What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-03 · 136 added, 84 removed, 384 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

21 unchanged sentences

Preferred stock, $ 0.00001 par value;

10,000,000 shares authorized and no shares issued or outstanding at June 30, 2022 and December 31, 2021

10,000,000 shares authorized and no shares issued or outstanding at September 30, 2022 and December 31, 2021

Common stock, $ 0.00001 par value;

100,000,000 shares authorized at June 30, 2022 and December 31, 2021;

66,667,580 and 61,228,446 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

100,000,000 shares authorized at September 30, 2022 and December 31, 2021;

66,679,641 and 61,228,446 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid‑in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Contract research

Other revenue

Total revenue

9 unchanged sentences

Weighted average common shares outstanding, basic and diluted

Other comprehensive loss:

Other comprehensive (loss) income:

Unrealized gain (loss) on marketable securities, net of tax of $ 0

Foreign currency translation adjustment

Total other comprehensive loss

Total other comprehensive (loss) income

Comprehensive loss

16 unchanged sentences

Balance at June 30, 2022

Issuance of common stock in connection with vesting of restricted stock units

Unrealized loss on marketable securities

Stock-based compensation expense

Balance at September 30, 2022

Comprehensive

8 unchanged sentences

Balance at March 31, 2021

Issuance of common stock in connection with vesting of restricted stock units

Issuance of common stock in connection with exercise of stock options and vesting of restricted stock units

Issuance of common stock in connection with public offering, net of offering costs of $ 8,899

3 unchanged sentences

Balance at June 30, 2021

Issuance of common stock in connection with vesting of restricted stock units

Unrealized gain on marketable securities

Foreign currency translation adjustment

Stock-based compensation expense

Balance at September 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities :

3 unchanged sentences

Revaluation of contingent consideration

Loss on extinguishment of debt

Changes in operating assets and liabilities:

12 unchanged sentences

Proceeds from issuance of common stock under the at-the-market sales agreement, net of issuance costs

Repayment of debt

Payments of employee withholding taxes related to restricted stock unit award vesting

6 unchanged sentences

Additions to property and equipment included in accounts payable

Offering costs included in accounts payable

The accompanying notes are an integral part of these condensed consolidated financial statements.

11 unchanged sentences

The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

As of June 30, 2022, the Company had cash, cash equivalents and marketable securities of $ 255.8 million and an accumulated deficit of $ 634.7 million.

As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $ 248.1 million and an accumulated deficit of $ 654.7 million.

Since inception, the Company has incurred net losses and negative cash flows from its operations.

5 unchanged sentences

Additional funds may not be available on a timely basis, on commercially acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable the Company to continue to implement its long-term business strategy.

The Company’s ability to raise additional capital may be adversely impacted by the potential worsening of global economic conditions, including inflationary pressure, and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and geopolitical tensions.

The Company’s ability to raise additional capital may be adversely impacted by the potential worsening of global economic conditions, including inflationary pressures, and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the COVID-19 pandemic and geopolitical tensions.

If the Company is unable to raise sufficient additional capital or generate revenue from transactions with potential third-party partners for the development and/or commercialization of its drug candidates, it may need to substantially curtail planned operations.

The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

The Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its condensed consolidated financial statements are issued.

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its condensed consolidated financial statements are issued.

As of the report date, the Company does not believe that substantial doubt exists about its ability to continue as a going concern.

2 unchanged sentences

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statement of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2022 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2022, the results of its operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, its changes in stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and its cash flows for the six months ended June 30, 2022 and 2021.

The accompanying condensed consolidated balance sheet as of September 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, the condensed consolidated statement of stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 are unaudited.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2022 and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2022, the results of its operations and comprehensive loss for the three and nine months ended September 30, 2022 and 2021, its changes in stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021.

The condensed consolidated balance sheet data as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”).

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2022 and 2021 are unaudited.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2022 and 2021 are unaudited.

The results for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period.

The unaudited interim financial statements of the Company included herein have been prepared, pursuant to the rules and regulations of the SEC.

12 unchanged sentences

Actual results could differ from the Company’s estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year financial statement presentation.

Significant Accounting Policies

9 unchanged sentences

Significant assumptions used in the Company’s estimates include the probability of achieving regulatory milestones and commencing commercialization, which are based on an asset’s current stage of development and a review of existing clinical data.

Probability of success assumptions ranged between 10 % and 40 % at June 30, 2022.

Probability of success assumptions ranged between 10 % and 40 % at September 30, 2022.

Additionally, estimated future sales levels and the risk-adjusted discount rate applied to the potential payments are also significant assumptions used in calculating the fair value.

The discount rate ranged between 10.9 % and 11.6 % depending on the year of each potential payment .

Revenue Recognition

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

Under ASC Topic 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

To determine revenue recognition in accordance with 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) performance obligations are satisfied.

At contract inception, the Company assesses the goods or services promised within a contract with a customer to identify the performance obligations, and to determine if they are distinct.

The Company recognizes the revenue that is allocated to each distinct performance obligation when (or as) that performance obligation is satisfied.

The Company only recognizes revenue when collection of the consideration it is entitled to under a contract with a customer is probable.

Licensing Revenue

Licenses of Intellectual Property – The Company recognizes revenue received from non-refundable, upfront fees related to the licensing of intellectual property when the intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the license has been transferred to the customer, and the customer is able to use and benefit from the license.

Milestone and Royalty Payments – The Company considers any future potential milestones and sales-based royalties to be variable consideration.

The Company recognizes royalties and commercial milestone payments as revenue when the sales occur or the milestones are achieved pursuant to the sales-based royalty exception under ASC 606 - 10-55-65.

The Company recognizes revenue from regulatory milestones when the regulatory milestone is achieved.

Fair Value of Financial Assets and Liabilities

The following tables present information about the fair value measurements of the Company’s financial assets and liabilities which are measured at fair value on a recurring and non-recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values:

June 30, 2022

September 30, 2022

(In thousands)

9 unchanged sentences

Total liabilities

As of June 30, 2022 and December 31, 2021, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs.

The Company’s marketable securities as of June 30, 2022 and December

31, 2021 consisted of commercial paper and corporate, asset-backed and U.S.

government agency debt securities, which were all valued based upon Level 2 inputs.

Marketable securities as of December 31, 2021 also included foreign government agency debt securities which were all valued based upon Level 2 inputs.

As of September 30, 2022 and December 31, 2021, the Company’s cash equivalents consisted of a money market fund, which was valued based upon Level 1 inputs.

The Company’s marketable securities as of September 30, 2022 and December 31, 2021 consisted of commercial paper, and asset-backed, U.S.

government, foreign government agency and corporate debt securities, which were all valued based upon Level 2 inputs.

Marketable securities also included U.S.

government agency debt securities as of September 30, 2022, which were valued based upon Level 2 inputs.

In determining the fair value of its Level 2 investments, the Company relies on quoted prices for identical securities in markets that are not active.

2 unchanged sentences

The Company evaluates whether adjustments to third-party pricing are necessary and, historically, the Company has not made adjustments to quoted prices obtained from the third-party pricing service.

During the three and six months ended June 30, 2022 and 2021, there were no transfers into or out of Level 3.

A decrease in the fair value of the contingent consideration liability of $ 4.6 million during the six months ended June 30, 2022 was mainly due to higher discount rates, resulting from higher risk-free rates and wider credit spreads, being applied to potential payments relative to prior periods.

The overall decrease was partially offset by an increase in the contingent consideration liability as a result of the impact of the passage of time.

As of June 30, 2022 and December 31, 2021, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:

June 30, 2022

During the three and nine months ended September 30, 2022 and 2021, there were no transfers into or out of Level 3.

The overall $ 2.4 million decrease in the fair value of the contingent consideration liability during the nine months ended September 30, 2022 was mainly due to higher discount rates, resulting from higher risk-free rates and wider credit spreads, being applied to potential payments relative to prior periods.

The decrease was partially offset by an increase in the contingent consideration liability as a result of the impact of the passage of time and other valuation model assumption modifications.

As of September 30, 2022 and December 31, 2021, the fair value of the Company’s available-for-sale marketable securities by type of security was as follows:

September 30, 2022

(In thousands)

3 unchanged sentences

Asset-backed debt securities

government agency debt securities

Foreign government agency debt securities

government and agency debt securities

Total marketable securities

(1) Included in Asset-backed debt securities is $ 7.2 million with maturity dates between one and five years.

December 31, 2021

5 unchanged sentences

Foreign government agency debt securities

government agency debt securities (2)

government debt securities (2)

Total marketable securities

(1) Included in Corporate debt securities is $ 9.2 million with maturity dates between one and five years.

(2) Included in US government agency debt securities is $ 25.0 million with maturity dates between one and five years.

(2) Included in US government debt securities is $ 25.0 million with maturity dates between one and five years.

Property and Equipment, Net

Property and equipment, net consisted of the following:

September 30,

(In thousands)

6 unchanged sentences

Property and equipment, net

Depreciation expense was $ 0.2 million for each of the three months ended June 30, 2022 and 2021, and $ 0.4 million for each of the six months ended June 30, 2022 and 2021.

Depreciation expense was $ 0.2 million for each of the three months ended September 30, 2022 and 2021, and $ 0.6 million for each of the nine months ended September 30, 2022 and 2021.

Intangible Assets

1 unchanged sentence

Accumulated Amortization

September 30,

(In thousands, except years)

2 unchanged sentences

Total intangible assets

Amortization expense was $ 19 thousand for each of the three months ended June 30, 2022 and 2021, and $ 38 thousand for each of the six months ended June 30, 2022 and 2021.

As of June 30, 2022, estimated future amortization expense was as follows:

Amortization expense was $ 19 thousand for each of the three months ended September 30, 2022 and 2021, and $ 56 thousand for each of the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, estimated future amortization expense was as follows:

(In thousands)

1 unchanged sentence

Accrued expenses consisted of the following:

September 30,

(In thousands)

11 unchanged sentences

Preferred Stock

As of June 30, 2022 and December 31, 2021, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.

There were no shares of preferred stock outstanding as of June 30, 2022 or December 31, 2021.

As of June 30, 2022 and December 31, 2021, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $ 0.00001 par value common stock.

There were 66,667,580 and 61,228,446 shares of common stock issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, the Company’s amended and restated certificate of incorporation authorized the Company to issue 10,000,000 shares of undesignated preferred stock.

There were no shares of preferred stock outstanding as of September 30, 2022 or December 31, 2021.

As of September 30, 2022 and December 31, 2021, the Company’s amended and restated certificate of incorporation authorized the Company to issue 100,000,000 shares of $ 0.00001 par value common stock.

There were 66,679,641 and 61,228,446 shares of common stock issued and outstanding as of September 30, 2022 and December 31, 2021, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any, subject to any preferential dividend rights of any series of preferred stock that may be outstanding.

No dividends have been declared through June 30, 2022.

No dividends have been declared through September 30, 2022.

The Warrant issued to SVB in March 2020 had an initial exercise price of $ 0.956 per share, subject to adjustment as provided in the Warrant.

23 unchanged sentences

As of January 1, 2022, the number of shares of common stock that may be issued under the 2015 Plan was automatically increased by 2,449,137 shares.

As of June 30, 2022, 3,372,766 shares remained available for grant under the 2015 Plan.

The Company had 4,130,376 stock options and 1,454,934 RSUs outstanding as of June 30, 2022 under the 2015 Plan.

As of September 30, 2022, 3,019,432 shares remained available for grant under the 2015 Plan.

The Company had 4,343,087 stock options and 1,585,184 RSUs outstanding as of September 30, 2022 under the 2015 Plan.

2017 Inducement Plan

1 unchanged sentence

The 2017 Inducement Plan is a non-stockholder approved stock plan adopted pursuant to the “inducement exception” provided under Nasdaq listing rules.

The Company had 410,600 stock options and 2,375 RSUs outstanding as of June 30, 2022 under the 2017 Inducement Plan.

The Company had 370,600 stock options outstanding as of September 30, 2022 under the 2017 Inducement Plan.

All shares of common stock that were eligible for issuance under the 2017 Inducement Plan after October 1, 2018, including any shares underlying any awards that expire or are otherwise terminated, reacquired to satisfy tax withholding obligations, settled in cash or repurchased by the Company in the future that would have been eligible for re-issuance under the 2017 Inducement Plan, were retired.

1 unchanged sentence

Upon the 2015 Plan becoming effective, no further grants can be made under the 2012 Plan.

The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 473,977 were outstanding as of June 30, 2022.

The Company granted stock options to purchase a total of 1,140,524 shares under the 2012 Plan, of which 473,977 were outstanding as of September 30, 2022.

Stock options granted under the 2012 Plan expire after ten years .

Stock Option Valuation

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the six months ended June 30, 2022 and 2021 were as follows:

Six Months Ended

The weighted average assumptions the Company used to estimate the fair value of stock options granted during the nine months ended September 30, 2022 and 2021 were as follows:

Nine Months Ended

September 30,

Risk-free interest rate

5 unchanged sentences

Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2022:

The following table summarizes stock option activity for the nine months ended September 30, 2022:

(In thousands, except share and per share data and years)

1 unchanged sentence

Forfeited and cancelled

Outstanding as of June 30, 2022

Options vested and expected to vest as of June 30, 2022

Options exercisable as of June 30, 2022

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2022 was $ 9.89 per share.

Outstanding as of September 30, 2022

Options vested and expected to vest as of September 30, 2022

Options exercisable as of September 30, 2022

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2022 was $ 9.83 per share.

Restricted Stock Units

The following table summarizes RSU activity for the six months ended June 30, 2022:

The following table summarizes RSU activity for the nine months ended September 30, 2022:

(In thousands, except share and per share data)

1 unchanged sentence

Forfeited and cancelled

Outstanding as of June 30, 2022

Outstanding as of September 30, 2022

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Total stock-based compensation expense

As of June 30, 2022, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 23.7 million and $ 18.3 million, respectively, which is expected to be recognized over weighted average periods of 3.2 years and 3.0 years, respectively.

As of September 30, 2022, the Company had unrecognized stock-based compensation expense for stock options and RSUs of $ 25.5 million and $ 18.3 million, respectively, which is expected to be recognized over weighted average periods of 3.1 years and 2.9 years, respectively.

Net Loss per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except for share and per share data)

1 unchanged sentence

Net loss per share, basic and diluted

The Company’s potentially dilutive securities, which included stock options and RSUs, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share.

The Company’s potentially dilutive securities, which include stock options and RSUs, have been excluded from the computation of diluted net loss per share since the effect would be to reduce the net loss per share.

Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same.

The following table presents potential shares of common stock excluded from the calculation of diluted

net loss per share for the three and six months ended June 30, 2022 and 2021.

All share amounts presented in the table below represent the total number outstanding as of June 30, 2022 and 2021.

The following table presents potential shares of common stock excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2022 and 2021.

All share amounts presented in the table below represent the total number outstanding as of September 30, 2022 and 2021.

September 30,

Options to purchase common stock

12 unchanged sentences

Supplemental balance sheet information related to operating leases is as follows:

September 30,

(In thousands)

4 unchanged sentences

Total operating lease liabilities

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.3 million for each of the three months ended June 30, 2022 and 2021 and $ 0.5 million for each of the six months ended June 30, 2022 and 2021.

Amortization expense related to operating lease right-of-use assets and accretion of operating lease liabilities totaled $ 0.3 million for each of the three months ended September 30, 2022 and 2021 and $ 0.8 million for each of the nine months ended September 30, 2022 and 2021.

Agreements Related to Intellectual Property

2 unchanged sentences

EPI Health agreed to pay the Company a high single-digit royalty calculated as a percentage of net sales on a country-by-country basis until the date that the patent rights related to RHOFADE have expired or, if later, ten years from the date of the first commercial sale of RHOFADE in such country.

The Company recorded royalty income under the asset purchase agreement of $ 0.3 million and $ 0.2 million

during the three months ended June 30, 2022 and 2021, respectively, and $ 0.5 million and $ 0.4 million during the six months ended June 30, 2022 and 2021, respectively.

Royalty income is included in other revenue on the condensed consolidated statements of operations and comprehensive loss.

The Company recorded royalty income under the asset purchase agreement of $ 0.3 million and $ 0.2 million during the three months ended September 30, 2022 and 2021, respectively, and $ 0.8 million and $ 0.6 million during the nine months ended September 30, 2022 and 2021, respectively.

Royalty income is included in licensing revenue on the condensed consolidated statements of operations and comprehensive loss.

EPI Health has also agreed to pay the Company potential sales milestone payments of up to $ 20.0 million in the aggregate upon the achievement of specified levels of net sales of products covered by the asset purchase agreement, and 25 % of any upfront, license, milestone, maintenance or fixed payment received by EPI Health in connection with any license or sublicense of the assets transferred in the disposition in any territory outside of the United States, subject to specified exceptions.

4 unchanged sentences

In addition to the payments described above, if the Company sells, licenses or transfers any of the intellectual property acquired from Confluence pursuant to the Confluence Agreement to a third party, the Company will be obligated to pay the former Confluence equity holders a portion of any consideration received from such sale, license or transfer in specified circumstances.

As of June 30, 2022 and December 31, 2021, the balance of the Company’s contingent consideration liability was $ 23.8 million and $ 28.4 million, respectively (see Note 3).

The Company did no t record a federal or state income tax benefit for losses incurred during the three and six months ended June 30, 2022 and 2021.

As of September 30, 2022 and December 31, 2021, the balance of the Company’s contingent consideration liability was $ 26.0 million and $ 28.4 million, respectively (see Note 3).

License Agreement – Eli Lilly and Company

In August 2022, the Company entered into a non-exclusive patent license agreement with Eli Lilly and Company (“Lilly”).

Under the license agreement, the Company granted Lilly non-exclusive rights under certain patents and patent applications that the Company exclusively licenses from a third party.

The patents and patent applications relate to the use of baricitinib, Lilly’s JAK inhibitor, to treat alopecia areata.

Under the license agreement, Lilly has agreed to pay the Company an upfront payment, regulatory and commercial milestone payments, anniversary payments, and a low single-digit royalty calculated as a percentage of Lilly’s net sales of baricitinib for the treatment of alopecia areata.

The Company has separate contractual obligations under which the Company has agreed to pay to third parties an amount equal to any regulatory and commercial milestone payments it receives under the Lilly license agreement, as well as a portion of the upfront consideration and a portion of the royalties it may receive under the license agreement.

The Company accounts for the Lilly license agreement under ASC Topic 606 and identified the non-exclusive license as a distinct performance obligation, since Lilly can benefit from the license on its own by developing and commercializing the underlying product using its own resources.

The Company determined that the license was a right to use the intellectual property and that the Company had provided all necessary information to Lilly to benefit from the license.

During the three months ended September 30, 2022, the Company received $ 17.6 million from Lilly, a portion of which represented payments for regulatory and commercial milestones that were deemed to have been achieved as of the execution of the license agreement.

The Company remains eligible to receive future milestone payments, all of which will be paid by the Company to third parties following receipt as described above.

The Company recognized the upfront payment and milestone payments received during the three months ended September 30, 2022, and will recognize future anniversary payments, milestone payments and royalties that may be received from Lilly under the license agreement, as licensing revenue on its condensed consolidated statements of operations and comprehensive loss.

During each of the three and nine months ended September 30, 2022, the Company recorded amounts paid to third parties of $ 7.3 million, and will record amounts it pays out to third parties under its contractual obligations in the future, as licensing expense on its condensed consolidated statements of operations and comprehensive loss.

The Company considers any future potential milestones and the sales-based royalty to be variable consideration.

The Company expects that the royalties and commercial milestone payments will be recognized as revenue when the sales occur or the milestones are achieved pursuant to the sales-based royalty exception under ASC Subtopic 606-10-55-65 because the license is the predominant item to which the royalty or sales-based milestones relate.

The Company did no t record a federal or state income tax benefit for losses incurred during the three and nine months ended September 30, 2022 and 2021.

The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods.

1 unchanged sentence

The following table presents information related to liabilities reported as discontinued operations in the Company’s condensed consolidated balance sheet:

September 30,

(In thousands)

8 unchanged sentences

The Company does not report balance sheet information by segment since it is not reviewed by the chief operating decision maker, and all of the Company’s tangible assets are held in the United States.

The Company’s results of operations by segment for the three and six months ended June 30, 2022 and 2021 are summarized in the tables below:

The Company’s results of operations by segment for the three and nine months ended September 30, 2022 and 2021 are summarized in the tables below:

(In thousands)

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Total revenue

Cost of revenue

Research and development

General and administrative

Research and development expense

General and administrative expense

Licensing expense

Revaluation of contingent consideration

1 unchanged sentence

(In thousands)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Total revenue

Cost of revenue

Research and development

Sales and marketing

General and administrative

Research and development expense

General and administrative expense

Revaluation of contingent consideration

1 unchanged sentence

(In thousands)

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Total revenue

Cost of revenue

Research and development

General and administrative

Research and development expense

General and administrative expense

Licensing expense

Revaluation of contingent consideration

1 unchanged sentence

(In thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Total revenue

Cost of revenue

Research and development

General and administrative

Research and development expense

General and administrative expense

Revaluation of contingent consideration

1 unchanged sentence

Intersegment Revenue

Revenue for the contract research segment included $ 3.2 million and $ 1.9 million for services performed on behalf of the therapeutics segment for the three months ended June 30, 2022 and 2021, respectively, and $ 6.1 million and $ 3.5 million for the six months ended June 30, 2022 and 2021, respectively.

Revenue for the contract research segment included $ 3.2 million and $ 1.9 million for services performed on behalf of the therapeutics segment for the three months ended September 30, 2022 and 2021, respectively, and $ 9.3 million and $ 5.5 million for the nine months ended September 30, 2022 and 2021, respectively.

All intersegment revenue has been eliminated in the Company’s condensed consolidated statement of operations.

5 unchanged sentences

The complaint alleged that the defendants violated federal securities laws by, among other things, failing to disclose an alleged likelihood that regulators would scrutinize advertising materials related to ESKATA (hydrogen peroxide) topical solution, 40% (w/w) (“ESKATA”) and find that the materials minimized the risks or overstated the efficacy of the product.

The complaint sought unspecified compensatory damages on behalf of Rosi and all

other persons and entities that purchased or otherwise acquired the Company’s securities between May 8, 2018 and June 20, 2019.

The complaint sought unspecified compensatory damages on behalf of Rosi and all other persons and entities that purchased or otherwise acquired the Company’s securities between May 8, 2018 and June 20, 2019.

On September 5, 2019, an additional plaintiff, Robert Fulcher (“Fulcher”), filed a substantially identical putative class action complaint captioned Fulcher v.

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements