualitative goodwill impairment analysis as of October 31, 2024, and determined that the fair value of our sole reporting unit exceeded its book value. However, we began experiencing a decline in our stock market price in November, consistent with the overall life sciences industry, and performed an interim goodwill impairment analysis as of December 31, 2024. In connection with that analysis, we determined that our goodwill was impaired. For additional information regarding this assessment, see Note 10, Goodwill, Intangible Assets and Other Assets, Net, to the consolidated financial statements in this Form 10-K.

Grant Revenue Recognition

We enter into contracts with governmental agencies for services. These contracts are analyzed to determine if they should be accounted for under a revenue recognition model pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, or a grant model pursuant to ASC 958, Not-for-Profit Entities. If accounted for pursuant to a grant model, we must determine if the grant is conditional or unconditional, and if any conditional barriers exist which must be overcome. If unconditional, the grant is recognized as revenue immediately, and if conditional, the grant is recognized as revenue as and when the barriers are overcome. We concluded that payments received under the current grants represent conditional, nonreciprocal contributions, as described in ASC 958, and that the grants are not within the scope of ASC 606, as the organizations providing the grants do not meet the definition of a customer. The significant barrier to the current conditional grants is that the expenses incurred must meet the qualifications as established by the respective governmental agencies, so that the grant revenue is recognized as the qualified expenses are incurred. Expenses for grants are tracked using a project code specific to the grant, and the employees also track hours worked by using the project code. Under ASC 958, grants related to income are presented as part of the consolidated statements of operations, either separately or under a general heading. Both methods are acceptable under ASC 958. We have elected to record grants related to income separately on the Consolidated Statements of Operations and Comprehensive Loss as “grant revenue.” The related expenses are recorded within R&D and general and administrative.

Results of Operations

We previously presented our results in two segments: Drug Operations and Brachytherapy. Due to the sale of our brachytherapy segment to GT Medical in the second quarter of 2024 and the classification of the assets and operations of the brachytherapy segment as discontinued operations in our consolidated financial statements, we have now determined that we operate in only one segment. The following does not include a discussion of the results of our discontinued operations. For additional information regarding our discontinued operations, see Note 5, Discontinued Operations, to the consolidated financial statements in this Form 10-K.

The following table sets forth our results of operations for the periods presented (in thousands):

Grant Revenue

Our alpha-therapy business is pre-revenue and, accordingly, none of the revenues reflect sales of any of our alpha-therapy products, which are still under development. Grant revenue for all periods presented relates to our work for the National Institutes of Health.

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Operating Expenses

Research and Development

Research and development expenses were $41.6 million for the year ended December 31, 2024, compared to $21.3 million for the year ended December 31, 2023, an increase of $20.3 million. The increase in research and development expenses was primarily related to the expanded development of our TAT drug programs, including higher personnel costs and third-party research and development fees.

Management believes that research and development expenses will continue to increase as we continue to invest in the development of novel radiopharmaceutical drugs and products and expand our manufacturing capabilities. We are currently reviewing how potential tariffs might impact our costs for supplies, equipment and materials used in the development and production of our TAT drug products. We will continue to analyze announcements of new tariffs and their implementation dates while we evaluate any potential impact along with alternatives suppliers.

General and Administrative

General and administrative expenses consist primarily of the costs related to our executive, finance, human resources and information technology functions.

General and administrative expenses were $26.6 million for the year ended December 31, 2024, compared to $21.1 million for the year ended December 31, 2023, an increase of $5.5 million. The increase in general and administrative expenses for the year ended December 31, 2024 was primarily due to increased personnel costs as well as increased fees for professional services.

Goodwill Impairment

Goodwill impairment was $24.1 million for the year ended December 31, 2024, compared to $0.0 million for the year ended December 31, 2023, an increase of $24.1 million. Due to the volatility in the capital markets, particularly in the life sciences capital markets, we performed an impairment analysis as of December 31, 2024 as called for by GAAP. The analysis determined that, due to our low market capitalization, the goodwill that arose during the merger with Viewpoint Molecular Targeting, Inc. was impaired, and we expensed the full amount of goodwill that had been recorded on our balance sheet. As part of the impairment analysis, we determined that none of our other assets, including our IPR&D assets, which comprise our clinical assets and some of our preclinical assets, were impaired.

Loss on Disposal of Property and Equipment

Loss on disposal of property and equipment for the year ended December 31, 2024, was due to the disposition of approximately 4.2 acres of land in Richland, WA, that had been purchased in 2017 in anticipation of constructing a facility for our discontinued brachytherapy operations. Due to the divestiture of the brachytherapy operations, we disposed of this land in October 2024. The loss on disposal of property and equipment for the year ended December 31, 2024, was de minimis.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. We have historically financed our operations primarily through selling equity to investors. During the year ended December 31, 2024, we entered into various agreements and raised approximately $306.7 million in gross proceeds. The following table summarizes our cash flows for the periods presented (in thousands):

Cash Flows from Operating Activities

Net cash used in operating activities of $18.3 million in the year ended December 31, 2024 was primarily due to a net loss of approximately $79.3 million, as adjusted for non-cash expenses totaling $29.2 million (such as goodwill impairment, share-based compensation and depreciation and amortization), partially offset by $31.8 million in changes in operating assets and liabilities, primarily related to the $28.0 million in cash we received pursuant to that certain option agreement, dated January 8, 2024, by and between us and Lantheus Alpha Therapy, LLC.

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Net cash used in operating activities of $36.9 million in the year ended December 31, 2023 was primarily due to a net loss of approximately $46.5 million, as adjusted for non-cash expenses totaling $6.7 million (such as the loss recognized on classification as held for sale and depreciation and amortization), partially offset by an increase of approximately $2.9 million in changes in operating assets and liabilities, primarily from accounts payable and accrued expenses, including accrued personnel expenses.

Cash Flows from Investing Activities

Net cash used in investing activities of $218.9 million in the year ended December 31, 2024 was primarily due to our purchases of $164.8 million of available-for-sale securities and $54.4 million of property and equipment, partially offset by proceeds of $0.3 million from the sale of property and equipment.

Net cash provided by investing activities of $24.4 million in the year ended December 31, 2023 was primarily due to $22.8 million in proceeds from the maturity of previously held short-term investments in U.S. Treasury Bills and $2.7 million in cash acquired as part of the merger with Viewpoint, partially offset by approximately $1.1 million in additions to property and equipment and other assets.

Cash Flows from Financing Activities

Net cash provided by financing activities of $289.4 million in the year ended December 31, 2024 was primarily related to the various capital markets transactions and other agreements we entered into, partially offset by repayment of a note payable. For additional information regarding the cash we raised, see Sources of Liquidity below.

Net cash provided by financing activities of $0.8 million in the year ended December 31, 2023 was primarily related to approximately $0.9 million received from the exercise of stock options and the issuance of common stock, partially offset by the costs related to Common Stock issued in exchange for Viewpoint common stock and the repayment of notes payable.

Sources of Liquidity

2024 At-the-Market (ATM) Agreement

On August 13, 2024, we entered into a Controlled Equity OfferingSM Sales Agreement (2024 ATM Agreement) with Cantor Fitzgerald & Co. and RBC Capital Markets, LLC (each, an ATM Agent, and together, the ATM Agents) pursuant to which we, from time to time, may offer and sell shares (2024 ATM Shares) of our Common Stock, through or to the ATM Agents having an aggregate sales price of up to $250.0 million.

Subject to the terms and conditions of the 2024 ATM Agreement, each ATM Agent is required to use its commercially reasonable efforts to sell the ATM Shares from time to time, based upon our instructions. We have provided the ATM Agents with customary indemnification rights, and the ATM Agents will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of the ATM Shares effectuated through or to the applicable ATM Agent selling the ATM Shares.

Sales of the 2024 ATM Shares, if any, under the 2024 ATM Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended. We have no obligation to sell any of the 2024 ATM Shares and may at any time suspend offers under the 2024 ATM Agreement or terminate the 2024 ATM Agreement.

The Common Stock to be sold under the 2024 ATM Agreement, if any, will be issued and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-279692) (the May 2024 Registration Statement), which became effective upon filing with the SEC on May 24, 2024, as amended from time to time. On August 13, 2024, we filed a prospectus supplement to the May 2024 Registration Statement with the SEC in connection with the offer and sale of the 2024 ATM Shares pursuant to the 2024 ATM Agreement.

As of December 31, 2024, we had not completed any transactions pursuant to the 2024 ATM Agreement. On February 18, 2025, we sold 3,379,377 shares of our common stock under the 2024 ATM Agreement at an average price of approximately $3.02 per common share, resulting in gross proceeds of approximately $10.2 million.

May 2024 Registered Offering

On May 24, 2024, we entered into an underwriting agreement with BofA Securities, Inc., as representative of the underwriters named therein, in connection with our previously announced underwritten offering (Registered Offering) of 5,151,588 shares (Registered Offering Shares) of our Common Stock and, in lieu of Registered Offering Shares to certain investors, pre-funded warrants (May 2024 Pre-funded Warrants) to purchase 146,425 shares of Common Stock. The price to the investors for the Registered Offering Shares was $15.10 per Registered Offering Share, and the price to the investors for the May 2024 Pre-funded Warrants was $15.09 per May 2024 Pre-funded Warrant, which represents the per share price for the Registered Offering Shares less the $0.01 per share exercise price for each such May 2024 Pre-funded Warrant. The Registered Offering closed on May 29, 2024. BofA Securities, Inc., Oppenheimer & Co. Inc. and RBC Capital Markets, LLC acted as joint book-running managers for the Registered Offering and B. Riley Securities, Inc. acted as a co-manager for the Registered Offering. JonesTrading Institutional Services LLC acted as a financial advisor for the Registered Offering.

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Our gross proceeds from the Registered Offering were approximately $80.0 million, before underwriting discounts and commissions and estimated expenses of the Offering. We intend to use the net proceeds from the Registered Offering for: (i) the continued clinical development of VMT-α-NET, VMT-01/02 and PSV359; (ii) the continued development of PSV4XX and additional preclinical product candidates as well as a broader development platform; and (iii) the build out, operation and expansion of manufacturing facilities, as well as for working capital and other general corporate purposes. A portion of the net proceeds may also be used to acquire, license or invest in complementary products, technologies, intellectual property or businesses, although we have no present commitments or agreements to do so.

The May 2024 Pre-funded Warrants became exercisable subsequent to the filing and effectiveness of an amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware on June 14, 2024. The exercise price and the number of shares of Common Stock issuable upon exercise of each May 2024 Pre-funded Warrant are subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Common Stock as well as upon any distribution of assets, including cash, stock or other property, to our stockholders. The May 2024 Pre-funded Warrants will not expire and are exercisable in cash or by means of a cashless exercise. A holder of May 2024 Pre-funded Warrants may not exercise such May 2024 Pre-funded Warrants if the aggregate number of shares of Common Stock beneficially owned by such holder, together with its affiliates, would be more than 4.99% or 9.99%, as elected by such holder, of the issued and outstanding shares of Common Stock following such exercise, as such percentage ownership is determined in accordance with the terms of the May 2024 Pre-funded Warrants. A holder of May 2024 Pre-funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to us.

March 2024 Private Placement with Institutional Investors

On March 4, 2024, we entered into an investment agreement with certain accredited institutional investors pursuant to which we agreed to issue and sell, in a private placement (March 2024 Private Placement), 9,200,998 shares of our Common Stock, for a purchase price of $9.50 per share, representing the closing price of the Common Stock on March 1, 2024. The closing of the March 2024 Private Placement occurred on March 6, 2024. The gross proceeds to us from the March 2024 Private Placement were approximately $87.4 million, before deducting fees and other estimated transaction expenses.

Investment Agreement

On January 8, 2024, we entered into an investment agreement (Lantheus Investment Agreement) with Lantheus Alpha Therapy, LLC, a Delaware limited liability company and wholly owned subsidiary of Lantheus Holdings, Inc. (Lantheus), pursuant to which we agreed to sell and issue to Lantheus in a private placement transaction certain shares (Lantheus Shares) of our Common Stock. The closing of the purchase and sale of the Lantheus Shares to Lantheus by us (Lantheus Closing) was subject to us raising at least $50.0 million of gross proceeds (excluding Lantheus’ investment) in a qualifying third-party financing transaction, which occurred on January 22, 2024. The number of Lantheus Shares sold was 5,634,235, representing 19.99% of the outstanding shares of Common Stock as of January 8, 2024. Pursuant to the Lantheus Investment Agreement, we agreed to cooperate in good faith to negotiate and enter into a registration rights agreement with Lantheus, obligating us to file a registration statement on Form S-3 with the SEC to register for resale the Lantheus Shares issued at the Lantheus Closing. We filed such Form S-3 on March 29, 2024, and the SEC declared it effective on April 9, 2024 (File No. 333-278362). The Lantheus Investment Agreement also contains agreements between us and Lantheus whereby Lantheus is provided certain board observer and information rights of us, as well as standstill provisions prohibiting Lantheus from taking certain actions for a specified period of time, subject to certain exceptions.

January 2024 Public Offering

On January 17, 2024, we entered into an underwriting agreement (Underwriting Agreement) with Oppenheimer & Co. Inc., as representative of the underwriters named therein (Underwriters), in connection with our underwritten public offering (Public Offering) of 13,207,521 shares (Public Shares) of our Common Stock and in lieu of Public Shares to certain investors, pre-funded warrants (Jan. 2024 Pre-funded Warrants) to purchase 3,008,694 shares of Common Stock. The price to the public for the Public Shares was $3.70 per Public Share, and the price to the public for the Jan. 2024 Pre-funded Warrants was $3.69 per Jan. 2024 Pre-funded Warrant, which represents the per share price for the Public Shares less the $0.01 per share exercise price for each such Jan. 2024 Pre-funded Warrant. Under the terms of the Underwriting Agreement, we granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 2,432,432 shares of Common Stock at the same price per share as the Public Shares, which such option was fully exercised by the Underwriters on January 18, 2024. The Public Offering closed on January 22, 2024.

The gross proceeds to us from the Public Offering were approximately $69.0 million, before underwriting discounts and commissions and estimated expenses of the Public Offering.

The Public Offering was made pursuant to our shelf registration statement on Form S-3 (File No. 333-275638), declared effective by the SEC on December 14, 2023, a base prospectus dated December 14, 2023, and the related prospectus supplement dated January 17, 2024.

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The Jan. 2024 Pre-funded Warrants were exercisable at any time after the date of issuance. The exercise price and the number of shares of Common Stock issuable upon exercise of each Jan. 2024 Pre-funded Warrant are subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Common Stock as well as upon any distribution of assets, including cash, stock or other property, to our stockholders. The Jan. 2024 Pre-funded Warrants did not have an expiration date and were exercisable in cash or by means of a cashless exercise. A holder of Jan. 2024 Pre-funded Warrants could not exercise such Jan. 2024 Pre-funded Warrants if the aggregate number of shares of Common Stock beneficially owned by such holder, together with its affiliates, would beneficially own more than 4.99% of the issued and outstanding shares of Common Stock following such exercise, as such percentage ownership is determined in accordance with the terms of the Jan. 2024 Pre-funded Warrants. A holder of Jan. 2024 Pre-funded Warrants could increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to us. The holder of these exercised all of the Jan. 2024 Pre-funded Warrants during the fourth quarter of 2024 by means of the cashless exercise provision and within the other constraints noted above.

2023 ATM Agreement

On April 11, 2024, we sold shares of our Common Stock pursuant to that certain At Market Issuance Sales Agreement, dated as of November 17, 2023, by and among us, Oppenheimer & Co. Inc., B. Riley Securities, Inc. and JonesTrading Institutional Services LLC (2023 ATM Agreement). The sales resulted in gross proceeds to us of approximately $49.5 million. The 2023 ATM Agreement was terminated in August 2024. For additional information regarding the 2023 ATM Agreement, see our Form S-3 filed on November 17, 2023, Form S-3/A filed on December 7, 2023, and Note 3, Investments and Agreements, in this Form 10-K.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our program candidates. Our costs are also expected to increase as we:

•
continue the development of our clinical-stage assets, including VMT01, VMT-α-NET and PSV359;

•
continue the development of our other program candidates;

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continue to initiate and progress other supporting studies required for regulatory approval of our program candidates;

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initiate preclinical studies and clinical trials for any additional indications for our current program candidates and any future program candidates that we may pursue;

•
continue to build our portfolio of program candidates through the acquisition or in-license of additional program candidates or technologies;

•
continue to develop, maintain, expand and protect our intellectual property portfolio;

•
pursue regulatory approvals for our current and future program candidates that successfully complete clinical trials;

•
continue to build our manufacturing capabilities;

•
support our marketing and distribution infrastructure to commercialize any future product candidates for which we may obtain marketing approval; and

•
hire additional clinical, medical, development and other personnel.

At December 31, 2024, we had cash, cash equivalents and short-term investments of $226.9 million. We believe our cash, cash equivalents and short-term investments will be sufficient to fund our current planned operations and capital investments into late 2026. Monthly operating expenses are budgeted to increase for research and development and general and administrative expenses as management works to implement our strategy to advance our clinical assets in our clinical trials and to progress our preclinical assets towards clinical trials. Management anticipates a significant increase of expenses, particularly in research and development, as we undertake these activities.

We expect we will need to raise additional capital until we are profitable, which may never occur. If no additional capital is raised through either additional public or private equity financings, debt financings, strategic relationships, alliances and licensing agreements, or a combination thereof, we may delay, limit or reduce discretionary spending in areas related to research and development activities and other general and administrative expenses in order to fund our operating costs and working capital needs.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other program candidates. If we receive regulatory approvals for our program candidates, we expect to incur commercialization expenses related to program manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our program candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

•
the scope, progress, results and costs of researching and developing our program candidates, and conducting preclinical studies and clinical trials;

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•
the costs, timing and outcome of regulatory review of our program candidates;

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the costs and timing of hiring new employees to support our continued growth;

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the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the extent to which we acquire or in-license other program candidates and technologies; and

•
our ability to generate cash, and successfully obtain additional working capital, to fund our operating, investing and financing activities.

Until such time, if ever, that we can generate program revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements. 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 the rights of our existing stockholders. Debt financing and preferred equity 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. If we raise additional funds through other third-party funding, strategic alliances, licensing arrangements, outright sales of program candidates or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we will be required to delay, limit, reduce or terminate our program development or future commercialization efforts or grant rights to develop and market programs or program candidates that we would otherwise prefer to develop and market ourselves.

Capital expenditures

Management regularly reviews our research and development and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems and personnel are available to support clinical trials, preclinical activities and product supply.

Financing activities

When we do require capital in the future, we expect to finance our cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing stockholders. Management anticipates that if it raises additional financing that it will be at a discount to the market price and it will be dilutive to stockholders.

Other Commitments and Contingencies

Our purchase commitments and obligations include all open purchase orders and contractual obligations entered into in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services and acquisition and licensing of intellectual property. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and/or adjust our requirements based on our business needs prior to the delivery of goods or performance of services.

On July 1, 2023, we entered into a lease with Unico Properties LLC for office space in Seattle, WA that terminates in October 2028. Upon entering into this lease, we recognized a right-of-use asset and lease liability of approximately $0.8 million on the balance sheet based upon the present value of the future base payments discounted at an 8% discount rate using the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate. For additional information related to the our leases, see Note 11, Leases in this Form 10-K.

Effective April 1, 2024, we entered into a lease with the Board of Regents, State of Iowa, for lab and office space at the BioVentures Center. The lease terminates in March 2026. Upon entering into this lease, we recognized a right-of-use asset and lease liability of approximately $1.1 million on the balance sheet based upon the present value of the future base payments discounted at an 8% discount rate using the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate.

We acquired a lease from Progenics, an affiliate of Lantheus, for a production facility in Somerset, NJ, effective on March 1, 2024 (see Note 3, Investments and Agreements, in this Form 10-K). The lease terminates on November 29, 2028. Upon entering into this lease, we recognized a right-of-use asset and lease liability of approximately $0.3 million on the balance sheet based upon the present value of the future base payments discounted at an 8% discount rate using the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate.

On August 8, 2024, we assumed a lease from Progenics for office space in Somerset, NJ. The lease terminates on November 30, 2028. Upon entering into this lease, we recognized a right-of-use asset and lease liability of approximately $0.6 million on the balance sheet

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based upon the present value of the future base payments discounted at an 8% discount rate using the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate.

On September 18, 2024, we entered into a Master Equipment and Services Agreement (MESA) and statements of work (SOWs) thereunder with Comecer SpA (Comecer), pursuant to which we agreed to purchase from Comecer manufacturing equipment for the production of our radiopharmaceutical products including, but not limited to, isotope processing hot cells and production suites and related equipment (collectively, the Deliverables) and services for installation and validation of the Deliverables at several of our production facilities in the United States. The aggregate consideration for such equipment and services pursuant to the MESA and SOWs is approximately €49.0 million payable in cash, excluding certain incidental costs such as taxes, customs and duties, local transport, insurance and rigging. We may also elect to purchase certain additional equipment and services pursuant to the SOWs. The MESA provides for the payment of certain amounts in installments over the course of the production, installation and validation of the Deliverables.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors of this Annual Report on Form 10-K ("Annual Report" or "Form 10-K") for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

General Presentation

This Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) generally discusses year-to-year comparisons between the year ended December 31, 2023 and the comparative year ended December 31, 2022. Due to our change in fiscal year from June 30 to December 31, the comparative year ended December 31, 2022 was unaudited. A discussion of the changes in our financial condition and results of operations for the six-month transition period ended December 31, 2022 and the fiscal years ended June 30, 2022 and 2021, has been omitted from this report, but may be found in Item 7, MD&A, of our Annual Reports on Form 10-KT for the six months ended December 31, 2022 and Form 10-K for the year ended June 30, 2022, filed with the Securities and Exchange Commission ("SEC") on May 1, 2023 and September 28, 2022, respectively, which are available free of charge on the SEC’s website at www.sec.gov.

Overview

We are developing the next generation of precision-targeted alpha therapies (“TAT”) for oncology that have the potential to treat a large population of cancer patients across multiple tumor types, including those with metastatic disease. By leveraging our proprietary TAT platform, we aim to develop alpha-emitting radiopharmaceuticals that can be attached to targeting peptides to deliver the radioactive payload directly to difficult-to-treat tumors. The foundation of our TAT platform is our Pb-specific chelator ("PSC") and peptide linker technology, which is designed to enable us to connect our alpha-emitting isotope of choice, Lead-212 (“212Pb” or “Pb-212”), to a desired targeting peptide to deliver radiation directly to cancer cells. Unlike commercially available chelators and linkers, our proprietary PSC and peptide linker have shown, in preclinical studies, the differentiated ability to promote enhanced clearance of the non-tumor localized 212Pb payload without sacrificing the uptake of the alpha particle into the tumor. Rapid clearance of the alpha-emitting isotope from normal tissues is important to enhance tolerability and widen the therapeutic window of our program candidates. We are also developing complementary diagnostics that utilize the same targeting peptide and imaging isotopes such as Lead-203 (“203Pb” or “Pb-203”), Gallium-68 (“68Ga” or “Ga-68”), or Copper-64 (“64Cu” or “Cu-64”) to provide the opportunity to understand which patients may respond to targeted therapy.

Our platform generates TATs that are comprised of three components: (i) a targeting peptide that is designed to selectively target ligands that are unique to, or preferentially expressed on, cancer cells throughout the body; (ii) the alpha-emitting medical isotope 212Pb designed to kill cancer cells; and (iii) our proprietary linker that attaches the targeting molecule to the radioactive payload.

We utilized our TAT platform to discover, design and develop our initial programs, VMT-α-NET and VMT01, which are currently in ongoing Phase 1 clinical trials, and we plan to continue to leverage our platform to assess the potential of and develop multiple additional pipeline programs. Using our proprietary platform technology, VMT-α-NET and VMT01 are engineered to target cancer-specific receptors on tumor cells. [212Pb]VMT-α-NET is a TAT in development for patients with unresectable or metastatic somatostatin receptor type 2 ("SSTR2")-expressing tumors who have not previously received peptide-targeted radiopharmaceutical therapy, such as Lutathera. [212Pb]VMT01 is a TAT in development for second-line or later treatment of patients with progressive MC1R-positive metastatic melanoma.

We have had recurring losses since inception. We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our product candidates. Our costs will also increase as we:

As of December 31, 2023, we had cash and cash equivalents of $9.2 million. We believe our cash and cash equivalents, including the cash we raised through the Lantheus Investment Agreement, the January 2024 Public Offering and the March 2024 Private Placement will be sufficient to fund our operations for at least the next 12 months from the date the consolidated financial statements in this report were issued and into 2026. For additional information regarding the cash we raised, see "- Liquidity and Capital Resources - Sources of Liquidity" below and Note 20, Subsequent Events in this Form 10-K. Monthly operating expenses are budgeted to increase for research and development and general and administrative expenses in fiscal year 2024 as management works to implement its strategy to advance its two clinical assets, VMT01 and VMT-α-NET, in their clinical trials and to progress its preclinical assets towards clinical trials. Management anticipates a significant increase of expenses, particularly in research and development, as it undertakes these activities in fiscal year 2024.

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On February 3, 2023, we completed the merger of Isoray Acquisition Corp., a Delaware corporation and our wholly owned subsidiary, with Viewpoint Molecular Targeting, Inc. (“Viewpoint”) (such transaction being the “Merger”). Pursuant to the Merger, we issued 136,545,075 shares of common stock, representing approximately 49% of our fully diluted outstanding capital stock. Viewpoint is an alpha-particle radiopharmaceutical company in the alpha-emitter market developing oncology therapeutics and complementary imaging agents.

For a more detailed summary of the Merger, see our Forms 8-K filed with the Securities and Exchange Commission (“SEC”) on September 28, 2022, and on February 6, 2023, and our Form 8-K/A filed with the SEC on April 21, 2023, which are available free of charge on the SEC’s website at www.sec.gov.

Historically, we operated a brachytherapy division and since the Merger, we now operate as a radiopharmaceutical development division. On December 7, 2023, we entered into an Asset Purchase Agreement (the “GT Medical APA”) with Isoray and GT Medical Technologies, Inc. (“GT Medical”).

Subject to the satisfaction or waiver of the conditions set forth in the GT Medical APA, Isoray will sell to GT Medical, and GT Medical will purchase from Isoray, all of Isoray’s right, title and interest in and to substantially all of the assets of Isoray related to Isoray’s commercial Cesium-131 business including equipment, certain contracts and leases, inventory and intellectual property (the “GT Medical Asset Purchase”). Subject to limited exceptions set forth in the GT Medical APA, GT Medical is not assuming the liabilities of Isoray.

The GT Medical APA also includes customary termination provisions, including that, in general, either party may terminate the GT Medical APA if the transaction has not been consummated by March 31, 2024, or if any governmental authority issues any order that restrains, enjoins or otherwise prohibits or prevents the transaction. We expect the GT Medical Asset Purchase to be completed in the first half of 2024.

As a result of the transaction, we have effectively exited the brachytherapy segment and will now focus exclusively on our radiopharmaceutical development segment. The sale of the brachytherapy segment represents a strategic shift that will have a major effect on our operations. We accounted for the transaction as discontinued operations on the date the divestiture was announced. Accordingly, we are reporting the results of the brachytherapy segment operations and cash flows, and balance sheet classifications for the current and comparative periods as discontinued operations. Prior to the consummation of the sale, we were neither actively marketing the brachytherapy business for sale nor had intentions to abandon it and, as a result, did not present the results as assets held for sale or discontinued operations in prior filings. See footnotes to the financial statements for our discontinued operations reporting.

For a full discussion of the GT Medical Asset Purchase, see "Item 1A - Business."

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. On an ongoing basis, management evaluates past estimates and judgments, including those related to accrued liabilities, derivative liabilities and contingencies. Management bases its estimates on historical experience and on various other assumptions 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.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Share-Based Compensation

The Company measures and recognizes expense for all share-based payments at fair value. The Company uses the Black-Scholes option valuation model to estimate fair value for all stock options on the date of grant. For stock options that vest over time, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. The Company recognizes forfeitures as they occur.

Research and Development Costs

Research and development costs, including salaries, benefits, and share-based compensation, research materials, facility overhead, lab supplies, depreciation, administrative expenses and contractor fees, are charged to operations as incurred.

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Legal Contingencies

The Company may, in the ordinary course of business, be involved in legal proceedings involving securities, contractual and employment relationships, product liability claims, patent rights, environmental matters, and a variety of other matters, the outcomes of which are not within the Company’s complete control and may not be known for extended periods of time. Legal costs associated with defending these matters are expensed as incurred.

The Company records a liability in its consolidated financial statements for damages and/or costs related to claims, settlements, and judgments where the Company has assessed that the loss is probable and an amount can be reasonably estimated.

Business Acquisition Accounting

The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisition based on the fair value of identifiable tangible and intangible assets and liabilities. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.

If applicable, the Company records deferred taxes for any differences between the assigned values and tax basis of assets and liabilities. Estimated deferred taxes are based on available information concerning the tax basis of assets acquired and liabilities assumed at the acquisition date, although such estimates may change in the future as additional information becomes known.

Goodwill and In-Process Research and Development (“IPR&D”)

The fair value of acquired intangible assets is determined using an income-based approach referred to as the multi-period excess-earnings approach.

Goodwill is tested at least annually for impairment by assessing qualitative factors in determining whether it is more likely than not that the fair value of net assets is below their carrying amounts.

IPR&D assets represent the fair value of incomplete research and development (“R&D”) projects that had not reached technological feasibility as of the date of the acquisition. Initially, these assets are classified as IPR&D and are not subject to amortization. IPR&D assets that reach commercialization are amortized on a straight-line basis over their estimated useful life. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. IPR&D is tested for impairment at least annually or more frequently if events occur or circumstances change that would indicate a potential reduction in the fair values of the assets below their carrying value. Impairment charges are recognized to the extent the carrying value of IPR&D is determined to exceed its fair value. Post-acquisition R&D expenses related to these projects are expensed as incurred.

Grant Revenue Recognition

The Company enters into contracts with governmental agencies for services. These contracts are analyzed in order to determine if they should be accounted for under a revenue recognition model pursuant to Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, or a grant model pursuant to ASC 958, Not-for-Profit Entities. If accounted for pursuant to a grant model, the Company must determine if the grant is conditional or unconditional, and if any conditional barriers exist which must be overcome. If unconditional, the grant is recognized as revenue immediately, and if conditional, the grant is recognized as revenue as and when the barriers are overcome. We concluded that payments received under the current grants represent conditional, nonreciprocal contributions, as described in ASC 958, and that the grants are not within the scope of ASC 606, as the organizations providing the grants do not meet the definition of a customer. The significant barrier to the current conditional grants is that the expenses incurred must meet the qualifications as established by the respective governmental agencies, so that the grant revenue is recognized as the qualified expenses are incurred. Expenses for grants are tracked using a project code specific to the grant, and the employees also track hours worked by using the project code. Under ASC 958, grants related to income are presented as part of the consolidated statements of operations, either separately or under a general heading. Both methods are acceptable under ASC 958. The Company has elected to record grants related to income separately on the consolidated statements of operations as grant revenue. The related expenses are recorded within R&D and general and administrative.

Assets Held for Sale and Discontinued Operations

The Company classifies assets and liabilities to be sold ("disposal group") as held for sale in the period when all of the applicable criteria are met, including: (i) management commits to a plan to sell, (ii) the disposal group is available to sell in its present condition, (iii) there is an active program to locate a buyer, (iv) the disposal group is being actively marketed at a reasonable price in relation to its fair value, (v) significant changes to the plan to sell are unlikely, and (vi) the sale of the disposal group is generally probable of being completed within one year. Management performs an assessment at least quarterly or when events or changes in business circumstances indicate that a change in classification may be necessary.

Assets and liabilities held for sale are presented separately within the consolidated balance sheets with any adjustments necessary to measure the disposal group at the lower of its carrying value or fair value less costs to sell. Depreciation of property and equipment and amortization right-of-use assets are not recorded while these assets are classified as held for sale. For each period the disposal group remains classified as held for sale, its recoverability is reassessed and any necessary adjustments are made to its carrying value.

The Company categorizes the assets and liabilities of a business component as discontinued operations once management commits to a plan to sell, the business segment is available for immediate sale, management has initiated a plan to sell at a price that is reasonable in relation to its fair value, management anticipates the sale will occur within one year, and it is unlikely that significant changes will be made to the plan to sell. In addition, the business component must be comprised of operations and cash flows that are clearly distinguished from the rest of the entity. The results of discontinued operations are aggregated and presented separately in the consolidated balance sheets and consolidated statements of operations.

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Results of Operations

Financial Presentation

The following sets forth a discussion and analysis of the Company’s financial condition and results of operations for the years ended December 31, 2023 and 2022. This discussion and analysis should be read in conjunction with our consolidated financial statements appearing elsewhere in this Annual Report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Item 1A — Risk Factors,” beginning on page 34 of this Annual Report.

The Company has previously presented its results in two segments: Drug Operations and Brachytherapy. Due to the divestiture of all of the brachytherapy segment to GT Medical and the classification of the assets and operations of the brachytherapy segment as discontinued operations in our financial statements, we have now determined that we operate in only one segment. As a result, the following does not include a discussion of the results of our discontinued operations. For additional information regarding our discontinued operations and transitional period comparative data, see Note 4, Discontinued Operations, and Note 18, Transitional Period Comparative Data, to the financial statements in this Form 10-K.

Revenue

Grant Revenue

Grant revenue of $1.4 million is derived from our work for the National Institutes of Health. We did not have any grant revenue prior to the acquisition of Viewpoint on February 3, 2023.

Operating Expenses

Research and Development Expenses

Research and development expenses consisted primarily of the costs related to employee and third-party research and development activities. Contributing to the increase of $20.4 million from $0.9 million for the year ended December 31, 2022 to $21.3 million for the year ended December 31, 2023 were the increased costs related to the development of our targeted alpha therapy drug programs gained through the merger with Viewpoint.

Management believes that research and development expenses will increase as we continue to invest in the development of new drugs and products in the alpha-emitter space.

General and Administrative Expenses

General and administrative expenses consist primarily of the costs related to the executive, finance, human resources and information technology functions of the Company.

The primary reasons for the increase of $13.6 million in general and administrative expenses for the year ended December 31, 2023 compared to the year ended December 31, 2022 were change of control payments and the acceleration of share-based compensation as a result of the merger with Viewpoint, increased personnel and other expenses related to the former Viewpoint operations, along with increased consulting, legal and audit expenses.

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Liquidity and Capital Resources

The Company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company has historically financed its operations through selling equity to investors. During the year ended December 31, 2023, the Company raised approximately $0.6 million pursuant to the exercise of options to purchase common stock. Existing cash reserves from prior capital raises and $0.4 million raised from the ATM Agreement were used to fund the Company's operations and capital expenditures during the year ended December 31, 2023.

Our cash flows for the years ended December 31, 2023 and 2022 (unaudited), respectively, are summarized as follows (in thousands):

Cash Flows from Operating Activities

Net cash used by operating activities in the year ended December 31, 2023 was primarily due to an approximate net loss of $46.5 million, net of approximately $7.3 million in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $2.3 million to the cash used by operating activities.

Net cash used by operating activities in the year ended December 31, 2022 was primarily due to an approximate net loss of $10.8 million, net of approximately $1.4 million in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation and share-based compensation. Changes in operating assets and liabilities contributed approximately $1.0 million to the cash provided by operating activities.

Cash Flows from Investing Activities

Investing activities for both years are presented by primary transaction category. Investing activities consisted of transactions related to the purchase of fixed assets as well as the purchase and subsequent maturity of certificates of deposit or U.S. Treasury Bills. Management will continue to invest in resources to further develop our internal manufacturing process and capabilities and to invest and reinvest maturing certificates of deposit and U.S. Treasury Bills in low-risk investment opportunities that safeguard assets and provide greater assurance those resources will be liquid and available for business needs as they arise.

Cash Flows from Financing Activities

Financing activities for both years are presented by primary transaction category. Financing activities for the year ended December 31, 2023 were primarily due to option exercises and $0.4 million raised from the ATM Agreement. Financing activities for the year ended December 31, 2022 were primarily due to option exercises.

Sources of Liquidity

ATM Agreement

We have an At Market Issuance Sales Agreement (the "ATM Agreement") with Oppenheimer & Co., Inc., B. Riley Securities, Inc. and JonesTrading Institutional Services LLC, dated November 17, 2023, to create an "at-the-market" equity program under which we may offer and sell shares of our common stock, from time to time.

On November 17, 2023, we filed a shelf registration statement on Form S-3 with the SEC (File No. 333-275638) and accompanying base prospectus, declared effective by the SEC on December 14, 2023, for the offer and sale of up to $200 million of our securities (the "December 2023 Registration Statement"). Also on November 17, 2023, we filed a prospectus supplement with the SEC in connection with the offering of up to $50 million of shares of our common stock pursuant to the ATM Agreement under the December 2023 Registration Statement.

During the year ended December 31, 2023, we issued 1,238,826 shares of our common stock under the Sales Agreement, resulting in net proceeds of approximately $0.4 million. As of December 31, 2023, we had an aggregate of $199.6 million available under the December 2023 Registration Statement.

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Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we advance and expand preclinical activities, clinical trials and potential commercialization of our program candidates. Our costs will also increase as we:

As of December 31, 2023, we had cash and cash equivalents of $9.2 million and an accumulated deficit of $152.4 million. Our continued viability is dependent on the ability to successfully obtain additional working capital and ultimately attain profitable operations if we commercialize our program candidates. We believe our cash and cash equivalents, including the cash we raised through the Lantheus Investment Agreement, the January 2024 Public Offering and the March 2024 Private Placement, will be sufficient to fund our operations and capital investments into 2026. For additional information regarding the cash we raised, see Financing Activities below and Note 20, Subsequent Events in this Form 10-K. Monthly operating expenses are budgeted to increase for research and development and general and administrative expenses in fiscal year 2024 as management works to implement our strategy to advance our two clinical assets, VMT-α-NET and VMT01, in our clinical trials and to progress our preclinical assets towards clinical trials. Management anticipates a significant increase of expenses, particularly in research and development, as we undertake these activities in fiscal year 2024 and beyond.

We expect we will need to raise additional capital until we are profitable, which may never occur. If no additional capital is raised through either additional public or private equity financings, debt financings, strategic relationships, alliances and licensing agreements, or a combination thereof, we may delay, limit or reduce discretionary spending in areas related to research and development activities and other general and administrative expenses in order to fund our operating costs and working capital needs.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approvals for our product candidates, we expect to incur commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our program candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing and preferred equity 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. If we raise additional funds through other third-party funding, strategic alliances, licensing arrangements, outright sales of product candidates or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we will be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

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Capital Expenditures

Management is reviewing all aspects of research and development and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems and personnel are available to support and drive clinical trials and preclinical activities.

Financing Activities

During the year ended December 31, 2023, the Company received approximately $0.6 million as a result of the exercise of 1,913,185 options to purchase common stock.

During the year ended December 31, 2022, the Company received approximately $28 thousand as a result of the exercise of 72,500 options to purchase common stock.

On March 4, 2024, Perspective entered into an investment agreement (the "March 2024 Investment Agreement”) with certain accredited institutional investors (“Institutional Investors”) pursuant to which Perspective agreed to issue and sell, in a private placement (the “March 2024 Private Placement”), 92,009,981 shares of Perspective’s common stock, par value $0.001 per share (the “Common Stock”), for a purchase price of $0.95 per share, representing the closing price of the Common Stock on March 1, 2024. The closing of the March 2024 Private Placement occurred on March 6, 2024 (the "March 2024 Closing"). The gross proceeds to the Company from the March 2024 Private Placement were approximately $87.4 million, before deducting fees and other estimated transaction expenses. Perspective intends to use the net proceeds from the March 2024 Private Placement for general corporate and working capital purposes, which may include research and development expenditures, preclinical study and clinical trial expenditures, manufacturing expenditures, commercialization expenditures, capital expenditures, acquisitions of new technologies, products or businesses and investments.

On January 8, 2024, Perspective entered into an investment agreement (the “Lantheus Investment Agreement”) with Lantheus Alpha Therapy, LLC, a Delaware limited liability company and wholly owned subsidiary of Lantheus Holdings, Inc. (“Lantheus”), pursuant to which Perspective agreed to sell and issue to Lantheus in a private placement transaction (the “Lantheus Private Placement”) certain shares (the “Lantheus Shares”) of Perspective’s Common Stock. The closing of the purchase and sale of the Lantheus Shares to Lantheus by Perspective (the “Lantheus Closing”) were subject to Perspective raising at least $50.0 million of gross proceeds (excluding Lantheus’ investment) in a qualifying third-party financing transaction, which occurred on January 22, 2024. The number of Lantheus Shares sold was 56,342,355, representing 19.99% of the outstanding shares of Common Stock as of January 8, 2024. Pursuant to the Lantheus Investment Agreement, Perspective agreed to cooperate in good faith to negotiate and enter into a registration rights agreement with Lantheus, obligating Perspective to file a registration statement on Form S-3 with the U.S. Securities and Exchange Commission to register for resale the Lantheus Shares issued at the Lantheus Closing. The Lantheus Investment Agreement also contains agreements of Perspective and Lantheus whereby Lantheus is provided certain board observer and information rights of Perspective, as well as standstill provisions prohibiting Lantheus from taking certain actions for a specified period of time, subject to certain exceptions.

On January 17, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representative of the underwriters named therein (the “Underwriters”), in connection with its previously announced underwritten public offering (the “Public Offering”) of 132,075,218 shares (the “Public Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and, in lieu of Public Shares to certain investors, pre-funded warrants (the “Pre-funded Warrants”) to purchase 30,086,944 shares of Common Stock. The price to the public for the Public Shares was $0.37 per Public Share, and the price to the public for the Pre-funded Warrants was $0.369 per Pre-funded Warrant, which represents the per share price for the Public Shares less the $0.001 per share exercise price for each such Pre-funded Warrant. Under the terms of the Underwriting Agreement, the Company granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 24,324,324 shares of Common Stock at the same price per share as the Public Shares, which such option was fully exercised by the Underwriters on January 18, 2024. The Public Offering closed on January 22, 2024.

The gross proceeds to the Company from the Public Offering were approximately $69.0 million, before underwriting discounts and commissions and estimated expenses of the Public Offering. The Company intends to use the net proceeds from the Public Offering for general corporate purposes, which may include research and development expenditures, preclinical study and clinical trial expenditures, manufacturing expenditures, commercialization expenditures, working capital, capital expenditures, acquisitions of new technologies, products or businesses and investments.

The Public Offering was made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-275638), declared effective by the Securities and Exchange Commission on December 14, 2023, a base prospectus dated December 14, 2023, and the related prospectus supplement dated January 17, 2024.

The Pre-funded Warrants are exercisable at any time after the date of issuance. The exercise price and the number of shares of Common Stock issuable upon exercise of each Pre-funded Warrant (the “Warrant Shares”) are subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Common Stock as well as upon any distribution of assets, including cash, stock or other property, to the Company’s stockholders. The Pre-funded Warrants will not expire and are exercisable in cash or by means of a cashless exercise. A holder of Pre-funded Warrants may not exercise such Pre-funded Warrants if the aggregate number of shares of Common Stock beneficially owned by such holder, together with its affiliates, would beneficially own more than 4.99% of the issued and outstanding shares of Common Stock following such exercise, as such percentage ownership is determined in accordance with the terms of the Pre-funded Warrants. A holder of Pre-funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to the Company.

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On November 17, 2023, the Company filed a Form S-3 registration statement which was amended on December 7, 2023, and became effective on December 14, 2023, with the potential to register up to $200 million of equity securities. On November 17, 2023, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Oppenheimer & Co., Inc., B. Riley Securities, Inc. and JonesTrading Institutional Services LLC (each and “Agent” and together the “Agents”) to create an “at-the-market” equity program under which the Company from time to time may offer and sell shares (the “ATM Shares”) of its common stock, par value $0.001 per share, through or to the Agents. The common stock sold pursuant to the ATM Agreement will be distributed at the market prices prevailing at the time of sale. The ATM Agreement provides that the Agents will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of December 31, 2023, the Company had sold an aggregate of 1,238,826 shares under the distribution agreement at an average price of approximately $0.303 per common share for gross proceeds of approximately $0.4 million.

When it does require capital in the future, the Company expects to finance its cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing stockholders, Management anticipates that if it raises additional financing that it will be at a discount to the market price and it will be dilutive to stockholders.

Other Commitments and Contingencies

The Company’s purchase commitments and obligations include all open purchase orders and contractual obligations entered into in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services and acquisition and licensing of intellectual property. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule and/or adjust our requirements based on our business needs prior to the delivery of goods or performance of services.

On July 1, 2023, the Company entered into a lease with Unico Properties LLC for office space in Seattle, Washington, that terminates October 2028. Upon entering this lease, the Company recognized a right-of-use asset and lease liability of approximately $0.8 million on the balance sheet based upon the present value of the future base payments discounted at an 8% discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate. The weighted average remaining term and discount rate as of December 31, 2023, was 4.83 years and 8%, respectively. Over the next five years, our lease liability less imputed interest totals approximately $0.8 million. For additional information related to the Company's leases, see Note 10, Leases.

Merger

On September 27, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Isoray Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), Viewpoint Molecular Targeting, Inc. (“Viewpoint”), and Cameron Gray, as the representative of the Owners (as defined therein), as amended by the First Amendment to Agreement and Plan of Merger entered into by the parties on October 21, 2022 (the “Amendment”). On February 3, 2023 (the “Merger Closing”), the Company completed the merger of Merger Sub with Viewpoint (such transaction being the “Merger”). Viewpoint is an alpha-particle radiopharmaceutical company in the alpha-emitter market developing oncology therapeutics and complementary imaging agents. In connection with the Merger Closing, the Company issued 136,545,075 shares of common stock, representing approximately 49% of the fully diluted outstanding capital stock of the Company, to the stockholders of Viewpoint, with 10% of those shares being held in escrow by U.S. Bank National Association (“U.S. Bank”) for the 12-month period following the Merger Closing pursuant to the terms of the Merger Agreement and an escrow agreement entered into among the Company, U.S. Bank and Cameron Gray. On February 5, 2024, the Company notified U.S. Bank that all of the escrow shares were to be released and distributed to the stockholders of Viewpoint.

For a more detailed summary of the Merger Agreement, see our Forms 8-K filed with the SEC on September 28, 2022 and on February 6, 2023 and our Form 8-K/A filed with the SEC on April 21, 2023.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Impact of Inflation

Inflation had minimal impact on our net sales and revenues but had an impact on loss from continuing operations as we have experienced increases in costs for materials and services.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that we adopt as of the specified effective date. See Note 2, Summary of Significant Accounting Policies, to the financial statements in this Form 10-K for additional discussion of our adopted accounting policies and recent accounting pronouncements.

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. On an on-going basis, management evaluates past estimates and judgments, including those related to bad debts, inventories, accrued liabilities, derivative liabilities, and contingencies. Management bases its estimates on historical experience and on various other assumptions 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.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue based on the five-step model for revenue recognition as prescribed by ASC 606, Revenue from Contracts with Customers, as follows: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the prices to the performance obligations; and (5) recognize revenue. The Company has some agreements that contain general commercial terms and product prices but do not contain an obligation to provide goods to the customer. Our performance obligation, which is established when the customer submits a purchase order and the Company accepts the order, is to deliver the product based on the purchase order received. The Company typically recognizes revenue at the time of shipment, at which time the title passes to the customer, and there are no further performance obligations.

Share-Based Compensation

The Company measures and recognizes expense for all share-based payments at fair value. The Company uses the Black-Scholes option valuation model to estimate fair value for all stock options on the date of grant. For stock options that vest over time, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. The Company recognizes forfeitures as they occur.

Research and Development Costs

Research and development costs, including salaries, benefits, and share-based compensation, research materials, facility overhead, lab supplies, depreciation, administrative expenses and contractor fees, are charged to operations as incurred.

Legal Contingencies

The Company may, in the ordinary course of business, be involved in legal proceedings involving securities, contractual and employment relationships, product liability claims, patent rights, environmental matters, and a variety of other matters, the outcomes of which are not within the Company’s complete control and may not be known for extended periods of time. Legal costs associated with defending these matters are expensed as incurred.

The Company records a liability in its consolidated financial statements for damages and/or costs related to claims, settlements, and judgments where the Company has assessed that the loss is probable and an amount can be reasonably estimated.

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Results of Operations

Financial presentation

The following sets forth a discussion and analysis of the Company’s financial condition and results of operations for the fiscal years ended 2022, 2021, and 2020. This discussion and analysis should be read in conjunction with our consolidated financial statements appearing elsewhere in this Report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Item 1A — Risk Factors,” beginning on page 25 of this Report. (In thousands)

(a) Expressed as a percentage of sales, net

Sales

Fiscal 2022 sales, net increased 7% compared to fiscal 2021.The main driver of this growth was a 23% increase in other sales primarily due to increased treatments for brain cancer, including GammaTile™. In addition, part of the sales growth was due to moderate price increases that were implemented in November 2021. These increases were partially offset by a reduction in prostate cancer treatments.

Fiscal 2021 sales, net increased 4% compared to fiscal 2020. The main driver of this growth was a 68% increase in other sales primarily due to increased treatments for brain cancer, including GammaTile™. In addition, part of the sales growth was due to moderate price increases that were implemented in January 2020. These increases were partially offset by a reduction in prostate cancer treatments that we believe was due to the impacts of the COVID-19 pandemic from stay-at-home orders in various states as well as hospitals' focus on treating COVID-19 patients.

(a) Expressed as a percentage of sales, net

Prostate Brachytherapy.

Prostate sales were up approximately 3% in fiscal 2022. We believe this was partially due to easing of stay-at-home orders in various states and slightly less impact from COVID-19 and a price increase that was implemented in November 2021. This led to a slight increase in sales for prostate treatments during fiscal year 2022 when compared to fiscal year 2021.

Management believes continued growth in prostate brachytherapy revenues will be the result of physicians, payors, and patients increasingly considering overall treatment advantages including costs compared with non-brachytherapy treatments, better treatment outcomes and improvement in the quality of life for patients. The American Cancer Society estimates that nearly 268,490 new prostate cancer cases will be diagnosed in calendar year 2022, which represents an increase of approximately 7% over the calendar year 2021 estimate (American Cancer Society, 2022). This increase is due to patients being unable to access treatment or putting treatment off due to the COVID pandemic, but there is no assurance that this will occur and if it occurs that it will have a positive impact on the Company's performance. We believe the trend to use brachytherapy in lieu of other options is starting to improve our performance but there is no assurance as to how long this trend will continue.

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Management believes increased pressure to deliver effective healthcare in both terms of outcome and cost drove treatment options in fiscal 2022 with prostate brachytherapy receiving more consideration than in previous years.

Other Sales.

Other sales include but is not limited to brain, lung, head/neck, gynecological, pelvic treatments, and services. Other sales grew by approximately 23% in fiscal 2022. The main driver of this growth was increased treatments for brain cancer including GammaTile™. Initial applications for these other brachytherapy treatments are primarily used in recurrent cancer treatments or salvage cases that are generally difficult to treat aggressive cancers where other treatment options are either ineffective or unavailable.

Other brachytherapy treatments are subject to the influence of a small pool of innovative physicians who are the early adopters of the technology who also tend to be faculty at teaching hospitals training the next generation of physicians. This causes the revenue created by these types of treatment applications to be more volatile and varies significantly from year to year. Additionally, with other brachytherapy surgical procedures there remains inconsistency and uncertainty regarding reimbursement for the procedures. This unreliable reimbursement for these new procedures will remain until specific coding and coverage policies are established, which could take years. Individual centers weigh the value of the procedure with their other treatment priorities on a patient by patient basis. Isoray believes that additional clinical data will begin to build a compelling argument to support reimbursement and increased adoption of the procedures; however, any growth will be inconsistent in the near term.

GammaTile™

For several years the Company has focused on many different applications of its Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of brain cancer. Most recently, the Company has focused on using braided strand configurations and on a collaboration with GammaTile, LLC, now known as GT Medical Technologies, Inc. (GT Med Tech), which has a technology which use biodegradable “tiles” to deliver the Cesium-131 brachytherapy seeds into contact with cancerous tumors in the brain.

GammaTile™ Therapy was in a limited market release beginning in January 2019 and in a full market release beginning in January 2020.  Total revenues from sales to GT Med Tech in fiscal 2022 were slightly more than fourteen percent of total revenues. While GT Med Tech continues to assure Isoray that its sales and marketing efforts will show steady improvements in sales there is no assurance this will occur.

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Cost of sales

Cost of sales consisted primarily of the costs of manufacturing and distributing the Company’s products. The fiscal 2022 increase was primarily the result of increased labor, materials costs and depreciation. Labor expenses increased by $534,000 due to additional headcount as well as annual merit increases. Materials isotope costs increased by $525,000. Higher freight costs for isotope resulted from the use of cargo flights rather than passenger flights to transport isotope from Russia to our facility due to the COVID-19 pandemic's impact on passenger flights and the ongoing war in Ukraine resulting in our need to re-route our flights through more expensive alternatives. In addition, due to lower than anticipated sales volumes, we had excess isotope on hand which went unused. Depreciation increased $104,000 due to equipment placed into service during the second half of fiscal 2021.

The fiscal 2021 increase was primarily the result of increased labor and materials costs. Labor expenses increased by $156,000 due to additional headcount as well as annual merit increases. Materials isotope costs increased by $126,000. Higher freight costs for isotope resulted from the use of cargo flights rather than passenger flights to transport isotope from Russia to our facility due to the COVID-19 pandemic's impact on passenger flights. In addition, due to lower than anticipated sales volumes, we had excess isotope on hand which went unused. Non-isotope materials costs increased $63,000 due to increased ordering of some items in an effort to mitigate any potential supply chain issues due to the COVID-19 pandemic as well as price increases from some of our suppliers.

During both fiscal 2021 and 2022, the Company purchased isotope in excess of known customer orders to provide enough isotope to fill anticipated orders which did not materialize. The excess isotope is utilized in the production of upcoming orders where possible considering the decay rates of Cesuim-131. Any loss of isotope to decay is also included as a cost of production during the current period.

Research and development expenses

Research and development consisted primarily of the costs related to employee and third-party research and development activities. The fiscal 2022 increase was due mainly to increases in protocol, payroll, and consulting expenses. The Company conducted new research which contributed to a $15,000 increase in protocol expenses. Payroll expenses increased by $708,000 due to the expansion of our research and development team through reallocating existing resources and adding additional headcount as well as annual merit increases. Consulting expenses relating to market research of potential new products to be acquired by the Company increased by $272,000.

The fiscal 2021 increase was due mainly to increases in protocol, payroll, and consulting expenses. The Company conducted new research which contributed to a $122,000 increase in protocol expenses. Payroll expenses increased by $184,000 due to the expansion of our research and development team through reallocating existing resources and adding additional headcount as well as annual merit increases. Consulting expenses relating to market research increased by $124,000.

Sales and marketing expenses

Sales and marketing expenses consist primarily of the costs related to the internal and external activities of the Company’s sales, marketing and customer service division. The fiscal 2022 increase was due to increased payroll of $274,000 resulting from higher sales growth when compared to fiscal 2021as well as increased travel of $143,000 and conventions and tradeshow expense of $77,000 as a result increased travel and in-person tradeshows as COVID-19 restrictions lessened. These increases were partially offset by a reduction of $101,000 in consulting expenses mainly due to reclassification of reimbursement consulting to general and administrative expenses.

The fiscal 2021 decrease was due to reduced payroll of $334,000 resulting from lower sales growth when compared to fiscal 2020 and the reversal of share based compensation expense upon separation of our former Executive Vice President of Sales and Marketing, as well as reduced travel of $132,000 and conventions and tradeshow expense of $28,000 as a result of the COVID-19 pandemic.

General and administrative expenses

General and administrative expenses consist primarily of the costs related to the executive, quality assurance and regulatory affairs (QA/RA), finance, human resources and information technology functions of the Company. The increase in fiscal 2022 is due to a payroll increase of $1.2 million resulting from increased headcount, annual merit increases, and increase in share-based compensation as the fiscal 2021 awards were granted in July 2021, increased insurance premiums primarily relating to D&O insurance of $55,000, increased consulting expenses primarily from information technology consulting and reimbursement consulting that was reclassified from sales and marketing of $155,000, employment hiring expense increased by $207,000, increased public company related expenses of $94,000, travel increased $60,000, professional services increased $52,000, and software costs increased by $17,000.

The increase in fiscal 2021 was primarily the result of higher payroll of $145,000 due to incentive compensation and promotions, increased insurance premiums of $74,000 primarily relating to D&O insurance (which increased industry-wide), other expense of $45,000 primarily related to employee relations and hiring expense. These were partially offset by decreased public company related expenses of $109,000, reduced legal fees of $56,000, and fewer travel expenses of $56,000 due to the COVID-19 pandemic. In addition, the majority of annual employee and director stock grants have historically been granted in the fiscal fourth quarter, however the 2021 year’s awards were granted in July 2021, subsequent to the close of the fiscal fourth quarter 2021, thus reducing share-based stock compensation expense in the full-year fiscal year-end 2021 compared to the prior fiscal year.

Impact of COVID-19

From the onset of the COVID-19 global health pandemic we have been proactive in implementing plans to ensure the health and well-being of our employees, while remaining focused on providing uninterrupted product flow to the physicians and patients who count on us. We seamlessly transitioned many employees to work from home and made other adjustments to ensure the continuity of our business through this time. At the beginning of the pandemic, we moved quickly to ensure that our inventory of non-isotope supplies were appropriate in case our supply chain was disrupted.  In addition, we set in motion our strategy to maintain a continuous and uninterrupted supply of isotope from our suppliers in Russia including the review of alternative freight services due to the cancellation of many international flights.

As COVID-19 spread, many states implemented new guidelines in an attempt to mitigate the spread of the virus and to conserve certain medical supplies. Those guidelines led to the cancellation or postponement of elective and non-emergency surgical procedures, including prostate brachytherapy procedures.  During fiscal year 2022, our sales revenues increased 7% compared to the fiscal year 2021, but we were still below the average monthly prostate revenues attained in our third quarter of fiscal year 2020 prior to the onset of COVID-19’s impact on our operations. We believe this is due to stay-at-home orders and hospitals’ focus on COVID-19, resulting in a delay or cancellation of patients scheduled to be seen by physicians. This resulted in fewer or delayed urology referrals for prostate brachytherapy treatment.

As more states gradually lift restrictions on non-essential surgeries and other activities, we have received customer feedback of anticipated increases in implant volumes as patients begin returning from quarantines for office visits and consultations but there is no assurance this will occur or be sustained or what impact variants such as the Delta, Omicron 4, and Omicron 5 might cause to our operations. In the meantime, we continue to tightly manage our expenses and make fluid adjustments to isotope orders to meet potential increased treatment demands.

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Impact of Conflict in Ukraine

In February 2022, Russian military forces launched a military action in Ukraine, and sustained conflict and disruption in the region is likely to continue. The length, impact, and outcome of this ongoing military conflict is highly unpredictable and could lead to significant market and other disruptions, including significant instability in financial markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, as well as an increase in cyberattacks and espionage. Russia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and military action against Ukraine led to substantial expansion of sanction programs imposed by the United States and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic.

In retaliation against the sanctions and as part of measures to stabilize and support the volatile Russian financial and currency markets, the Russian authorities imposed significant currency control measures aimed at restricting the outflow of foreign currency and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products, and imposed other economic and financial restrictions. The situation is rapidly evolving, and additional sanctions by Russia on the one hand, and by the other countries on the other hand, could adversely affect the global economy, financial markets, energy supply and prices, certain critical materials and metals, supply chains, and global logistics and could adversely affect our business, financial condition, and results of operations.

While we had trouble with sending wires to Russia from our local bank in Richland, Washington due solely to its own internal policies which we have since resolved and were forced to redirect flights to obtain supply of our Cesium-131, there has been no further impact on our operations and our relationship with our Russian rector suppliers remains excellent; however there is no assurance we will not experience disruptions from the banking system or our suppliers themselves in the future and this could result in a material adverse effect on our financial results. Any such disruption may also magnify the impact of other risks described in this Report.

Because our supply of Cesium-131 is obtained from nuclear reactors located in Russia, the Company is susceptible to any supply chain disruptions resulting from military actions, the sanctions, or otherwise, and any such disruption could materially affect our ability to obtain the Cesium-131 needed for our products. Management and our Board of Directors are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including our medical isotope suppliers. To date, we have not experienced any material interruptions in our medical isotope supplies needed to support our operations due to the conflict. However, we have no way to predict the progress or outcome of the military conflict in Ukraine or its impacts in Ukraine, Russia, Belarus, Europe, or the U.S. The extent and duration of the military action, sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.

Liquidity and capital resources

The Company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company has historically financed its operations through selling equity to investors. During fiscal 2022, the Company raised approximately $56,000 pursuant to the exercise of options to purchase common stock. Existing cash reserves from prior capital raises were used to fund the Company's operations and capital expenditures during fiscal 2022 and 2021 respectively.

Our cash flows for fiscal 2022, 2021, and 2020 respectively, are summarized as follows (in thousands):

Cash flows from operating activities

Net cash used by operating activities in fiscal 2022 was primarily due to an approximate net loss of $7.27 million net of approximately $1.41 million in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $1.85 million to the cash used by operating activities.

Net cash used by operating activities in fiscal 2021 was primarily due to an approximate net loss of $3.39 million net of approximately $617,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $67,000 to the cash used by operating activities.

Net cash used by operating activities in fiscal 2020 was primarily due to an approximate net loss of $3.45 million net of approximately $640,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $835,000 to the cash used by operating activities.

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Cash flows from investing activities

Investing activities for all years are presented by primary transaction category. Investing activities consisted of transactions related to the purchase of fixed assets as well as the purchase and subsequent maturity of certificates of deposit or US Treasury Bills. Management will continue to invest in technology and machinery that improves and streamlines production processes and to invest and reinvest maturing certificates of deposit and US Treasury Bills in low-risk investment opportunities that safeguard assets and provide greater assurance those resources will be liquid and available for business needs as they arise.

Cash flows from financing activities

Financing activities for all years are presented by primary transaction category. Financing activities in fiscal 2022, 2021, and 2020 were primarily due to sales of common stock through an underwritten offering, net, at the market offerings, net, and warrant and option exercises each net of preferred dividends paid. Financing activities were significantly decreased in fiscal 2022 compared to 2021 due to the underwritten offerings, net, in fiscal 2021.

Projected FY 2023 Liquidity and Capital Resources

Operating activities

Management forecasts that fiscal 2023 cash requirements will be similar to previous years and that current cash and cash equivalents will be sufficient to meet projected operating cash needs for the next twelve months. Monthly operating expenses are budgeted to increase for sales and marketing, research and development and general and administrative expenses in fiscal 2023 as management works to implement its strategy. Assuming no extraordinary expenses occur (whether operating or capital), if management is successful at implementing its strategy to focus on renewed emphasis to drive the consumer to the prostate market and meets or exceeds its growth targets of twenty-five percent increase in revenue in fiscal 2023 and this annual growth continues, the Company anticipates reaching cashflow break-even in three to four years. These assumptions do assume that GammaTile™ will contribute to total revenue but do not incorporate any significant growth in the other non-prostate applications as they generate nominal revenues today but if they show significant improvement, cashflow break-even could occur sooner. There is no assurance that the targeted sales growth will materialize but management is encouraged by the depth and experience of its sales team and its track record of growth during the last three fiscal years.

Capital expenditures

Management has completed the design of a future production and administration facility. If suitable construction financing is obtained and the facility constructed, it is believed that the new facility will have non-cash depreciation cost equal to or greater than the monthly rental cost of the current facility.

Management is reviewing all aspects of production operations (including process automation), research and development, sales and marketing, and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems, and personnel are available to support and drive sales.

Beginning in fiscal 2017 and continuing through fiscal 2021, the Company has invested approximately $1,064,000 in the automation of five production processes. The equipment developed for all five processes have been placed in service as of the end of fiscal 2021. This investment was implemented to allow the Company to significantly increase the output of Cesium-131 brachytherapy seeds, while allowing the Company to decrease the labor costs related to seed production and also improving the overall safety of our operations.

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Financing activities

On January 23, 2020, the Company filed a Form S-3 registration statement which became effective on February 4, 2020, with the potential to register up to $80 million of equity securities. On March 31, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co., Inc. (“Oppenheimer”). The common stock sold pursuant to the Agreement was distributed at the market prices prevailing at the time of sale. The Agreement provided that Oppenheimer would be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of June 30, 2020, the Company had sold an aggregate of 1,247,232 shares under the Agreement at an average price of approximately $0.738 per common share for gross proceeds of approximately $920,000 and net proceeds of approximately $874,000. No shares were sold under this Agreement during fiscal year 2021. On October 19, 2020, the Company terminated the Agreement, effective on the same date.

On October 22, 2020, the Company sold 18,269,230 shares of its common stock at a price of $0.52 per share, for aggregate gross proceeds of $9,500,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020. The net proceeds from the offering were approximately $8,471,000. Additionally, the Company issued to the purchasers warrants to purchase up to 9,134,615 shares of common stock. The warrants have an exercise price of $0.57 per share of common stock, are exercisable immediately, and expire five years from the date of issuance. If exercised for cash, future exercises of these warrants will provide additional capital to the Company. As of June 30, 2022, 998,488 of these warrants remain outstanding.

On February 8, 2021, the Company sold 36,000,000 shares of its common stock at a price of $1.25 per share for aggregate gross proceeds of approximately $45,000,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020. Additionally, the Company granted the underwriters an option to purchase an additional 5,400,000 shares of common stock at a purchase price of $1.25 per share for the purpose of covering overallotments, which was exercised on February 8, 2021 and generated gross proceeds of approximately $6,750,000. Total gross proceeds from the offering were approximately $51,750,000 and total net proceeds were approximately $47,904,000.

During fiscal 2021, the Company received approximately $7.8 million as a result of the exercise of 12,318,877 warrants to purchase common stock and $0.5 million as a result of the exercise of 970,315 options to purchase common stock.

During Fiscal 2022, the Company received approximately $0.06 million as a result of the exercise of 125,000 options to purchase common stock.

When it does require capital in the future, the Company expects to finance its cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing stockholders, Management anticipates that if it raises additional financing that it will be at a discount to the market price and it will be dilutive to stockholders.

Other Commitments and Contingencies

The Company’s purchase commitments and obligations include all open purchase orders and contractual obligations entered into in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services and acquisition and licensing of intellectual property. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and/or adjust our requirements based on our business needs prior to the delivery of goods or performance of services. Non-cancellable purchase commitments and obligations that will exist beyond fiscal 2022 and that are not separately presented as a liability on the balance sheet are listed below (in thousands):

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Pending Merger

On September 27, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Isoray Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Viewpoint Molecular Targeting, Inc., a Delaware corporation (“Viewpoint”), and Cameron Gray, as the representative of the Owners (as defined therein). Viewpoint is an alpha-particle radiopharmaceutical company in the alphaemitter market developing oncology therapeutics and complementary imaging agents. The Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub will merge with and into Viewpoint, with Viewpoint continuing as the surviving corporation as a wholly owned subsidiary of Isoray (such transaction, the “Merger”). Under the Merger Agreement, at the effective time of the Merger each issued and outstanding share of common stock of Viewpoint will be converted into the right to receive (i) 3.3212 shares of Isoray common stock rounded to the nearest whole share, (ii) any cash in lieu of fractional shares of Isoray common stock payable pursuant to the Merger Agreement, and (iii) any dividends or other distributions to which the holder thereof becomes entitled to upon the surrender of such shares of Viewpoint common stock. Other than as set forth in (ii) in the preceding sentence, there will be no cash consideration paid in connection with the Merger. Following completion of the Merger, the stockholders of Viewpoint immediately prior to the closing of the Merger will own 49% of the fully-diluted outstanding capital stock of the Company.

Upon the closing of the Merger, Isoray will increase the size of its Board of Directors from four members to not less than five members. Three of the directors will be designated by Isoray and two of the directors will be designated by Viewpoint. Lori Woods, our current CEO and a director, will be one of the directors appointed by Isoray and will serve as the chairperson. Thijs Spoor, Viewpoint’s current CEO, will be one of the directors appointed by Viewpoint. The remaining directors, if any, will be mutually agreed upon by Lori Woods and Thijs Spoor. Also upon the closing of the Merger, Lori Woods will resign from her position as CEO of Isoray and Thijs Spoor will be named CEO of Isoray. Jonathan Hunt will continue as Isoray’s Chief Financial Officer.

Consummation of the Merger is subject to the satisfaction or waiver of various closing conditions, including: (i) performance in all respects by each party of its covenants and agreements, (ii) Isoray and Viewpoint each obtaining approval by its stockholders of the Merger and related matters, (iii) any necessary consents or approvals by governmental and regulatory authorities and non-governmental third-parties being obtained, and (iv) there being no event, change, or occurrence which individually or together with any other event could reasonably be expected to have a material adverse effect on either Isoray or Viewpoint.

The Merger Agreement contains certain restrictions on the conduct of the Company’s and Viewpoint’s respective businesses between the date of signing the Merger Agreement and the earlier of the closing of the Merger or the termination of the Merger Agreement. During such period, Isoray and Viewpoint each must conduct its business in the ordinary course and consistent with past practices in all material respects and may not enter into any material transactions without the other party’s consent. For a more detailed summary of the Merger Agreement, see our Form 8-K filed with the SEC on September 28, 2022.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Impact of Inflation

Inflation had minimal impact on our net sales and revenues or on loss from continuing operations.

Recent Accounting Pronouncements

Accounting Standards Updates Adopted

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The standard was adopted on July 1, 2020 and had no effect on the consolidated financial statements.

Accounting Standards Updates to Become Effective in Future Periods

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent liabilities. On an on-going basis, management evaluates past estimates and judgments, including those related to bad debts, inventories, accrued liabilities, derivative liabilities, and contingencies. Management bases its estimates on historical experience and on various other assumptions 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.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue based on the five-step model for revenue recognition as prescribed by ASC 606, Revenue from Contracts with Customers, as follows: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the prices to the performance obligations; and (5) recognize revenue. The Company has some agreements that contain general commercial terms and product prices but do not contain an obligation to provide goods to the customer. Our performance obligation, which is established when the customer submits a purchase order and the Company accepts the order, is to deliver the product based on the purchase order received. The Company typically recognizes revenue at the time of shipment, at which time the title passes to the customer, and there are no further performance obligations.

Share-Based Compensation

The Company measures and recognizes expense for all share-based payments at fair value. The Company uses the Black-Scholes option valuation model to estimate fair value for all stock options on the date of grant. For stock options that vest over time, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. The Company recognizes forfeitures as they occur.

Research and Development Costs

Research and development costs, including salaries, benefits, and share-based compensation, research materials, facility overhead, lab supplies, depreciation, administrative expenses and contractor fees, are charged to operations as incurred.

Legal Contingencies

The Company may, in the ordinary course of business, be involved in legal proceedings involving securities, contractual and employment relationships, product liability claims, patent rights, environmental matters, and a variety of other matters, the outcomes of which are not within the Company’s complete control and may not be known for extended periods of time. Legal costs associated with defending these matters are expensed as incurred.

The Company records a liability in its consolidated financial statements for damages and/or costs related to claims, settlements, and judgments where the Company has assessed that the loss is probable and an amount can be reasonably estimated.

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Results of Operations

Financial presentation

The following sets forth a discussion and analysis of the Company’s financial condition and results of operations for the fiscal years ended 2021, 2020, and 2019. This discussion and analysis should be read in conjunction with our consolidated financial statements appearing elsewhere in this Report. The following discussion contains forward-looking statements. Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Item 1A — Risk Factors,” beginning on page 25 of this Report. (In thousands)

(a) Expressed as a percentage of sales, net

Sales

Fiscal 2021 sales, net increased 4% compared to fiscal 2020. The main driver of this growth was a 68% increase in other sales primarily due to increased treatments for brain cancer, including GammaTile™. In addition, part of the sales growth was due to moderate price increases that were implemented in January 2020. These increases were partially offset by a reduction in prostate cancer treatments that we believe was due to the impacts of the COVID-19 pandemic from stay-at-home orders in various states as well as hospitals' focus on treating COVID-19 patients.

Fiscal 2020 sales, net increased 32% compared to fiscal 2019. The Company’s sales personnel continued to bring on new accounts while also working with existing customers to increase their order volumes. GammaTile™ and the Blu Build™ loader, while in a limited market release during part of the fiscal year, also helped to increase revenues during fiscal 2020. In addition, part of the sales growth was due to moderate price increases that were implemented during the middle of fiscal year 2020.

(a) Expressed as a percentage of sales, net

Prostate Brachytherapy.

Prostate sales were down approximately 6% in fiscal 2021. We believe that due to stay-at-home orders in various states and hospitals' focus on COVID-19, patients' brachytherapy procedures were either delayed or cancelled. This led to a decrease in sales for prostate treatments during fiscal year 2021 when compared to fiscal year 2020. The decrease in sales volume was partially offset by a price increase that occurred in January 2020.

Management believes continued growth in prostate brachytherapy revenues will be the result of physicians, payors, and patients increasingly considering overall treatment advantages including costs compared with non-brachytherapy treatments, better treatment outcomes and improvement in the quality of life for patients. The American Cancer Society estimates that nearly 250,000 new prostate cancer cases will be diagnosed in calendar year 2021, which represents an increase of approximately 30% over the calendar year 2020 estimate (American Cancer Society, 2021). This increase is due to patients being unable to access treatment or putting treatment off due to the COVID pandemic, but there is no assurance that this will occur and if it occurs that it will have a positive impact on the Company's performance. We believe the trend to use brachytherapy in lieu of other options is starting to improve our performance but there is no assurance as to how long this trend will continue.

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Management believes increased pressure to deliver effective healthcare in both terms of outcome and cost drove treatment options in fiscal 2021 with prostate brachytherapy receiving more consideration than in previous years.

Other Sales.

Other sales include but is not limited to brain, lung, head/neck, gynecological, pelvic treatments, and services. Other sales grew by approximately 68% in fiscal 2021. The main driver of this growth was increased treatments for brain cancer including GammaTile™. Initial applications for these other brachytherapy treatments are primarily used in recurrent cancer treatments or salvage cases that are generally difficult to treat aggressive cancers where other treatment options are either ineffective or unavailable.

Other brachytherapy treatments are subject to the influence of a small pool of innovative physicians who are the early adopters of the technology who also tend to be faculty at teaching hospitals training the next generation of physicians. This causes the revenue created by these types of treatment applications to be more volatile and varies significantly from year to year. Additionally, with other brachytherapy surgical procedures there remains inconsistency and uncertainty regarding reimbursement for the procedures. This unreliable reimbursement for these new procedures will remain until specific coding and coverage policies are established, which could take years. Individual centers weigh the value of the procedure with their other treatment priorities on a patient by patient basis. Isoray believes that additional clinical data will begin to build a compelling argument to support reimbursement and increased adoption of the procedures; however, any growth will be inconsistent in the near term.

GammaTile™.

For several years the Company has focused on many different applications of its Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of brain cancer. Most recently, the Company has focused on using braided strand configurations and on a collaboration with GammaTile, LLC, now known as GT Medical Technologies, Inc. (GT Med Tech), which has a technology which use biodegradable “tiles” to deliver the Cesium-131 brachytherapy seeds into contact with cancerous tumors in the brain.

GammaTile™ Therapy was in a limited market release beginning in January 2019 and in a full market release beginning in January 2020.  Total revenues from sales to GT Med Tech in fiscal 2021 were slightly more than ten percent of total revenues. While GT Med Tech continues to assure Isoray that its sales and marketing efforts will show steady improvements in sales there is no assurance this will occur.

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Cost of sales

Cost of sales consisted primarily of the costs of manufacturing and distributing the Company’s products. The fiscal 2021 increase was primarily the result of increased labor and materials costs. Labor expenses increased by $156,000 due to additional headcount as well as annual merit increases. Materials isotope costs increased by $126,000. Higher freight costs for isotope resulted from the use of cargo flights rather than passenger flights to transport isotope from Russia to our facility due to the COVID-19 pandemic's impact on passenger flights. In addition, due to lower than anticipated sales volumes, we had excess isotope on hand which went unused. Non-isotope materials costs increased $63,000 due to increased ordering of some items in an effort to mitigate any potential supply chain issues due to the COVID-19 pandemic as well as price increases from some of our suppliers.

The fiscal 2020 increase was primarily due to higher sales volumes that led to increased labor expenses and non-isotope materials costs offset by decreased isotope costs. Labor expenses increased by $168,000 as the Company had more production volume due to higher sales. Non-isotope materials costs also increased by $270,000 due to increased sales volume and an increase in the ratio of preloaded seeds (stranded, Blu Build™, etc.) compared to loose seeds sold. Beginning in the first fiscal quarter of 2019, the Company reduced the amount of Cesium-131 provided by the MURR reactor by approximately thirty-five percent. After a thorough review of the capacity and quality of production at the MURR facility, the Company determined to terminate its supply agreement with MURR and the last shipment of isotope from MURR was received in January 2019. These changes led to a $165,000 decrease in isotope cost during fiscal 2020 compared to fiscal 2019 despite increased sales volumes.

During both fiscal 2020 and 2021, the Company purchased isotope in excess of known customer orders to provide enough isotope to fill anticipated orders which may or may not materialize. The excess isotope is utilized in the production of upcoming orders where possible considering the decay rates of Cesuim-131. Any loss of isotope to decay is also included as a cost of production during the current period.

Management anticipates an increase in costs of goods sold for the six-month period ended December 31, 2021 resulting from an increased volume of isotope purchases related to its initial set up of a second nuclear reactor associated with its consignment of enriched barium and purchase of enriched barium carbonate needed for Cesium-131 production at the RIAR facility.

Research and development expenses

Research and development consisted primarily of the costs related to employee and third-party research and development activities. The fiscal 2021 increase was due mainly to increases in protocol, payroll, and consulting expenses. The Company conducted new research which contributed to a $122,000 increase in protocol expenses. Payroll expenses increased by $184,000 due to the expansion of our research and development team through reallocating existing resources and adding additional headcount as well as annual merit increases. Consulting expenses relating to market research increased by $124,000.

The decrease in fiscal 2020 compared to fiscal 2019 was mainly due to reduced expenses related to developmental costs for the Blu Build™ loader and decrease in protocol expenses as existing protocols were completed and new ones had not yet started. These factors led to a decrease of $415,000 in fiscal 2020. This decrease was offset by an increase in payroll costs as the company shifted some internal resources to spend more time on research and development activities.

Sales and marketing expenses

Sales and marketing expenses consist primarily of the costs related to the internal and external activities of the Company’s sales, marketing and customer service division. The fiscal 2021 decrease was due to reduced payroll of $334,000 resulting from lower sales growth when compared to fiscal 2020 and the reversal of share based compensation expense upon separation of our former Executive Vice President of Sales and Marketing, as well as reduced travel of $132,000 and conventions and tradeshow expense of $28,000 as a result of the COVID-19 pandemic.

The fiscal 2020 increase was due to increased payroll of $423,000 due to incentive compensation related to the increase in sales. This increase was offset by a reduction of $130,000 in travel due to reduced travel as a result of the COVID-19 global health pandemic.

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General and administrative expenses

General and administrative expenses consist primarily of the costs related to the executive, quality assurance and regulatory affairs (QA/RA), finance, human resources and information technology functions of the Company. The increase in fiscal 2021 is due to a payroll increase of $145,000 resulting from increased headcount and annual merit increases, increased insurance premiums primarily relating to D&O insurance of $74,000, increased consulting expenses primarily from information technology consulting of $56,000, employment hiring expense increased by $45,000, and software costs increased by $27,000. These were partially offset by decreased public company related expenses of $109,000, reduced legal fees of $56,000, and fewer travel expenses of $56,000 due to the COVID-19 pandemic. In addition, the majority of annual employee and director stock grants have historically been granted in the fiscal fourth quarter, however this year’s awards were granted in July 2021, subsequent to the close of the fiscal fourth quarter 2021, thus reducing share-based stock compensation expense in the full-year fiscal year-end 2021 compared to the prior fiscal year.

The increase in fiscal 2020 is primarily the result of higher payroll of $458,000 due to incentive compensation and promotions, increased insurance premiums of $68,000 primarily relating to D&O insurance (which increased industry-wide), other expense of $50,000 primarily related to employee relations and hiring expense, and public company expense of $50,000 mostly relating to the at the market offering, and overhead recovery of $38,000 due to no shared costs with GT Medical Technologies. These were partially offset by decreased legal fees of $107,000, materials of $92,000, and travel of $64,000.

Impact of COVID-19

From the onset of the COVID-19 global health pandemic we have been proactive in implementing plans to ensure the health and well-being of our employees, while remaining focused on providing uninterrupted product flow to the physicians and patients who count on us. We seamlessly transitioned many employees to work from home and made other adjustments to ensure the continuity of our business through this time. At the beginning of the pandemic, we moved quickly to ensure that our inventory of non-isotope supplies were appropriate in case our supply chain was disrupted.  In addition, we set in motion our strategy to maintain a continuous and uninterrupted supply of isotope from our suppliers in Russia including the review of alternative freight services due to the cancellation of many international flights.

As COVID-19 spread, many states implemented new guidelines in an attempt to mitigate the spread of the virus and to conserve certain medical supplies. Those guidelines led to the cancellation or postponement of elective and non-emergency surgical procedures, including prostate brachytherapy procedures.  During fiscal year 2021, our sales revenues increased 4% compared to the fiscal year 2020, but we were still below the average monthly prostate revenues attained in our third quarter of fiscal year 2020 prior to the onset of COVID-19's impact on our operations. We believe this is due to stay-at-home orders and hospitals’ focus on COVID-19, resulting in a delay or cancellation of patients scheduled to be seen by physicians. This resulted in fewer or delayed urology referrals for prostate brachytherapy treatment.

As more states gradually lift restrictions on non-essential surgeries and other activities, we have received customer feedback of anticipated increases in implant volumes as patients begin returning from quarantines for office visits and consultations but there is no assurance this will occur or be sustained or what impact variants such as the Delta variant might cause to our operations. In the meantime, we continue to tightly manage our expenses and make fluid adjustments to isotope orders to meet potential increased treatment demands.

Liquidity and capital resources

The Company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company has historically financed its operations through selling equity to investors. During fiscal 2021, the Company raised approximately $56,375,000 pursuant to two underwritten offerings, approximately $7,784,000 pursuant to the exercise of warrants to purchase common stock, and approximately $534,000 pursuant to the exercise of options to purchase common stock. Some of these funds were used in fiscal 2021 and existing cash reserves from prior capital raises were used to fund the Company's operations and capital expenditures during fiscal 2021 and 2020 respectively.

Our cash flows for fiscal 2021, 2020, and 2019 respectively, are summarized as follows (in thousands):

Cash flows from operating activities

Net cash used by operating activities in fiscal 2021 was primarily due to a net loss of $3.39 million net of approximately $617,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $67,000 to the cash used by operating activities.

Net cash used by operating activities in fiscal 2020 was primarily due to a net loss of $3.45 million net of approximately $640,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $835,000 to the cash used by operating activities.

Net cash used by operating activities in fiscal 2019 was primarily due to a net loss of $5.14 million net of approximately $613,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities contributed approximately $518,000 to the cash used by operating activities.

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Cash flows from investing activities

Investing activities for all years are presented by primary transaction category. Investing activities consisted of transactions related to the purchase of fixed assets as well as the purchase and subsequent maturity of certificates of deposit or US Treasury Bills. Management will continue to invest in technology and machinery that improves and streamlines production processes and to invest and reinvest maturing certificates of deposit and US Treasury Bills in low-risk investment opportunities that safeguard assets and provide greater assurance those resources will be liquid and available for business needs as they arise.

Cash flows from financing activities

Financing activities for all years are presented by primary transaction category. Financing activities in fiscal 2021, 2020, and 2019 were primarily due to sales of common stock through an underwritten offering, net, a registered direct offering, net, at the market offerings, net, and warrant and option exercises each net of preferred dividends paid. Financing activities were significantly increased in fiscal 2021 compared to 2020 and 2019 due to the underwritten offerings, net.

Projected FY 2022 Liquidity and Capital Resources

Operating activities

Management forecasts that fiscal 2022 cash requirements will be similar to previous years and that current cash and cash equivalents will be sufficient to meet projected operating cash needs for the next twelve months. Monthly operating expenses are budgeted to increase for sales and marketing, research and development and general and administrative expenses in fiscal 2022 as management works to implement its strategy. Assuming no extraordinary expenses occur (whether operating or capital), if management is successful at implementing its strategy to focus on renewed emphasis to drive the consumer to the prostate market and meets or exceeds its growth targets of twenty-five percent increase in revenue in fiscal 2022 and this annual growth continues, the Company anticipates reaching cashflow break-even in three to four years. These assumptions do assume that GammaTile™ will contribute to total revenue but do not incorporate any significant growth in the other non-prostate applications as they generate nominal revenues today but if they show significant improvement, cashflow break-even could occur sooner. There is no assurance that the targeted sales growth will materialize but management is encouraged by the depth and experience of its sales team and its track record of growth during the last three fiscal years.

Capital expenditures

Management has completed the design of a future production and administration facility. If suitable construction financing is obtained and the facility constructed, it is believed that the new facility will have non-cash depreciation cost equal to or greater than the monthly rental cost of the current facility.

Management is reviewing all aspects of production operations (including process automation), research and development, sales and marketing, and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems, and personnel are available to support and drive sales.

During fiscal 2021, the Company made only nominal investment in the automation of production processes. Beginning in fiscal 2017 and continuing through fiscal 2021, the Company has invested approximately $1,064,000 in the automation of five production processes. The equipment developed for all five processes have been placed in service as of the end of fiscal 2021. This investment was implemented to allow the Company to significantly increase the output of Cesium-131 brachytherapy seeds, while allowing the Company to decrease the labor costs related to seed production and also improving the overall safety of our operations.

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Financing activities

On January 23, 2020, the Company filed a Form S-3 registration statement which became effective on February 4, 2020, with the potential to register up to $80 million of equity securities. On March 31, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co., Inc. (“Oppenheimer”). The common stock sold pursuant to the Agreement was distributed at the market prices prevailing at the time of sale. The Agreement provided that Oppenheimer would be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of June 30, 2020, the Company had sold an aggregate of 1,247,232 shares under the Agreement at an average price of approximately $0.738 per common share for gross proceeds of approximately $920,000 and net proceeds of approximately $874,000. No shares were sold under this Agreement during fiscal year 2021. On October 19, 2020, the Company terminated the Agreement, effective on the same date.

On October 22, 2020, the Company sold 18,269,230 shares of its common stock at a price of $0.52 per share, for aggregate gross proceeds of $9,500,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020. The net proceeds from the offering were approximately $8,471,000. Additionally, the Company issued to the purchasers warrants to purchase up to 9,134,615 shares of common stock. The warrants have an exercise price of $0.57 per share of common stock, are exercisable immediately, and expire five years from the date of issuance. If exercised for cash, future exercises of these warrants will provide additional capital to the Company.

On February 8, 2021, the Company sold 36,000,000 shares of its common stock at a price of $1.25 per share for aggregate gross proceeds of approximately $45,000,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020. Additionally, the Company granted the underwriters an option to purchase an additional 5,400,000 shares of common stock at a purchase price of $1.25 per share for the purpose of covering overallotments, which was exercised on February 8, 2021 and generated gross proceeds of approximately $6,750,000. Total gross proceeds from the offering were approximately $51,750,000 and total net proceeds were approximately $47,904,000.

During fiscal 2021, the Company received approximately $7.8 million as a result of the exercise of 12,318,877 warrants to purchase common stock and $0.5 million as a result of the exercise of 970,315 options to purchase common stock.

When it does require capital in the future, the Company expects to finance its cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing stockholders, Management anticipates that if it raises additional financing that it will be at a discount to the market price and it will be dilutive to stockholders.

Other Commitments and Contingencies

The Company’s purchase commitments and obligations include all open purchase orders and contractual obligations entered into in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services and acquisition and licensing of intellectual property. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and/or adjust our requirements based on our business needs prior to the delivery of goods or performance of services. Non-cancellable purchase commitments and obligations that will exist beyond fiscal 2022 and that are not separately presented as a liability on the balance sheet are listed below (in thousands):

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Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Impact of Inflation

Inflation had minimal impact on our net sales and revenues or on loss from continuing operations.

Recent Accounting Pronouncements

Accounting Standards Updates Adopted

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The standard was adopted on July 1, 2020 and had no effect on the consolidated financial statements.

Accounting Standards Updates to Become Effective in Future Periods

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

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