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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___.
Commission file number 001-38356
VYNE THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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45-3757789 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
520 U.S. Highway 22, Suite 204
Bridgewater, New Jersey 08807
(Address of principal executive offices including zip
code)
(800) 755-7936
(Registrant’s telephone number, including area code)
Menlo Therapeutics Inc.
(Former name, former address and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange
on which registered |
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Common Stock, par value $0.0001 |
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VYNE |
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The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
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Large accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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Emerging growth company
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☒
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of October 30, 2020, there were 167,878,646 shares of the
registrant’s Common Stock, par value $0.0001 per share,
outstanding.
TABLE OF CONTENTS
We own or have rights to various copyrights, trademarks, and trade
names used in our business in the U.S. and/or other countries,
including AMZEEQ®,
ZILXI™,
Molecule Stabilizing Technology (MST)™ and MST™. This report also
includes trademarks, service marks and trade names of other
companies. Trademarks, service marks and trade names appearing in
this Quarterly Report on Form 10-Q are the property of their
respective owners.
Explanatory Note
On September 4, 2020, we filed a Certificate of Amendment to our
Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware to change our corporate
name from "Menlo Therapeutics Inc." to “VYNE Therapeutics Inc.”
(the "Company"). In addition, the Company's ticker symbol for its
common stock traded on the Nasdaq Global Select Market was changed
from "MNLO" to "VYNE" and was assigned a new CUSIP of 92941V 100.
The Company's common stock began trading under the new name, ticker
and CUSIP on September 8, 2020.
Descriptions of transactions that occurred prior to changing our
corporate name refer to Menlo Therapeutics Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking
statements” within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). All
statements other than statements of historical facts contained in
this Quarterly Report on Form 10-Q are statements that could be
deemed forward-looking statements reflecting the current beliefs
and expectations of management with respect to future events or to
our future financial performance and involve known and unknown
risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by these forward-looking statements. These statements are
often identified by the use of words such as “aim,” “anticipate,”
“assume,” “believe,” “contemplate,” “continue,” “could,” “due,”
“estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,”
“predict,” “potential,” “positioned,” “seek,” “should,” “target,”
“will,” “would,” “until,” “if” and similar expressions or
variations.
The following factors, among others, including those described in
the section titled “Risk Factors” included in this Quarterly Report
on Form 10-Q, could cause our future results to differ materially
from those expressed in the forward-looking
information:
•our
ability to successfully commercialize AMZEEQ®
and ZILXI™
and our other product candidates, if approved;
•disruptions
related to a pandemic, epidemic or outbreak of a contagious
disease, such as COVID-19, on the ability of our suppliers to
provide materials for our products and product candidates,
initiating and retaining patients in our clinical trials,
distribution of our products and business sales execution,
operating results, liquidity and financial condition;
•the
regulatory approval process for our product candidates, including
any delay or failure in obtaining requisite approvals;
•the
potential market size of treatments for any diseases and market
adoption of our products, if approved or cleared for commercial
use, by physicians and patients;
•the
timing, cost or other aspects of the commercialization of AMZEEQ,
ZILXI and product candidates;
•our
ability to achieve favorable pricing for AMZEEQ, ZILXI and our
product candidates, if approved;
•third-party
payor reimbursement for AMZEEQ, ZILXI and any future
products;
•developments
and projections relating to our competitors and our industry,
including competing drugs and therapies, particularly if we are
unable to receive exclusivity;
•risks
related to our indebtedness, including our ability to comply with
the covenants in our loan documents;
•the
timing of commencement of future non-clinical studies and clinical
trials;
•our
ability to successfully complete, and receive favorable results in,
clinical trials for our product candidates;
•our
intentions and our ability to establish collaborations or obtain
additional funding;
•the
timing or likelihood of regulatory filings and approvals or
clearances for our product candidates;
•our
ability to comply with various regulations applicable to our
business;
•our
expectations regarding the commercial supply of AMZEEQ, ZILXI and
our product candidates;
•our
ability to create intellectual property and the scope of protection
we are able to establish and maintain for intellectual property
rights covering our product candidates, including the projected
terms of patent protection;
•the
timing, costs or results of litigation, including litigation to
protect our intellectual property;
•estimates
of our expenses, future revenue, capital requirements, our needs
for additional financing and our ability to obtain additional
capital on acceptable terms or at all;
•our
ability to attract and retain key scientific or management
personnel;
•our
defense of current and any future litigation that may be initiated
against us;
•our
expectations regarding licensing, business transactions and
strategic operations; and
•our
future financial performance and liquidity.
We caution you that the foregoing list may not contain all of the
forward-looking statements made in this Quarterly Report on Form
10-Q.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements. We discuss these risks in greater
detail in “Risk Factors” and elsewhere in this Quarterly Report on
Form 10-Q as well as our other filings made with the SEC. Given
these uncertainties, you should not place undue reliance on these
forward-looking statements. Also, forward-looking statements
represent our management’s beliefs and assumptions only as of the
date of this Quarterly Report on Form 10-Q. Except as required by
law, we assume no obligation to update these forward-looking
statements publicly, or to update the reasons actual results could
differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the
future.
PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial
Statements
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
(Unaudited)
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September 30 |
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December 31 |
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2020 |
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2019 |
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A s s e t s |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
72,956 |
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$ |
43,759 |
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Restricted cash |
855 |
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825 |
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Short-term bank deposits |
— |
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12,102 |
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Investment in marketable securities (Note 6) |
3,046 |
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16,246 |
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Restricted investment in marketable securities (Note 6) |
— |
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434 |
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Trade receivables, net of allowances |
11,189 |
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135 |
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Prepaid and other assets |
3,466 |
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1,557 |
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Inventory (Note 7) |
6,650 |
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1,356 |
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TOTAL CURRENT ASSETS |
98,162 |
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76,414 |
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NON-CURRENT ASSETS: |
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Property and equipment, net |
2,744 |
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2,885 |
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Operating lease right-of-use assets (Note 10) |
2,191 |
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1,694 |
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Prepaid and other assets |
4,586 |
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166 |
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TOTAL NON-CURRENT ASSETS |
9,521 |
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4,745 |
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TOTAL ASSETS |
$ |
107,683 |
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$ |
81,159 |
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
(Unaudited)
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September 30 |
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December 31 |
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2020 |
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2019 |
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Liabilities and shareholders’ equity |
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CURRENT LIABILITIES: |
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Trade payables |
$ |
4,622 |
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$ |
19,352 |
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Accrued expenses (Note 4) |
12,132 |
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3,381 |
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Employee related obligations |
5,294 |
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5,231 |
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Operating lease liabilities (Note 10) |
1,098 |
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1,092 |
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Other |
46 |
|
|
270 |
|
|
TOTAL CURRENT LIABILITIES |
23,192 |
|
|
29,326 |
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
Liability for employee severance benefits |
409 |
|
|
424 |
|
|
Operating lease liabilities (Note 10) |
1,092 |
|
|
653 |
|
|
Long-term debt (Note 8) |
33,017 |
|
|
32,725 |
|
|
Other liabilities |
457 |
|
|
456 |
|
|
TOTAL LONG-TERM LIABILITIES |
34,975 |
|
|
34,258 |
|
|
TOTAL LIABILITIES |
58,167 |
|
|
63,584 |
|
|
COMMITMENTS AND CONTINGENCIES (Note 11) |
— |
|
|
— |
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
|
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at
September 30, 2020 and December 31, 2019, respectively;
no shares issued and outstanding at September 30, 2020 and
December 31, 2019, respectively
|
— |
|
|
— |
|
|
Common stock: $0.0001 par value; 300,000,000 shares authorized at
September 30, 2020 and December 31, 2019, respectively;
167,859,461 and 36,480,314 shares issued and outstanding at
September 30, 2020 and December 31, 2019,
respectively
|
17 |
|
|
3 |
|
|
Additional paid-in capital |
592,514 |
|
|
328,154 |
|
|
Accumulated deficit |
(543,015) |
|
|
(310,587) |
|
|
Accumulated other comprehensive income |
— |
|
|
5 |
|
|
TOTAL SHAREHOLDERS' EQUITY |
49,516 |
|
|
17,575 |
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ |
107,683 |
|
|
$ |
81,159 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30 |
|
Nine months ended
September 30 |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
REVENUES (Note 4) |
|
|
|
|
|
|
|
|
Product sales |
$ |
2,863 |
|
|
$ |
— |
|
|
$ |
6,096 |
|
|
$ |
— |
|
|
License revenues |
— |
|
|
— |
|
|
10,000 |
|
|
— |
|
|
Royalty revenues |
406 |
|
|
— |
|
|
611 |
|
|
308 |
|
|
TOTAL REVENUES |
3,269 |
|
|
— |
|
|
16,707 |
|
|
308 |
|
|
EXPENSES |
|
|
|
|
|
|
|
|
Cost of goods sold |
371 |
|
|
— |
|
|
858 |
|
|
— |
|
|
Research and development |
6,623 |
|
|
12,452 |
|
|
35,695 |
|
|
35,856 |
|
|
Selling, general and administrative |
19,766 |
|
|
10,747 |
|
|
71,640 |
|
|
22,894 |
|
|
Goodwill and in-process research & development
impairments |
— |
|
|
— |
|
|
54,345 |
|
|
— |
|
|
Contingent Stock Right Remeasurement |
— |
|
|
— |
|
|
84,726 |
|
|
— |
|
|
TOTAL EXPENSES |
26,760 |
|
|
23,199 |
|
|
247,264 |
|
|
58,750 |
|
|
OPERATING LOSS |
23,491 |
|
|
23,199 |
|
|
230,557 |
|
|
58,442 |
|
|
FINANCE INCOME |
(4) |
|
|
(381) |
|
|
(1,218) |
|
|
(1,385) |
|
|
FINANCE EXPENSES |
1,226 |
|
|
343 |
|
|
3,306 |
|
|
477 |
|
|
LOSS BEFORE INCOME TAX |
24,713 |
|
|
23,161 |
|
|
232,645 |
|
|
57,534 |
|
|
INCOME TAX |
1 |
|
|
— |
|
|
(258) |
|
|
(176) |
|
|
NET LOSS FOR THE PERIOD |
$ |
24,714 |
|
|
$ |
23,161 |
|
|
$ |
232,387 |
|
|
$ |
57,358 |
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE BASIC AND DILUTED |
$ |
0.15 |
|
|
$ |
0.23 |
|
|
$ |
1.99 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION
OF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS
|
167,737 |
|
|
100,805 |
|
|
116,530 |
|
|
97,989 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
(U.S. dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30 |
|
Nine months ended
September 30 |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
NET LOSS |
$ |
24,714 |
|
|
$ |
23,161 |
|
|
$ |
232,387 |
|
|
$ |
57,358 |
|
|
OTHER COMPREHENSIVE LOSS (INCOME): |
|
|
|
|
|
|
|
|
Net unrealized gains from marketable securities |
(2) |
|
|
(1) |
|
|
(1) |
|
|
(41) |
|
|
Losses on marketable securities reclassified into net
loss |
2 |
|
|
— |
|
|
6 |
|
|
— |
|
|
Net unrealized gains on derivative financial
instruments |
— |
|
|
(1) |
|
|
— |
|
|
(3) |
|
|
TOTAL OTHER COMPREHENSIVE (INCOME) LOSS |
— |
|
|
(2) |
|
|
5 |
|
|
(44) |
|
|
TOTAL COMPREHENSIVE LOSS |
$ |
24,714 |
|
|
$ |
23,159 |
|
|
$ |
232,392 |
|
|
$ |
57,314 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional paid-in
capital
|
|
Accumulated deficit
|
|
Accumulated
other
comprehensive
Income (loss)
|
|
Total
|
|
Number of Shares
|
|
Amounts
|
|
Amounts
|
|
BALANCE AT JANUARY 1, 2019 |
97,864,663 |
|
|
$ |
10 |
|
|
$ |
307,624 |
|
|
$ |
(215,409) |
|
|
$ |
(43) |
|
|
$ |
92,182 |
|
|
CHANGES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
(57,358) |
|
|
44 |
|
|
(57,314) |
|
|
Issuance of ordinary shares and warrants, net of $359 issuance
costs
|
11,779,628 |
|
|
1 |
|
|
15,010 |
|
|
— |
|
|
— |
|
|
15,011 |
|
|
Exercise of options and vesting of restricted stock
units
|
410,339 |
|
|
— |
|
|
44 |
|
|
— |
|
|
— |
|
|
44 |
|
|
Stock-based compensation
|
— |
|
|
— |
|
|
3,606 |
|
|
— |
|
|
— |
|
|
3,606 |
|
|
BALANCE AT SEPTEMBER 30, 2019 |
110,054,630 |
|
|
$ |
11 |
|
|
$ |
326,284 |
|
|
$ |
(272,767) |
|
|
$ |
1 |
|
|
$ |
53,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2020 |
36,480,314 |
|
|
$ |
3 |
|
|
$ |
328,154 |
|
|
$ |
(310,587) |
|
|
$ |
5 |
|
|
$ |
17,575 |
|
|
CHANGES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
— |
|
|
— |
|
|
— |
|
|
(232,387) |
|
|
(5) |
|
|
(232,392) |
|
|
Exercise of options, vesting of restricted stock units and shares
issued under employee stock purchase plan
|
1,207,650 |
|
|
— |
|
|
342 |
|
|
— |
|
|
— |
|
|
342 |
|
|
Stock-based compensation
|
— |
|
|
— |
|
|
15,147 |
|
|
— |
|
|
— |
|
|
15,147 |
|
|
Deemed dividend to warrants holders due to warrant
modification
|
— |
|
|
— |
|
|
41 |
|
|
(41) |
|
|
— |
|
|
— |
|
|
Classification of stock awards to derivative liability
|
— |
|
|
— |
|
|
(975) |
|
|
— |
|
|
— |
|
|
(975) |
|
|
Issuance of Ordinary Shares through a public offering, net of
$3,903 issuance costs
|
31,107,500 |
|
|
3 |
|
|
53,646 |
|
|
— |
|
|
— |
|
|
53,649 |
|
|
Issuance of stock related to merger |
99,063,997 |
|
|
11 |
|
|
196,159 |
|
|
— |
|
|
— |
|
|
196,170 |
|
|
BALANCE AT SEPTEMBER 30, 2020 |
167,859,461 |
|
|
$ |
17 |
|
|
$ |
592,514 |
|
|
$ |
(543,015) |
|
|
$ |
— |
|
|
$ |
49,516 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
Additional paid-in
capital
|
|
Accumulated deficit
|
|
Accumulated
other
comprehensive
Income (loss)
|
|
Total
|
|
Number of Shares
|
|
Amounts
|
|
Amounts
|
|
BALANCE AT JULY 1, 2019 |
98,053,418 |
|
|
$ |
10 |
|
|
$ |
309,979 |
|
|
$ |
(249,606) |
|
|
$ |
(1) |
|
|
$ |
60,382 |
|
|
CHANGES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
— |
|
|
— |
|
|
— |
|
|
(23,161) |
|
|
2 |
|
|
(23,159) |
|
|
Issuance of ordinary shares and warrants, net of $359 issuance
costs
|
11,779,628 |
|
|
1 |
|
|
15,010 |
|
|
— |
|
|
— |
|
|
15,011 |
|
|
Exercise of options and vesting of restricted stock
units
|
221,584 |
|
|
— |
|
|
26 |
|
|
— |
|
|
— |
|
|
26 |
|
|
Stock-based compensation
|
— |
|
|
— |
|
|
1,269 |
|
|
— |
|
|
— |
|
|
1,269 |
|
|
BALANCE AT SEPTEMBER 30, 2019 |
110,054,630 |
|
|
$ |
11 |
|
|
$ |
326,284 |
|
|
$ |
(272,767) |
|
|
$ |
1 |
|
|
$ |
53,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 1, 2020 |
167,683,814 |
|
|
$ |
17 |
|
|
$ |
589,812 |
|
|
$ |
(518,301) |
|
|
$ |
— |
|
|
$ |
71,528 |
|
|
CHANGES DURING THE PERIOD:
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
(24,714) |
|
|
— |
|
|
(24,714) |
|
|
Exercise of options, vesting of restricted stock units and shares
issued under employee stock purchase plan
|
175,647 |
|
|
— |
|
|
82 |
|
|
— |
|
|
— |
|
|
82 |
|
|
Stock-based compensation
|
— |
|
|
— |
|
|
2,620 |
|
|
— |
|
|
— |
|
|
2,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER 30, 2020 |
167,859,461 |
|
|
$ |
17 |
|
|
$ |
592,514 |
|
|
$ |
(543,015) |
|
|
$ |
— |
|
|
$ |
49,516 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
2020 |
|
2019 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net Loss |
$ |
232,387 |
|
|
$ |
57,358 |
|
|
Adjustments required to reconcile net loss to net cash used
in
operating activities:
|
|
|
|
|
Depreciation and amortization |
254 |
|
|
256 |
|
|
Goodwill and in-process research & development
impairments |
54,345 |
|
|
— |
|
|
Contingent stock right remeasurement |
84,726 |
|
|
— |
|
|
Loss from disposal and sale of fixed assets |
— |
|
|
7 |
|
|
Changes in marketable securities and bank deposits, net |
(142) |
|
|
(269) |
|
|
Changes in accrued liability for employee severance benefits, net
of retirement fund profit |
(15) |
|
|
52 |
|
|
Stock-based compensation |
15,147 |
|
|
3,606 |
|
|
Non-cash finance (income) expenses, net |
(727) |
|
|
85 |
|
|
Changes in operating assets and liabilities, net of effects of
businesses acquired: |
|
|
|
|
(Increase) decrease in trade receivables, prepaid and other
assets |
(11,383) |
|
|
1,086 |
|
|
Increase in other non-current assets |
(4,430) |
|
|
(124) |
|
|
(Decrease) increase in accounts payable and accruals |
(11,801) |
|
|
1,511 |
|
|
Increase in inventory |
(5,294) |
|
|
— |
|
|
Net cash used in operating activities |
(111,707) |
|
|
(51,148) |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Purchase of fixed assets |
(113) |
|
|
(861) |
|
|
Proceeds from sale of fixed assets |
— |
|
|
24 |
|
|
Investment in marketable securities |
— |
|
|
(48,001) |
|
|
|
|
|
|
Cash acquired through merger |
38,641 |
|
|
— |
|
|
Proceeds from sale and maturity of marketable
securities |
48,577 |
|
|
84,673 |
|
|
Net cash provided by investing activities |
87,105 |
|
|
35,835 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Proceeds related to issuance of ordinary shares through offerings,
net of issuance costs |
53,646 |
|
|
13,714 |
|
|
Proceeds from debt financing and issuance of warrants, net of
issuance costs |
— |
|
|
14,196 |
|
|
Proceeds related to issuance of stock for stock-based compensation
arrangements, net |
182 |
|
|
44 |
|
|
Net cash provided by financing activities |
53,828 |
|
|
27,954 |
|
|
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
29,226 |
|
|
12,641 |
|
|
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
|
1 |
|
|
25 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE
PERIOD
|
44,584 |
|
|
28,118 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE
PERIOD |
$ |
73,811 |
|
|
$ |
40,784 |
|
|
Cash and cash equivalents |
$ |
72,956 |
|
|
$ |
40,534 |
|
|
Restricted cash |
855 |
|
|
250 |
|
|
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN IN STATEMENT
OF CASH FLOWS
|
$ |
73,811 |
|
|
$ |
40,784 |
|
|
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT
INVOLVING CASH FLOWS -
|
|
|
|
|
Cashless exercise of warrants and restricted stock
units |
* |
|
$ |
7 |
|
|
Issuance of shares under employee stock purchase plan |
$ |
163 |
|
|
$ |
— |
|
|
Additions to operating lease right of use assets |
$ |
1,120 |
|
|
$ |
1,193 |
|
|
Additions to operating lease liabilities |
$ |
1,120 |
|
|
$ |
1,175 |
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
Interest received |
$ |
232 |
|
|
$ |
1,125 |
|
|
Interest paid |
$ |
2,936 |
|
|
$ |
289 |
|
|
|
|
|
|
|
Fair value of assets acquired |
$ |
117,270 |
|
|
$ |
— |
|
|
Less liabilities assumed |
5,827 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net acquired (See “Note 3- Business combination”) |
111,443 |
|
|
— |
|
|
Less cash acquired |
38,641 |
|
|
— |
|
|
Merger net of cash acquired |
$ |
72,802 |
|
|
$ |
— |
|
*Represents
an amount less than one thousand
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
VYNE Therapeutics Inc.
Notes to Unaudited Interim Condensed Consolidated Financial
Statements
NOTE 1 - NATURE OF OPERATIONS
On September 4, 2020, we changed our corporate name from "Menlo
Therapeutics Inc." ("Menlo") to “VYNE Therapeutics Inc.” (the
“Company,” “VYNE” or the “combined company”) and changed our ticker
symbol on the Nasdaq Global Select Market from "MNLO" to "VYNE."
VYNE is a specialty pharmaceutical company focused on developing
and commercializing proprietary, innovative and differentiated
therapies in dermatology and beyond. The Company is a Delaware
corporation, has its principal executive offices in Bridgewater,
New Jersey and operates as one business
segment.
Reverse Merger
On November 10, 2019, Menlo, Foamix Pharmaceuticals Ltd. (“Foamix”)
and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned
subsidiary of Menlo, entered into an Agreement and Plan of Merger
(as amended by Amendment No. 1 to the Agreement and Plan of Merger,
dated as of December 4, 2019, the “Merger Agreement”). Pursuant to
the terms of the Merger Agreement, Merger Sub merged with and into
Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo
(the “Merger”) on March 9, 2020 (the “Effective
Date”).
For accounting purposes, the Merger is treated as a “reverse
acquisition” under generally accepted accounting principles in the
United States (“U.S. GAAP”) and Foamix is considered the accounting
acquirer. Accordingly, upon consummation of the Merger, the
historical financial statements of Foamix became the Company’s
historical financial statements, and the historical financial
statements of Foamix are included in the comparative prior periods.
See “Note 3 – Business Combination” for more information on the
Merger.
Products, Product Candidates and Licenses
Prior to the Merger, in January 2020, Foamix launched
AMZEEQ®
(minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical
antibiotic for the treatment of inflammatory lesions of non-nodular
moderate-to-severe acne vulgaris in patients 9 years of age and
older. On May 28, 2020, the U.S. Food and Drug Administration (the
"FDA") approved ZILXI™
(minocycline) topical foam, 1.5% (formerly FMX103, "ZILXI"), for
the treatment of inflammatory lesions of rosacea in adults. ZILXI
became available in pharmacies nationwide on October 1, 2020.
AMZEEQ and ZILXI are the first topical minocycline products
approved by the FDA for any condition.
AMZEEQ and ZILXI utilize the Company’s proprietary Molecule
Stabilizing Technology (MST)™
that is also being used in the development of the Company’s product
candidate FCD105, a topical foam comprising minocycline and
adapalene for the treatment of acne vulgaris. On June 2, 2020, the
Company announced positive results from a Phase II clinical trial
evaluating the preliminary safety and efficacy of FCD105 (3%
minocycline / 0.3% adapalene foam), the first ever topical
minocycline-based combination product, for the treatment of
moderate-to-severe acne vulgaris. The Company has scheduled an
end-of-Phase 2 meeting with the FDA in the fourth quarter of
2020.
Additionally, the Company was developing serlopitant, a small
molecule inhibitor of the neurokinin 1 receptor, or NK1-R,
given as a once-daily, oral tablet, for the treatment of pruritus,
or itch, associated with various conditions including prurigo
nodularis, or PN. On April 6, 2020, the Company announced top line
results from two Phase III clinical trials evaluating the safety
and efficacy of once-daily oral serlopitant for the treatment of
pruritus (itch) associated with PN, studies MTI-105 and MTI-106.
Neither study met their respective primary endpoint of
demonstrating statistically significant reduction in pruritus in
patients treated with serlopitant compared to placebo based on a
4-point improvement responder analysis. The Company does not
currently intend to further pursue the development of serlopitant.
As a result, in the second quarter of 2020, the Company recorded a
full impairment charge related to the IPR&D and Goodwill assets
in its unaudited condensed consolidated statement of operations and
comprehensive loss. See "Note 3 - Business Combination" for more
information.
The Company is actively pursuing opportunities to out-license its
products and product candidates to third parties for development
and commercialization outside the United States, and recently
entered into a license agreement with Cutia Therapeutics (HK)
Limited (“Cutia”). See "Note 4 - Revenue Recognition." The Company
has also licensed certain technology under development and
licensing agreements to various pharmaceutical companies for
development of certain products combining the Company’s foam
technology with the licensee’s proprietary drugs.
Liquidity and Capital Resources
The Company launched AMZEEQ in the United States in January
2020 and commenced generating product revenues in the first quarter
of 2020. The Company’s activities prior to the commercial launch of
AMZEEQ had primarily consisted of developing product
candidates, raising capital and performing research and development
activities. Since inception, the Company has incurred losses and
negative cash flows from operations. For the nine months ended
September 30, 2020, the Company incurred a net loss of $232.4
million and used $111.7 million of cash in operations. As of
September 30, 2020, the Company had cash, cash equivalents and
investments of $76.9 million and an accumulated deficit of $543.0
million.
If the Company does not successfully commercialize AMZEEQ, ZILXI or
any of its future product candidates, it may be unable to achieve
profitability. Accordingly, the Company may be required to obtain
further funding through public or private debt or equity offerings,
or other arrangements. Adequate additional funding may not be
available to the Company on acceptable terms, or at all. If the
Company is unable to raise capital when needed or on acceptable
terms, it may be forced to delay, reduce or eliminate its research
and development programs or commercialization and manufacturing
efforts.
Prior to the Merger, the Company was focused on the development and
commercialization of serlopitant. Following the receipt of the
results of the Phase 3 clinical trials evaluating serlopitant for
the treatment of PN and the impact of the COVID-19 pandemic, the
Company revised its operating plan to focus on the
commercialization of AMZEEQ, ZILXI and its current product
candidates. The Company does not currently intend to further pursue
the development of serlopitant. In addition, the revised operating
plan reflects prudent resource prioritization and allocation
management, including the rationalization of research and
development spend to focus on existing product
candidates.
The Company believes that its existing cash, cash equivalents and
investments as of September 30, 2020 and projected cash flows
from revenues will provide sufficient resources to fund its current
ongoing needs through December 31, 2021. However, the Company
may seek additional financing in order to achieve its longer-term
strategic plans.
In the first quarter of 2020, as a result of the COVID-19 pandemic,
the Company suspended the vast majority of its in-person
interactions by its customer-facing professionals in healthcare
settings and engaged with customers remotely in an effort to
continue to support healthcare professionals and patient care under
unprecedented circumstances. During the second quarter of 2020, the
Company began limited in-person customer meetings and interactions
in certain regions, consistent with local government mandates.
During this period, the Company's product sales for AMZEEQ were
negatively impacted by office closures. On August 5, 2020, the
Company and its lenders amended the minimum net revenue covenant in
the Amended and Restated Credit Agreement. See "Note 8 - Long-Term
Debt." While the Company’s product sales for AMZEEQ experienced a
modest recovery during the three months ended September 30, 2020,
circumstances surrounding the COVID-19 pandemic have negatively
impacted our ability to execute our commercial strategy with
respect to AMZEEQ. The length of time and extent to which the
COVID-19 pandemic will directly or indirectly impact the Company's
business, results of operations and financial condition will depend
on future developments that are highly uncertain, subject to change
and will continue to evolve with geographical re-openings and virus
waves. An extended duration of the COVID-19 pandemic could continue
to negatively impact sales of AMZEEQ, and any future sales of
ZILXI, and have a material adverse effect on the Company's
liquidity, as well as the Company's ability to remain in compliance
with the minimum net revenue covenants contained in the Company's
loan documents.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a.Basis
of Presentation
The unaudited interim condensed consolidated financial statements
of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America
("U.S. GAAP") for interim financial statements. In the opinion of
management, the Company has made all necessary adjustments,
which include normal recurring adjustments necessary for a fair
statement of the Company’s condensed consolidated financial
position, results of operations, cash flow and statement of
stockholders' equity for the interim periods presented. Certain
information and disclosures normally included in the annual
consolidated financial statements prepared in accordance with U.S.
GAAP have been condensed or omitted.
These unaudited interim condensed consolidated financial statements
should be read in conjunction with Foamix’s audited consolidated
financial statements for the year ended December 31, 2019,
included in the Company’s Current Report on Form 8-K/A filed with
the Securities and Exchange Commission ("SEC") on May 7, 2020, and
the Company's unaudited consolidated financial statements included
in the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2020 and June 30, 2020, filed with the SEC on May
11, 2020 and August 6, 2020, respectively.
The results for the three and nine months ended September 30,
2020 are not necessarily indicative of the results expected for the
year ending December 31, 2020.
b.Principles
of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany balances and
transactions have been eliminated upon consolidation.
c.Use
of Estimates
The preparation of unaudited condensed consolidated financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial
statements and reported amounts of income and expenses during the
reporting periods. Significant items subject to such estimates and
assumptions include accounting for business combinations,
impairments of goodwill and intangible assets and revenue
recognition. Actual results could differ from the Company’s
estimates.
The extent to which the COVID-19 pandemic impacts the Company’s
business and financial results will depend on numerous evolving
factors including, but not limited to: the magnitude and duration
of the pandemic; the extent to which patients and our sales
representatives are able to access healthcare provider offices; the
impact on worldwide macroeconomic conditions, including interest
rates, employment rates and health insurance coverage; the speed of
the anticipated recovery; and governmental and business reactions
to the pandemic. While the Company’s product sales for AMZEEQ have
experienced a modest recovery during the three months ended
September 30, 2020, our sales of AMZEEQ were negatively impacted by
office closures due to the pandemic during the six months ended
June 30, 2020. No assurance can be given that such office closures
will not occur again in future periods, and if such closures do
occur, or any other circumstance arises such that patients or our
sales representatives are restricted in their ability to connect
with healthcare providers, our product sales would be negatively
impacted. In addition, the Company further assessed certain
accounting matters that generally require consideration of
forecasted financial information in context with the information
reasonably available to the Company and the unknown future impacts
of COVID-19 as of September 30, 2020 and through the date of
this report. The accounting matters assessed included, but were not
limited to, the Company’s allowance for doubtful accounts and
credit losses, inventory and related reserves, impairments of
long-lived assets and revenue recognition. The Company recorded
impairments of goodwill and certain indefinite-lived intangible
assets; however, these were unrelated to the impact of COVID-19
(See "Note 3 - Business Combination" for more information). The
Company’s future assessment of the magnitude and duration of
COVID-19, as well as other factors, could result in material
impacts to the Company’s consolidated financial statements in
future reporting periods.
d.Business
Acquisition
The Company’s unaudited interim condensed consolidated financial
statements include the operations of an acquired business after the
completion of the acquisition. The Company accounts for acquired
businesses using the acquisition method of accounting, which
requires, among other things, that most assets acquired and
liabilities assumed be recognized at their estimated fair values as
of the acquisition date and that the fair value of In-Process
Research and Development and Goodwill be recorded on the balance
sheet. Transaction costs are expensed as
incurred.
Amounts recorded in connection with an acquisition can result from
a complex series of judgments about future events and uncertainties
and can rely heavily on estimates and assumptions.
The Company is required to measure certain assets and liabilities
at fair value, either upon initial recognition or for subsequent
accounting or reporting. For example, the Company uses fair
value in the initial recognition of net assets acquired in a
business combination and when measuring impairment losses.
The Company estimates fair value using an exit price approach,
which requires, among other things, that Company determine the
price that would be received to sell an asset or paid to transfer a
liability in an orderly market. The determination of an exit price
is considered from the perspective of market participants,
considering the highest and best use of non-financial assets and,
for liabilities, assuming that the risk of non-performance will be
the same before and after the transfer.
When estimating fair value, depending on the nature and complexity
of the asset or liability, the Company may use one or all of the
following techniques:
•Income
approach, which is based on the present value of a future stream of
net cash flows.
•Market
approach, which is based on market prices and other information
from market transactions involving identical or comparable assets
or liabilities.
•Cost
approach, which is based on the cost to acquire or construct
comparable assets, less an allowance for functional and/or economic
obsolescence.
Our fair value methodologies depend on the following types of
inputs:
•Quoted
prices for identical assets or liabilities in active markets (Level
1 inputs).
•Quoted
prices for similar assets or liabilities in active markets, or
quoted prices for identical or similar assets or liabilities in
markets that are not active, or inputs other than quoted prices
that are directly or indirectly observable, or inputs that are
derived principally from, or corroborated by, observable market
data by correlation or other means (Level 2 inputs).
•Unobservable
inputs that reflect estimates and assumptions (Level 3
inputs).
A single estimate of fair value can result from a complex series of
judgments about future events and uncertainties and can rely
heavily on estimates and assumptions.
Asset Impairment
The Company reviews all of its long-lived assets for impairment
indicators throughout the year. Impairment testing is performed for
indefinite-lived intangible assets annually (or sooner if
warranted) and for all other long-lived assets whenever impairment
indicators are present. When necessary, the Company records charges
for impairments of long-lived assets for the amount by which the
fair value is less than the carrying value of these
assets.
e.Revenue
Recognition
The Company accounts for its revenue transactions under FASB ASC
Topic 606, Revenue from Contracts with Customers. In
accordance with ASC Topic 606, the Company recognizes revenues when
its customers obtain control of its product for an amount that
reflects the consideration it expects to receive from its customers
in exchange for that product. To determine revenue recognition for
contracts that are determined to be in scope of ASC Topic 606, the
Company performs the following five steps: (i) identify the
contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenue when (or as) the Company
satisfies the performance obligation. The Company only applies the
five-step model to contracts when it is probable that the Company
will collect the consideration it is entitled to in exchange for
the goods or services it transfers to the customer. Once the
contract is determined to be within the scope of ASC Topic 606, the
Company assesses the goods or services promised within each
contract and determines those that are performance obligations and
assesses whether each promised good or service is distinct. The
Company then recognizes as revenue the amount of the transaction
price that is allocated to the respective performance obligation
when such performance obligation is satisfied.
The Company’s customers include a limited number of national and
select regional wholesalers (the “distributors”). These
distributors subsequently resell the product, primarily to retail
pharmacies that dispense the product to patients. Net product
revenue is typically recognized when distributors obtain control of
the Company’s products, which occurs at a point in time, typically
upon delivery of product to the distributors. The Company evaluates
the creditworthiness of each of its distributors to determine
whether it is probable that a significant reversal in the amount of
the cumulative revenue recognized will not occur. The Company does
not assess whether a contract has a significant financing component
if the expectation is such that the period between the transfer of
the promised goods to the customer and the receipt of payment will
be less than one year. Standard credit terms do not exceed 90 days.
The Company expenses incremental costs of obtaining a contract as
and when incurred if the expected amortization period of the asset
that would have been recognized is one year or less or the amount
is immaterial. Shipping and handling costs related to the Company’s
product sales are included in selling, general and administrative
expenses.
The Company’s net product revenues through September 30,
2020 were primarily generated through sales of AMZEEQ, which
was approved by the FDA in October 2019 and was commercially
launched in the United States in January 2020. Product revenue is
recorded net of distribution fees, trade discounts, allowances,
rebates, copay program coupons, chargebacks, estimated returns and
other incentives. These reserves are classified as either
reductions of accounts receivable or as current liabilities. The
estimates of reserves established for variable consideration
reflect current contractual and statutory requirements, known
market events and trends, industry data and forecasted customer
mix. The transaction price, which includes variable consideration
reflecting the impact of discounts and allowances, may be subject
to constraint and is included in the net product revenues only to
the extent that it is probable that a significant reversal of the
amount of the cumulative revenues recognized will not occur in a
future period. Actual amounts may ultimately differ from these
estimates. If actual results vary, estimates may be adjusted in the
period such change in estimate becomes known, which could have an
impact on earnings in the period of adjustment. See “Note 4 –
Revenue Recognition” for more information.
On April 23, 2020, the Company announced that it entered into a
license agreement with Cutia for AMZEEQ as well as certain of the
Company's other topical minocycline product candidates, once
approved, on an exclusive basis in Greater China. Under the terms
of the agreement, Cutia will have an exclusive license to obtain
regulatory approval of and commercialize AMZEEQ, ZILXI and, if
approved in the U.S., FCD105 in the Greater China territory. The
Company will supply the finished licensed products to Cutia for
clinical and commercial use. The Company received an upfront cash
payment of $10.0 million ($4.0 million received in the three months
ended September 30, 2020 and $6.0 million received in the
three months ended June 30, 2020) and will be eligible to receive
an additional $1.0 million payment upon the receipt of marketing
approval in China of the first licensed product. The Company will
also receive royalties on net sales of any licensed products. The
license is determined to be a distinct performance obligation of
the arrangement, therefore the Company recognizes the revenues from
the upfront license fee when the license is transferred to the
licensee and the licensee is able to use and benefit from the
license. See "Note 4 - Revenue Recognition" for more
information.
f.Allowance
for credit losses
An allowance for doubtful accounts is maintained for potential
credit losses based on the aging of trade receivables, historical
bad debts experience and changes in customer payment patterns.
Trade receivable balances are written off against the allowance
when it is deemed probable that the receivable will not
be collected. Trade receivables, net are stated net of
reserves for certain sales allowances and provisions for doubtful
accounts. Provisions for doubtful accounts were not material for
the three and nine months ended September 30,
2020.
g.Derivative
instruments
The Company recognizes all derivative instruments as either assets
or liabilities in the unaudited condensed consolidated balance
sheet at their respective fair values. All gains and losses
associated with derivatives are reported as a finance expense
(income) in the accompanying condensed consolidated statements of
operations. As of September 30, 2020, the Company had no
derivative instruments.
h.Fair
value measurement
Fair value is based on the price that would be received from the
sale of an asset or that would be paid to transfer a liability in
an orderly transaction between market participants at the
measurement date. In order to increase consistency and
comparability in fair value measurements, the guidance establishes
a fair value hierarchy that prioritizes observable and unobservable
inputs used to measure fair value into three broad levels, which
are described as follows:
Level 1: Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
assets or liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level 2: Observable prices that are based on
inputs not quoted on active markets, but corroborated by market
data or active market data of similar or identical assets or
liabilities.
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs to the extent possible and considers
counterparty credit risk in its assessment of fair
value.
i.Loss
per share
The calculation of the weighted-average number of common stock
outstanding during the period in which the reverse merger occurs
was based on:
a.The
number of common stock outstanding from the beginning of that
period to the merge date was computed on the basis of the
weighted-average number of common stock of the legal acquiree
(accounting acquirer) outstanding during the period multiplied by
the exchange ratio established in the merger agreement
b.The
number of common outstanding common stock outstanding from the
merge date to the end of that period was the actual number of
common stock of the legal acquirer (the accounting acquiree)
outstanding during that period.
The basic and diluted loss per share for each comparative period
before the acquisition date presented in the consolidated financial
statements following the reverse merger was calculated by dividing
(a) by (b):
a.The
loss of the legal acquiree attributable to common stockholders in
each of those periods.
b.The
legal acquiree's historical weighted-average number of common stock
outstanding multiplied by the exchange ratio established in the
merge agreement
Net loss per share, basic and diluted, is computed on the basis of
the net loss for the period divided by the weighted average number
of Ordinary shares outstanding during the period. Diluted net loss
per share is based upon the weighted average number of common stock
and of common stock equivalents outstanding when dilutive. Common
stock equivalents include outstanding stock options and warrants
which are included under the treasury share method when
dilutive.
The following average stock options, restricted stock units
(“RSUs”), warrants and incremental shares to be issued under the
employee stock purchase plan (“ESPP”) were excluded from the
calculation of diluted net loss per share because their effect
would have been anti-dilutive for the periods presented (share
data):
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Three months ended
September 30 |
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Nine months ended
September 30 |
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2020 |
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2019 |
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2020 |
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2019 |
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Outstanding stock options, RSUs and shares under the
ESPP |
20,765,196 |
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11,488,993 |
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15,024,198 |
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10,903,631 |
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Warrants
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1,980,660 |
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1,371,225 |
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1,510,168 |
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457,075 |
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In addition to the above, the CSR was excluded from the calculation
of the diluted net loss per share because its effect would have
been anti-dilutive for the periods presented. On April 6, 2020, the
Company announced that each of Menlo’s Phase III PN Trials (study
MTI-105 and study MTI-106) did not meet their respective primary
endpoint of demonstrating statistically significant reduction in
pruritus in patients treated with serlopitant compared to placebo
based upon a 4-point improvement responder analysis. Each CSR was
converted into 1.2082 shares of Menlo common stock, resulting in an
effective exchange ratio (the "Exchange Ratio") in the Merger of
1.8006 shares of Menlo common stock for each Foamix ordinary share.
The conversion of the CSR also affected the Exchange Ratio of the
pre-Merger Foamix equity awards and warrants outstanding as of
March 9, 2020. See "Note 3 - Business Combination" for more
information.
j.Newly
issued and recently adopted accounting pronouncements
Recent Accounting Guidance Issued:
In March 2020, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2020-4, "Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting" (ASU 2020-4), which provides
guidance to alleviate the burden in accounting for reference rate
reform by allowing certain expedients and exceptions in applying
generally accepted accounting principles to contracts, hedging
relationships, and other transactions impacted by reference rate
reform. The provisions of ASU 2020-4 apply only to those
transactions that reference LIBOR or another reference rate
expected to be discontinued due to reference rate reform. Adoption
of the provisions of ASU 2020-4 are optional and are effective from
March 12, 2020 through December 31, 2022. The Company is currently
evaluating the impact of ASU 2020-4 on its consolidated financial
statements.
In June 2016, the FASB issued Accounting Standards Update No.
2016-13, “Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments” (ASU
2016-13), which requires companies to measure credit losses of
financial instruments, including customer accounts receivable,
utilizing a methodology that reflects expected credit losses and
requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. Subsequent
to the issuance of ASU 2016-13, the FASB issued several additional
Accounting Standard Updates to clarify implementation guidance,
provide narrow-scope improvements and provide additional disclosure
guidance. As a smaller reporting company, the Company will adopt
ASU 2016-13 effective January 1, 2023 or at such time where it is
no longer a smaller reporting company.
NOTE 3 – BUSINESS COMBINATION
On November 10, 2019, Menlo entered into the Merger Agreement with
Foamix, and Merger Sub, a direct and wholly-owned Israeli
subsidiary of Menlo. On March 9, 2020, the Merger was completed and
Foamix is now a wholly-owned subsidiary of the
Company.
On the Effective Date, each ordinary share of Foamix was exchanged
for 0.5924 shares of common stock of Menlo. In addition, on the
Effective Date, Foamix shareholders received one contingent stock
right (a “CSR”) for each Foamix ordinary share held by them. The
CSRs were issued pursuant to the Contingent Stock Rights Agreement
(the “CSR Agreement”), dated
as of March 9, 2020, by and between Menlo and American Stock
Transfer & Trust Company, LLC, and represented the
non-transferable contractual right to receive shares of common
stock of Menlo depending on the results of Menlo’s phase III
clinical trials evaluating the safety and efficacy of once daily
oral serlopitant for the treatment of prurigo nodularis (the “Phase
III PN Trials”).
On April 6, 2020, the Company announced that each of Menlo’s Phase
III PN Trials (study MTI-105 and study MTI-106) did not meet their
respective primary endpoint of demonstrating statistically
significant reduction in pruritus in patients treated with
serlopitant compared to placebo based upon a 4-point improvement
responder analysis. Accordingly, on April 6, 2020, pursuant to the
terms of the CSR Agreement, each CSR was converted into 1.2082
additional shares of Menlo common stock, resulting in an effective
Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock
for each Foamix ordinary share. The CSR conversion resulted in the
issuance and delivery of 74,544,413 additional shares of Menlo
common stock underlying the CSRs. Following the conversion of the
CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo
stockholders owned approximately 82% and 18% of post-Merger Menlo,
respectively, each calculated on a fully diluted
basis.
For accounting purposes, the Merger is treated as a “reverse
acquisition” under U.S. GAAP and Foamix is considered the
accounting acquirer. Accordingly, upon consummation of the Merger,
the historical financial statements of Foamix became the Company’s
historical financial statements, and the historical financial
statements of Foamix are included in the comparative prior
periods.
Under reverse acquisition accounting, the U.S. dollar amount for
common stock in the financial statements is based on the value and
number of shares issued by Menlo (reflecting the legal structure of
Menlo as the legal acquirer) on the Merger date plus subsequent
shares issued by the Company. The amounts in additional paid-in
capital represent that of Foamix and include the fair value of
shares deemed for accounting purposes to have been issued by Foamix
on the merger date and the fair value of the Menlo equity awards
included in the purchase price calculation. The Foamix additional
paid-in capital was also adjusted for the difference between the
number of common stock and the historical number of shares of
Foamix’s ordinary shares.
During the nine months ended September 30, 2020, the Company
incurred transaction costs of approximately $11.7 million, which
are recorded in the consolidated statements of operations and
comprehensive income. This amount includes $8.1 million of
severance benefits for employees terminated after the Effective
Date. The total transaction costs and other non-recurring costs
related to the Merger were $21.8 million.
Purchase Price
The following is the Merger Consideration (as defined in the Merger
Agreement) was transferred to effect the Merger:
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(in thousands) |
Total
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Deemed (for accounting purposes only) issuance of Foamix shares to
Menlo stockholders
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$ |
123,757 |
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Deemed (for accounting purposes only) conversion of Menlo equity
awards
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7,322 |
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Total consideration*
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$ |
131,079 |
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* This amount reflects total consideration prior to reduction in
respect of the CSRs (which had a fair value of $19.6 million as of
the Merger Date) that were issued to Foamix shareholders and that
reduced the Menlo stockholders’ relative ownership in the combined
company. If the effect of the CSRs is included, the total
consideration deemed paid by Foamix, as the accounting acquirer, to
Menlo stockholders and equity award holders in the Merger would be
reduced to approximately $111.4 million, as shown in the purchase
price allocation table below.
Based on Foamix’s closing share price of $2.99 as of March 9, 2020,
the Merger Consideration under reverse acquisition accounting was
approximately $131.1 million, consisting of $123.8 million for the
deemed (for accounting purposes only) issuance of 41.4 million
Foamix shares assuming that no upwards adjustment was made to the
Exchange Ratio relating to the CSR, and $7.3 million for the fair
value of Menlo equity awards deemed (for accounting purposes only)
to be converted into Foamix equity awards. The converted stock
options represent the fair value of such options attributable to
service prior to the Merger date using the Foamix closing share
price of $2.99 as of March 9, 2020 as an input to the Black Scholes
valuation model to determine the fair value of the
options.
Purchase Price Allocation
The Company completed its analysis of the allocation of the
purchase price to the fair values of assets acquired and
liabilities assumed as follows:
|
|
|
|
|
|
|
(in thousands) |
March 9, 2020
|
|
Cash and cash equivalents
|
$ |
38,641 |
|
|
Investment in marketable securities
|
22,703 |
|
|
Prepaid expenses and other current assets
|
1,581 |
|
|
In-process research and development
|
50,300 |
|
|
Goodwill
|
4,045 |
|
|
Total assets
|
117,270 |
|
|
Current liabilities
|
(5,827) |
|
|
Total liabilities
|
(5,827) |
|
|
Estimated purchase price*
|
$ |
111,443 |
|
* Reflects reduction in the purchase price deemed paid to Menlo
stockholders in the Merger on the assumption that the CSRs, in an
aggregate value of $19.6 million, convert into additional shares of
the combined company for the Foamix shareholders, thereby resulting
in a lower percentage of the combined company’s outstanding shares
being owned by Menlo stockholders following the
Merger.
Goodwill
Goodwill is recorded with the acquisition of a business and is
calculated as the difference between the acquisition date fair
value of the consideration transferred and the values assigned to
the assets acquired and liabilities assumed. Goodwill is not
amortized but is tested for impairment at least annually. None of
the Goodwill recognized is expected to be deductible for income tax
purposes.
The purchase price of the transaction and the excess purchase price
over the fair value of the identifiable net assets acquired, are
calculated as follows:
|
|
|
|
|
|
|
(in thousands) |
March 9, 2020 |
|
Purchase price |
$ |
111,443 |
|
|
Less: fair value of net assets acquired, including other
identifiable intangibles |
(107,398) |
|
|
Goodwill |
$ |
4,045 |
|
On April 6, 2020, the Company announced that each of Menlo’s Phase
III PN Trials (study MTI-105 and study MTI-106) did not meet their
respective primary endpoint of demonstrating statistically
significant reduction in pruritus in patients treated with
serlopitant compared to placebo based upon a 4-point improvement
responder analysis. The Company does not intend to further pursue
the development of serlopitant. As such, the Company recorded a
full impairment charge of $4.0 million related to goodwill in its
unaudited condensed consolidated statements of operations and
comprehensive loss for the nine months ended September 30, 2020.
There was no impairment charge in the three months ended September
30, 2020.
In-Process Research and Development (“IPR&D")
The IPR&D recognized relates to Menlo’s once-daily
oral serlopitant for the treatment of pruritus (itch) associated
with PN that has not reached technological feasibility as
follows:
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
Intangible asset
|
|
Estimated Fair Value
|
|
Acquired indefinite life intangible assets*
|
|
$ |
50,300 |
|
|
Fair value of identified intangible assets
|
|
$ |
50,300 |
|
* Represents acquired IPR&D assets which are initially
recognized at fair value and are classified as indefinite-lived
assets until the successful completion or abandonment of the
associated research and development efforts. Accordingly, during
the research and development period, these assets will not be
amortized into earnings; instead these assets will be subject to
periodic impairment testing.
The fair value of IPR&D has been estimated utilizing a
multi-period excess earnings method under the income approach,
which reflects the present value of the projected cash flows that
are expected to be generated, less charges representing the
contribution of other assets to those cash flows that use projected
cash flows with and without the intangible asset in
place.
On April 6, 2020, the Company announced that each of Menlo’s Phase
III PN Trials (study MTI-105 and study MTI-106) did not meet their
respective primary endpoint of demonstrating statistically
significant reduction in pruritus in patients treated with
serlopitant compared to placebo based upon a 4-point improvement
responder analysis. The Company does not intend to further pursue
the development of serlopitant. As such, the Company recorded a
full impairment charge of $50.3 million related to the IPR&D
asset in its unaudited condensed consolidated statements of
operations and comprehensive loss for the nine months ended
September 30, 2020. There was no impairment charge in the
three months ended September 30, 2020.
CSR
The CSR was issued pursuant to the CSR Agreement, dated as of March
9, 2020, by and between Menlo and American Stock Transfer &
Trust Company, LLC, and represented the non-transferable
contractual right to receive shares of common stock of Menlo
depending on the results of Menlo’s Phase III PN Trials. The
Company recognized a liability of $19.6 million in the unaudited
condensed consolidated balance sheet as of March 31, 2020. The
liability was measured at fair value and categorized as level 3 as
of the acquisition date in accordance with ASC 805-31-25-5 and
subsequently at each reporting date thereafter. The fair value of
the CSR was estimated as the incremental value that Foamix would be
able to achieve on a probability weighted basis assuming three
different potential probabilities of the following scenarios: (a)
serlopitant significance was achieved in both Phase III PN Trials
(b) serlopitant significance was achieved in only one Phase III PN
Trial and (c) serlopitant significance was not achieved or was not
determined on or before May 31, 2020.
On April 6, 2020, the Company announced that each of Menlo’s Phase
III PN Trials (study MTI-105 and study MTI-106) did not meet their
respective primary endpoint of demonstrating statistically
significant reduction in pruritus in patients treated with
serlopitant compared to placebo based upon a 4-point improvement
responder analysis. Accordingly, on April 6, 2020, pursuant to the
terms of the CSR Agreement, each CSR was converted into 1.2082
additional shares of Menlo common stock, resulting in an effective
Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock
for each Foamix ordinary share. The CSR conversion resulted in the
issuance and delivery of 74,544,413 additional shares of Menlo
common stock underlying the CSRs. Following the conversion of the
CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo
stockholders own approximately 82% and 18% of post-Merger Menlo,
respectively, each calculated on a fully diluted basis. The
conversion of the CSR also affected the Exchange Ratio of the
pre-Merger Foamix equity awards and warrants outstanding as of
March 9, 2020 and increased the awards available for grant under
the Company's equity plan.
The contingent consideration associated with the CSR was recognized
and measured at fair value as of the acquisition date in accordance
with ASC 805-30-25-5. An acquirer's obligation to pay contingent
consideration should be classified as a liability or equity in
accordance with ASC 480, Distinguishing Liabilities from Equity,
ASC 815 Derivatives and Hedging, and other applicable U.S.
GAAP. The contingent consideration associated with the CSR was
initially measured at fair value and will subsequently be measured
at fair value at each reporting date. The CSR was classified as a
liability, as it is settled by issuing a variable number of the
Company's common stock. On April 6, 2020, the Company recorded
$84.7 million of expense in its unaudited condensed consolidated
statements of operations and comprehensive loss to remeasure the
CSR liability in its consolidated balance sheet to its fair value
of $104.4 million (calculated based on 74,544,413 shares issued and
a share price of $1.40 on April 6, 2020) and then settled in
connection with the issuance of shares.
Pro Forma
The actual Menlo net loss included in the Company’s consolidated
statements of operations and comprehensive income for the three and
nine months ended September 30, 2020 (for the period from the
March 9, 2020, the Effective Date, through September 30, 2020,
which are not indicative of the results to be expected for a full
year) and the supplemental unaudited pro forma revenue and net loss
of the combined entity had the acquisition been completed on
January 1, 2019 are as follows:
Actual Menlo results of operations included in the condensed
consolidated statement of operation for the three and nine months
ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
Three months ended September 30, 2020 |
|
Nine months ended September 30, 2020 |
|
(Unaudited) |
|
Revenues
|
$ |
— |
|
|
$ |
— |
|
|
Loss attributable to Menlo |
$ |
4,100 |
|
|
$ |
23,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, |
|
Nine months ended
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
(in thousands, except per share data) |
(Unaudited)
|
|
(Unaudited) |
|
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
Revenues
|
$ |
3,269 |
|
|
$ |
— |
|
|
$ |
16,707 |
|
|
$ |
308 |
|
|
Net loss
|
$ |
24,912 |
|
|
$ |
40,016 |
|
|
$ |
229,994 |
|
|
$ |
109,563 |
|
|
Loss per share - basic and diluted
|
$ |
0.15 |
|
|
$ |
0.66 |
|
|
$ |
1.88 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
|
|
|
|
Adjustments to the supplemental pro forma combined results of
operations, included in the above, are as follows:
|
|
|
|
|
|
|
|
|
Transaction costs
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(14,931) |
|
|
$ |
— |
|
|
Acceleration of stock based compensation
|
— |
|
|
— |
|
|
(7,199) |
|
|
— |
|
|
Total Adjustments
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(22,130) |
|
|
$ |
— |
|
These unaudited pro forma condensed consolidated financial results
have been prepared for illustrative purposes only and do not
purport to be indicative of the results of operations that actually
would have resulted had the acquisition occurred on the first day
of the earliest period presented, or of future results of the
consolidated entities. The unaudited pro forma condensed
consolidated financial information does not reflect any operating
efficiencies and cost savings that may be realized from the
integration of the Merger.
NOTE 4 – REVENUE RECOGNITION
Product Sales
Product revenues for the three and nine months
ended September 30, 2020 were primarily generated
from sales of AMZEEQ which was commercially launched in the
United States in January 2020. ZILXI became available in pharmacies
nationwide on October 1, 2020 and therefore the Company did not
generate any revenue from sales of ZILXI during the period. The
Company’s customers include a limited number of national and select
regional distributors. These distributors subsequently resell the
product, primarily to retail pharmacies that dispense the product
to patients. Net product revenue is typically recognized when
distributors obtain control of the Company’s products, which occurs
at a point in time, typically upon delivery of product to the
distributors. For the three months ended September 30,
2020, three distributors accounted
for 41%, 43% and 16% of product revenue,
respectively. For the nine months ended September 30, 2020,
three distributors accounted for 43%, 41% and 15% of product
revenue, respectively.
Product Sales Provisions
Product revenue is recorded net of distribution fees, trade
discounts, allowances, rebates, chargebacks, estimated returns and
other incentives, described below.
The Company calculates its net product revenue based on the
wholesale acquisition cost that the Company charges its
distributors less provisions for (i) trade discounts and
allowances, such as distributor fees and discounts for prompt
payment, (ii) estimated rebates to third-party payers, patient
co-pay assistance programs, chargebacks and other discount programs
and (iii) reserves for expected product returns.
Provisions for distribution fees, trade discounts and chargebacks
are reflected as a reduction to trade receivables, net on the
condensed consolidated balance sheet. All other provisions,
including rebates, other discounts and return provisions are
reflected as a liability within accrued expenses on the condensed
consolidated balance sheet. Provisions for revenue reserves
described below reduced product revenues by $11.0 million and
$25.1 million for the three and nine months ended
September 30, 2020, respectively. The revenue reserve accrual
at September 30, 2020 was $5.6 million reflected in accrued
expense in the consolidated balance sheet.
Distribution Fees and Trade Discounts and
Allowances:
The Company pays fees for distribution services and for certain
data that distributors provide to the Company and generally
provides discounts on sales to its distributors for prompt payment.
These fees and discounts are contractual in nature and the Company
expects its distributors to earn these fees and discounts, and
accordingly deducts the full amount of these fees and discounts
from its gross product revenues at the time such revenues are
recognized.
Rebates, Chargebacks and Other Discounts:
Product sales made under managed-care and governmental pricing
programs in the U.S. are subject to rebates.
Managed Care rebates relate to contractual agreements to sell
products to managed care organizations and pharmacy benefit
managers at contractual rebate percentages in exchange for volume
and/or market share. Chargebacks relate to contractual
agreements to sell products to government agencies and other
indirect customers at contractual prices that are lower than the
list prices the Company charges wholesalers. When these government
agencies or other indirect customers purchase products through
wholesalers at these reduced prices, the wholesaler charges the
Company for the difference between the prices they paid the Company
and the prices at which they sold the products to the indirect
customers. The Company estimates the rebates and chargebacks it
expects to be obligated to provide and deducts these estimated
amounts from its gross product revenue at the time the revenue is
recognized. The Company estimates the rebates and chargebacks that
it expects to be obligated to provide based upon (i) the Company's
current contracts and negotiations, (ii) estimates regarding the
payer mix based on third-party data and utilization, (iii)
inventory held by distributors and (iv) estimates of inventory held
at the retail channel. Other discounts include the Company’s co-pay
assistance coupon programs for commercially-insured patients
meeting certain eligibility requirements. The calculation of the
accrual for co-pay assistance is based on an estimate of claims and
the cost per claim that the Company expects to pay associated with
product that has been recognized as revenue.
Product Returns:
Consistent with industry practice, customers are generally allowed
to return products within a specified period of time before and
after its expiration date.
The Company estimates the amount of product that will be
returned and deducts these estimated amounts from its gross revenue
at the time the revenue is recognized. The
information utilized to estimate the returns provision includes:
(i)
historical industry information regarding rates for comparable
pharmaceutical products and product portfolios,
(ii) external data with respect to inventory levels in the
wholesale distribution channel, (iii) external data with respect to
prescription
demand
for products and (iv) remaining shelf lives of products at the date
of sale. The Company estimates that approximately 2% to 3% of
product will be returned.
License Revenues
On April 23, 2020, the Company announced that it entered into a
license agreement with Cutia for AMZEEQ as well as certain of the
Company's other topical minocycline product candidates, once
approved, on an exclusive basis in Greater China. Under the terms
of the agreement, Cutia will have an exclusive license to obtain
regulatory approval of and commercialize AMZEEQ, ZILXI and, if
approved in the U.S., FCD105 in the Greater China territory. The
Company will supply the finished licensed products to Cutia for
clinical and commercial use. Outside of the license transferred,
the Company does not have any additional performance obligations
under the arrangement. In exchange for the license, the Company
received an upfront cash payment of $10.0 million ($4.0 million
received in the three months ended September 30, 2020 and $6.0
million and received in the three months ended June 30, 2020) and
will be eligible to receive an additional $1.0 million payment upon
the receipt of marketing approval in China of the first licensed
product. The license is considered functional IP as the licensee is
able to use and benefit from the license without the continued
involvement of the Company. The Company recorded $10.0 million of
license revenue in the nine months ended September 30, 2020.
There was no license revenue in the three months ended
September 30, 2020. The Company will also receive royalties on
net sales of any licensed products, such royalties will be
recognized in the period the sales or usage occurs under the
royalties sales-and usage based exception. The Company has not
recorded revenue related to the $1.0 million payment due upon
receipt of marketing approval for the licensed product as such
amount is constrained under the variable consideration guidance
under ASC 606, Revenue from Contracts with Customers.
Contract Assets and Contract Liabilities
The Company did not have any contract assets (unbilled receivables)
related to product sales or as of September 30, 2020, as
customer invoicing generally occurs before or at the time of
revenue recognition. The Company received a $4.0 million payment
from Cutia related to its license agreement in the three months
ended September 30, 2020. The Company did not have any contract
assets (unbilled receivables) related to its license revenues as of
September 30, 2020.
The Company did not have any contract liabilities as
of September 30, 2020, as the Company did not receive
payments in advance of fulfilling its performance obligations to
its customers.
Sales Commissions
Sales commissions are generally attributed to periods shorter than
one year and therefore are expensed when incurred. Sales
commissions are included in selling, general and administrative
expenses.
Financing Component
The Company has elected not to adjust consideration for the effects
of a significant financing component when the period between the
transfer of a promised good or service to the customer and when the
customer pays for that good or service will be one year or
less. Standard credit terms do not exceed 90
days.
Royalty Revenues
The Company is entitled to royalty payments with respect to sales
of a product developed by a customer in collaboration with the
Company. Revenues in the amount of $0.4 million and $0.6 million
were recorded during the three and nine months ending
September 30, 2020, respectively, and revenues in the amount
of $0.3 million were recorded during the nine months ending
September 30, 2019. There was no revenue for the three months
ending September 30, 2019.
NOTE 5 - FAIR VALUE MEASUREMENT
The Company’s assets and liabilities that are measured at fair
value as of September 30, 2020 and December 31, 2019, are
classified in the tables below in one of the three categories
described in "Note 2 - Fair value measurement" above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
(in thousands) |
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Marketable securities(1)
|
$ |
1,027 |
|
|
$ |
2,019 |
|
|
$ |
— |
|
|
$ |
3,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Marketable securities(1)
|
$ |
1,020 |
|
|
$ |
15,660 |
|
|
$ |
— |
|
|
$ |
16,680 |
|
(1)The
Company’s debt securities are traded in markets that are not
considered to be active, but are valued based on quoted market
prices, broker or dealer quotations, or alternative pricing sources
with reasonable levels of price transparency. Accordingly, these
assets are categorized as Level 2.
Foreign exchange risk management
Occasionally, the Company purchases and writes non-functional
currency options in order to hedge the currency exposure on the
Company’s cash flow. The currency hedged items are denominated in
New Israeli Shekels (“NIS”). The purchasing and writing of options
is part of a comprehensive currency hedging strategy with respect
to salary and rent expenses denominated in NIS. These transactions
are at zero cost for periods of up to one year. The counterparties
to the derivatives are major banks in Israel. As of
September 30, 2020, there were no hedged amounts.
As of September 30, 2020, the Company has a lien in the amount
of $0.3 million on the Company’s checking account, in respect of
bank guarantees granted in order to secure the hedging
transactions.
NOTE 6 - MARKETABLE SECURITIES
Marketable securities as of September 30, 2020 and
December 31, 2019 consist mainly of debt and mutual funds
securities. The debt securities are classified as
available-for-sale and are recorded at fair value. Changes in fair
value, net of taxes (if applicable), are reflected in other
comprehensive loss. Realized gains and losses on sales of the
securities, as well as premium or discount amortization, are
included in the consolidated statement of operations as finance
income or expenses.
Equity securities with readily determinable fair value are measured
at fair value. The changes in the fair value of equity investments
are recognized through finance (income) expense in the condensed
consolidated statements of operations.
The following table sets forth the Company’s marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
(in thousands) |
2020 |
|
2019 |
|
Israeli mutual funds |
$ |
1,027 |
|
|
$ |
1,020 |
|
|
Certificates of deposit |
— |
|
|
151 |
|
|
U.S Government |
— |
|
|
6,031 |
|
|
U.S Treasury bills |
— |
|
|
9,478 |
|
|
Corporate notes |
2,019 |
|
|
— |
|
|
|
|
|
|
Total |
$ |
3,046 |
|
|
$ |
16,680 |
|
As of September 30, 2020 and December 31, 2019 the fair
value, cost and gross unrealized holding gains and losses of the
debt marketable securities owned by the Company were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
(in thousands) |
Fair
value |
|
Cost or
amortized
cost |
|
Gross
unrealized
holding losses |
|
Gross unrealized
holding gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes |
2,019 |
|
|
2,019 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total |
$ |
2,019 |
|
|
$ |
2,019 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
(in thousands) |
Fair
value |
|
Cost or
amortized
cost |
|
Gross
unrealized
holding loss |
|
Gross
unrealized
holding gains |
|
Certificates of deposit |
$ |
151 |
|
|
$ |
151 |
|
|
$ |
— |
|
|
$ |
— |
|
|
U.S Government and agency bonds |
6,031 |
|
|
6,030 |
|
|
— |
|
|
1 |
|
|
U.S Treasury bills |
9,478 |
|
|
9,475 |
|
|
— |
|
|
3 |
|
|
Total |
$ |
15,660 |
|
|
$ |
15,656 |
|
|
$ |
— |
|
|
$ |
4 |
|
The Company has considered factors regarding other than temporary
impaired securities and determined that there are no securities
with impairment that is other than temporary as of
September 30, 2020 and December 31, 2019.
As of September 30, 2020 and December 31, 2019, all of
the Company’s debt securities were due within one
year.
During the nine months ended September 30, 2020 and
September 30, 2019 the Company received aggregate proceeds of
$36.4 million and $45.7 million, respectively, upon sale and
maturity of marketable securities.
As of September 30, 2020, there were no restricted marketable
securities. As of December 31, 2019, the Company’s restricted
marketable securities were $0.4 million due to a lien in respect of
bank guarantees granted to secure hedging transactions and the
Company’s rent agreements. See “Note 5 - Fair Value Measurement”
and “Note 10 - Operating Lease” for more information.
NOTE 7 – INVENTORY
Inventories are stated at the lower of cost and net realizable
value with cost determined on a first-in, first-out basis by
product. The Company capitalizes inventory costs associated with
products following regulatory approval when future
commercialization is considered probable and the future economic
benefit is expected to be realized. The Company commenced
capitalizing inventory for AMZEEQ upon FDA approval of AMZEEQ on
October 18, 2019 and ZILXI on May 29, 2020. The Company
periodically reviews its inventory levels and, if necessary, writes
down inventory that is expected to expire prior to being sold,
inventory in excess of expected sales requirements and inventory
that fails to meet commercial sale specifications, with a
corresponding charge to cost of goods sold. There were no inventory
write-downs during the three and nine months ended
September 30, 2020.
The following table sets forth the Company’s
inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
December 31 |
|
(in thousands) |
2020 |
|
2019 |
|
Raw materials |
$ |
4,293 |
|
|
$ |
500 |
|
|
Work-in-process |
— |
|
|
— |
|
|
Finished goods |
2,357 |
|
|
856 |
|
|
Total |
$ |
6,650 |
|
|
$ |
1,356 |
|
NOTE 8 - LONG-TERM DEBT
On July 29, 2019, Foamix entered into a Credit Agreement (the
"Credit Agreement") to secure up to $50 million from two
lenders, one of which is a significant stockholder of the Company
and is considered a related party, and a Securities Purchase
Agreement with one of the lenders for gross proceeds of
approximately $14 million, before deducting offering expenses
(see “Note 9- Share Capital” for more information). On March 9,
2020, the Company entered into an Amended and Restated Credit
Agreement and Guaranty (the “Amended and Restated Credit
Agreement”), whereby the Company has
guaranteed the indebtedness obligations of the borrower and granted
a first priority security interest in substantially all of our
assets for the benefit of the lenders. As of September 30, 2020 and
December 31, 2019, $35.0 million was drawn under the Amended
and Restated Credit Agreement. The Company did not, and does not
expect to, incur the remaining $15.0 million under the Credit
Agreement.
The term loans available under the Amended and Restated Credit
Agreement are comprised as follows: (a) $15 million that was funded
on July 29, 2019 (the “Tranche 1 Loan”), (b) $20 million that was
funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to
$15 million that was available prior to September 30, 2020 (the
“Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the
FDA’s approval of the Company’s NDA for AMZEEQ and listing of
AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining
arrangements with a third party for the commercial supply and
manufacture of AMZEEQ. The Company did not, and does not expect to,
incur the Tranche 3 Loan. Subject to any acceleration as provided
in the Amended and Restated Credit Agreement, including upon an
event of default (as defined in the Amended and Restated Credit
Agreement), the loans will mature on July 29, 2024 and bear
interest equal to the sum of (A) 8.25% (subject to increase in
accordance with the terms of the Amended and Restated Credit
Agreement) plus (B) the greater of (x) the one-month LIBOR as of
the second business day immediately preceding the first day of the
calendar month or the date of borrowing (if such loan is not
outstanding as of the first day of the calendar month), as
applicable, and (y) 2.75%. A fee in an amount equal to 1.0% of the
aggregate principal amount of all loans made on any given borrowing
date shall be payable to the lenders.
The Amended and Restated Credit Agreement contains certain
financial covenants, including that the Company maintain a minimum
aggregate compensating cash balance of $2.5 million.
In addition, the parties entered into Amendment No. 1 to Amended
and Restated Credit Agreement (the "Amendment") on August 5,
2020. The Amendment provides for a covenant "holiday" with respect
to the minimum net revenue covenant such that the compliance with
such covenant will commence with the fiscal quarter ending on
December 31, 2020, rather than September 30, 2020. Accordingly, as
of the last day of each fiscal quarter commencing with the fiscal
quarter ending December 31, 2020, the Company must generate
consolidated net product revenue for the trailing 12-month period
in amounts set forth in the Amendment, which range from
$6.0 million for the fiscal quarter ending December 31, 2020
to $97.0 million for the fiscal quarter ending June 30,
2024.
As of September 30, 2020, the Company is in compliance with
all covenants, including maintaining a minimum aggregate
compensating cash balance as mentioned above. In the event where
the Company fails to observe or perform any of the financial
covenants the lenders may, by notice to the Company, declare the
loans then outstanding to be due and payable in whole, together
with accrued interest and a Prepayment Premium (as defined in the
Amended and Restated Credit Agreement ). Additionally, the Company
will continue to monitor ongoing developments in connection with
the COVID-19 pandemic, which may have an adverse impact on the
Company’s commercial prospects, projected cash position and ability
to remain in compliance with these covenants.
Under the Amended and Restated Credit Agreement, there are no
required payments of principal amounts until July 2023. Afterwards,
the Company will pay 1.5% of the aggregate principal amount each
month. The outstanding amount will be paid in full in July
2024.
In addition, on July 29, 2019, the lenders under the Credit
Agreement were issued warrants to purchase up to an aggregate of
1,100,000 of Foamix ordinary shares, at an exercise price of $2.09
per share (the “Warrants”), which represented the five-day volume
weighted average price of the Foamix ordinary shares as of the
trading day immediately prior to the issuance of the Warrants. In
connection with the completion of the Merger, the exchange ratio
was applied to the Warrants such that they became exercisable for
651,640 shares of the Company’s common stock, and the exercise
price was adjusted to $3.53. Following the Phase 3 PN Trial
results, the Warrants were further adjusted and they are currently
exercisable for 1,980,660 shares of our common stock with an
exercise price of $1.1607 per share. Payment of the exercise price
will be made, at the option of the holder, either in cash or as a
reduction of common stock issuable upon exercise of the Warrant,
with an aggregate fair value equal to the aggregate exercise price
("cashless exercise"), or any combination of the
foregoing. The Warrants are exercisable pursuant to the terms,
and subject to the conditions, thereof and expire on July 29, 2026.
Any Warrants left outstanding will be cashless exercised on the
Warrants' expiration date, if in the money. The Warrants issued
were classified as equity in accordance with ASC 815-40. Proceeds
received under the Tranche 1 Loan were allocated to the Warrants
and the Tranche 1 Loan on a relative fair value basis.
The Company incurred offering expenses of $1.1 million in
connection with transactions contemplated by the Credit Agreement
and the Securities Purchase Agreement, which were allocated to the
Warrants, shares and debt consistently with the allocation of
proceeds. The Company incurred additional expenses in the amount of
$0.3 million from the borrowing of Tranche 2 Loan, allocated only
to the debt.
Debt issuance costs are recorded on the consolidated balance sheet
as a reduction of liabilities.
Amounts allocated to the debt, net of issuance cost, are
subsequently recognized at amortized cost using the effective
interest method.
The fair value of the debt as of September 30, 2020 was $36.3
million and is categorized as Level 3. The valuation was performed
by applying the income approach, under which the contractual
present value method was used. The estimation of risk adjusted
discount curve was based on public information reported in the
financial statements of publicly traded venture lending
companies.
During the three months ended September 30, 2020, the Company
recorded interest expense of $1.0 million and $0.1 million relating
to the interest and discount cost. During the nine months ended
September 30, 2020, the Company recorded interest expense of
$2.9 million and $0.3 million relating to the interest and discount
cost.
NOTE 9 – SHARE CAPITAL
Preferred stock
As of September 30, 2020, the Company's Certificate of
Incorporation, as amended, authorizes the Company to issue
20,000,000 shares of preferred stock, par value $0.0001 per share.
There were no shares of preferred stock issued and outstanding as
of September 30, 2020 and December 31, 2019.
Shares of preferred stock may be issued from time to time in one or
more series. The voting powers (if any), preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations and restrictions of any series of
preferred stock will be set forth in a Certificate of Designation
filed pursuant to the Delaware General Corporation Law, as
determined by the Company's Board of Directors.
Common stock
As of September 30, 2020, the Company’s Certificate of
Incorporation, as amended, authorizes the Company to issue
300,000,000 shares of common stock, par value $0.0001 per share. In
connection with the corporate name change, we changed our ticker
symbol from "MNLO" to "VYNE" on September 8, 2020.
At the Company's annual meeting of stockholders held on August 3,
2020, the Company's stockholders voted to approve a proposal to
adopt an amendment to the Company’s Amended and Restated
Certificate of Incorporation to effect (a) a reverse stock split of
the Company’s outstanding shares of common stock, at a reverse
stock split ratio ranging from 1-for-2 shares to 1-for-7 shares,
which may be determined by the Board at a later date, and (b) a
reduction in the number of authorized shares of the Company’s
common stock by a corresponding ratio. The exact timing for
selection of the reverse stock split ratio and the effective date
of the reverse stock split will be determined by the Board based
upon its evaluation as to when such action will be most
advantageous to the Company and its stockholders. The Board may
delay or abandon the reverse stock split at any time prior to the
effective time of the reverse stock split, if the Board determines
that the reverse stock split is no longer in the best interests of
the Company or its stockholders. The reverse stock split, if
implemented, would become effective upon the filing of a
Certificate of Amendment with the Delaware Secretary of
State.
Each share of common stock is entitled to one vote. The holders of
common stock are also entitled to receive dividends whenever funds
are legally available and when and if declared by the board of
directors, subject to the prior rights of holders of all classes of
preferred stock outstanding. The Company has never declared any
dividends on common stock.
Issuance of stock
On July 29, 2019, pursuant to the Credit Agreement and Securities
Purchase Agreement, Foamix issued and sold, in a registered
offering, an aggregate of 6,542,057 ordinary shares at a purchase
price of $2.14 per share, later exchanged to 3,875,514 Menlo common
stock at the closing of the Merger. The aggregate gross proceeds of
approximately $14 million, before deducting issuance costs
allocated as described in Note 8-Long Term Debt, in the amount of
$0.3 million.
Pursuant to the completion of the merger, on March 9, 2020, the
Company issued 36,550,335 shares to Foamix shareholders. On April
6, 2020, pursuant to the terms of the CSR Agreement, the Company
issued 74,544,413 shares to Foamix shareholders.
On June 9, 2020, the Company completed an underwritten public
offering of 31,107,500 shares of common stock at a price to the
public of $1.85 per share. The net proceeds of the offering were
approximately $53.6 million, after deducting underwriting
discounts and commissions and other offering expenses.
Warrants
In connection with entering into the Credit Agreement on July 29,
2019, Foamix issued to the lenders Warrants to purchase up to an
aggregate of 1,100,000 of its ordinary shares, later exchanged to
Warrants to purchase up to 1,980,660 shares of Menlo’s common
stock. Upon the closing of the Merger, each Warrant received one
CSR as described in Note 3- Business Combinations. The Warrants may
be exercised by the holders pursuant to the terms thereof and any
Warrants left outstanding will be cashless exercised on the
Warrants’ expiration date, subject to certain
conditions.
The exchange of Warrants from Foamix warrants to Menlo warrants and
the additional CSR was accounted for as a modification, by analogy,
from the modification’s guidance under ASC 260-10-S99-2. The
Company assessed the significance of the modification of the
Warrants by comparing the fair value of the Warrants immediately
before and after the amendments. In its assessment, it also
considered additional qualitative factors. The Company concluded
that the change of terms was not significant. Therefore, the
incremental fair value, in the amount of $41,000, of the modified
Warrants over the original ones (as of modification date) was
recognized in retained earnings as a deemed dividend to the
Warrants holders in the nine months ended September 30,
2020.
Share-based compensation
Equity incentive plans:
Upon closing of the Merger, the Company adopted Foamix’s 2019
Equity incentive plan (the “2019 Plan”). As of September 30,
2020, 2,650,213 shares remain issuable under the 2019 Plan. In
addition, the Company adopted the 2018 Omnibus Incentive Plan (the
"2018 Plan") in January 2018. In January 2020, the number of shares
reserved under the 2018 Plan automatically increased by 976,105
shares of common stock pursuant to the terms thereof. As of
September 30, 2020, 2,237,869 shares remain issuable under the
2018 Plan.
Employee Share Purchase Plan:
Upon closing of the Merger, the Company adopted Foamix’s Employee
Share Purchase Plan ("ESPP") pursuant to which qualified employees
(as defined in the ESPP) may elect to purchase designated shares of
the Company’s common stock at a price equal to 85% of the
lesser of the fair market value of the common stock at the
beginning or end of each semi-annual share purchase period
(“Purchase Period”). Employees are permitted to purchase the number
of shares purchasable with up to 15% of the earnings paid (as such
term is defined in the ESPP) to each of the participating employees
during the Purchase Period, subject to certain limitations under
Section 423 of the U.S. Internal Revenue Code.
As of September 30, 2020, 9,371,258 shares remain available
for grant under the ESPP.
During the nine months ended September 30, 2020, 61,031 Foamix
ordinary shares were purchased by Foamix employees pursuant to the
ESPP prior to the Merger. Such shares were later exchanged for
109,892 shares of the Company's common stock in the
Merger.
Options and RSUs granted to employees and directors:
In the nine months ended September 30, 2020 and 2019, the
Company granted options and RSU as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2020 |
|
|
|
Award
amount* |
|
Exercise price
range* |
|
Vesting period |
|
Expiration |
|
Employees and Directors: |
|
|
|
|
|
|
|
|
Options |
5,266,548 |
|
|
$1.46-$3.13
|
|
1 year -4 years
|
|
10 years |
|
RSUs |
2,589,710 |
|
|
— |
|
|
1 year -4 years
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019 |
|
|
|
Award
amount* |
|
Exercise price
range* |
|
Vesting period |
|
Expiration |
|
Employees and Directors: |
|
|
|
|
|
|
|
|
Options |
2,570,889 |
|
|
$1.31-$2.12
|
|
1 year -4 years
|
|
10 years |
|
RSUs |
766,343 |
|
|
— |
|
|
1 year -4 years
|
|
— |
|
* All amounts and exercise prices for pre-Merger grants are
presented following the exchange to Menlo options and RSUs at the
Exchange Ratio described in Note 3-Business
Combination.
The fair value of options and RSUs granted to employees and
directors during the nine months ended September 30, 2020, and
the nine months ended September 30, 2019 was $11.8 million and
$4.0 million, respectively.
The fair value of RSUs granted is based on the share price on the
grant date.
The fair value of options granted was computed using the
Black-Scholes model. The underlying data used for computing the
fair value of the options are as follows:
|
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|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30 |
|
2020 |
|
2019 |
|
Dividend yield |
0 |
% |
|
0 |
% |
|
Expected volatility |
60.44%-69.83%
|
|
59.35%-61.40%
|
|
Risk-free interest rate |
0.31%-1.26%
|
|
1.42%-2.62%
|
|
Expected term |
6 years |
|
6 years |
Pursuant to the Merger, all outstanding options and RSUs granted by
Foamix were exchanged for stock options and RSUs of Menlo’s common
stock according to the Exchange Ratio. In addition, for each option
and RSU the holder received a CSR as described in Note 3- Business
Combination. This transaction was considered by the company to be a
modification under ASC 718, Compensation - Stock Compensation. The
modification did not affect the remaining requisite service period.
As a result of the modification, for outstanding options and RSUs
granted to Foamix employees and consultants, the Company recorded
incremental compensation expense of $60,000 related to the
modification in the consolidated statement of operations for the
three months ended March 31, 2020. As described in Note 3 -
Business Combination, on April 6, 2020, pursuant to the terms of
the CSR Agreement, each CSR was converted into 1.2082 shares of
Menlo common stock, resulting in an effective Exchange Ratio in the
Merger of 1.8006 shares of Menlo common stock for each Foamix
ordinary share. The conversion was considered by the company to be
a modification under ASC 718. As a result of the modification, for
outstanding options and RSUs granted to Foamix employees and
consultants, the Company recorded incremental compensation of $1.1
million and $10.4 million for the three and nine months ended
September 30, 2020. As of September 30, 2020 there is
$4.9 million of unrecognized incremental compensation expense
related to the modification which will primarily be amortized using
a graded vesting method over the next 2 years.
Awards granted to holders who are no longer employed or providing
services to the Company are accounted for in accordance with ASC
815-40, Derivatives and Hedging. Under this guidance, the awards
are classified as a derivative liability because the award no
longer exchanges a fixed amount of cash for a fixed number of
shares. Accordingly, as of March 9, 2020 the Company reclassified
$1.6 million from additional paid-in capital to derivative
liability on the unaudited condensed consolidated balance sheet.
Prior to the reclassification of these awards as a liability
instrument, the Company recorded an incremental compensation
expense of $0.6 million due to the above mentioned modification in
accordance with ASC 718. Subsequent to the reclassification of
these awards as a liability instrument, the Company recorded
incremental compensation expense of $1.0 million for the nine
months ended September 30, 2020. There was no incremental
compensation expense for the three months ended September 30,
2020. As described in Note 3 - Business Combination, on April 6,
2020, the Company announced that study MTI-105 and study MTI-106
did not meet their respective primary endpoint of demonstrating
statistically significant reduction in pruritus in patients treated
with serlopitant compared to placebo based upon a 4-point
improvement responder analysis. Accordingly, on April 6, 2020,
pursuant to the terms of the CSR Agreement, each CSR was converted
into 1.2082 shares of Menlo common stock, resulting in an effective
Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock
for each Foamix ordinary share. On April 6, 2020, the awards are
exchangeable for a fixed amount of cash for a fixed number of
shares and were remeasured to fair value and reclassified from
derivative liability to additional paid-in capital.
Prior to the Merger, Menlo recognized all expenses relating to
awards outstanding as of the Effective Date. These awards were
subject to acceleration upon the change of control per the previous
Menlo stock option plan.
The following table illustrates the effect of share-based
compensation on the statements of operations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
(in thousands) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Research and development expenses |
$ |
361 |
|
|
$ |
389 |
|
|
$ |
3,927 |
|
|
$ |
1,127 |
|
|
Selling, general and administrative |
2,259 |
|
|
880 |
|
|
11,220 |
|
|
2,479 |
|
|
Total |
$ |
2,620 |
|
|
$ |
1,269 |
|
|
$ |
15,147 |
|
|
$ |
3,606 |
|
NOTE 10 – OPERATING LEASE
Operating lease agreements
The Company has operating leases for corporate offices, research
and development facilities, and vehicles. The properties primarily
relate to the Company’s principal executive office in Bridgewater,
New Jersey, corporate offices in Redwood City, California and
research and development facility in Israel.
On March 13, 2019, the Company signed an amendment to the original
lease agreement for its principal executive office in Bridgewater,
New Jersey (“The Amendment”). The Amendment includes an extension
of the lease period of the 10,000 square feet previously leased
under the original agreement (the “Original Space”) and an addition
of 4,639 square feet (the “Additional Space”). The Company entered
the Additional Space following a period of preparation by the
lessor completed during September 2019 (the “Commencement Date”).
The Amendment is due to expire on August 31, 2022.
Pursuant to The Amendment of the lease on the Current Space, the
Company recognized an additional right of use asset and liability
in the amount of $0.7 million. The Additional Space was considered
a new lease agreement and was recognized as a right of use asset
and liability, in the amount of $0.3 million, on the Commencement
Date.
The Company’s corporate offices in Redwood City, California are
under lease through December 31, 2020 with a base rent of
approximately $60,000 per month. Given the short-term nature of the
remaining lease period, the combined company did not recognize a
right-of-use asset and liability and expects to recognize the lease
payments in its statements of operations and comprehensive loss on
a straight-line basis over the remaining lease term.
The lease agreement for the research and development facility in
Israel is linked to the Israeli consumer price index (“CPI”) and
due to expire in December 2020.
Additionally, the Company has entered into operating lease
agreements in connection with the leasing of vehicles. The lease
periods are generally for three-year terms. To secure the terms of
certain of the vehicle lease agreements, the Company has made
prepayments to the leasing company, representing approximately 3
months of lease payments. These amounts have been recorded as part
of the operating lease right-of-use assets.
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
(in thousands) |
|
|
2020 |
$ |
423 |
|
|
2021 |
1,002 |
|
|
2022 |
777 |
|
|
2023 |
94 |
|
|
Total lease payments |
2,296 |
|
|
Less imputed interest |
106 |
|
|
Total lease liability |
$ |
2,190 |
|
As of September 30, 2020, the Company has a lien in the amount
of $0.6 million on the Company’s cash and marketable securities in
respect of bank guarantees granted in order to secure the lease
agreements.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company may periodically become subject to legal proceedings
and claims arising in connection with its business. As of
September 30, 2020, no claims or actions pending against the
Company that, in the opinion of management, are likely to have a
material adverse effect on the Company.
IPO Lawsuits
On November 8, 2018 and January 28, 2019, two purported class
actions were filed in the Superior Court of California, San Mateo
County, against the Company and certain of our officers and
directors. The actions were entitled Silvestrov v. Menlo
Therapeutics Inc., et al., and McKay v. Menlo Therapeutics Inc., et
al. The underwriters for our initial public offering were also
named as defendants in these lawsuits. The complaints contained
identical allegations against the same defendants. Both complaints
alleged that the Registration Statement and prospectus for
Menlo's initial public offering contained false and misleading
statements in violation of Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933 due to allegedly false and misleading
statements in connection with Menlo's initial public offering. The
complaints sought, among other things, an award of damages in an
amount to be proven at trial, along with reimbursement of
reasonable costs and expenses, including attorneys’ fees and expert
fees. The McKay action was consolidated with the Silvestrov action
and the claim for violations of Section 12(a)(2) was
dismissed.
The parties mediated the consolidated lawsuit and reached a
settlement, providing for payment to the class of plaintiffs in the
amount of $9.5 million, the vast majority of which was paid by the
Company's insurance carriers, in return for a release of all claims
against the defendants, including the Company and its current and
former officers and directors. The Court granted final approval of
the settlement at a hearing on August 14, 2020. Accordingly, the
Company considers the matter concluded.
Menlo accrued for the remaining settlement amount that is not
covered by insurance carriers as of December 31, 2019, which
did not have a material impact on its financial
statements.
Merger Lawsuits
Seven lawsuits (collectively, the “Merger Lawsuits”) were filed in
various U.S. federal district courts against Foamix and certain
other defendants in connection with the Merger. The lawsuits
generally alleged that the registration statement on Form S-4 and
the prospectus/joint proxy statement included therein included
false or misleading information regarding the Merger in violations
of Section 14(a) and Section 20(a) of the Exchange Act and/or Rule
14a 9 promulgated under the Exchange Act. In addition, one of the
lawsuits alleged that the members of Foamix’s board of directors
breached their fiduciary duties in connection with the Merger. The
plaintiffs sought, among other things, to enjoin consummation of
the Merger, or alternatively rescission or rescissory damages; to
compel the individual defendants to disseminate a joint proxy
statement/prospectus that does not contain any untrue statements of
material fact and that states all material facts required in it or
necessary to make the statements contained therein not misleading;
a declaration that defendants violated Sections 14(a) and/or 20(a)
of the Exchange Act; a declaration that the Merger Agreement was
entered into in breach of fiduciary duty and is therefore invalid
and unenforceable; an order directing the individual defendants to
commence a sale process for Foamix and obtain a transaction; and an
award of costs, including attorneys’ and experts’ fees and
expenses, as well as an accounting of damages allegedly suffered by
the plaintiffs. The plaintiffs have agreed the Lawsuits were
rendered moot by subsequent disclosure, and on April 22, 2020, each
of the plaintiffs and defendants named in the Merger Lawsuits
entered into a mootness resolution agreement pursuant to which the
plaintiffs agreed to dismiss their lawsuits with prejudice as to
the named plaintiff and Foamix agreed to pay a
de minimis
mootness fee to plaintiffs’ counsel. As of May 4, 2020, each of the
Merger Lawsuits has been dismissed. Accordingly, the Company
considers the matter concluded.
Item 2. 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 in conjunction with
the condensed consolidated financial statements and the notes
thereto included elsewhere in this Quarterly Report on
Form 10-Q, our Annual Report on Form 10-K for the year
ended December 31, 2019, our Current Report on Form 8-K/A
filed with the SEC on May 7, 2020 and our Quarterly Reports on Form
10-Q for the quarters ended March 31, 2020 and June 30, 2020 filed
with the SEC on May 11, 2020 and August 6, 2020, respectively. On
September 4, 2020, we changed our corporate name from "Menlo
Therapeutics Inc." to “VYNE Therapeutics Inc.” In this Quarterly
Report on Form 10-Q, unless otherwise indicated, all references to
the “Company,” “we,” “us” and “our” or similar terms refer to VYNE
Therapeutics Inc. after giving effect to the Merger.
Company Overview
We are a specialty pharmaceutical company focused on developing and
commercializing proprietary, innovative and differentiated
therapies in dermatology and beyond. On March 9, 2020, we combined
with Foamix Pharmaceuticals Ltd. (“Foamix”). In January 2020,
Foamix (now our wholly-owned subsidiary) launched
AMZEEQ®
(minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical
antibiotic for the treatment of inflammatory lesions of non-nodular
moderate-to-severe acne vulgaris in patients 9 years of age and
older. On May 28, 2020, the Food and Drug Administration (“FDA”)
approved ZILXI™ (minocycline) topical foam, 1.5% (formerly FMX103,
“ZILXI”), for the treatment of inflammatory lesions of rosacea in
adults. ZILXI became available in pharmacies nationwide on October
1, 2020. AMZEEQ and ZILXI are the first topical minocycline
products approved by the FDA and serve as a springboard for our
potential commercialization of additional innovative products in
dermatology and beyond.
AMZEEQ and ZILXI utilize our proprietary Molecule Stabilizing
Technology (MST)™, or MST™, that we also use in the development of
our product candidate FCD105, a topical foam comprising minocycline
and adapalene for the treatment of acne vulgaris. On June 2, 2020,
we announced positive topline results from our Phase II clinical
trial, Study FX2016-40, to evaluate the efficacy and safety of
FCD105. Pending a successful development program, we intend to file
a new drug application (“NDA”) for FCD105 under the 505(b)(2)
regulatory pathway, which is the same regulatory pathway we have
pursued for AMZEEQ and ZILXI.
In addition to MST™
and our emulsion platform (which is a different technology), we
have a number of proprietary delivery platforms in development that
enable topical delivery of other APIs, each having unique
pharmacological features and characteristics designed to keep the
API stable when delivered and directed to the target site. We
believe our MST vehicle and other topical delivery platforms may
offer significant advantages over alternative delivery options,
including emulsions, and are suitable for multiple application
sites across a range of conditions. We are also actively pursuing
opportunities to out-license our product and product candidates to
third parties for development and commercialization outside the
United States.
Key Developments
Below is a summary of selected key developments affecting our
business that have occurred since December 31, 2019:
•On
November 10, 2019, the Company, Foamix and Giants Merger Subsidiary
Ltd., a wholly-owned subsidiary of Menlo (“Merger Sub”), entered
into an Agreement and Plan of Merger (as amended by Amendment No. 1
to the Agreement and Plan of Merger, dated as of December 4, 2019,
the “Merger Agreement”). Pursuant to the terms of the Merger
Agreement, Merger Sub merged with and into Foamix, with Foamix
surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on
March 9, 2020. Foamix was deemed the “accounting acquirer” in the
Merger and the Merger was accounted for as a reverse acquisition,
with Foamix allocating the purchase price consideration to the
tangible and intangible assets acquired and liabilities assumed
from Menlo, and the excess purchase price recorded as goodwill. In
accordance with reverse acquisition accounting, Foamix’s
consolidated financial statements are deemed those of the
predecessor entity.
•On
March 9, 2020, we entered into an Amended and Restated Credit
Agreement and Guaranty, whereby we have guaranteed the indebtedness
obligation of Foamix Pharmaceuticals Inc. and granted a first
priority security interest in substantially all of our assets for
the benefit of the lenders. The Amended and Restated Credit
Agreement provides for a senior secured delayed draw term loan
facility in an aggregate principal amount of up to $50.0 million,
of which $35.0 million was drawn as of December 31, 2019 and
September 30, 2020. We did not, and do not expect to, incur
the remaining $15.0 million under the Amended and Restated Credit
Agreement. On August 5, 2020, the parties amended the minimum
net revenue covenant contained in the Amended and Restated Credit
Agreement and Guaranty.
•On
March 24, 2020, we announced that Andrew Saik joined the Company as
our Chief Financial Officer and Treasurer.
•On
April 2, 2020, we announced that we have entered into a settlement
and license agreement to resolve the remaining pending patent
litigation involving Finacea®
foam.
•In
April 2020, LEO Pharma A/S, or LEO, remedied the supply chain
issues related to Finacea foam that Foamix previously disclosed in
April 2019 and resumed commercial sales of Finacea
foam.
•On
April 6, 2020, we announced top line results from two Phase III
clinical trials evaluating the safety and efficacy of once daily
oral serlopitant for the treatment of pruritus (itch) associated
with prurigo nodularis ("PN"), studies MTI-105 and MTI-106. Neither
study met their respective primary endpoint of demonstrating
statistically significant reduction in pruritus in patients treated
with serlopitant compared to placebo based on a 4-point improvement
responder analysis. We currently do not intend to further pursue
the development of serlopitant, other than to assess and explore
opportunities, if any, to license out and or monetize other aspects
of the serlopitant asset. As such, the Company recorded a full
impairment charge related to the IPR&D and Goodwill assets of
$50.3 million and $4.0 million, respectively, in its unaudited
consolidated condensed statement of operations and comprehensive
loss for the nine months ending September 30,
2020.
•On
April 23, 2020, we announced that we entered into a license
agreement with Cutia Therapeutics (HK) Limited (“Cutia”) for
AMZEEQ®
(minocycline) topical foam, 4% as well as certain of our other
topical minocycline product candidates, once approved, on an
exclusive basis in Greater China. Under the terms of the
agreement, Cutia will have an exclusive license to obtain
regulatory approval of and commercialize AMZEEQ®
and, if approved in the U.S., FMX103 and FCD105 in
the Greater China territory. We will supply the finished
licensed products to Cutia for clinical and commercial use. We
received an upfront cash payment of $10 million and will
be eligible to receive an additional $1 million payment
upon the receipt of marketing approval in China of the
first licensed product. We will also receive royalties on net sales
of any licensed products.
•During
the first quarter of 2020, an outbreak of respiratory illness
caused by a strain of novel coronavirus, COVID-19, that began in
China spread throughout the globe and directly impacted our
business operations. There are many uncertainties regarding the
COVID-19 pandemic, and we are closely monitoring the impact of the
pandemic on all aspects of our business, including how it will
continue to impact our patients, employees, suppliers, vendors,
business partners and distribution channels. We are unable to
predict the impact that COVID-19 will have on our financial
position and operating results in future periods due to numerous
uncertainties, including duration, scope and severity of the
pandemic, the actions taken to contain or mitigate its impact, the
impact on governmental programs and budgets, the development of
treatments or vaccines, and the resumption of widespread economic
activity. An extended duration of the pandemic could have a
material adverse effect on our product sales for AMZEEQ, and any
future sales of ZILXI. In addition, any prolonged material
disruption of the Company’s employees, suppliers, manufacturing, or
customers could further materially negatively impact our
consolidated financial position, consolidated results of operations
and consolidated cash flows. We will continue to assess the
evolving impact of the COVID-19 pandemic and will make adjustments
to our operations as necessary.
•Following
the receipt of the results of the Phase 3 clinical trials
evaluating serlopitant for the treatment of PN and the impact of
the COVID-19 pandemic, the Company has revised its operating plan
to focus on the commercialization of AMZEEQ and its other topical
minocycline product candidates. In addition, the revised operating
plan reflects prudent resource prioritization and allocation
management, including the rationalization of research and
development spend to focus on existing product
candidates.
•On
May 28, 2020, the FDA approved ZILXI for the treatment of
inflammatory lesions of rosacea in adults. ZILXI is the first
minocycline product of any kind to be approved by the FDA for use
in rosacea. ZILXI became available in pharmacies nationwide on
October 1, 2020.
•On
June 2, 2020, we announced positive results from a Phase II
clinical trial evaluating the preliminary safety and efficacy of
FCD105 (3% minocycline / 0.3% adapalene foam), the first ever
topical minocycline-based combination product, for the treatment of
moderate-to-severe acne vulgaris. Study FX2016-40 enrolled 447
patients in the United States who were randomized to either FCD105
foam, 3% minocycline foam, 0.3% adapalene foam, or vehicle foam.
The Company has scheduled an end-of-Phase 2 meeting with the FDA in
the fourth quarter of 2020.
•On
June 9, 2020, we completed an underwritten public offering of
31,107,500 shares of common stock at a price to the public of $1.85
per share. The net proceeds of the offering were approximately
$53.6 million, after deducting
underwriting discounts and commissions and other offering expenses.
We intend to use the net proceeds from this offering for (i) a
Phase III clinical trial for FCD105 for the potential treatment of
acne vulgaris, (ii) supporting the commercial launch of ZILXI,
(iii) the continued development of our product candidates and (iv)
the remainder, if any, for general corporate purposes.
•On
September 4, 2020, we filed a Certificate of Amendment to our
Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware to change our corporate
name to “VYNE Therapeutics Inc.”
•Effective
as of September 10, 2020, Mr. Patrick G. LePore joined our Board.
Mr. LePore has more than 40 years of experience in the
pharmaceutical industry, in both private and public sectors, and
with board and operational experience in each. He previously served
as Chairman, Chief Executive Officer and President of Par
Pharmaceutical Companies, Inc.
•On
October 1, 2020, ZILXI became available in pharmacies nationwide,
and on October 7, 2020, we announced that Express Scripts, one of
the nation’s leading pharmacy benefit managers (PBMs), has elected
to cover ZILXI on Express Scripts’ National Preferred, Flex, and
Basic commercial formularies, representing millions of additional
covered lives in the U.S. that follow these
formularies.
Financial Overview
Our cash and cash equivalents and investments
totaled $76.9 million as of September 30,
2020. We believe that our cash and cash equivalents and investments
and projected cash flows from revenues will provide sufficient
resources for our current ongoing needs through December 31,
2021. However, the Company may seek additional financing in order
to achieve its longer-term strategic plans. See “—Liquidity and
Capital Resources” below.
We have incurred net losses since our inception. Until the first
quarter of 2020, when we commenced commercial operations, our
business activities were primarily limited to developing product
candidates, raising capital and performing research and development
activities. As of September 30, 2020, we had an
accumulated deficit of $543.0 million. We recorded net losses of
$24.7 million and $23.2 million for the three months ended
September 30, 2020 and 2019, respectively, and $232.4 million
and $57.4 million for the nine months ended September 30, 2020
and 2019, respectively.
Our capital resources and business efforts are largely focused on
activities relating to the commercialization of AMZEEQ and ZILXI
and advancing our product candidates and pipeline. We expect to
continue to incur operating losses until our products generate
adequate commercial revenue to reach profitability. If we do not
successfully commercialize AMZEEQ, ZILXI or any current or
future product candidates, if approved, we may be unable to
generate adequate product revenues to achieve such profitability.
We may be required to obtain further funding through debt or equity
offerings or other sources. Adequate additional funding may not be
available to us on acceptable terms, or at all. If we are unable to
raise capital when needed or on acceptable terms, we may be forced
to delay, reduce or eliminate our research and development programs
or commercialization or manufacturing efforts. Additionally, we are
closely monitoring ongoing developments in connection with the
COVID-19 pandemic, which may have an adverse impact on our
commercial prospects and projected cash position.
Components of Operating Results
Revenues
Our revenue during the periods presented has been comprised of
AMZEEQ product sales and collaboration and license
revenue.
During 2019, we were engaged in pre-launch sales and marketing
planning activities and other pre-commercialization efforts in
order to support the commercialization of AMZEEQ in the United
States. We received FDA approval for AMZEEQ on October 18, 2019 and
launched AMZEEQ in the United States in January 2020. We have
generated product revenue of $6.1 million for the nine months ended
September 30, 2020. We commercially launched ZILXI on October
1, 2020. We will not commercially launch our other product
candidates in the United States or generate any revenues from sales
of any of our product candidates unless and until we obtain
marketing approval. Our ability to generate revenues from sales
will depend on the successful commercialization of our drug
products AMZEEQ and ZILXI and any other product candidates that
receive marketing approval.
Historically, we have generated revenues under development and
license agreements including royalty payments in relation to
Finacea, the prescription foam product that we developed in
collaboration with Bayer, which later assigned it to LEO. In the
three months ended March 31, 2020, we did not receive or become
entitled to any royalty payments due to the ongoing suspension of
the manufacturing of Finacea by LEO, following inadequate supply of
quality-compliant batches of the API used in such product. In April
2020, LEO informed us that it had reestablished the supply of
Finacea foam and resumed commercial
sale in the United States. In the three and nine months ended
September 30, 2020 we received royalties of $0.4 million and
$0.6 million, respectively.
We may become entitled to additional contingent payments in the
future, subject to achievement of the applicable clinical results
by our other licensees. However, in light of the current phase of
development and associated milestone schedules under these
agreements, we do not expect to receive significant payments in the
near term, if at all. We are also entitled to additional royalties
from net sales or net profits generated by other products to be
developed under these agreements, if they are successfully
commercialized. In those development and license agreements in
which royalties are based on net sales, their rate ranges from 3%
to 8.5%, and in the agreement in which royalties are based on net
profits, their rate is 6%.
Additionally, as described in “Key Developments,” on April 23,
2020, we announced that we entered into a licensing agreement with
Cutia for AMZEEQ as well as certain of our other topical
minocycline product candidates, once approved, on an exclusive
basis in Greater China. Under the terms of the agreement,
Cutia will have an exclusive license to obtain regulatory approval
of and commercialize AMZEEQ, ZILXI and, if approved in
the U.S., FCD105 in the Greater China territory. We
will supply the finished licensed products to Cutia for clinical
and commercial use. We received an upfront cash payment of $10
million and will be eligible to receive an additional $1
million payment upon the receipt of marketing approval
in China of the first licensed product. We will also
receive royalties on net sales of any licensed products pursuant to
the agreement. In the nine months ended September 30, 2020, we
recognized license revenue of $10.0 million.
Cost of Goods Sold
Cost of goods sold was $0.9 million for the nine months ended
September 30, 2020. There was no cost of goods sold in the
nine months ended September 30, 2019 because the revenues in that
period consisted solely of royalties, which do not bear related
cost of goods sold.
Our gross margin percentage of 86% was favorably impacted
during the nine months ended September 30, 2020 by
product sales with certain materials produced prior to FDA approval
and therefore expensed in prior periods. If inventory sold during
the nine months ended September 30, 2020 was valued
at cost, our gross margin for the period then ended would have
been 82%.
Cost of goods sold expenses consist primarily of:
◦third
party expenses incurred in manufacturing product for
sale;
◦transportation
costs incurred in shipping manufacturing materials between third
parties; and
◦other
costs associated with delivery and manufacturing of
product.
Operating Expenses
Research and Development Expenses
Our research and development expenses to date relate primarily to
the development of AMZEEQ, ZILXI and FCD105. Our total research and
development expenses for the nine months ended September 30,
2020 and 2019 were approximately $35.7 million and $35.9 million,
respectively. We charge all research and development expenses to
operations as they are incurred.
Research and development expenses consist primarily
of:
•employee-related
expenses, including salaries, benefits and related expenses,
including share-based compensation expenses;
◦expenses
incurred under agreements with third parties, including
subcontractors, suppliers and consultants that conduct regulatory
activities, clinical trials and preclinical studies;
◦expenses
incurred to acquire, develop and manufacture clinical trial
materials;
◦facilities,
depreciation and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities, insurance, and
other operating costs;
◦costs
associated with the creation, development and protection of
intellectual property;
◦other
costs associated with preclinical and clinical activities and
regulatory operations; and
•materials
and manufacturing costs related to commercial production prior to
FDA approval.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the nine
months ended September 30, 2020 and 2019 were approximately
$71.6 million and $22.9 million, respectively. This increase was
primarily associated with the expansion of our employee base,
including sales force, to support the growth of our operations,
severance expenses for Menlo employees, stock based compensation
awards, merger expenses and sales and marketing expenses incurred
in connection with the commercialization of AMZEEQ and
ZILXI.
Our selling, general and administrative expenses consist
principally of:
•employee-related
expenses, including salaries, benefits and related expenses,
including share-based compensation expenses;
•costs
associated with selling, marketing and shipping and handling
costs;
•legal
and professional fees for auditors and other consulting expenses;
and
•facility,
information technology and depreciation expenses.
Financial Income and Expenses
Financial income primarily consists of gains from interest earned
from our bank deposits, financial income on our marketable
securities and a revaluation of our derivative liability. Financial
expenses primarily consist of interest expense on our long-term
debt.
Income Taxes and Net Operating Loss Carryforwards
We have incurred significant net operating losses (“NOLs”) since
our inception. We expect to continue to incur NOLs until such a
time when AMZEEQ, ZILXI or any other product, if approved in
the future, generates adequate revenues for us to reach
profitability. As of December 31, 2019, we had federal and state
net operating loss carryforwards of $165.8 million and
$17.6 million, respectively, of which $44.3 million and $16.8
million of these carryforwards will begin to expire in 2031 for
federal and state purposes, respectively. As of December 31, 2019,
we had federal and state research and development tax credit
carryforwards of $7.1 million and $2.1 million, respectively. The
federal credits begin to expire in 2031 and the California research
credits have no expiration dates. As of December 31, 2019, Foamix
had foreign NOL carryforwards of $224.4 million, which are
available solely to offset taxable income of our foreign
subsidiary, subject to any applicable limitations under foreign law
and $27.3 million in federal and state NOLs with no limited period
of use.
NOLs and tax credit carryforwards are subject to review and
possible adjustment by the Internal Revenue Service and may become
subject to an annual limitation in the event of certain cumulative
changes in the ownership interest of significant stockholders over
a three-year period in excess of 50%, as defined under
Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended. This could limit the amount of tax attributes that can be
utilized annually to offset future taxable income or tax
liabilities. The amount of the annual limitation is determined
based on the value of our company immediately prior to the
ownership change. Subsequent ownership changes may further affect
the limitation in future years. State NOLs and tax credit
carryforwards may be subject to similar limitations under state
laws. We have not determined if we have experienced
Section 382 ownership changes in the past and if a portion of
our net operating loss and tax credit carryforwards are subject to
an annual limitation under Sections 382 or 383. We may have
experienced ownership changes in the past, including in connection
to our initial public offering (“IPO”), and as a result of the
Merger and/or subsequent shifts in our stock ownership, some of
which may be outside of our control. As a result, even if we earn
net taxable income, our ability to use the NOL and tax credit
carryforwards may be materially limited, which could harm our
future operating results by effectively increasing our future tax
obligations.
Results of Operations
Comparison of the Three-Month Periods Ended September 30, 2020
and 2019
Revenue
Revenues totaled $3.3 million for the three months ended
September 30, 2020. There were no revenues for the three
months ended September 30, 2019. For the three months ended
September 30, 2020, our revenue consisted of $2.9 million of
product sales, primariy associated with AMZEEQ, which was launched
in January 2020, and $0.4 million of royalty revenue.
During the first quarter of 2020, as a result of the COVID-19
pandemic, we suspended the vast majority of our in-person
interactions by our customer-facing professionals in healthcare
settings and engaged with these customers remotely in an effort to
continue to support healthcare professionals and patient care under
unprecedented circumstances. During the second quarter of 2020, we
began limited in-person customer meetings and interactions in
certain regions, consistent with local government mandates. As a
result, the Company’s product sales for AMZEEQ were negatively
impacted by office closures during this period. While the Company’s
product sales for AMZEEQ experienced a modest recovery during the
three months ended September 30, 2020, circumstances surrounding
the COVID-19 pandemic have negatively impacted our ability to
execute our commercial strategy with respect to AMZEEQ. The length
of time and extent to which the COVID-19 pandemic will directly or
indirectly impact the Company's business, results of operations and
financial condition will depend on future developments that are
highly uncertain, subject to change and will continue to evolve
with geographical re-openings and virus waves. An extended duration
of the COVID-19 pandemic could continue to negatively impact sales
of AMZEEQ, and any future sales of ZILXI.
Cost of Goods Sold
Cost of goods sold was $0.4 million for the three months ended
September 30, 2020. There was no cost of goods sold in the
three months ended September 30, 2019 because the revenues in
that period consisted solely of royalties, which do not bear
related cost of goods sold.
Our gross margin percentage of 87% was favorably impacted
during the three months ended September 30, 2020 by
product sales with certain materials produced prior to FDA approval
and therefore expensed in prior periods. If inventory sold during
the three months ended September 30, 2020 was valued
at cost, our gross margin for the period then ended would have
been 85%.
Research and Development Expenses
Our research and development expenses for the three months ended
September 30, 2020 were $6.6 million, representing a decrease
of $5.8 million, or 47%, compared to $12.5 million for the three
months ended September 30, 2019. Employee-related expenses
decreased by $1.7 million. Clinical and manufacturing costs related
to AMZEEQ and ZILXI decreased by $4.1 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three
months ended September 30, 2020 were $19.8 million,
representing an increase of $9.0 million, or 84%, compared to $10.7
million for the three months ended September 30, 2019.
Employee-related expenses increased by $3.7 million, primarily due
to the expansion of our employee base, including sales force, to
support the growth of our operations and stock based compensation.
Sales and marketing expenses increased by $5.3 million related to
the commercialization of AMZEEQ and ZILXI.
Finance Income and Expenses
Finance expenses and income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
2020 |
|
2019 |
|
(in thousands of U.S. dollars) |
|
Interest on bank deposits |
$ |
(3) |
|
|
$ |
(154) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from marketable securities, net |
(1) |
|
|
(227) |
|
|
Total income |
(4) |
|
|
(381) |
|
|
Other expenses |
14 |
|
|
6 |
|
|
Foreign exchange loss |
120 |
|
|
8 |
|
|
Finance expenses on loans interest and discount |
1,092 |
|
|
329 |
|
|
Total expenses |
$ |
1,226 |
|
|
$ |
343 |
|
Income Taxes
Our tax expense for the three months ended September 30, 2020
was $1 thousand. During the three months ended September 30,
2019 we had no tax expenses.
Comparison of the Nine-Month Periods Ended September 30, 2020
and 2019
Revenue
Revenues totaled $16.7 million and $0.3 million for the nine months
ended September 30, 2020 and 2019, respectively. For the nine
months ended September 30, 2020, our revenue consisted of $6.1
million of product sales, primarily associated with AMZEEQ, which
was launched in January 2020, $10.0 million of license revenue, and
$0.6 million of royalty revenue. For the nine months ended
September 30, 2019, revenues consisted solely of royalty
revenues.
The increase in license revenue for the nine months ended September
30, 2020 as compared to license revenue for the nine months ended
September 30, 2019 is due to the upfront payment received under the
Cutia license agreement for the marketing and sale of our topical
minocycline products in China.
During the first quarter of 2020, as a result of the COVID-19
pandemic, we suspended the vast majority of our in-person
interactions by our customer-facing professionals in healthcare
settings and engaged with these customers remotely in an effort to
continue to support healthcare professionals and patient care under
unprecedented circumstances. During the second quarter of 2020, we
began limited in-person customer meetings and interactions in
certain regions, consistent with local government mandates. As a
result, the Company’s product sales for AMZEEQ were negatively
impacted by office closures during this period. While the Company’s
product sales for AMZEEQ experienced a modest recovery during the
three months ended September 30, 2020, circumstances surrounding
the COVID-19 pandemic have negatively impacted our ability to
execute our commercial strategy with respect to AMZEEQ. The length
of time and extent to which the COVID-19 pandemic will directly or
indirectly impact the Company's business, results of operations and
financial condition will depend on future developments that are
highly uncertain, subject to change and will continue to evolve
with geographical re-openings and virus waves. An extended duration
of the COVID-19 pandemic could continue to negatively impact sales
of AMZEEQ, and any future sales of ZILXI.
Cost of Goods Sold
Cost of goods sold was $0.9 million for the nine months ended
September 30, 2020. There was no cost of goods sold in the
nine months ended September 30, 2019 because the revenues in
that period consisted solely of royalties, which do not bear
related cost of goods sold.
Our gross margin percentage of 86% was favorably impacted
during the nine months ended September 30, 2020 by
product sales with certain materials produced prior to FDA approval
and therefore expensed in prior periods. If inventory sold during
the nine months ended September 30, 2020 was valued at
cost, our gross margin for the period then ended would have
been 82%.
Research and Development Expenses
Our research and development expenses for the nine months ended
September 30, 2020 were $35.7 million, representing a decrease
of $0.2 million, or 0.4%, compared to $35.9 million for the nine
months ended September 30, 2019. Clinical and manufacturing
expense for AMZEEQ and ZILXI decreased by $14.1 million. This was
offset by an increase of $7.1 million of clinical costs related to
serlopitant and employee-related expenses of $6.8 million,
including $3.8 million related to severance expenses payable to our
former employees, and stock based compensation of $2.8
million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the nine
months ended September 30, 2020 were $71.6 million,
representing an increase of $48.7 million, or 213%, compared to
$22.9 million for the nine months ended September 30, 2019.
Employee-related expenses increased by $24.9 million consisting of
$13.3 million primarily due to the expansion of our employee base,
including sales force to support the growth of our operations, $6.6
million of stock based compensation and $4.7 million of severance
expenses payable to our former employees. Sales and marketing
expenses increased by $16.1 million, related to the
commercialization of AMZEEQ and ZILXI. We incurred $7.7 million
expenses relating to the merger transaction between Foamix and
Menlo included in selling, general and administrative
expenses.
Goodwill and in-process research & development
impairments
Goodwill and in-process research & development impairments for
the nine months ended September 30, 2020 were $54.3 million.
There were no impairments for the nine months ended
September 30, 2019. In the nine months ended September
30,
2020, we recorded impairments of $4.0 million for Goodwill and
$50.3 million for in process research and development due to the
failed clinical trials for serlopitant for the treatment of
pruritus associated with prurigo nodularis.
CSR Remeasurement
Contingent Stock Right Remeasurement for the nine months ended
September 30, 2020 was $84.7 million. For the nine months
ended September 30, 2020 we incurred $84.7 million of
expense due to the remeasurement of the CSR to fair value which was
driven by the result of the failed serlopitant trials. At the time
of our merger transaction with Foamix, we entered into a contingent
stock right agreement that called for the issuance of additional
shares of our common stock to legacy Foamix shareholders upon
negative data from both Phase 3 serlopitant trials. Since the
trials did not meet the milestones outlined per the agreement, the
contingent stock rights were remeasured, resulting in an expense of
$84.7 million for the nine months ended September 30,
2020.
Finance Income and Expenses
In the nine months ended September 30, 2020 and 2019, our
financial income was primarily attributable to gains from
marketable securities, interest earned on our bank deposits and
revaluation of our derivative liability. Our financial expenses
included interest expense on our long-term debt.
Finance expenses and income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2020 |
|
2019 |
|
(in thousands of U.S. dollars) |
|
Interest on bank deposits |
$ |
(32) |
|
|
$ |
(495) |
|
|
Finance gains on derivative liabilities |
(975) |
|
|
— |
|
|
Other income |
(10) |
|
|
— |
|
|
|
|
|
|
Gain from marketable securities, net |
(201) |
|
|
(890) |
|
|
Total income |
(1,218) |
|
|
(1,385) |
|
|
Other expenses |
28 |
|
|
15 |
|
|
Foreign exchange loss |
49 |
|
|
133 |
|
|
Finance expenses on loans interest and discount |
3,229 |
|
|
329 |
|
|
Total expenses |
$ |
3,306 |
|
|
$ |
477 |
|
Income Taxes
Our tax benefit for the nine months ended September 30, 2020
was $0.3 million, representing an increase of $0.1 million, or 47%,
compared to $0.2 million for the nine months ended
September 30, 2019.
Liquidity and Capital Resources
Since inception, we have funded operations primarily through
private and public placements of our equity, debt, warrants and
through fees, cost reimbursements and royalties received from our
licensees. We commenced generating product revenues related to
sales of AMZEEQ in the first quarter of 2020. ZILXI
became available in pharmacies nationwide on October 1, 2020. We
have incurred losses and experienced negative operating cash flows
since our inception and anticipate that we will continue to incur
losses until such a time when our product and product candidates,
if approved, are commercially successful, if at all. We will not
generate any revenue from any current or future product candidates
unless and until we obtain regulatory approval and commercialize
such products.
As of September 30, 2020, we had cash, cash equivalents and
investments of $76.9 million. Our cash, cash equivalents and
investments are held in money market accounts and marketable
securities.
Foamix Pharmaceuticals Inc., a Delaware corporation (the
“Borrower”), Foamix and Menlo, each as a guarantor, the lenders
party thereto, and Perceptive Credit Holdings II, LP, as
administrative agent for the lenders, entered into an Amended and
Restated Credit Agreement and Guaranty, dated as of March 9, 2020
(the “Credit Agreement”). We have guaranteed the indebtedness
obligation of the Borrower under the Credit Agreement and in
connection with the Credit Agreement also granted a first priority
security interest in substantially all of our assets for the
benefit of the lenders. The Credit Agreement provides for a senior
secured delayed draw term loan facility in an aggregate principal
amount of up to $50.0 million, and as of
September 30, 2020, approximately $35.0 million was drawn
under the Credit Agreement. We did not, and do not expect to, incur
the remaining $15.0 million under the Credit
Agreement.
We have incurred significant transaction-related expenses in
connection with negotiating and completing the Merger.
Transaction-related expenses, which include legal, accounting and
financial advisor fees and other service provider costs, were
approximately $21.8 million. We incurred $11.7 million of these
costs during the nine months ended September 30, 2020 in our
statements of operations and comprehensive loss, and we do not
expect to incur any additional significant costs relating to the
Merger in future periods.
Prior to the Merger, the Company was focused on the development and
commercialization of serlopitant for pruritic conditions. Following
the receipt of the results of the Phase 3 clinical trials
evaluating serlopitant for the treatment of PN and the impact of
the COVID-19 pandemic, the Company has revised its operating plan
to focus on the commercialization of AMZEEQ and its other topical
minocycline product candidates. In addition, the revised operating
plan reflects prudent resource prioritization and allocation
management, including the rationalization of research and
development spend to focus on existing product
candidates.
We believe that our cash and cash equivalents and investments and
projected cash flows from revenues will provide sufficient
resources for our current ongoing needs through December 31,
2021. However, the Company may seek additional financing in order
to achieve its longer-term strategic plans. We have based this
estimate on assumptions that may prove to be wrong, and we could
use our capital resources sooner than we currently
expect.
In the first quarter of 2020, as a result of the COVID-19 pandemic,
the Company suspended the vast majority of its in-person
interactions by its customer-facing professionals in healthcare
settings and engaged with customers remotely in an effort to
continue to support healthcare professionals and patient care under
unprecedented circumstances. During the second quarter of 2020, the
Company began limited in-person customer meetings and interactions
in certain regions, consistent with local government mandates.
During this period, the Company's product sales for AMZEEQ were
negatively impacted by office closures. On August 5, 2020, the
Company and its lenders amended the minimum net revenue covenant in
the Amended and Restated Credit Agreement. See "Note 8 - Long-Term
Debt." While the Company’s product sales for AMZEEQ experienced a
modest recovery during the three months ended September 30, 2020,
circumstances surrounding the COVID-19 pandemic have negatively
impacted our ability to execute our commercial strategy with
respect to AMZEEQ. The length of time and extent to which the
COVID-19 pandemic will directly or indirectly impact the Company's
business, results of operations and financial condition will depend
on future developments that are highly uncertain, subject to change
and will continue to evolve with geographical re-openings and virus
waves. An extended duration of the COVID-19 pandemic could continue
to negatively impact sales of AMZEEQ, and any future sales of
ZILXI, and have a material adverse effect on our liquidity, as well
as our ability to remain in compliance with the minimum net revenue
covenants contained in our loan documents.
Summary Statement of Cash Flows
The following table summarizes our statement of cash flows for the
nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
2020 |
|
2019 |
|
(in thousands of U.S. dollars) |
|
Net cash (used in) / provided by: |
|
|
|
|
Operating activities |
$ |
(111,707) |
|
|
$ |
(51,148) |
|
|
Investing activities |
87,105 |
|
|
35,835 |
|
|
Financing activities |
$ |
53,828 |
|
|
$ |
27,954 |
|
Cash Used in Operating Activities
The use of cash in all periods resulted primarily from our net
losses adjusted for non-cash charges and changes in components of
working capital. Adjustments to net income for non-cash items
mainly include depreciation and amortization, share-based
compensation, goodwill and in-process research and development
impairment, and contingent stock right remeasurement.
Net cash used in operating activities was $111.7 million in the
nine months ended September 30, 2020, compared to $51.1
million in the nine months ended September 30, 2019. The
increase was attributable primarily to the growth in operations and
the Merger.
Cash Provided by Investing Activities
Net cash provided by investing activities was $87.1 million in the
nine months ended September 30, 2020, compared to $35.8
million in the nine months ended September 30, 2019. The
increase was attributable primarily to the cash acquired through
the Merger and a decrease in investments in bank deposits and
marketable securities.
Cash Provided by Financing Activities
There was $53.8 million provided by financing activities in the
nine months ended September 30, 2020, compared to $28.0
million in the nine months ended September 30, 2019. The
increase was attributable to proceeds from the offering of common
stock in June 2020, along with the exercise of options and issuance
of shares under our equity incentive plan.
Cash and Funding Sources
Our sources of liquidity in the nine months ended
September 30, 2020 consisted primarily of cash and investments
acquired in the Merger, proceeds from an underwritten public
offering of common stock completed in June 2020, sales of AMZEEQ
and the upfront cash payment paid to us under the Cutia
license.
Our sources of liquidity in the nine months ended
September 30, 2019 consisted mainly of proceeds from an equity
offering, proceeds from the Credit Agreement and issuance of the
Warrants, and payments from licensees.
We have no ongoing material financial commitments (such as lines of
credit) that may affect our liquidity over the next five years
other than our commitments under the Credit Agreement.
Funding Requirements
Our present and future funding requirements will depend on many
factors, including, inter alia:
•the
amount of revenues, if any, we may derive either directly or in the
form of royalty payments from future sales of our drug products
AMZEEQ and ZILXI and any other pipeline product that is
commercialized;
•selling,
marketing and patent-related activities undertaken in connection
with the commercialization of AMZEEQ, ZILXI and any other product
candidates, as well as costs involved in the development of an
effective sales and marketing organization;
•the
progress, timing and completion of preclinical testing and clinical
trials for pipeline product candidates;
•the
time and costs involved in obtaining regulatory approval for our
other pipeline product candidates and any delays we may encounter
as a result of evolving regulatory requirements or adverse results
with respect to any of these product candidates;
•the
efforts necessary to institute post-approval regulatory compliance
requirements for AMZEEQ and ZILXI;
•the
number of potential new products we identify and decide to develop;
and
•the
costs involved in filing and prosecuting patent applications and
obtaining, maintaining and enforcing patents or defending against
claims or infringements raised by third parties, and license
royalties or other amounts we may be required to pay to obtain
rights to third party intellectual property rights.
Our operating plan may change as a result of many factors currently
unknown to us, and any such change may affect our funding
requirements. We may therefore need to seek additional capital
sooner than planned, through public or private equity or debt
financings or other sources, such as strategic collaborations or
additional license arrangements. Such financings may result in
dilution to stockholders, imposition of debt covenants and
repayment obligations or other restrictions that may affect our
business.
Critical Accounting Policies, Significant Judgments and Use of
Estimates
Our consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, or
GAAP. The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the
reported expenses incurred during the reporting periods. Our
estimates are based on our historical experience and on various
other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions. We believe that the accounting policies discussed
below
are critical to understanding our historical and future
performance, as these policies relate to the more significant areas
involving management’s judgments and estimates.
Our critical accounting policies are described on our Current
Report on Form 8-K/A filed with the SEC on May 7,
2020.
While our significant accounting policies are described in the
Notes to our financial statements, we believe that the following
critical accounting policies are most important to understanding
and evaluating our reported financial results. These policies
relate to the more significant areas involving management’s
judgments and estimates and they require our most difficult,
subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain.
COVID-19
The extent to which the COVID-19 pandemic impacts the Company’s
business and financial results will depend on numerous evolving
factors including, but not limited to: the magnitude and duration
of the pandemic; the extent to which patients and our sales
representatives are able to access healthcare provider offices; the
impact on worldwide macroeconomic conditions, including interest
rates, employment rates and health insurance coverage; the speed of
the anticipated recovery; and governmental and business reactions
to the pandemic. While the Company’s product sales for AMZEEQ have
experienced a modest recovery during the three months ended
September 30, 2020, our sales of AMZEEQ were negatively impacted by
office closures due to the pandemic during the six months ended
June 30, 2020. No assurance can be given that such office closures
will not occur again in future periods, and if such closures do
occur, or any other circumstance arises such that patients or our
sales representatives are restricted in their ability to connect
with healthcare providers, our product sales would be negatively
impacted. In addition, the Company further assessed certain
accounting matters that generally require consideration of
forecasted financial information in context with the information
reasonably available to the Company and the unknown future impacts
of COVID-19 as of September 30, 2020 and through the date of
this report. The accounting matters assessed included, but were not
limited to, the Company’s allowance for doubtful accounts and
credit losses, inventory and related reserves, impairments of
long-lived assets and revenue recognition. The Company recorded
impairments of goodwill and certain indefinite-lived intangibles;
however, these impairments were unrelated to the impact of COVID-19
(See “Note 3 – Business Combination” for more information). The
Company’s future assessment of the magnitude and duration of
COVID-19, as well as other factors, could result in material
impacts to the Company’s consolidated financial statements in
future reporting periods.
Clinical Trial Accruals
Clinical trial costs are charged to research and development
expense as incurred. We accrue for expenses resulting from
obligations under contracts with clinical research organizations,
or CROs. The financial terms of these contracts are subject to
negotiations, which vary from contract to contract and may result
in payment flows that do not match the periods over which materials
or services are provided. Our objective is to reflect the
appropriate trial expense in the consolidated financial statements
by matching the appropriate expenses with the period in which
services and efforts are expended. In the event advance payments
are made to a CRO, the payments will be recorded as other assets,
which will be recognized as expenses as services are rendered. The
CRO contracts generally include pass-through fees including, but
not limited to, regulatory expenses, investigator fees, travel
costs and other miscellaneous costs. We estimate our clinical
accruals based on reports from and discussion with clinical
personnel and the CRO as to the progress or state of completion of
the trials. We estimate accrued expenses as of each balance sheet
date in the consolidated financial statements based on the facts
and circumstances known at that time. Our clinical trial accrual is
dependent, in part, upon the receipt of timely and accurate
reporting from the CROs.
Revenue Recognition
We record revenue based on a five-step model in accordance with
Accounting Standards Codification ("ASC") 606, Revenue from
Contracts with Customers ("ASC 606"). For the Collaboration
Agreement under ASC 606, we identify the performance obligations,
determine the transaction price, allocate the contract transaction
price to the performance obligations, and recognize the revenue
when (or as) the performance obligation is satisfied.
We identify the performance obligations included within the
agreement and evaluate which performance obligations are distinct.
Upfront payments for licenses are evaluated to determine if the
license is capable of being distinct from the obligations to
participate on certain development and/or commercialization
committees with the collaboration partners and supply manufactured
drug product for clinical trials. For performance obligations that
are satisfied over time, we utilize the input method and revenue is
recognized by consistently applying a method of measuring progress
toward complete satisfaction of that performance obligation. We
periodically review our estimated periods of performance based on
the progress under each arrangement and account for the impact of
any changes in estimated periods of performance on a prospective
basis.
Milestone payments are a form of variable consideration as the
payments are contingent upon achievement of a substantive event.
Milestone payments are estimated and included in the transaction
price when we determine that it is probable that there will not be
a significant reversal of cumulative revenue recognized in future
periods.
Business Acquisition
Our financial statements include the operations of an acquired
business after the completion of the acquisition. We account for
acquired businesses using the acquisition method of accounting,
which requires, among other things, that most assets acquired and
liabilities assumed be recognized at their estimated fair values as
of the acquisition date and that the fair value of In-Process
Research and Development and Goodwill be recorded on the balance
sheet. Transaction costs are expensed as incurred.
Amounts recorded in connection with an acquisition can result from
a complex series of judgments about future events and uncertainties
and can rely heavily on estimates and assumptions.
We are required to measure certain assets and liabilities at fair
value, either upon initial recognition or for subsequent accounting
or reporting. For example, we use fair value in the initial
recognition of net assets acquired in a business combination and
when measuring impairment losses. We estimate fair value
using an exit price approach, which requires, among other things,
that we determine the price that would be received to sell an asset
or paid to transfer a liability in an orderly market. The
determination of an exit price is considered from the perspective
of market participants, considering the highest and best use of
non-financial assets and, for liabilities, assuming that the risk
of non-performance will be the same before and after the
transfer.
When estimating fair value, depending on the nature and complexity
of the asset or liability, we may use one or all of the following
techniques:
•Income
approach, which is based on the present value of a future stream of
net cash flows.
•Market
approach, which is based on market prices and other information
from market transactions involving identical or comparable assets
or liabilities.
•Cost
approach, which is based on the cost to acquire or construct
comparable assets, less an allowance for functional and/or economic
obsolescence.
Our fair value methodologies depend on the following types of
inputs:
•Quoted
prices for identical assets or liabilities in active markets (Level
1 inputs).
•Quoted
prices for similar assets or liabilities in active markets, or
quoted prices for identical or similar assets or liabilities in
markets that are not active, or inputs other than quoted prices
that are directly or indirectly observable, or inputs that are
derived principally from, or corroborated by, observable market
data by correlation or other means (Level 2 inputs).
•Unobservable
inputs that reflect estimates and assumptions (Level 3
inputs).
A single estimate of fair value can result from a complex series of
judgments about future events and uncertainties and can rely
heavily on estimates and assumptions.
Asset Impairment
We review all of our long-lived assets for impairment indicators
throughout the year. We perform impairment testing for
indefinite-lived intangible assets annually and for all other
long-lived assets whenever impairment indicators are present. When
necessary, we record charges for impairments of long-lived assets
for the amount by which the fair value is less than the carrying
value of these assets.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements that have,
or are reasonably likely to have, a material current or future
effect on our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital
resources.
Indemnification
As permitted under Delaware law and in accordance with our bylaws,
we are required to indemnify our officers and directors for certain
events or occurrences while the officer or director is or was
serving in such capacity. We are also party to indemnification
agreements with our directors. We believe the fair value of the
indemnification rights and agreements is minimal. Accordingly, we
have not recorded any liabilities for these indemnification rights
and agreements as of September 30, 2020 and December 31,
2019.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act,
permits an “emerging growth company” such as us to take advantage
of an extended transition period to comply with new or revised
accounting standards applicable to public companies. We are
choosing to “opt out” of this provision and, as a result, we will
comply with new or revised accounting standards as required when
they are adopted. This decision to opt out of the extended
transition period under the JOBS Act is irrevocable.
Recently Issued and Adopted Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2, “Significant
Accounting Policies” in the Notes to Unaudited Interim Condensed
Consolidated Financial Statements for a discussion of recently
adopted accounting pronouncements and accounting pronouncements not
yet adopted, and their expected impact on our financial position
and results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and Item 10 of Regulation S-K. As such, we are not
required to provide the information set forth in this
item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive and
financial officers, evaluated the effectiveness of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, as of September 30, 2020.
The term “disclosure controls and procedures,” as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and
other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers,
as appropriate, to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of
September 30, 2020 our chief executive officer and chief
financial officer concluded that, as of such date, our disclosure
controls and procedures were effective at a reasonable assurance
level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial
reporting during the three months ended September 30, 2020
identified in connection with the evaluation required by Rule
13a-15(d) and 15d-15(d) of the Exchange Act that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
On November 8, 2018 and January 28, 2019, two purported class
actions were filed in the Superior Court of California, San Mateo
County, against the Company and certain of our officers and
directors. The actions are entitled Silvestrov v. Menlo
Therapeutics Inc., et al., and McKay v. Menlo Therapeutics Inc., et
al. The underwriters for our initial public offering were also
named as defendants in these lawsuits. The complaints contained
identical allegations against the same defendants. Both complaints
alleged that the Registration Statement and prospectus for
Menlo's initial public offering contained false and misleading
statements in violation of Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933 due to allegedly false and misleading
statements in connection with Menlo's initial public offering. The
complaints sought, among other things, an award of damages in an
amount to be proven at trial, along with reimbursement of
reasonable costs and expenses, including attorneys’ fees and expert
fees. The McKay action was consolidated with the Silvestrov action
and the claim for violations of Section 12(a)(2) was
dismissed.
The parties mediated the consolidated lawsuit and reached a
settlement, providing for payment to the class of plaintiffs in the
amount of $9.5 million, the vast majority of which was paid by the
Company's insurance carriers, in return for a release of all claims
against the defendants, including the Company and its current and
former officers and directors. The Court granted final approval of
the settlement at a hearing on August 14, 2020. Accordingly, the
Company considers the matter concluded. Menlo accrued for the
remaining settlement amount that is not covered by insurance
carriers as of December 31, 2019, which did not have a
material impact on its financial statements.
1A. Risk Factors.
Our business is subject to various risks and uncertainties,
including those described below, that we believe apply to our
business and the industry in which we operate. You should carefully
consider these risks, as well as the other information in our
Annual Report on Form 10-K, the Current Report on Form 8-K/A filed
with the SEC on May 7, 2020, our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020, filed with the SEC on May 11,
2020, and this Quarterly Report on Form 10-Q, including our
financial statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.” The occurrence of any of the events or developments
described below could have a material adverse effect on our
business, results of operations, financial condition, prospects and
stock price. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also impair our
business.
We face risks related to health epidemics and other widespread
outbreaks of contagious disease, including COVID-19, which have
disrupted, and may continue to significantly disrupt, our
operations and impact our financial results.
In December 2019, an outbreak of respiratory illness caused by a
strain of novel coronavirus, COVID-19, began in China. That
outbreak has led to numerous confirmed cases worldwide, including
in the United States and other countries where we or our business
partners conduct operations. The outbreak and government measures
taken in response have also had a significant impact, both direct
and indirect, on businesses and commerce, including our own
operations. For example, our product sales for AMZEEQ during the
three and six months ended June 30, 2020 were negatively impacted
by office closures as a result of the pandemic. While the Company’s
product sales for AMZEEQ experienced a modest recovery during the
three months ended September 30, 2020, circumstances surrounding
the COVID-19 pandemic have negatively impacted our ability to
execute our commercial strategy with respect to AMZEEQ and may
similarly impact sales of ZILXI which was launched on October 1,
2020. The future progression of the outbreak and its effects on our
business and operations are uncertain. Many patients have chosen
not to visit or contact their healthcare providers which has
limited new patient access and conversion. In response to the
outbreak, we have taken certain steps to safeguard our employees,
healthcare professionals and our other partners. For example,
during the first quarter of 2020, our sales force and marketing
team were removed from the field and adopted remote and virtual
sales activities, including tele-detailing, web-based speaker
programs and virtual product education sessions, in order to meet
patients’ needs. While members of our sales force have resumed
in-person meetings with healthcare professionals, such sales
representatives are still prohibited from engaging in certain
activities that were available before the pandemic. No assurance
can be made that these sales tactics will be as effective as those
used prior to the outbreak of COVID-19. If the activities of our
sales force continue to be disrupted or patients elect not to visit
their healthcare providers during the pandemic, we may continue to
generate less revenue than expected which would have a material
adverse effect on our financial results and liquidity as well as
hinder our ability to satisfy certain covenants contained in our
Amended and Restated Credit Agreement.
We are currently unaware of any material disruptions to the supply
of AMZEEQ and ZILXI and any material impact on our primary
suppliers. We believe we have a sufficient amount of product in the
trade and safety stock of our raw materials to support the current
demand for AMZEEQ and ZILXI. While we are currently unaware of any
material disruptions to our supply, our primary suppliers or our
anticipated timelines for clinical results and other key
milestones, we cannot guarantee that
we will not experience such disruptions in the future as a result
of the COVID-19 pandemic. If the outbreak of COVID-19 persists, we
and our third-party contract manufacturers, contract research
organizations and clinical sites may experience disruptions in
supply of our product and product candidates and/or procuring items
that are essential for our commercialization and research and
development activities, including, for example, raw materials used
in the manufacturing of our products and product candidates,
medical and laboratory supplies used in our clinical trials or
preclinical studies, in each case, for which there may be shortages
because of ongoing efforts to address the outbreak. Any negative
impact that the outbreak has on the ability of our suppliers to
provide materials for our product and product candidates or on
retaining patients in our clinical trials could disrupt our
commercialization efforts and clinical trial activities, which
could adversely affect our ability to earn revenue, obtain
regulatory approval for and to commercialize our product
candidates, increase our operating expenses, and have a material
adverse effect on our financial results.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following documents are filed, or furnished as applicable, as
part of this Quarterly Report on Form 10-Q:
Exhibit Index
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Incorporated by Reference |
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Exhibit Description |
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Number |
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Herewith |
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3.1 |
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3.2 |
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8-K |
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9/08/2020 |
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3.2 |
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10.1 |
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10-Q |
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8/6/2020 |
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10.2 |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101.INS |
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XBRL Instance Document - the instance document does not appear in
the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document. |
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X |
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101.SCH |
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XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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X |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document. |
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X |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document. |
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X |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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X |
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104 |
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The cover page of VYNE Therapeutics Inc.'s Quarterly Report on Form
10-Q for the quarter ended September 30, 2020, formatted in Inline
XBRL (included within Exhibit 101 attachments). |
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_______________________________________________________
* The certifications attached as
Exhibit 32.1 that accompany this Quarterly Report on
Form 10-Q are not deemed filed with the Securities and
Exchange Commission and are not to be incorporated by reference
into any filing of VYNE Therapeutics Inc. under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date of this Quarterly
Report on Form 10-Q, irrespective of any general incorporation
language contained in such filing.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 5, 2020
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VYNE Therapeutics Inc. |
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By: |
/s/ David Domzalski |
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David Domzalski
President and Chief Executive Officer
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(Principal Executive Officer) |
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By: |
/s/ Andrew Saik |
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Andrew Saik
Chief Financial Officer and Treasurer
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(Principal Financial Officer and Principal Accounting
Officer) |
Menlo Therapeutics (NASDAQ:MNLO)
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