What changed in this filing

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Item 1. Financial Statements

2020-11-10 compared with 2020-08-06 · 449 added, 1490 removed, 456 unchanged (81% of the section changed)

FINANCIAL STATEMENTS

LIPOCINE INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30,

Current assets:

23 unchanged sentences

Treasury stock at cost, 5,710 shares

Accumulated other comprehensive loss

Accumulated other comprehensive gain (loss)

Accumulated deficit

4 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC.

AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended June 30,

Six Months Ended June 30,

Condensed Consolidated Statements

of Operations and Comprehensive Loss

Three Months Ended September 30,

Nine Months Ended September 30,

License revenue

Total revenues

Operating expenses:

3 unchanged sentences

Operating loss

(13,194,590 )

Other income (expense):

1 unchanged sentence

Interest expense

Loss on warrant liability

Gain (loss) on warrant liability

Total other expense, net

21 unchanged sentences

$ (9,714,045 )

See accompanying notes to unaudited condensed consolidated financial

accompanying notes to unaudited condensed consolidated financial statements

LIPOCINE INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’

the Three and Six Months Ended June 30, 2020 and 2019

Treasury Stock

Condensed Consolidated Statements

of Changes in Stockholders’

For the Three and Nine Months

Ended September 30, 2020 and 2019

Comprehensive

Stockholders'

Balances at March 31, 2019

Balances at June 30, 2019

$ 154,600,442

$ (144,714,914 )

net gain on marketable investment securities

Unrealized net loss on

marketable investment securities

Stock-based compensation

Common stock sold through ATM offering

Balances at June 30, 2019

Common stock sold through

Option exercises

Balances at September

$ 155,318,402

2 unchanged sentences

Stockholders'

at December 31, 2018

Balances at December 31, 2018

$ 147,533,019

$ (138,059,845 )

net gain on marketable investment securities

stock sold through ATM offering

at June 30, 2019

Unrealized net gain on

marketable investment securities

Stock-based compensation

Common stock sold through

Option exercises

Balances at September

$ 155,318,402

2 unchanged sentences

Stockholders'

at March 31, 2020

Balances at June 30, 2020

$ 176,327,120

$ (163,207,474 )

net gain on marketable investment securities

of restricted stock units

stock issued for warrant exercises

of warrant liability on warrant exercises

associated with ATM offering

at June 30, 2020

Unrealized net gain on

marketable investment securities

Stock-based compensation

Vesting of restricted

Common stock issued for

warrant exercises

Settlement of warrant

liability on warrant exercises

Common stock sold through

Balances at September

$ 182,062,701

2 unchanged sentences

Stockholders'

at December 31, 2019

Balances at December 31, 2019

$ 157,391,969

2 unchanged sentences

(16,453,543 )

net loss on marketable investment securities

of restricted stock units

stock sold through equity offering

stock issued for warrant exercises

of warrant liability on warrant exercises

associated with ATM offering

at June 30, 2020

Unrealized net gain on

marketable investment securities

Stock-based compensation

Vesting of restricted

Common stock sold through

equity offering

Common stock issued for

warrant exercises

Settlement of warrant

liability on warrant exercises

Common stock sold through

Balances at September

$ 182,062,701

$ (167,520,732 )

accompanying notes to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated

financial statements

LIPOCINE INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Condensed Consolidated Statements of Cash

Nine Months Ended September 30,

Cash flows from operating activities:

1 unchanged sentence

$ (9,715,269 )

Adjustments to reconcile net

loss to cash used in operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation expense

9 unchanged sentences

Cash used in operating activities

(11,619,069 )

Cash flows from investing activities:

2 unchanged sentences

Maturities of marketable investment securities

Cash used in investing activities

Cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Proceeds from debt

Proceeds from stock option exercises

Net proceeds from common stock offering

Net proceeds from sale of common stock through (costs associated with) ATM

Net proceeds from sale of common stock through ATM

Net proceeds from exercise of warrants

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Settlement of warrant liability on warrant exercises

Net unrealized gain (loss) on available-for-sale securities

Net unrealized gain on available-for-sale securities

Accrued final payment charge on debt

Other accrued interest

See accompanying notes to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated

financial statements

LIPOCINE INC.

Notes to Condensed Consolidated Financial

(1) Basis of Presentation

accompanying unaudited condensed consolidated financial statements included herein have been prepared by Lipocine Inc.

(“Lipocine”

or the “Company”) in accordance with the rules and regulations of the United States Securities and Exchange Commission

(“SEC”).

The unaudited condensed consolidated financial statements are comprised of the financial statements of Lipocine

and its subsidiaries collectively referred to as the Company.

In management's opinion, the interim financial data presented includes

all adjustments (consisting solely of normal recurring items) necessary for fair presentation.

All intercompany accounts and transactions

have been eliminated.

The accompanying unaudited condensed consolidated

financial statements included herein have been prepared by Lipocine Inc.

(“Lipocine” or the “Company”)

in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”).

The unaudited

condensed consolidated financial statements are comprised of the financial statements of Lipocine and its subsidiaries, collectively

referred to as the Company.

In management's opinion, the interim financial data presented includes all adjustments (consisting

solely of normal recurring items) necessary for fair presentation.

All intercompany accounts and transactions have been eliminated.

Certain information required by U.S.

generally accepted accounting principles has been condensed or omitted

in accordance with rules and regulations of the SEC.

Operating results for the three and six months ended June 30, 2020

are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31,

unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial

statements and the notes thereto for the year ended December 31, 201 9.

generally accepted accounting principles has been condensed or omitted in accordance with

rules and regulations of the SEC.

Operating results for the three and nine months ended September 30, 2020 are not necessarily

indicative of the results that may be expected for any future period or for the year ending December 31, 2020.

These unaudited condensed consolidated financial

statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for

the year ended December 31, 2019.

The preparation of the unaudited condensed consolidated

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Actual results could differ from these estimates.

prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect

on the previously reported net loss.

Company believes that its existing capital resources, together with interest thereon, will be sufficient to meet its projected

operating requirements through at least September 30, 2021 which includes an on-going clinical study for LPCN 1144, compliance

with regulatory requirements, including the Company’s NDA submission for TLANDO™, and on-going litigation activities.

The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available capital

resources sooner than it currently expects if additional activities are performed by the company including pre-commercial and commercial

activities for TLANDO and new clinical studies for LPCN 1144, TLANDO XR and LPCN 1148 .While the Company believes it has sufficient

liquidity and capital resources to fund our projected operating requirements through at least September 30, 2021, the Company will

need to raise additional capital at some point through the equity or debt markets or through out-licensing activities, before or

after September 30, 2021, to support its operations.

If the Company is unsuccessful in raising additional capital, its ability

to continue as a going concern will become a risk.

Further, the Company’s operating plan may change, and the Company may

need additional funds to meet operational needs and capital requirements for product development, regulatory compliance and clinical

trial activities sooner than planned.

In addition, the Company’s capital resources may be consumed more rapidly if it pursues

additional clinical studies for LPCN 1144, TLANDO XR and LPCN 1148.

Conversely, the Company’s capital resources could last

longer if it reduces expenses, reduces the number of activities currently contemplated under our operating plan, if it terminates,

modifies the design or suspends on-going clinical studies, or if it terminates or settles any on-going litigation activities.

Certain prior year amounts have been reclassified

for consistency with the current year presentation.

These reclassifications had no effect on the previously reported net loss.

The Company believes that its existing capital resources,

together with interest thereon, will be sufficient to meet its projected operating requirements through at least September 30,

2021 which includes an on-going clinical study for LPCN 1144, compliance with regulatory requirements and on-going litigation

The Company has based this estimate on assumptions that may prove to be wrong, and the Company could utilize its available

capital resources sooner than it currently expects if additional activities are performed by the Company including pre-commercial

and commercial activities for TLANDO and new clinical studies for LPCN 1144, TLANDO XR and LPCN 1148 .While the Company believes

it has sufficient liquidity and capital resources to fund our projected operating requirements through at least September 30,

2021, the Company will need to raise additional capital at some point through the equity or debt markets or through out-licensing

activities, before or after September 30, 2021, to support its operations.

If the Company is unsuccessful in raising additional

capital, its ability to continue as a going concern will become a risk.

Further, the Company’s operating plan may change,

and the Company may need additional funds to meet operational needs and capital requirements for product development, regulatory

compliance and clinical trial activities sooner than planned.

In addition, the Company’s capital

resources may be consumed more rapidly if it pursues additional clinical studies for LPCN 1144, TLANDO XR and LPCN 1148.

the Company’s capital resources could last longer if it reduces expenses, reduces the number of activities currently contemplated

under our operating plan, if it terminates, modifies the design or suspends on-going clinical studies, or if it terminates or

settles any on-going litigation activities.

(2) Earnings (Loss) per Share

earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average

number of common shares outstanding during the period.

Diluted earnings (loss) per share is based on the weighted average

number of common shares outstanding plus, where applicable, the additional potential common shares that would have been outstanding

related to dilutive options, warrants and, unvested restricted stock units to the extent such shares are dilutive.

following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for the three

and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

Basic earnings (loss) per share is calculated by

dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during

Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding plus, where

applicable, the additional potential common shares that would have been outstanding related to dilutive options, warrants and,

unvested restricted stock units to the extent such shares are dilutive.

The following table sets forth the computation of

basic and diluted earnings (loss) per share of common stock for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

Basic loss per share attributable to common stock:

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common shares outstanding

Basic loss per share attributable to common stock

Basic loss per share

attributable to common stock

Diluted loss per share attributable to common stock:

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Diluted loss per share attributable to common stock

computation of diluted loss per share for the six months ended June 30, 2020 and 2019 does not include the following stock

options and unvested restricted stock units to purchase shares in the computation of diluted loss per share because these instruments

were antidilutive:

The computation of diluted loss per share for the

nine months ended September 30, 2020 and 2019 does not include the following stock options and warrants to purchase shares or unvested

restricted stock units in the computation of diluted loss per share because these instruments were antidilutive:

September 30,

Stock options

1 unchanged sentence

Marketable Investment Securities

Com pany has classified its marketable investment securities as available-for-sale securities, all of which are debt securities.

These securities are carried at fair value with unrealized holding gains and losses, net of the related tax effect, included in

accumulated other comprehensive income (loss) in stockholders’

equity until realized.

Gains and losses on investment security

transactions are reported on the specific-identification method.

Dividend income is recognized on the ex-dividend date and interest

income is recognized on an accrual basis.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses,

and fair value for available-for-sale securities by major security type and class of security at June 30, 2020 and December 31,

2019 were as follows:

June 30, 2020

The Company has classified its marketable investment

securities as available-for-sale securities, all of which are debt securities.

These securities are carried at fair value with

unrealized holding gains and losses, net of the related tax effect, included in accumulated other comprehensive income (loss) in

stockholders’ equity until realized.

Gains and losses on investment security transactions are reported on the specific-identification

Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis.

The amortized

cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major

security type and class of security at September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020

Government treasury bills

3 unchanged sentences

Maturities of debt securities

classified as available-for-sale securities at June 30, 2020 are as follows:

June 30, 2020

Amortized Cost

Aggregate fair value

classified as available-for-sale securities at September 30, 2020 are as follows:

September 30, 2020

Due within one year

There were no sales of marketable investment

securities during the three and six months ended June 30, 2020 and 2019 and therefore no realized gains or losses.

Additionally, there were no marketable investment securities that matured during the three months ended June 30, 2020 and

$4.3 million of marketable investment securities matured during the three months ended June 30, 2019, respectively, and $4.3

million and $9.0 million of marketable investment securities matured during the six months ended June 30, 2020 and 2019,

respectively.

The Company determined there were no other-than-temporary impairments for the three and six months ended June

30, 2020 and 2019.

There were no sales of marketable investment securities

during the three and nine months ended September 31, 2020 and 2019 and therefore no realized gains or losses.

Additionally, $450,000

and $8.5 million of marketable investment securities matured during the three months ended September 30, 2020 and September 30,

2019, respectively, and $4.8 million and $17.5 million of marketable investment securities matured during the nine months ended

September 30, 2020 and 2019, respectively.

The Company determined there were no other-than-temporary impairments for the three

and nine months ended September 30, 2020 and 2019.

(4) Fair Value

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Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

All of the Company’s financial instruments

are valued using quoted prices in active markets or based on other observable inputs.

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The following table presents the placement in the fair value hierarchy of assets and liabilities

that are measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019:

that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019:

September 30,

Fair value measurements at reporting date using

June 30, 2020

Level 1 inputs

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Warrant liability

Fair value measurements at reporting date using

December 31, 2019

Level 1 inputs

Level 2 inputs

Level 3 inputs

Cash equivalents - money market funds and commercial paper

Corporate bonds, notes and commercial paper

Warrant liability

value measurements at reporting date using

equivalents - money market funds and commercial paper

bonds, notes and commercial paper

The following methods and assumptions were used to

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hierarchy because they are valued using broker/dealer quotes, bids and offers, benchmark yields and credit spreads and other observable

Government treasury bills:

The Company uses a third-party

pricing service to value these investments.

United States treasury bills are classified within Level 1 of the fair value hierarchy

because they are valued using quoted market prices in active markets for identical assets and reportable trades.

Corporate bonds, notes, and commercial paper:

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the change in fair value recorded to other income (expense) in the accompanying statements of operations until the warrants are

exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’

exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity.

The fair value of the warrant liability is estimated using a Black-Scholes option-pricing model.

The significant assumptions used

in preparing the option pricing model for valuing the warrant liability as of June 30, 2020, include (i) volatility of 140.22%,

in preparing the option pricing model for valuing the warrant liability as of September 30, 2020, include (i) volatility of 103.45%,

(ii) risk free interest rate of 0.22%, (iii) strike price of $0.50, (iv) fair value of common stock of

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(v) expected life of 4.9 years.

The Company’s accounting policy is to recognize

transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

There were no transfers into or out of Level 1, Level 2 or Level 3 for the three and six months ended June 30, 2020.

There were no transfers into or out of Level 1, Level 2, or Level 3 for the three and nine months ended September 30, 2020.

(5) Loan and Security Agreements

Silicon Valley Bank Loan

On January 5, 2018, the Company entered into a Loan

and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant to

which SVB agreed to lend the Company $10.0 million.

On January 5, 2018, the Company entered into a

Loan and Security Agreement (the “Loan and Security Agreement”) with Silicon Valley Bank (“SVB”) pursuant

to which SVB agreed to lend the Company $10.0 million.

The principal borrowed under the Loan and Security Agreement bears interest

at a rate equal to the Prime Rate, as reported in the money rates section of The Wall Street Journal or any successor publication

representing the rate of interest per annum then in effect, plus one percent per annum (4.25% as of June 30, 2020), which interest

is payable monthly.

representing the rate of interest per annum then in effect, plus one percent per annum (4.25% as of September 30, 2020), which

interest is payable monthly.

Additionally on April 1, 2020, the Company and SVB entered into a Deferral Agreement.

Under the Deferral Agreement,

principal repayments are deferred by six months and the Company is only required to make monthly interest payments.

The loan matures

on June 1, 2022.

Previously, the Company only made monthly interest payments until December 31, 2018, following which the Company

also made equal monthly payments of principal and interest until the signing of the Deferral Agreement.

The Company will also be

required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).

The Final Payment

Charge will be due on the scheduled maturity date and to date approximately $545,000 has been recognized as an increase to the

principal balance with a corresponding charge to interest expense with the remaining final payment charge to be recognized over

the term of the facility using the effective interest method.

At its option, the Company may prepay all amounts owed under the

Loan and Security Agreement (including all accrued and unpaid interest and the Final Payment Charge).

Under the Deferral

Agreement, principal repayments are deferred by six months and the Company is only required to make monthly interest payments.

The loan matures on June 1, 2022.

Previously, the Company only made monthly interest payments until December 31, 2018, following

which the Company also made equal monthly payments of principal and interest until the signing of the Deferral Agreement.

Company will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).

The Final Payment Charge will be due on the scheduled maturity date and to date approximately $568,000 has been recognized as

an increase to the principal balance with a corresponding charge to interest expense with the remaining final payment charge to

be recognized over the term of the facility using the effective interest method.

At its option, the Company may prepay all amounts

owed under the Loan and Security Agreement (including all accrued and unpaid interest and the Final Payment Charge).

In connection with the Loan and Security Agreement,

the Company granted to SVB a security interest in substantially all of the Company’s assets now owned or hereafter acquired,

excluding intellectual property and certain other assets.

In addition, as TLANDO was not approved by the United States Food and

Drug Administration (“FDA”) prior to May 31, 2018, the Company maintains $5.0 million of cash collateral at SVB as

required under the Loan and Security Agreement until such time as TLANDO is approved by the FDA.

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failure by the Company to pay principal or interest due under the credit facility, a breach of certain covenants under the credit

facility, the Company’s insolvency, a material adverse change, and one or more judgments against the Company in an amount

greater than $100,000 individually or in the aggregate.

Future maturities of principal payments on the Loan

and Security Agreement at June 30, 2020, are as follows:

and Security Agreement at September 30, 2020, are as follows:

Years Ending December 31,

Amount (in thousands)

(in thousands)

The following table provides a reconciliation of

1 unchanged sentence

amounts shown in the statement of cash flows.

June 30, 2020

September 30,

Cash and cash equivalents

Restricted cash

Cash, cash equivalents, and restricted

cash shown in the statement of cash flows

Cash, cash equivalents, and restricted cash shown in the statement of cash flows

Amounts included in restricted cash represent those

required to be set aside by the Loan and Security Agreement.

The restriction will lapse if and when TLANDO is approved by the FDA.

The restriction will lapse if and when TLANDO is approved by the

Payroll Protection Program Loan

On April 21, 2020, the Company was

granted a loan from SVB in the aggregate amount of $233,537, pursuant to the Paycheck Protection Program (the “PPP”)

under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

1 unchanged sentence

of a note dated April 21, 2020 issued by SVB, matures on April 21, 2022 and bears interest at a rate of 1.0% per annum, payable

monthly commencing on November 21, 2020 (“Note”).

The Note may be prepaid by the Company at any time prior to maturity

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intends to use the entire PPP loan amount for qualifying expenses.

Under the terms of the PPP loan, certain amounts of the PPD

Under the terms of the PPP loan, certain amounts of the PPP

loan may be forgiven if they are used for qualifying expenses as described in the CARES Act.

The Company has requested forgiveness

of the PPP loan and is awaiting a final decision from the Small Business Administration.

Future maturities of principal payments on the PPP

Loan at June 30, 2020, are as follows:

Loan at September 30, 2020, are as follows:

Years Ending December 31,

Amount (in thousands)

June 15, 2020, the Company began deferring Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act Section

Payment of these tax deferrals are delayed to December 31, 2021 and December 31, 2022.

(in thousands)

Effective June 15, 2020, the Company began deferring

Federal Insurance Contributions Act (“FICA”) taxes under the CARES Act Section 2302.

Payment of these tax deferrals

are delayed to December 31, 2021 and December 31, 2022.

(6) Income Taxes

The tax provision for interim periods is determined

using an estimate of the Company’s effective tax rate for the full year adjusted for discrete items, if any, that are taken

into account in the relevant period.

1 unchanged sentence

estimated tax rate changes, the Company makes a cumulative adjustment.

June 30, 2020 and December 31, 2019, the Company had a full valuation allowance against its deferred tax assets, net

of expected reversals of existing deferred tax liabilities, as it believes it is more likely than not that these benefits will

not be realized.

At September 30, 2020 and December 31, 2019,

the Company had a full valuation allowance against its deferred tax assets, net of expected reversals of existing deferred tax

liabilities, as it believes it is more likely than not that these benefits will not be realized.

(7) Contractual Agreements

(a) Abbott Products, Inc.

March 29, 2012, the Company terminated its collaborative agreement with Solvay Pharmaceuticals, Inc.

(later acquired by

Abbott Products, Inc.) for TLANDO.

As part of the termination, the Company reacquired the rights to the intellectual property from

All obligations under the prior license agreement have been completed except that Lipocine will owe Abbott a perpetual

1% royalty on net sales.

Such royalties are limited to $1.0 million in the first two calendar years following product launch, after

which period there is not a cap on royalties and no maximum aggregate amount.

If generic versions of any such product are introduced,

then royalties are reduced by 50%.

The Company did not incur any royalties during the three and six months ended June 30, 2020

On March 29, 2012, the Company terminated its collaborative

agreement with Solvay Pharmaceuticals, Inc.

(later acquired by Abbott Products, Inc.) for TLANDO.

As part of the termination, the

Company reacquired the rights to the intellectual property from Abbott.

All obligations under the prior license agreement have

been completed except that Lipocine will owe Abbott a perpetual 1% royalty on net sales.

Such royalties are limited to $1.0 million

in the first two calendar years following product launch, after which period there is not a cap on royalties and no maximum aggregate

If generic versions of any such product are introduced, then royalties are reduced by 50%.

The Company did not incur any

royalties during the three and nine months ended September 30, 2020 and 2019.

(b) Contract Research and Development

Company has entered into agreements with various contract organizations that conduct preclinical, clinical, analytical and manufacturing

development work on behalf of the Company as well as a number of independent contractors and primarily clinical researchers

who serve as advisors to the Company.

The Company incurred expenses of $1.2 million and $1.4 million, respectively, for the three

months ended June 30, 2020 and 2019 and $2.9 million and $2.8 million, respectively, for the six months ended June 30, 2020 and

2019 under these agreements and has recorded these expenses in research and development expenses.

August 6, 2004, the Company assumed a non-cancelable operating lease for office space and laboratory facilities in Salt Lake

On May 6, 2014, the Company modified and extended the lease through February 28, 2018 .

On February 8, 2018,

the Company extended the lease through February 28, 2019, on January 2, 2019, the Company extended the lease through February 29,

2020, and on February 24, 2020, the Company extended the lease through February 28, 2021.

minimum lease payments under non -cancelable operating leases as of June 30, 2020 are:

The Company has entered into agreements with

various contract organizations that conduct preclinical, clinical, analytical and manufacturing development work on behalf of

the Company as well as a number of independent contractors and primarily clinical researchers who serve as advisors to the

The Company incurred expenses of $1.8 million and $1.2 million, respectively, for the three months ended September

30, 2020 and 2019 and $5.1 million and $4.0 million, respectively, for the nine months ended

September 30, 2020 and 2019 under these agreements and has recorded these expenses in research and development

On August 6, 2004, the Company assumed a non-cancelable

operating lease for office space and laboratory facilities in Salt Lake City, Utah.

On May 6, 2014, the Company modified and extended

the lease through February 28, 2018.

On February 8, 2018, the Company extended the lease through February 28, 2019, on January

2, 2019, the Company extended the lease through February 29, 2020, and on February 24, 2020, the Company extended the lease through

February 28, 2021.

Future minimum lease payments under non-cancelable

operating leases as of September 30, 2020 are:

Year ending December 31:

Total minimum lease payments

The Company’s rent expense

was $83,000 for each of the three-month periods ended June 30, 2020 and 2019 and was $165,000 and $164,000, respectively, for the

six months ended June 30, 2020 and 2019.

(9) Stockholders’

The Company’s rent expense

was $83,000 for each of the three months ended September 30, 2020 and 2019 and was $248,000 and $246,000, respectively, for the

nine months ended September 30, 2020 and 2019.

(9) Stockholders’ Equity

(a) Issuance of Common Stock

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direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933,

as amended (“February 2020 Offering”).

The gross proceeds from the February 2020 Offering were approximately $6.0 million,

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offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended

(“November 2019 Offering”).

The gross proceeds from the November 2019 Offering were approximately $6.0 million, before

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and warrant liability, respectively.

March 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with

Cantor Fitzgerald & Co.

(“Cantor”), to sell shares of our common stock, with aggregate gross sales proceeds of

up to $20.0 million, from time to time, through an “at the market”

(“ATM”), equity offering program, under

which Cantor acts as sales agent.

The shares of common stock to be sold under the Sales Agreement were originally sold and issued

pursuant to the Company’s Registration Statement on Form S-3 (File No.

333-199093) (the “Prior Form S-3”), which

was previously declared effective by the Securities and Exchange Commission, and the related prospectus and one or more prospectus

In March 2017, the Company entered into a

Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co.

(“Cantor”), to sell shares of our common stock, with aggregate gross sales proceeds of up to $20.0 million, from

time to time, through an “at the market” (“ATM”), equity offering

program, under which Cantor acts as sales agent.

The shares of common stock to be sold under the Sales Agreement were

originally sold and issued pursuant to the Company’s Registration Statement on Form S-3 (File No.

333-199093) (the

“Prior Form S-3”), which was previously declared effective by the Securities and Exchange Commission, and the

related prospectus and one or more prospectus supplements.

On October 13, 2017, the Company filed a Form S-3 (File No.

333-220942) (the “New Form S-3”) to replace

the Prior Form S-3.

The New Form S-3 has been declared effective by the Securities and Exchange Commission, and the Prior

Form S-3 has been terminated.

The New Form S-3 registered the sale of up to $150.0 million of any combination of common stock,

preferred stock, debt securities, warrants and units pursuant to a shelf registration statement.

The New Form S-3 also contains

a prospectus pursuant to which we may sell, from time to time, shares of our common stock having an aggregate offering price of

up to $25.0 million through Cantor as our sales agent, pursuant to the Sales Agreement.

On April 10, 2020, the Company filed a

prospectus supplement in which the Company disclosed that the Company was subject to the limitations of General Instruction I.B.6.

of Form S-3 with the amount of shares of our common stock available for sale under the New Form S-3 limited to one-third of the

aggregate market value of our common equity held by non-affiliates of the Company over any rolling 12-month period and further

limited the future amount sold under the Sales Agreement to $5.0 million.

of June 30, 2020, we had sold an aggregate of 6,635,535 shares at a weighted-average sales price of $3.02 per share

under the ATM for aggregate gross proceeds of $20.0 million and net proceeds of $19.3 million, after deducting sales agent

commission and discounts and our other offering costs.

During the three and six months ended June 30, 2020, the Company did

not sell any shares under the ATM.

During the three months ended June 30, 2019, the Company sold an aggregate of 149,037

shares at a weighted-average sales price of $1.95 per share under the ATM for aggregate gross proceeds of $290,000 and

$281,000 in net proceeds.

During the six months ended June 30, 2019, the Company sold an aggregate of 2,992,504

shares at a weighted-average sales price of $2.18 per share under the ATM for aggregate gross proceeds of $6.5 million and

$6.3 million in net proceeds.

333-220942) (the “New Form S-3”) to replace the Prior Form S-3.

The New Form S-3 has been declared

effective by the Securities and Exchange Commission, and the Prior Form S-3 has been terminated.

The New Form S-3

registered the sale of up to $150.0 million of any combination of common stock, preferred stock, debt securities, warrants

and units pursuant to a shelf registration statement.

The New Form S-3 also contains a prospectus pursuant to which we

may sell, from time to time, shares of our common stock having an aggregate offering price of up to $25.0 million through

Cantor as our sales agent, pursuant to the Sales Agreement.

On August 21, 2020, the Company filed a prospectus supplement in

which the Company increased the aggregate offering price in which shares of our common stock can be sold through Cantor as

our sales agent, pursuant to the Sales Agreement to a total of $63.0 million of which $13.0 million of our common stock has

already been sold under the Sales Agreement.

As of September 30, 2020, we had sold an aggregate

of 9,465,535 shares at a weighted-average sales price of $2.54 per share under the ATM for aggregate gross proceeds of $24.1 million

and net proceeds of $23.2 million, after deducting sales agent commission and discounts and our other offering costs.

three and nine months ended September 30, 2020, the Company sold 2,830,000 shares at a weighted-average sales price of $1.43 per

share under the ATM for aggregate gross proceeds of $4.0 million and net proceeds of $3.9 million.

During the three months ended

September 30, 2019, the Company sold an aggregate of 283,782 shares at a weighted-average sales price of $2.22 per share under

the ATM for aggregate gross proceeds of $629,000 and $604,000 in net proceeds.

During the nine months ended September 30, 2019,

the Company sold an aggregate of 3,276,286 shares at a weighted-average sales price of $2.19 per share under the ATM for aggregate

gross proceeds of $7.2 million and $6.9 million in net proceeds.

(b) Rights Agreement

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Also on November 12, 2015, the board of directors

of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right”

and collectively, the “Rights”) for each outstanding share of common stock of the Company.

of the Company authorized and the Company declared a dividend of one preferred stock purchase right (each a “Right”

and collectively, the “Rights”) for each outstanding share of common stock of the Company.

The dividend was payable

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the Company one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock of the Company

at a price of $63.96 per one-thousandth share (the “Purchase Price”).

The Rights will generally become exercisable

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of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding common stock of the Company.

Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person”

Except in certain situations, a person or group of affiliated or associated persons becomes an “Acquiring Person” upon

acquiring beneficial ownership of 15% or more of the outstanding shares of common stock of the Company.

general, in the event a person becomes an Acquiring Person, then each Right not owned by such Acquiring Person will entitle its

holder to purchase from the Company, at the Right’s then current exercise price, in lieu of shares of Series A Junior Participating

Preferred Stock, common stock of the Company with a market value of twice the Purchase Price.

In addition, if after any

person has become an Acquiring Person, (a) the Company is acquired in a merger or other business combination, or (b) 50% or more

of the Company’s assets, or assets accounting for 50% or more of its earning power, are sold, leased, exchanged or otherwise

transferred (in one or more transactions), proper provision shall be made so that each holder of a Right (other than the Acquiring

Person, its affiliates and associates and certain transferees thereof, whose Rights became void) shall thereafter have the right

to purchase from the acquiring corporation, for the Purchase Price, that number of shares of common stock of the acquiring corporation

which at the time of such transaction would have a market value of twice the Purchase Price.

The Company will be entitled to redeem the Rights

at $0.001 per Right at any time prior to the time an Acquiring Person becomes such.

The terms of the Rights are set forth in the

Rights Agreement, which is summarized in the Company's Current Report on Form 8-K dated November 13, 2015.

The rights plan was

originally set to expire on November 12, 2018;

however, on November 5, 2018 our Board of Directors approved an Amended and Restated

Rights Agreement pursuant to which the expiration date was extended to November 5, 2021, unless the rights are earlier redeemed

or exchanged by the Company.

In general, in the event a person becomes an Acquiring

Person, then each Right not owned by such Acquiring Person will entitle its holder to purchase from the Company, at the Right’s

then current exercise price, in lieu of shares of Series A Junior Participating Preferred Stock, common stock of the Company with

a market value of twice the Purchase Price.

In addition, if after any person has become an Acquiring Person, (a) the Company is

acquired in a merger or other business combination, or (b) 50% or more of the Company’s assets, or assets accounting for

50% or more of its earning power, are sold, leased, exchanged or otherwise transferred (in one or more transactions), proper provision

shall be made so that each holder of a Right (other than the Acquiring Person, its affiliates and associates and certain transferees

thereof, whose Rights became void) shall thereafter have the right to purchase from the acquiring corporation, for the Purchase

Price, that number of shares of common stock of the acquiring corporation which at the time of such transaction would have a market

value of twice the Purchase Price.

The Company will be entitled to redeem the

Rights at $0.001 per Right at any time prior to the time an Acquiring Person becomes such.

The terms of the Rights are set

forth in the Rights Agreement, which is summarized in the Company's Current Report on Form 8-K dated November 13, 2015.

rights plan was originally set to expire on November 12, 2018;

however, on November 5, 2018 our Board of Directors approved

an Amended and Restated Rights Agreement pursuant to which the expiration date was extended to November 5, 2021, unless the

rights are earlier redeemed or exchanged by the Company.

Company recognizes stock-based compensation expense for grants of stock option awards, restricted stock units and restricted stock

under the Company’s Incentive Plan to employees and nonemployee members of the Company’s board of directors based on

the grant-date fair value of those awards.

The grant-date fair value of an award is generally recognized as compensation expense

over the award’s requisite service period.

In addition, the Company grants stock options to nonemployee consultants from

time to time in exchange for services performed for the Company .

Company uses the Black-Scholes model to compute the estimated fair value of stock option awards.

Using this model, fair value is

calculated based on assumptions with respect to (i) expected volatility of the Company’s common stock price, (ii) the

periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise

(expected term), (iii) expected dividend yield on the Common Stock, and (iv) risk-free interest rates.

Stock-based compensation

expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited.

This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation

cost that has been expensed in the statements of operations amounted to $ 465,000 and $446,000, respectively, for the three

months ended June 30, 2020 and 2019 and amounted to $787,000 and $723,000, respectively, for the six months ended June 30, 2020

and 2019, and is allocated as follows:

Months Ended June 30,

The Company recognizes stock-based compensation

expense for grants of stock option awards, restricted stock units and restricted stock under the Company’s Incentive Plan

to employees and nonemployee members of the Company’s board of directors based on the grant-date fair value of those awards.

The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service

In addition, the Company grants stock options to nonemployee consultants from time to time in exchange for services performed

for the Company.

The Company uses the Black-Scholes model to compute

the estimated fair value of stock option awards.

Using this model, fair value is calculated based on assumptions with respect to

(i) expected volatility of the Company’s common stock price, (ii) the periods of time over which employees and

members of the board of directors are expected to hold their options prior to exercise (expected term), (iii) expected dividend

yield on the Common Stock, and (iv) risk-free interest rates.

Stock-based compensation expense also includes an estimate,

which is made at the time of grant, of the number of awards that are expected to be forfeited.

This estimate is revised, if necessary,

in subsequent periods if actual forfeitures differ from those estimates.

Stock-based compensation cost that has been expensed in

the statements of operations amounted to approximately $352,000 and $58,000, respectively, for the three months ended September

30, 2020 and 2019 and amounted to $1.1 million and $781,000, respectively, for the nine months ended September 30, 2020 and 2019,

and is allocated as follows:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

General and administrative

Company issued 113,000 stock options and 739,000 stock options, respectively, during the three and six months ended June

30, 2020 and issued 55,000 stock options during the three and six months ended June 30, 2019.

The Company did not issue any stock options during

the three months ended September 30, 2020 and issued 24,000 stock options during the three months ended September 30, 2019.

Additionally,

during the nine months ended September 30, 2020 and 2019, the Company issued 739,000 and 79,000 stock options, respectively.

Key assumptions used in the determination of the

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Due to limited historical experience of similar awards,

the expected term was estimated using the simplified method in accordance with the provisions of Staff Accounting Bulletin (“SAB”)

107, Share-Based Payment, for awards with stated or implied service periods.

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and that have the contractual term to satisfy the performance condition, the contractual term was used.

Interest Rate :

The risk-free interest rate used was based on the implied yield currently available on U.S.

issues with an equivalent remaining term.

The expected dividend assumption is based on management’s current expectation about the Company’s

anticipated dividend policy.

The Company does not anticipate declaring dividends in the foreseeable future.

Since the Company did not have sufficient trading history, the volatility factor was based on the average

of similar public companies through August 2014.

When selecting similar companies, the Company considered the industry, stage of

life cycle, size, and financial leverage.

Beginning in July 2017, the volatility factor is based solely on the Company’s

trading history since March 2014.

ASC 718, Stock Compensation, requires the Company to recognize compensation expense for the portion of options that are

expected to vest.

Therefore, the Company applied estimated forfeiture rates that were derived from historical employee termination

If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation

expense may be required in future periods.

of June 30, 2020, there was $556,000 of total unrecognized compensation cost related to unvested share-based compensation

arrangements granted under the Company’s stock option plan.

That cost is expected to be recognized over a weighted average

period of 1.68 years and will be adjusted for subsequent changes in estimated forfeitures.

Additionally, as of June 30, 2020, there

was $408,000 of total unrecognized compensation cost related to unvested restricted stock units that have either time-based or

performance vesting.

Risk-Free Interest Rate :

The risk-free interest

rate used was based on the implied yield currently available on U.S.

Treasury issues with an equivalent remaining term.

Expected Dividend :

The expected dividend

assumption is based on management’s current expectation about the Company’s anticipated dividend policy.

does not anticipate declaring dividends in the foreseeable future.

Expected Volatility :

The volatility factor

is based solely on the Company’s trading history since March 2014.

FASB ASC 718, Stock Compensation, requires

the Company to recognize compensation expense for the portion of options that are expected to vest.

Therefore, the Company applied

estimated forfeiture rates that were derived from historical employee termination behavior.

If the actual number of forfeitures

differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

As of September 30, 2020, there was $430,000 of

total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s

stock option plan.

That cost is expected to be recognized over a weighted average period of 1.59 years and will be adjusted for

subsequent changes in estimated forfeitures.

Additionally, as of September 30, 2020, there was $118,000 of total unrecognized compensation

cost related to unvested restricted stock units that have either time-based or performance vesting.

(d) Stock Option Plan

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An aggregate of 5,721,906 shares are authorized for issuance under the 2014 Plan,

with 2,491,332 shares remaining available for grant as of June 30, 2020.

summary of stock option activity is as follows:

with 2,544,888 shares remaining available for grant as of September 30, 2020.

A summary of stock option activity is as follows:

Outstanding stock options

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Options cancelled

Balance at June 30, 2020

Options exercisable at June 30, 2020

following table summarizes information about stock options outstanding and exercisable at June 30, 2020:

Options outstanding

Options exercisable

intrinsic value for stock options is defined as the difference between the current market value and the exercise price.

no stock options exercised during the three and six months ended June 30, 2020 and 2019.

Balance at September 30, 2020

Options exercisable at September 30, 2020

The following table summarizes information about

stock options outstanding and exercisable at September 30, 2020:

The intrinsic value for stock options is defined

as the difference between the current market value and the exercise price.

There were no stock options exercised during the three

and nine months ended September 30, 2020 and there were 20,000 stock options exercised during the three and nine months ended September

(e) Restricted Stock Units

summary of restricted stock unit activity is as follows:

A summary of restricted stock unit activity is as

unvested restricted

Balance at December 31, 2019

Balance at June 30, 2020

Balance at September 30, 2020

(f) Common Stock Warrants

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its common stock warrants under ASC 480, Distinguishing Liabilities from Equity , which requires any financial instrument,

other than an outstanding share, that, at inception, embodies an obligation to repurchase the issuer’s equity shares, or

is indexed to such an obligation, and requires or may require the issuer to settle the obligation by transferring assets, to be

classified as a liability.

In accordance with ASC 480, the Company’s outstanding warrants from the November 2019 Offering

are classified as a liability.

The liability is adjusted to fair value at each reporting period, with the changes in fair value

recognized as gain (loss) on change in fair value of warranty liability in the Company’s consolidated statements of operations.

The warrants issued in the November 2019 Offering allow the warrant holder, if certain change in control events occur, the option

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model with certain defined assumptions upon a fundamental transaction.

As of June 30, 2020, the

Company had 1,873,000 common stock warrants outstanding from the November 2019 Offering to purchase an equal number of shares of

common stock.

The fair value of these warrants on December 31, 2019 and June 30, 2020 was determined using the Black-Scholes option

pricing model with the following Level 3 inputs (as defined in the November 2019 Offering):

As of September 30, 2020,

the Company had 1,104,030 common stock warrants outstanding from the November 2019 Offering to purchase an equal number of shares

of common stock.

The fair value of these warrants on September 30, 2020 and December 31, 2019 was determined using the Black-Scholes

option pricing model with the following Level 3 inputs (as defined in the November 2019 Offering):

September 30, 2020

December 31, 2019

Expected life in years

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Dividend yield

During the three and six

months ended June 30, 2020, the Company recorded a non-cash loss of $2.1 million and $3.2 million, respectively, from the change

in fair value of the November 2019 Offering warrants.

The following table is a reconciliation of the warrant liability measured

at fair value using level 3 inputs:

During the three and nine

months ended September 30, 2020, the Company recorded a non-cash gain of approximately $140,000 and a non-cash loss of approximately

$3.0 million, respectively, from the change in fair value of the November 2019 Offering warrants.

The following table is a reconciliation

of the warrant liability measured at fair value using level 3 inputs:

Warrant Liability

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Change in fair value of common stock warrants

Balance at June 30, 2020

Balance at September 30, 2020

Additionally, in the February

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(15,097,651 )

Balance at June 30, 2020

the three and six months ended June 30, 2020 , 13,497,807, and 13,618,807, respectively, common stock warrants to purchase

one share of our common stock were exercised resulting in proceeds of approximately $6.9 million in each of the three and six-month

periods ending June 30, 2020.

following table summarizes information about common stock warrants outstanding at June 30, 2020:

Balance at September 30, 2020

During the three and nine months ended September

30, 2020, 1,478,844, and 15,097,651 common stock warrants to purchase one share of our common stock were exercised, respectively,

resulting in proceeds of approximately $761,000 and $7.7 million, respectively, in the three and nine months ended September 30,

The following table summarizes information about

common stock warrants outstanding at September 30, 2020:

Warrants outstanding

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Weighted average

remaining contractual

contractual life

Weighted average

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when a particular contingency is probable and estimable.

February 15, 2019, a purported shareholder filed a shareholder derivative complaint in the Court of Chancery of the State of Delaware,

John Wajda, derivatively on behalf of Lipocine Inc.

Mahesh Patel, et al., against certain of the Company’s current

and former officers and directors as well as the Company as a nominal defendant.

The complaint asserts claims for alleged

breaches of fiduciary duty and unjust enrichment arising out of the Company’s dissemination of purportedly false and misleading

statements relating to the filing of the New Drug Application (“NDA”) for TLANDO.

The relief sought in the complaint

includes unspecified damages, changes to the Company’s corporate governance procedures, equitable and/or injunctive relief,

restitution, and attorneys’

On February 15, 2019, a

purported shareholder filed a shareholder derivative complaint in the Court of Chancery of the State of Delaware, John Wajda,

derivatively on behalf of Lipocine Inc.

Mahesh Patel, et al., against certain of the Company’s current and former

officers and directors as well as the Company as a nominal defendant.

The complaint asserts claims for alleged breaches of

fiduciary duty and unjust enrichment arising out of the Company’s dissemination of purportedly false and misleading statements

relating to the filing of the New Drug Application (“NDA”) for TLANDO.

The relief sought in the complaint includes

unspecified damages, changes to the Company’s corporate governance procedures, equitable and/or injunctive relief, restitution,

and attorneys’ fees.

On August 16, 2019, defendants filed a motion to dismiss the complaint.

the plaintiff’s filed an amended stockholder derivative complaint.

Defendants’

motion to dismiss the amended complaint

was filed on December 12, 2019;

plaintiff’s response was filed on January 27, 2020 and defendants’

reply was filed

on February 26, 2020.

In response, the plaintiff’s

filed an amended stockholder derivative complaint.

Defendants’ motion to dismiss the amended complaint was filed on December

plaintiff’s response was filed on January 27, 2020 and defendants’ reply was filed on February 26, 2020.

Oral arguments on the motion to dismiss were held on July 28, 2020.

On July 30, 2020, the court entered an

order dismissing the complaint in its entirety.

April 2, 2019, the Company filed a lawsuit against Clarus in the United States District Court for the District of Delaware

alleging that Clarus’s JATENZO®

product infringes six of Lipocine’s issued U.S.

On July 30, 2020, the court entered an order dismissing the

complaint in its entirety.

On April 2, 2019, the Company filed a lawsuit against

Clarus in the United States District Court for the District of Delaware alleging that Clarus’s JATENZO®

product infringes

six of Lipocine’s issued U.S.

and 6,923,988.

Clarus has answered the complaint and asserted counterclaims of non-infringement

and invalidity.

The Company answered Clarus’s counterclaims on April 29, 2019.

The Court held a scheduling conference

on August 15, 2019, a claim construction hearing on February 11, 2020 and scheduled a five-day jury trial beginning on February

On February 11, 2020, the Company voluntarily dismissed allegations of patent infringement for expired U.S.

6,569,463 and 6,923,988 in an effort to streamline the issues and associated costs for dispute.

The parties are currently engaged

in the fact discovery phase of the lawsuit.

Clarus has answered

the complaint and asserted counterclaims of non-infringement and invalidity.

The Company answered Clarus’s counterclaims

on April 29, 2019.

The Court held a scheduling conference on August 15, 2019, a claim construction hearing on February 11, 2020

and scheduled a five-day jury trial beginning on February 8, 2021.

On February 11, 2020, the Company voluntarily dismissed allegations

of patent infringement for expired U.S.

6,569,463 and 6,923,988 in an effort to streamline the issues and associated

costs for dispute.

The parties are currently engaged in the fact discovery and expert testimony phase of the lawsuit.

On November 14, 2019, the Company and certain of

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false and/or misleading statements and/or failed to disclose that our filing of the NDA for TLANDO to the FDA contained deficiencies

and as a result the defendants’

statements about our business and operations were false and misleading and/or lacked a reasonable

and as a result the defendants’ statements about our business and operations were false and misleading and/or lacked a reasonable

basis in violation of federal securities laws.

The lawsuit seeks certification as a class action (for a purported class of purchasers

of the Company’s securities from March 27, 2019 through November 8, 2019), compensatory damages in an unspecified amount,

and unspecified equitable or injunctive relief.

3 unchanged sentences

The Company filed a motion to dismiss the class action lawsuit on July

In response, the plaintiff’s filed their response to the motion to dismiss the class action lawsuit on September

Further, the Company intends to vigorously defend itself and its current and former officers and directors against these

1 unchanged sentence

can an estimate be made of loss, if any.

John Wajda, derivatively on behalf of Lipocine Inc.

Mahesh Patel, et al.

and Solomon Abady v.

Beyond Solomon Abady v.

Lipocine Inc.

et al ., 2:19-cv-00906-PM, management does not currently believe that any other matter, individually or in the aggregate, will

have a material adverse effect on our financial condition, liquidity or results of operations.

2:19-cv-00906-PM, management does not currently believe that any other matter, individually or in the aggregate, will have a material

adverse effect on our financial condition, liquidity or results of operations.

Guarantees and Indemnifications

1 unchanged sentence

into agreements, such as lease agreements, licensing agreements, clinical trial agreements, and certain services agreements, containing

standard guarantee and / or indemnifications provisions.

standard guarantee and / or indemnification provisions.

Additionally, the Company has indemnified its directors and officers to

1 unchanged sentence

(11) Spriaso, LLC

July 23, 2013, the Company entered into an assignment/license and a services agreement with Spriaso, a related-party that

is majority-owned by certain current and former directors of Lipocine Inc.

On July 23, 2013, the Company entered into an

assignment/license and a services agreement with Spriaso, a related-party that is majority-owned by certain current and former

directors of Lipocine Inc.

and their affiliates.

Under the license agreement, the

Company assigned and transferred to Spriaso all of the Company’s rights, title and interest in its intellectual property

to develop products for the cough and cold field.

In addition, Spriaso received all rights and obligations under the Company’s

product development agreement with a third-party.

In exchange, the Company will receive a royalty of 20 percent of the net proceeds

received by Spriaso, up to a maximum of $10.0 million.

Spriaso also granted back to the Company an exclusive license to such intellectual

property to develop products outside of the cough and cold field.

Under the service agreement, the Company provided facilities

and up to 10 percent of the services of certain employees to Spriaso for a period of 18 months which expired January 23, 2015.

Effective January 23, 2015, the Company entered into an amended services agreement with Spriaso in which the Company agreed to

continue providing up to 10 percent of the services of certain employees to Spriaso at a rate of $230/hour for a period of six

The agreement was further amended on July 23, 2015, on January 23, 2016, on July 23, 2016, on January 23, 2017, on July

23, 2017 , on January 23, 2018, on July 23, 2018 and again on January 23, 2019 to extend the term of the agreement for an

additional six months.

The agreement was further amended on July 23, 2019 and again on July 23, 2020 to extend the term of the

agreement for an additional twelve months.

The agreement may be extended upon written agreement of Spriaso and the Company.

Company did not receive any reimbursements during the three and six months ended June 30, 2020 and 2019, respectively.

Additionally,

the Company did not receive any royalty payments from Spriaso during the three and six months ended June 30, 2020 and 2019, respectively.

Spriaso filed its first NDA and as an affiliated entity of the Company, it used up the one-time waiver for user fees for a small

business submitting its first human drug application to the FDA.

Spriaso is considered a variable interest entity under the FASB

ASC Topic 810-10, Consolidations , however the Company is not the primary beneficiary and has therefore not consolidated

Under the license agreement, the Company assigned and transferred to Spriaso all

of the Company’s rights, title and interest in its intellectual property to develop products for the cough and cold field.

In addition, Spriaso received all rights and obligations under the Company’s product development agreement with a third-party.

In exchange, the Company will receive a royalty of 20 percent of the net proceeds received by Spriaso, up to a maximum of $10.0

Spriaso also granted back to the Company an exclusive license to such intellectual property to develop products outside

of the cough and cold field.

Under the service agreement, the Company provided facilities and up to 10 percent of the services

of certain employees to Spriaso for a period of 18 months which expired January 23, 2015.

Effective January 23, 2015, the Company

entered into an amended services agreement with Spriaso in which the Company agreed to continue providing up to 10 percent of the

services of certain employees to Spriaso at a rate of $230/hour for a period of six months.

The agreement was further amended on

July 23, 2015, on January 23, 2016, on July 23, 2016, on January 23, 2017, on July 23, 2017, on January 23, 2018, on July 23, 2018

and again on January 23, 2019 to extend the term of the agreement for an additional six months.

The agreement was further amended

on July 23, 2019 and again on July 23, 2020 to extend the term of the agreement for an additional twelve months.

The agreement

may be extended upon written agreement of Spriaso and the Company.

The Company did not receive any reimbursements during the three

and nine months ended September 30, 2020 and 2019, respectively.

Additionally, the Company did not receive any royalty payments

from Spriaso during the three and nine months ended September 30, 2020.

The Company received $165,000 during the three and nine

months ended September 30, 2019.

Spriaso filed its first NDA and as an affiliated entity of the Company, it used up the one-time

waiver for user fees for a small business submitting its first human drug application to the FDA.

Spriaso is considered a variable

interest entity under the FASB ASC Topic 810-10, Consolidations , however the Company is not the primary beneficiary and

has therefore not consolidated Spriaso.

(12) Recent Accounting Pronouncements

Accounting Pronouncements Issued Not Yet Adopted

2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement

of Credit Losses on Financial Instruments (“ASU 2016-13”).

2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement

of Credit Losses on Financial Instruments (“ASU 2016-13”).

This standard replaces the incurred loss impairment

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be smaller reporting companies .

A company’s determination about whether it is eligible for the deferral is a

one-time assessment as of November 15, 2019 based on its most recent determination of its small reporting company eligibility as

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impact the adoption of ASU 2016-13 will have on its consolidated financial statements

(1 3) Subsequent Events

Subsequent to June 30, 2020, the

Company has received an aggregate of approximately $688,000 in cash proceeds from the exercises of warrants to purchase 1,375,344

shares of the Company’s common stock.

Subsequent to June 30, 2020, the

Company has sold an aggregate of 2,830,000 shares at a weighted-average sales price of $1.43 per share under the ATM for aggregate

gross proceeds of $4.0 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion of our financial condition and results of operations should be read in conjunction with our unaudited

condensed consolidated financial statements and the related notes thereto and other financial information included elsewhere in

For additional context with which to understand our financial condition and results of operations, see the management’s

discussion and analysis included in our Form 10-K, filed with the SEC on March 13, 2020 as well as the financial statements and

related notes contained therein.

As used in the discussion below, “we,”

“our,”

and “us”

refers to Lipocine.

Forward -Looking

section and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act

of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties.

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement

that does not directly relate to any historical or current fact.

Forward-looking statements may refer to such matters as products,

product benefits, pre-clinical and clinical development timelines, clinical and regulatory expectations and plans, expected

responses to regulatory actions, anticipated financial performance, future revenues or earnings, business prospects, projected

ventures, new products and services, anticipated market performance, expected research and development and other expenses, future

expectations for liquidity and capital resources needs and similar matters.

Such words as “may”, “will”,

“expect”, “continue”, “estimate”, “project”, and “intend”

terms and expressions are intended to identify forward looking statements.

Forward-looking statements are not guarantees of future

performance and our actual results may differ significantly from the results discussed in the forward-looking statements.

that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A (Risk Factors) of our

Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 7, 2020 or Item 1A (Risk Factors) of this Form 10-Q

or in Part I, Item 1A (Risk Factors) of our Form 10-K filed with the SEC on March 13, 2020.

Except as required by applicable

law, we assume no obligation to revise or update any forward-looking statements for any reason.

Overview of Our Business

We are a clinical-stage biopharmaceutical

company focused on applying our oral drug delivery technology for the development of pharmaceutical products focusing on metabolic

and endocrine disorders.

Our proprietary delivery technologies are designed to improve patient compliance and safety through orally

available treatment options.

Our primary development programs are based on oral delivery solutions for poorly bioavailable drugs.

We have a portfolio of proprietary product candidates designed to produce favorable pharmacokinetic (“PK”) characteristics

and facilitate lower dosing requirements, bypass first-pass metabolism in certain cases, reduce side effects, and eliminate gastrointestinal

interactions that limit bioavailability.

most advanced product candidate, TLANDO™, is an oral testosterone replacement therapy (“TRT”).

On November 8,

2019 we received a Complete Response Letter ("CRL") from the United States Food and Drug Administration ("FDA")

regarding our New Drug Application ("NDA") filed in May 2019 for TLANDO as a TRT in adult males for conditions associated

with a deficiency of endogenous testosterone, also known as hypogonadism.

A CRL is a communication from the FDA that informs companies

that an application cannot be approved in its present form.

The CRL identified one deficiency stating the efficacy trial did not

meet the three secondary endpoints for maximal testosterone concentrations (“Cmax”).

The CRL did not identify any

specific issues relating to chemistry, manufacturing and controls (“CMC”) of TLANDO.

We had our Post Action meeting

with the FDA in January 2020 and discussed a potential path forward for the approval of TLANDO.

Based on the Post Action

meeting and written feedback, the FDA indicated our approach to addressing the deficiency through the reanalysis of existing data

in accordance with FDA feedback appears to be a reasonable path forward.

The FDA requested that the information generated by the

reanalysis be submitted as part of an NDA resubmission with a six-month Prescription Drug User Fee Act (“PDUFA”) clock.

We resubmitted the NDA on February 28, 2020 and it has been assigned a PDUFA date of August 28, 2020.

Additional pipeline candidates include

LPCN 1144, an oral prodrug of bioidentical testosterone comprised of TU for the treatment of non-cirrhotic non-alcoholic steatohepatitis

(“NASH”), TLANDO XR, a next generation oral TRT product with the potential for once daily dosing which has completed

Phase 2 testing, LPCN 1148, an oral prodrug of bioidentical testosterone for the treatment of cirrhosis, and LPCN 1107, potentially

the first oral hydroxyprogesterone caproate product indicated for the prevention of recurrent preterm birth, which has completed

an End-of-Phase 2 meeting with the FDA.

LPCN 1144 is currently being tested

in the LiFT (“Liver Fat intervention with oral Testosterone”) Phase 2 clinical study, a paired-biopsy study

in confirmed pre-cirrhotic NASH subjects.

Additionally, LPCN 1144 recently completed a Proof-Of-Concept (“POC”) liver

imaging clinical study which demonstrated substantial liver fat reductions in hypogonadal males at risk of developing NASH as assessed

using magnetic resonance imaging, proton density fat fraction (“MRI-PDFF”) technique.

To date, we have

funded our operations primarily through the sale of equity securities, debt and convertible debt and through up-front payments,

research funding and royalty and milestone payments from our license and collaboration arrangements.

We have not generated any

revenues from product sales and we do not expect to generate revenue from product sales unless and until we obtain regulatory approval

of TLANDO or other products.

have incurred losses in most years since our inception.

As of June 30, 2020, we had an accumulated deficit of $163 million.

Income and losses fluctuate year to year, primarily depending on the nature and timing of research and development occurring on

our product candidates.

Our net loss was $12.1 million for the six months ended June 30, 2020 and $6.7 million for the six months

ended June 30, 2019.

Substantially all of our operating losses resulted from expenses incurred in connection with our product candidate

development programs, our research activities and general and administrative costs, including on-going litigation activities, associated

with our operations.

We expect to continue to incur significant

expenses and operating losses for the foreseeable future as we:

conduct any other pre or post-approval clinical studies required in support of TLANDO;

conduct further development of our other product candidates, including LPCN 1144;

continue our research efforts;

research new products or new uses for our existing products;

maintain, expand and protect our intellectual property portfolio;

provide general and administrative support for our operations ,

including on-going litigation.

To fund future long-term operations, we

will need to raise additional capital.

The amount and timing of future funding requirements will depend on many factors, including

capital market conditions, regulatory requirements and outcomes related to TLANDO as outlined in our most recent CRL, regulatory

requirements related to our other product development programs, the timing and results of our ongoing development efforts, the

potential expansion of our current development programs, potential new development programs, our ability to license our products

to third parties, the pursuit of various potential commercial activities and strategies associated with our development programs

and related general and administrative support.

We anticipate that we will seek to fund our operations through public or private

equity or debt financings or other sources, such as potential license, partnering and collaboration agreements.

We cannot be certain

that anticipated additional financing will be available to us on favorable terms, or at all.

Although we have previously been successful

in obtaining financing through public and private equity securities offerings and our license and collaboration agreements, there

can be no assurance that we will be able to do so in the future.

Our Product Candidates

Our current portfolio includes

our most advanced product candidate, TLANDO, an oral testosterone replacement therapy product candidate, which has a FDA PDUFA

date of August 28, 2020 .

Additionally, we are in the process of establishing our pipeline of other clinical candidates including

an oral androgen therapy for the treatment of non-cirrhotic NASH, LPCN 1144, a next-generation potential once daily oral testosterone

replacement therapy, TLANDO XR, an androgen therapy for the treatment of cirrhosis, LPCN 1148, and an oral therapy for the prevention

of preterm birth, LPCN 1107.

Our Development Pipeline

An Oral Product Candidate for Testosterone Replacement

Our most advanced product, TLANDO, is an

oral formulation of the chemical, TU, which is an eleven-carbon side chain attached to T.

TU is an ester prodrug of T.

is chemically formed by bonding an acid and an alcohol.

Upon the cleavage, or breaking, of the ester bond, T is formed.

been approved for use outside the United States for many years for delivery via intra-muscular injection and in oral dosage form

and recently TU has received regulatory approval in the United States for delivery via intra-muscular injection.

We are using our

proprietary technology to facilitate steady gastrointestinal solubilization and absorption of TU.

Proof of concept was initially

established in 2006, and subsequently TLANDO was licensed in 2009 to Solvay Pharmaceuticals, Inc.

which was then acquired by Abbott

Products, Inc.

("Abbott").

Following a portfolio review associated with the spin-off of AbbVie by Abbott in 2011, the

rights to TLANDO were reacquired by us.

All obligations under the prior license agreement have been completed except that Lipocine

will owe Abbott a perpetual 1% royalty on net sales.

Such royalties are limited to $1 million in the first two calendar years following

product launch, after which period there is not a cap on royalties and no maximum aggregate amount.

If generic versions of any

such product are introduced, then royalties are reduced by 50%.

NDA PDUFA Outcome

November 8, 2019 we received a CRL from the FDA regarding our NDA filed in May 2019 for TLANDO as a TRT in adult males for conditions

associated with a deficiency of endogenous testosterone, also known as hypogonadism.

The CRL identified one deficiency stating

the efficacy trial did not meet the three Cmax secondary endpoints.

The CRL does not identify any specific issues relating to CMC

We had a Post Action meeting with the FDA in January 2020 and discussed a potential path forward for the approval of

Based on the Post Action meeting and written feedback, the FDA indicated our approach to addressing the deficiency through

the reanalysis of existing data in accordance with FDA feedback appears to be a reasonable path forward.

The FDA requested that

the information generated by the reanalysis be submitted as part of an NDA resubmission with a six-month PDUFA clock.

We resubmitted

the NDA on February 28, 2020 and it has been assigned a PDUFA date of August 28, 2020.

Previously, we have received two

other CRL’s from the FDA on TLANDO NDA submissions.

The first CRL was received on June 28, 2016 and the second CRL was received

on May 8, 2018.

We are exploring the possibility of licensing TLANDO to a third party should it receive approval, although no licensing

agreement has been entered into by us yet.

We are unable to estimate whether or when we will be able to out-license TLANDO, should

it be approved.

Additionally, the timing of the potential commercial launch of TLANDO should it receive approval, is uncertain.

The timing of any commercial launch of TLANDO is contingent upon numerous factors including FDA approval, the availability of commercial

launch supplies, the impact of COVID-19, our financial resources and our ability to license TLANDO to a third party or build out

a commercial sales and marketing team/organization.

Results from the ABPM Study

The ABPM Study was an open label,

single arm study that enrolled 144 male hypogonadal subjects undergoing four months of treatment with TLANDO, 225 mg BID dosing,

with 24-hour blood pressure measurements taken at baseline and at the end of the study.

There were 138 subjects who received at

least one dose of study drug and 126 subjects completed the study.

There were 118 subjects enrolled in the ABPM Study with evaluable

weighted average 24-hour ABPM data at both baseline and at the end of the study.

Subjects receiving treatment in the ABPM Study had the following baseline parameters:

Baseline Parameters

24h SBP (mm Hg)

24h DBP (mm Hg)

SD = Standard Deviation, BMI = Body Mass

Index, SBP = Systolic Blood Pressure, DBP = Diastolic Blood Pressure

Additionally, among the subjects enrolled

in the ABPM Study, 48% of the subjects were hypertensive and 24% of subjects were type 2 diabetic.

Top-line results from the ABPM Study are as follows:

Mean Change, mm Hg (95% CI)

3.82 (1.69, 5.96)

1.20 (0.31, 2.08)

CI = Confidence Interval, SBP = Systolic

Blood Pressure, DBP = Diastolic Blood Pressure

Of the subjects (n=25) with baseline

24-hour average systolic blood pressure (“SBP”) greater than 140 mm Hg, 32% of the subjects were less than or equal

to 140 mm Hg at the end of study.

Additionally, of the subjects (n=93) with baseline 24-hour average SBP of less than or equal

to 140 mm Hg, 9.7% of the subjects were greater than 140 mm Hg at the end of study.

Results from the Definitive Phlebotomy Study

The definitive phlebotomy study

was designed based on the FDA’s protocol recommendations and conducted in response to a deficiency cited in the TLANDO CRL

by the FDA to confirm the reliability of TLANDO Phase 3 study results and to assess the impact of any material deviation from instructions

on sample collection/processing times by clinical sites.

The definitive phlebotomy

study measured testosterone concentrations in blood samples collected in plain serum separation tubes (“SST”) at three-hour

and five-hour time points (N=24) post dose and processed within 30 minutes of sample collection under the tube manufacturer’s

recommended conditions and consistent with Phase 3 instructions.

The definitive phlebotomy study enrolled 12 hypogonadal male subjects

and dosed subjects with a single oral 225 mg TU dose of TLANDO.

The testosterone measurements in SST were compared against the

FDA’s recommended time zero control (processed immediately) measurement of testosterone concentrations in blood samples in

plasma tubes with EDTA (“PT”) to assess ex vivo conversion, if any.

The top-line results

of the definitive phlebotomy study demonstrated that the overall (N=24) mean percentage difference and the associated percentage

standard deviation post dose of testosterone concentrations measured between SST samples and PT samples are -1.0% and 9.2%, respectively.

Results from DV and DF Studies

DF studies were both an open-label, fixed dose (no titration), single treatment clinical study of oral TRT in hypogonadal males

with low testosterone (T) (< 300 ng/dL) that assessed TLANDO in hypogonadal males on a fixed daily dose of 450 mg divided into

two equal doses (“BID”) in the DV study and into three equal doses (“TID”) in the DF study.

and 100 subjects were enrolled into DV and DF studies, respectively, with 94 and 98 subjects completing the DV and DF studies,

respectively.

We believe the results from the

DV study confirm the validity of a fixed dose approach without the need for dose titration to orally administering TLANDO although

there is no guarantee of FDA approval of TLANDO.

The DV study is considered our pivotal efficacy clinical study.

TLANDO successfully

met the FDA primary efficacy guidelines in the DV study safety statistical analysis set (“SS”) where 80% of the subjects

achieved average testosterone levels (“Cavg”) within the normal range with a lower bound confidence interval (“CI”)

The DF study restored 70% of the subjects’

average testosterone levels within the normal range (Cavg) confirming

that twice daily (“BID”) dosing is the appropriate dosing regimen for TLANDO and was the basis for resubmission.

safety set is defined as any subject that was randomized into the study and took at least one dose (N=95 subjects in the DV study

and N=100 in the DF study).

A baseline carried forward approach was used to account for missing data as a result of subject discontinuation.

The primary efficacy endpoint is

the percentage of subjects with Cavg within the normal range, which is defined as 300-1080 ng/dL.

The FDA guidelines for primary

efficacy success is that at least 75% of the subjects on active treatment achieve a testosterone Cavg within the normal range;

and the lower bound of the 95% CI must be greater than or equal to 65%.

event profile of TLANDO in both the DV and DF studies was consistent with the previously conducted 52-week Phase 3 Study of Androgen

Replacement (“SOAR”) clinical trial.

All drug related adverse events (“AEs”) were either mild or moderate

in intensity and none were severe.

To date, the safety database of TLANDO includes ~591 subjects demonstrating a profile consistent

with other TRT products.

The secondary

endpoints assessed the maximum total testosterone concentration (“Cmax”) post dosing using predetermined limits developed

by the FDA for transdermals.

The FDA guidelines for secondary efficacy success is that at least 85% of the subjects achieve Cmax

less than 1500 ng/dL;

no greater than 5% of the subjects have Cmax between 1800 ng/dl and 2500 ng/dL;

and zero percent of the subjects

have Cmax greater than 2500 ng/dL.

Consistent with the definition of Cmax and the pharmacokinetic profile of multiple times a day

dosing, two pre-specified analyses were performed, Cmax per dose and Cmax per day.

In the DV study SS Cmax per dose

analysis, the percentage of subjects with Cmax less than 1500 ng/dL and between 1800 ng/dL and 2500 ng/dL were 85% and 7%, respectively.

Deviations from the predetermined limits in the DV study were observed in the Cmax per day dose analysis for these thresholds.

As such, this efficacy trial did not meet the three Cmax per day secondary endpoints.

Only one subject, who was a major protocol

violator, exceeded the 2500 ng/dL limit independent of per dose or per day dose analyses.

Through reanalysis of Cmax data in the

DV study, we resubmitted the NDA to the FDA on February 28, 2020 and have a PDUFA date of August 28, 2020.

The DF study SS met all Cmax thresholds in per dose

and per day dose analyses.

Prior to conducting the DV study

and the DF study, we completed our SOAR pivotal Phase 3 clinical study evaluating efficacy and 52-week safety of TLANDO.

study is considered our pivotal safety clinical study for the NDA resubmission.

Results from SOAR

SOAR was a randomized, open-label, parallel-group,

active-controlled, Phase 3 clinical study of TLANDO in hypogonadal males with low testosterone (< 300 ng/dL).

In total, 315

subjects at 40 active sites were assigned, such that 210 were randomized to TLANDO and 105 were randomized to the active control,

AndroGel 1.62%®, for 52 weeks of treatment.

The active control is included for safety assessment.

TLANDO subjects were started

at 225 mg TU (equivalent to ~ 142 mg of T) twice daily (“BID”) with a standard meal and then dose titrated, if needed,

based on average T levels during the day, Cavg, and peak serumT levels, Cmax, up to 300 mg TU BID or down to 150 mg TU BID based

on serum testosterone measured at weeks 3 and 7 based on PK profile with multiple blood samples drawn at each time period.

mean age of the subjects in the trial was ~53 years with ~91% of the patients < 65 years of age.

The discontinuation rate for

TLANDO was 38% compared to 32% for AndroGel 1.62%.

Primary statistical analysis was

conducted using the Efficacy Population Set ("EPS").

The EPS is defined as subjects randomized into the study with at

least one PK profile and no significant protocol deviations and includes imputed missing data by last observation carried forward,

Further analysis was performed using the full analysis set ("FAS") (any subject randomized into the study with

at least one post-baseline efficacy variable response, N=193) and the SS (any subject that was randomized into the study and took

at least one dose, N=210).

The safety component of the SOAR

trial was completed the last week of April 2015.

The safety extension phase was designed to assess safety based on information

such as metabolites, biomarkers, laboratory values, serious adverse events SAEs and AEs, with subjects on their stable dose regimen

in both the treatment arm and the active control arm.

TLANDO treatment was well tolerated in there were no hepatic, cardiac or

drug related SAEs.

TLANDO safety highlights include:

TLANDO was well tolerated during 52 weeks of dosing;

Overall AE profile for TLANDO was comparable to the active

Cardiac AE profiles were consistent between treatment groups and none of the observed cardiac AEs

occurred in greater than 1.0% of the subjects in the TLANDO arm and none were classified as severe;

All observed adverse drug reactions (“ADRs”) were classified as mild or moderate in

severity and no serious ADRs occurred during the 52-week treatment period.

Food Effect Study

We also completed our labeling

"food effect"

study in May 2015.

Results from the labeling "food effect"

study indicate that bioavailability

of testosterone from TLANDO is not affected by changes in meal fat content.

The results demonstrate comparable testosterone levels

between the standard fat meal (similar to the meal instruction provided in the Phase 3 clinical study) and both the low and high

The labeling “food effect”

study was conducted per the FDA requirement and we submitted preliminary results

from this study to the FDA in the second quarter of 2015 prior to submitting the NDA.

Other Safety Requirements

Based on our meetings with the

FDA, we do not expect to be required to conduct a heart attack and stroke risk study prior to the potential approval of TLANDO.

We may, however, be required to conduct a heart attack and stroke risk study on our own or with a consortium of sponsors that have

an approved TRT product subsequent to the potential approval of TLANDO.

Recent Competition Update

On March 27, 2019, Clarus Therapeutics,

Inc.’s (“Clarus”) product JATENZO®, an oral testosterone undecanoate product, was approved by the FDA and

also received three years of data exclusivity.

It is unclear how Jatenzo’s three years of data exclusivity will impact the

potential full approvability of TLANDO.

The potential exists that, as a result of Clarus’

data exclusivity, the approval

of TLANDO by the FDA, if received, could be delayed until March 27, 2022.

On February 10, 2020, Clarus announced that JATENZO®

has been launched and is commercially available.

An Oral Prodrug of Bioidentical Testosterone

Product Candidate for the Treatment of NASH

We are currently evaluating LPCN

1144, an oral prodrug of bioidentical testosterone comprised of TU, for the treatment of non-cirrhotic NASH.

NASH is a more advanced

state of non-alcoholic fatty liver disease (“NAFLD”) and can progress to a cirrhotic liver and eventually hepatocellular

carcinoma or liver cancer.

Twenty to thirty percent of the U.S.

population is estimated to suffer from NAFLD and fifteen to twenty

percent of this group progress to NASH, which is a substantially large population that lacks effective therapy.

Currently, there

are no FDA approved treatments for NASH.

Approximately 50% of NASH patients are in adult males and the number of NASH cases is

projected to increase 63% from 16.5 million cases in 2015 to 27.0 million cases in 2030.

NAFLD/NASH is becoming more common due

to its strong correlation with obesity and metabolic syndrome, including components of metabolic syndrome such as diabetes, cardiovascular

disease and high blood pressure.

In men, especially with comorbidities associated with NAFLD/NASH, testosterone deficiency has

been associated with an increased accumulation of visceral adipose tissue and insulin resistance, which could be factors contributing

to NAFLD/NASH.

History of Liver Disease

The liver is the largest internal

organ in the human body and its proper function is indispensable for many critical metabolic functions, including the regulation

of lipid and sugar metabolism, the production of important proteins, including those involved in blood clotting, and purification

There are over 100 described diseases of the liver, and because of its many functions, these can be highly debilitating

and life-threatening unless effectively treated.

Liver diseases can result from injury to the liver caused by a variety of insults,

including hepatitis C virus (HCV), hepatitis B virus (HBV), obesity, chronic excessive alcohol use or autoimmune diseases.

of the underlying cause of the disease, there are important similarities in the disease progression including increased inflammatory

activity and excessive liver cell apoptosis, which if unresolved leads to fibrosis.

Fibrosis, if allowed to progress, will lead

to cirrhosis, or excessive scarring of the liver, and eventually reduced liver function.

Some patients with liver cirrhosis have

a partially functioning liver and may appear asymptomatic for long periods of time, which is referred to as decompensated liver

Decompensated liver disease is when the liver is unable to perform its normal functions.

Many people with active liver

disease remain undiagnosed largely because liver disease patients are often asymptomatic for many years.

Markers of Liver Cell Death

Alanine aminotransferase (“ALT”)

is an enzyme that is produced in liver cells and is naturally found in the blood of healthy individuals.

In liver disease, liver

cells are damaged and as a consequence, ALT is released into the blood, increasing ALT levels above the normal range.

routinely test blood levels of ALT to monitor the health of a patient's liver.

ALT level is a clinically important biochemical

marker of the severity of liver inflammation and ongoing liver disease.

Elevated levels of ALT represent general markers of liver

cell death and inflammation without regard to any specific mechanism.

Aspartate aminotransferase (“AST”) is a second

enzyme found in the blood that is produced in the liver and routinely measured by physicians along with ALT.

As with ALT, AST is

often elevated in liver disease and, like ALT, is considered an overall marker of liver inflammation.

Relationship between Hypogonadism and NAFLD

Preclinical and clinical studies

in the NAFLD/NASH literature have shown the prevalence of testosterone deficiency across the NAFLD/NASH histological spectrum wherein

low testosterone was independently associated with NAFLD/NASH with an inverse relationship between testosterone and NAFLD/NASH

symptom severity.

A recent National Institute of Diabetes and Digestive and Kidney Diseases (“NIDDK”) report suggests

that 75% of biopsy confirmed NASH subjects have less than 372 ng/dL of total testosterone and that the degree of fibrosis severity

is inversely related to free testosterone levels;

thus, providing a good rationale for testing LPCN 1144 in adult NASH patients

regardless of their hypogonadal status.

Recently, we received clearance from the FDA to clinically investigate LPCN 1144 in an

expanded target population of adult male NASH patients.

Specifically, the FDA waived the limitation of only testing LPCN 1144 in

NASH subjects with total testosterone levels below 300 ng/dL (threshold for hypogonadism).

Post hoc analyses of our existing

clinical trials in subjects with comorbidities typically associated with NASH comorbidities indicate that testosterone therapy

significantly and consistently reduced elevated levels of key serum biomarkers (liver function enzymes and serum triglyceride)

generally associated with NAFLD/NASH.

Current Status

We have completed a 16-week POC liver imaging

clinical study to assess liver fat changes in hypogonadal men at risk of developing NASH using MRI-PDFF technique.

Treatment results

from the POC liver imaging study demonstrated that 48% of the treated NAFLD subjects, defined as baseline liver fat of at least

5%, had NAFLD resolution, defined as liver fat <5% post treatment.

Additionally, 100% of the subjects experiencing NAFLD resolution

had at least a 35% relative liver fat reduction from baseline with a relative mean liver fat reduction of 55% in this group.

results from the POC liver fat clinical study after 16 weeks of treatment are as follows:

Baseline Liver Fat %

Mean Liver Fat % at

Relative Reductions at EOS

Responder Rate** at

At least 10%, n=8

At least 8%, n=10

At least 5%, n=21

**Based on subjects who experienced at least a 30% reduction

in liver fat from baseline.

We have also investigated the pharmacological

effect of LPCN 1144 in a validated, non-genomic, multiple arm, 12-week high fat diet (“HFD”)-induced, rabbit animal

model of NASH and hepatic fibrosis.

NASH, induced by the HFD, lowered circulating T and free T levels.

The results from this pre-clinical

model demonstrate that LPCN 1144 treatment restores circulating T and free T levels.

Additionally, the histological and biomarker

results suggest LPCN 1144 decreases liver inflammation, ballooning, fibrosis, and visceral fat that were all increased due to the

HFD, while normalizing insulin sensitivity, prostate and seminal vesicle weight.

Additionally, we have initiated the LiFT

(“Liver Fat intervention with oral Testosterone”) Phase 2 clinical study, a paired-biopsy study in confirmed pre-cirrhotic

NASH subjects with the first subject being dosed in the third quarter of 2019.

The formulations being studied in the Phase 2 clinical

trial are differentiated from TLANDO.

The LiFT Phase 2 clinical study is a prospective, multi-center, randomized, double-blind,

placebo-controlled multiple-arm study in biopsy-confirmed hypogonadal or eugonadal male NASH subjects with grade F2/F3 fibrosis

and a NAFLD Activity Score (“NAS”) ≥

4 with a 36-week treatment period.

The LiFT clinical study is designed

to enroll between 60 and 75 biopsy confirmed NASH male subjects, randomized into one of three arms (two test arms and one placebo

arm) with a 1:1:1 randomization ratio.

We currently expect top-line liver fat reduction data by the end of 2020 as measured by

MRI-PDFF at 12 weeks, followed by 36-week biopsy data which is expected by the end of the second quarter of 2021.

Enrollment in

the LiFT Phase 2 clinical study has been impacted by COVID-19 quarantine measures and may be further impacted which would

result in delays to the projected timing of primary endpoint results as well as biopsy results.

Further due to COVID-19, we are

uncertain as to the actual number of subjects that will be enrolled in the clinical study and we believe that subject drop-out

rates and the number of subjects that ultimately complete the clinical study could be negatively impacted by COVID-19.

A Next-Generation Long-Acting Oral Product Candidate for TRT

TLANDO XR is a next-generation,

novel ester prodrug of testosterone which uses the Lip’ral technology to enhance solubility and improve systemic absorption.

We completed a Phase 2b dose finding study in hypogonadal men in the third quarter of 2016.

The primary objectives of the Phase

2b clinical study were to determine the starting Phase 3 dose of TLANDO XR along with safety and tolerability of TLANDO XR and

its metabolites following oral administration of single and multiple doses in hypogonadal men.

The Phase 2b clinical trial was

a randomized, open label, two-period, multi-dose PK study that enrolled hypogonadal males into five treatment groups.

12 subjects in a group received treatment for 14 days.

Results of the Phase 2b study suggest that the primary objectives were met,

including identifying the dose expected to be tested in a Phase 3 study.

Good dose-response relationship was observed over the

tested dose range in the Phase 2b study.

Additionally, the target Phase 3 dose met primary and secondary end points.

Overall, TLANDO

XR was well tolerated with no drug-related severe or serious adverse events reported in the Phase 2b study.

Additionally in October 2014, we

completed a Phase 2a proof-of-concept study in hypogonadal men.

The Phase 2a open-label, dose-escalating single and multiple dose

study enrolled 12 males.

Results from the Phase 2a clinical study demonstrated the feasibility of a once daily dosing with TLANDO

XR in hypogonadal men and a good dose response.

Additionally, the study confirmed that steady state is achieved by day 14 with

consistent inter-day performance observed on day 14, 21 and 28.

No subjects exceeded Cmax of 1500 ng/dL at any time during the

28-day dosing period on multi-dose exposure.

Overall, TLANDO XR was well tolerated with no serious AE’s reported.

We have also completed a preclinical toxicology study

with TLANDO XR in dogs.

In February 2018 we had a meeting

with the FDA to discuss these pre-clinical results and to discuss the Phase 3 clinical study and path forward for TLANDO XR.

on the results of the FDA meeting and additional pre-clinical trials conducted after the FDA meeting, we have designed a Phase

3 protocol for TLANDO XR and have solicited FDA feedback.

Based on initial FDA feedback, we expect the Phase 3 clinical trial design

to follow the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use (“ICH”)

guidelines and will include a three-month efficacy treatment period and a one-year safety component for up to 100 subjects.

continue to refine the Phase 3 protocol and plan to request FDA approval of the protocol once it is finalized.

Additionally, the

FDA previously requested that a food effect study be completed, and that ABPM be included as part of the Phase 3 clinical study.

Based on our capital resources and the clinical status of our product candidates, we plan to primarily focus our efforts in 2020

on TLANDO and LPCN 1144.

We do not anticipate the initiation of a Phase 3 study with TLANDO XR to occur in 2020 unless and until

additional capital is secured or the product candidate is out-licensed.

We are exploring the possibility of licensing TLANDO XR

to a third party, although no licensing agreement has been entered into by the Company.

An Oral Prodrug of Bioidentical Testosterone Product

Candidate for the Treatment of Cirrhosis

Cirrhosis is an end stage NAFLD for which there is no FDA approved

drug treatment.

Liver cirrhosis is estimated to affect in excess of 600,000 Americans, with men affected at twice the rate of women,

and results in approximately 45,000 deaths every year.

Due to a lack of available organs, only a third of waitlisted patients are

getting liver transplants, and patients that do receive a transplant are increasingly being described as frail.

Low testosterone

affects up to 90% of cirrhotic men, and is a predictor of mortality and increased adverse events including ascites, hepatic encephalopathy,

and clinically significant portal hypertension.

We are currently formulating plans

to conduct a proof-of-concept study in male cirrhotic subjects through consultations with the FDA and key opinion leaders to evaluate

the therapeutic potential of LPCN 1148 for the treatment of cirrhotic subjects.

On May 5, 2020 the FDA accepted our Investigational

New Drug application ("IND") to initiate a Phase 2 proof-of-concept study to evaluate the therapeutic potential of LPCN

1148 for the treatment of liver cirrhosis in adult male cirrhotic patients.

The planned Phase 2 clinical study is a prospective,

multi-center, randomized, placebo-controlled 52-week study in male cirrhotic patients that are on the liver transplant list.

on our capital resources and the clinical status of our product candidates, we plan to primarily focus our efforts in 2020 on TLANDO

and LPCN 1144.

We do not anticipate the initiation of a Phase 2 study with LPCN 1148 in 2020 unless and until additional capital

is secured or the product candidate is out-licensed.

We are exploring the possibility of licensing LPCN 1148 to a third party,

although no licensing agreement has been entered into by the Company

An Oral Product Candidate for the Prevention

of Preterm Birth

LPCN 1107 has the potential to become the first oral hydroxyprogesterone caproate (“HPC”) product indicated for the

reduction of risk of preterm birth (delivery less than 37 weeks) (“PTB”) in women with singleton pregnancy who have

a history of singleton spontaneous PTB.

Prevention of PTB is a significant unmet need as approximately 11.7% of all U.S.

result in PTB, a leading cause of neonatal mortality and morbidity.

We have completed a multi-dose PK dose

selection study in pregnant women.

The objective of the multi-dose PK selection study was to assess HPC blood levels in order to

identify the appropriate LPCN 1107 Phase 3 dose.

The multi-dose PK dose selection study was an open-label, four-period, four-treatment,

randomized, single and multiple dose, PK study in pregnant women of three dose levels of LPCN 1107 and the injectable intramuscular

("IM") HPC (Makena®).

The study enrolled 12 healthy pregnant women (average age of 27 years) with a gestational age

of approximately 16 to 19 weeks.

Subjects received three dose levels of LPCN 1107 (400 mg BID, 600 mg BID, or 800 mg BID) in a

randomized, crossover manner during the first three treatment periods and then received five weekly injections of HPC during the

fourth treatment period.

During each of the LPCN 1107 treatment periods, subjects received a single dose of LPCN 1107 on Day 1

followed by twice daily administration from Day 2 to Day 8.

Following completion of the three LPCN 1107 treatment periods and a

washout period, all subjects received five weekly injections of HPC.

Results from this study demonstrated that average steady state

HPC levels (Cavg0-24) were comparable or higher for all three LPCN 1107 doses than for injectable HPC.

Additionally, HPC levels

as a function of daily dose were linear for the three LPCN 1107 doses.

Also, unlike the injectable HPC, steady state exposure was

achieved for all three LPCN 1107 doses within seven days.

We have also completed a proof-of-concept Phase 1b clinical study of

LPCN 1107 in healthy pregnant women in January 2015 and a proof-of-concept Phase 1a clinical study of LPCN 1107 in healthy non-pregnant

women in May 2014.

These studies were designed to determine the PK and bioavailability of LPCN 1107 relative to an IM HPC, as well

as safety and tolerability.

A traditional pharmacokinetics/pharmacodynamics

(“PK/PD”) based Phase 2 clinical study in the intended patient population is not expected to be required prior to entering

into Phase 3.

Therefore, based on the results of our multi-dose PK study we had an End-of-Phase 2 meeting and subsequent guidance

meetings with the FDA to define a Phase 3 development plan for LPCN 1107.

During the meetings, the FDA agreed to a randomized,

open-label, two-arm clinical study to include a LPCN 1107 arm and a comparator IM arm with treatment up to 23 weeks.

provided preliminary feedback on other critical Phase 3 study design considerations including:

positive feedback on the proposed

800 mg BID Phase 3 dose and dosing regimen;

confirmation of the use of a surrogate primary endpoint focusing on rate of delivery

less than 37 weeks gestation rather than on clinical infant outcomes;

acknowledgment that the use of a gestational age endpoint

would likely lead to any FDA approval, if granted, being a Subpart H approval;

and, recommendation of a non-inferiority (“NI”)

study margin of 7% with interim analyses.

A standard statistical design for an NI study based on the FDA feedback of 7% for the

primary endpoint may require approximately 1,100 subjects per treatment arm with a 90% power.

However, based on the FDA’s

suggestion of including an interim analysis in the NI design, an adaptive study design is under consideration that may allow for

fewer subjects.

We submitted the initial LPCN 1107 Phase 3 protocol to the FDA via an SPA in June 2017 and have received multiple

rounds of FDA’s feedback.

However, agreement with the FDA on the Phase 3 protocol via SPA has not occurred as we are waiting

for minutes from the FDA’s Advisory Committee meeting for AMAG Pharmaceuticals’

Makena which was held on October 29,

Final agreement with the FDA on the Phase 3 protocol, if reached, may or may not confirm the FDA’s preliminary feedback

on the Phase 3 design.

Additionally, a Phase 3 study will not occur until the results from a planned food-effect study with LPCN

1107 are reviewed by the FDA, though manufacturing scale-up work for LPCN 1107 has been completed.

Based on our capital resources and the

clinical status of our product candidates, we plan to primarily focus our efforts in 2020 on TLANDO and LPCN 1144.

We do not anticipate

the initiation of a Phase 3 study with LPCN 1107 to occur in 2020 unless and until additional capital is secured or the product

candidate is out-licensed.

We are exploring the possibility of licensing LPCN 1107 to a third party, although no licensing agreement

has been entered into by the Company.

No assurance can be given that any license agreement will be completed, or, if an agreement

is completed, that such an agreement would be on acceptable terms.

The FDA has granted

orphan drug designation to LPCN 1107 based on a major contribution to patient care.

Orphan designation qualifies Lipocine for various

development incentives, including tax credits for qualified clinical testing, and a waiver of the prescription drug user fee when

we file our NDA.

Financial Operations Overview

date, we have not generated any revenues from product sales and do not expect to do so until one of our product candidates receives

approval from the FDA.

Revenues to date have been generated substantially from license fees, royalty and milestone payments

and research support from our licensees.

Since our inception through June 30, 2020, we have generated $28.1 million in revenue

under our various license and collaboration arrangements and from government grants.

We may never generate revenues from TLANDO

or any of our other clinical or preclinical development programs or licensed products as we may never succeed in obtaining regulatory

approval or commercializing any of these product candidates.

Research and Development Expenses

and development expenses consist primarily of salaries, benefits, stock-based compensation and related personnel costs, fees paid

to external service providers such as contract research organizations and contract manufacturing organizations, contractual obligations

for clinical development, clinical sites, manufacturing and scale-up for late-stage clinical trials, formulation of clinical drug

supplies, and expenses associated with regulatory submissions.

Research and development expenses also include an allocation of

indirect costs, such as those for facilities, office expense, travel, and depreciation of equipment based on the ratio of direct

labor hours for research and development personnel to total direct labor hours for all personnel.

We expense research and development

expenses as incurred.

Since our inception, we have spent approximately $ 116 million in research and development expenses

through June 30, 2020.

a result of the CRL we received from the FDA on TLANDO’s NDA, we are uncertain as to whether we will incur additional research

and developments costs for TLANDO.

On January 16, 2020, we met with the FDA in a Post Action Meeting to review our CRL,

and based on these discussions, we do not expect to conduct any additional clinical trials with TLANDO for TRT.

However, any further

expenditures, if needed, are subject to numerous uncertainties regarding timing and cost to completion.

We expect to continue to incur significant

costs as we develop our other product candidates, including the ongoing LiFT Phase 2 clinical study with LPCN 1144.

In general, the cost of clinical trials

may vary significantly over the life of a project as a result of uncertainties in clinical development, including, among others:

the number of sites included in the trials;

the length of time required to enroll suitable subjects;

the duration of subject follow-ups;

the length of time required to collect, analyze and report trial results;

the cost, timing and outcome of regulatory review;

potential changes by the FDA in clinical trial and NDA filing requirements for testosterone replacement therapies.

We have also incurred significant manufacturing

costs to prepare launch supplies for TLANDO.

However, future expenditures are subject to numerous uncertainties regarding timing

and cost to completion, including, among others:

the timing and outcome of regulatory filings and FDA reviews and actions for TLANDO;

our dependence on third-party manufacturers for the production of satisfactory finished product for registration and launch

should regulatory approval be obtained;

the potential for future license or co-promote arrangements for TLANDO, when such arrangements will be secured, if at all,

and to what degree such arrangements would affect our future plans and capital requirements;

the effect on our product development activities of actions taken by the FDA or other regulatory authorities.

A change of outcome for any of these variables

with respect to the development of TLANDO and our other product development candidates could mean a substantial change in the costs

and timing associated with these efforts, will require us to raise additional capital, and may require us to reduce operations.

Given the stage of clinical development

and the significant risks and uncertainties inherent in the clinical development, manufacturing and regulatory approval process,

we are unable to estimate with any certainty the time or cost to complete the development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN

1107 and other product candidates.

Clinical development timelines, the probability of success and development costs can differ

materially from expectations and results from our clinical trials may not be favorable.

If we are successful in progressing

LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 or other product candidates into later stage development, we will require additional

The amount and timing of our future research and development expenses for these product candidates will depend on the

preclinical and clinical success of both our current development activities and potential development of new product candidates,

as well as ongoing assessments of the commercial potential of such activities.

Summary of Research and Development Expense

We are conducting on-going clinical and

regulatory activities with most of our product candidates.

Additionally, we incur costs for our other research programs.

The following

table summarizes our research and development expenses:

Three Months Ended June 30,

Six Months Ended June 30,

External service provider costs:

TLANDO XR (LPCN 1111)

Total external service provider costs

Internal personnel costs

Other research and development costs

Total research and development

We expect research and development expenses

to increase in the future as we complete on-going clinical studies, including the LiFT Phase 2 clinical study with LPCN

1144, as we conduct future clinical studies, including when and if we conduct Phase 2 clinical studies with LPCN 1148 and Phase

3 clinical studies with TLANDO XR and LPCN 1107, and as we manufacture commercial supplies of TLANDO pre-approval.

we are unable to raise additional capital, we may need to reduce research and development expenses in order to extend our ability

to continue as a going concern.

General and Administrative Expenses

General and administrative expenses consist

primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development,

marketing, sales and support functions.

Other general and administrative expenses include rent and utilities, travel expenses,

professional fees for auditing, tax and legal services, litigation settlement and market research and market analytics.

General and administrative expenses also

include expenses for the cost of preparing, filling and prosecuting patent applications and maintaining, enforcing and defending

intellectual property-related claims, including our on-going patent interference and patent infringement lawsuits against Clarus.

We expect that general and administrative

expenses will increase in the future as we incur additional legal fees in the on-going court cases with Clarus.

Additional areas

that may see increases as we mature as a public company include legal and consulting fees, accounting and audit fees, director

fees, increased directors’

and officers’

insurance premiums, fees for investor relations services and enhanced business

and accounting systems, litigation costs, professional fees and other costs.

However, if we are unable to raise additional capital,

we may need to reduce general and administrative expenses in order to extend our ability to continue as a going concern.

Other Expense (Income), Net

expense (income), net consists primarily of interest income earned on our cash, cash equivalents and marketable investment

securities, interest expense incurred on our outstanding Loan and Security Agreement and

losses (gains) on our warrant liability.

Results of Operations

of the Three Months Ended June 30, 2020 and 2019

following table summarizes our results of operations for the three months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Research and development expenses

General and administrative expenses

Interest and investment income

Interest expense

Loss on warrant liability

Research and Development Expenses

increase in research and development expenses during the three months ended June 30, 2020 was primarily due to increased

contract research organization and outside consulting and manufacturing costs related to the LPCN 1144 LiFT Phase 2 clinical

study in NASH subjects of $965,000, as well as a $213,000 increase in personnel expense.

These increases were offset by a $727,000

decrease in costs incurred in conjunction with TLANDO with the completion of the ABPM study in the first half of 2019, a $96,000

decrease in costs for TLANDO XR, a $25,000 decrease in contract manufacturing costs for LPCN 1107 and a $25,000 decrease in other

research and development expenses.

General and Administrative Expenses

increase in general and administrative expenses during the three months ended June 30, 2020 was primarily due to a $613,000

increase in legal costs associated with the following activities:

lawsuit filed against Clarus Therapeutics Inc.

for patent infringement

in April 2019, interference cases filed against Clarus and the on-going class action lawsuit defense.

In addition, there was a

$48,000 increase in personnel costs, offset by a $41,000 decrease marketing expense, a $34,000 decrease in administrative travel

expenses and a $19,000 decrease in other general and administrative expenses.

Interest and Investment Income

decrease in interest and investment income during the three months ended June 30, 2020 was due to lower interest rates and

lower average balances of marketable securities in 2020 compared to 2019.

Interest Expense

decrease in interest expense during the three months ended June 30, 2020 was due to a decrease in interest expense on our

Loan and Security Agreement with SVB, as a result of lower principal balances and lower interest rates in 2020 compared to 2019.

on Warrant Liability

We recorded a $2.1 million loss on warrant

liability during the three months ended June 30, 2020 related to the change in the fair value of outstanding common stock warrants

issued in the November 2019 Offering.

We did not record a similar change during the three months ended June 30, 2019 as there were

no similar warrants outstanding during this period.

The loss in 2020 was mainly attributable to an increase in the value of both

warrants exercised during the period and warrants outstanding as of June 30, 2020 as compared to March 31, 2020 due to an increase

in our stock price.

There were 10,006,000 common stock warrants exercised during the three months ended June 30, 2020.

are classified as a liability due to a provision contained within the warrant agreement which allows the warrant holder the option

to elect to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option

pricing model with certain defined assumptions upon a change of control.

The warrant liability will continue to fluctuate in the

future based on inputs to the Black-Scholes model including our current stock price, the remaining life of the warrants, the volatility

of our stock price, and the risk-free interest rate and the number of common stock warrants outstanding.

of the Six Months Ended June 30, 2020 and 2019

following table summarizes our results of operations for the six months ended June 30, 2020 and 2019:

Six months ended June 30,

Research and development expenses

General and administrative expenses

Interest and investment income

Interest expense

Loss on warrant liability

Income tax expense

Research and Development Expenses

increase in research and development expenses during the six months ended June 30, 2020 was primarily due to increased contract

research organization and outside consulting and manufacturing costs related to the LPCN 1144 LiFT Phase 2 clinical study

in NASH subjects of $2.6 million and a $270,000 increase in personnel expense.

These increases were offset by a $1.9 million decrease

in costs incurred in conjunction with TLANDO with the completion of the ABPM study in the first half of 2019, a $46,000 decrease

in costs for TLANDO XR, a $37,000 decrease in contract manufacturing costs for LPCN 1107 and a $20,000 decrease in other research

and development expenses.

General and Administrative Expenses

increase in general and administrative expenses during the six months ended June 30, 2020 was primarily due to a $1.7 million

increase in legal costs associated with the with the following activities:

lawsuit filed against Clarus for patent infringement

in April 2019, interference cases filed against Clarus and the on-going class action lawsuit defense, offset by a $11,000 decrease

in personnel costs, a $60,000 decrease in administrative travel expense, a $41,000 decrease in marketing expense and a $112,000

decrease in other administrative expenses.

Interest and Investment Income

decrease in interest and investment income during the six months ended June 30, 2020 was due to lower average balances of

marketable securities and lower interest rates in 2020 compared to 2019.

Interest Expense

decrease in interest expense during the six months ended June 30, 2020 was due to a decrease in interest expense on our

Loan and Security Agreement with SVB, as a result of lower principal balances and lower interest rates in 2020 compared to 2019.

on Warrant Liability

We recorded a $3.2 million loss on warrant

liability during the six months ended June 30, 2020 related to the change in the fair value of outstanding common stock warrants

issued in the November 2019 Offering.

We did not record a similar change during the six months ended June 30, 2019 as there were

no similar warrants outstanding during this period.

The loss in 2020 was mainly attributable to an increase in the value of both

warrants exercised during the period and warrants outstanding as of June 30, 2020 as compared to March 31, 2020 due to an increase

in our stock price.

There were 10,127,000 common stock warrants exercised during the three months ended June 30, 2020.

are classified as a liability due to a provision contained within the warrant agreement which allows the warrant holder the option

to elect to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option

pricing model with certain defined assumptions upon a change of control.

The warrant liability will continue to fluctuate in the

future based on inputs to the Black-Scholes model including our current stock price, the remaining life of the warrants, the volatility

of our stock price, and the risk-free interest rate and the number of common stock warrants outstanding.

Liquidity and Capital Resources

our inception, our operations have been primarily financed through sales of our equity securities, debt and payments received under

our license and collaboration arrangements.

We have devoted our resources to funding research and development programs, including

discovery research, preclinical and clinical development activities.

We have incurred operating losses in most years since our

inception and we expect to continue to incur operating losses into the foreseeable future as we evaluate our options related to

TLANDO should it receive approval and as we advance clinical development of LPCN 1144, TLANDO XR, LPCN 1148, LPCN 1107 and

any other product candidate, including continued research efforts.

of June 30, 2020, we had $18.3 million of unrestricted cash, cash equivalents and marketable investment securities compared

to $14.1 million at December 31, 2019.

Additionally, as of June 30, 2020 and December 31, 2019 we had $5.0 million of restricted

cash, which is required to be maintained as cash collateral under the SVB Loan and Security Agreement until TLANDO is approved

On April 21, 2020, we entered

into a loan (the “Loan”) from Silicon Valley Bank (“SVB”) in the aggregate amount of $234,000, pursuant

to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March

The Loan, which was in the form of a note dated April 21, 2020 issued by us, matures on April 21, 2022 and bears interest

at a rate of 1.0% per annum, payable monthly commencing on November 21, 2020.

The Loan may be prepaid by us at any time prior to

maturity with no prepayment penalties.

Funds from the Loan may only be used for payroll costs, costs used to continue group health

care benefits, mortgage payments, rent, utilities, and interest on other debt obligations incurred before February 15, 2020.

intend to use the entire Loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the Loan may be forgiven

if they are used for qualifying expenses as described in the CARES Act.

On February 27, 2020, we completed a registered

direct offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933,

as amended (“February 2020 Offering”).

The gross proceeds from the February 2020 Offering were approximately $6.0 million,

before deducting placement agent fees and other offering expenses of approximately $347,000.

In the February 2020 Offering, the

Company sold 10,084,034 Class A Units, with each Class A Unit consisting of one share of common stock and a one-half of one common

warrant to purchase one share of common stock, at a price of $0.595 per Class A Unit.

The common stock warrants were immediately

exercisable at an exercise price of $0.53 per share, subject to adjustment, and expire on February 27, 2025.

By their terms, however,

the common stock warrants cannot be exercised at any time that the common stock warrant holder would beneficially own, after such

exercise, more than 4.99% (or, at the election of the holder, 9.99%) of the shares of common stock then outstanding after giving

effect to such exercise.

of June 30, 2020, 3,491,807 common warrants to purchase one share of our common stock from the February 2020 Offering have

been exercised resulting in proceeds of approximately $1.9 million.

On November 18, 2019, we completed a public

offering of securities registered under an effective registration statement filed pursuant to the Securities Act of 1933, as amended

(“November 2019 Offering”).

The gross proceeds from the November 2019 Offering were approximately $6.0 million, before

deducting placement agent fees and other offering expenses of $404,000.

In the November 2019 Offering, the Company sold (i) 10,450,000

Class A Units, with each Class A Unit consisting of one share of common stock and a common warrant to purchase one share of common

stock, and (ii) 1,550,000 Class B Units, with each Class B Unit consisting of one pre-funded warrant to purchase one share of common

stock and one common warrant to purchase one share of common stock, at a price of $0.50 per Class A Unit and $0.4999 per Class

The pre-funded warrants, which were exercised for common stock in December 2019, were issued in lieu of common stock in

order to ensure the purchaser did not exceed certain beneficial ownership limitations.

The pre-funded warrants were immediately

exercisable at an exercise price of $.0001 per share, subject to adjustment.

Additionally, the common stock warrants were immediately

exercisable at an exercise price of $0.50 per share, subject to adjustment, and expire on November 17, 2024.

By their terms, however,

neither the pre-funded warrants nor the common stock warrants can be exercised at any time that the pre-funded warrant holder or

the common stock warrant holder would beneficially own, after such exercise, more than 4.99% (or, at the election of the holder,

9.99%) of the shares of common stock then outstanding after giving effect to such exercise.

of June 30, 2020, 10,127,000 common warrants to purchase one share of our common stock from the November 2019 Offering

have been exercised resulting in proceeds of approximately $5.1 million.

On January 5, 2018, we entered into the

Loan and Security Agreement with SVB pursuant to which SVB agreed to lend us $10.0 million.

The principal borrowed under the Loan

and Security Agreement bears interest at a rate equal to the Prime Rate, as reported in money rates section of The Wall Street

Journal or any successor publication representing the rate of interest per annum then in effect, plus one percent per annum, which

interest is payable monthly.

Additionally on April 1, 2020, we and SVB entered into a Deferral Agreement.

Under the Deferral Agreement,

principal repayments are deferred by six months and we are only required to make monthly interest payments during the deferral

The loan matures on June 1, 2022.

Previously, we were only required to make monthly interest payments until December 31,

2018, following which we also made equal monthly payments of principal and interest until the signing of the Deferral Agreement.

We will also be required to pay an additional final payment at maturity equal to $650,000 (the “Final Payment Charge”).

At our option, we may prepay all amounts owed under the Loan and Security Agreement (including all accrued and unpaid interest

and the Final Payment Charge).

In connection with the Loan and Security Agreement, we granted to SVB a security interest in substantially

all of our assets now owned or hereafter acquired, excluding intellectual property and certain other assets.

In addition, as TLANDO

was not approved by the FDA by May 31, 2018, we are required to maintain $5.0 million of cash collateral at SVB until such time

as TLANDO is approved by the FDA.

While any amounts are outstanding under the Loan and Security Agreement, we are subject to a

number of affirmative and negative covenants, including covenants regarding dispositions of property, business combinations or

acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants.

facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate

that is otherwise applicable plus 5.0% and would provide SVB, as collateral agent, with the right to exercise remedies against

us and the collateral securing the credit facility, including foreclosure against the property securing the credit facilities,

including its cash.

These events of default include, among other things, any failure by us to pay principal or interest due under

the credit facility, a breach of certain covenants under the credit facility, the Company’s insolvency, a material adverse

change, and one or more judgments against us in an amount greater than $100,000 individually or in the aggregate.

On March 6, 2017, we entered into the

Sales Agreement with Cantor pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate

offering price of up to $25.0 million through Cantor as our sales agent.

Cantor may sell our common stock by any method permitted

by law deemed to be an “at the market offering”

as defined in Rule 415(a)(4) of the Securities Act, including sales

made directly on or through the Nasdaq Capital Market or any other existing trade market for our common stock, in negotiated transactions

at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted

Cantor uses its commercially reasonable efforts consistent with its normal trading and sales practices and applicable law

and regulations to sell these shares.

We pay Cantor 3.0% of the aggregate gross proceeds from each sale of shares under the Sales

We have also provided Cantor with customary indemnification rights.

The shares of our common stock sold under

the Sales Agreement are sold and issued pursuant to our Registration Statement on Form S-3 (File No.

333-220942) (the “Form

S-3”), which was previously declared effective by the Securities and Exchange Commission, and the related prospectus and

one or more prospectus supplements.

We are not obligated to make any sales

of our common stock under the Sales Agreement.

The offering of our common stock pursuant to the Sales Agreement will terminate

upon the termination of the Sales Agreement as permitted therein.

We and Cantor may each terminate the Sales Agreement at any time

upon ten days’

prior notice.

of June 30, 2020, we have sold 6,635,535 shares of our common stock resulting in net proceeds of approximately $19.3 million

under the Sales Agreement which is net of $716,000 in expenses consisting of commissions paid to Cantor in connection with these

sales and other offering and accounting costs.

believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected operating

requirements through at least September 30, 2021 which includes an on-going clinical study for LPCN 1144, compliance with

regulatory requirements, including the NDA submission for TLANDO, and on-going litigation activities.

We have based this estimate

on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect

if additional activities are performed by us including pre-commercial and commercial activities for TLANDO and new clinical studies

for LPCN 1144, TLANDO XR and LPCN 1148.

While we believe we have sufficient liquidity and capital resources to fund our projected

operating requirements through at least September 30, 2021, we will need to raise additional capital at some point through the

equity or debt markets or through out-licensing activities, either before or after September 30, 2021, to support our operations.

If we are unsuccessful in raising additional capital our ability to continue as a going concern will be limited.

Further, our operating

plan may change, and we may need additional funds to meet operational needs and capital requirements for product development, regulatory

compliance and clinical trial activities sooner than planned.

In addition, our capital resources may be consumed more rapidly if

we pursue additional clinical studies for LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107.

Conversely, our capital resources could

last longer if we reduce expenses, reduce the number of activities currently contemplated under our operating plan or if we terminate

or suspend on-going clinical studies or intellectual property litigation, or if we terminate or settle any on-going litigation

We can raise capital pursuant to the

Sales Agreement in the ATM when not restricted due to terms of previous financings but may choose not to issue common stock if

our market price is too low to justify such sales in our discretion.

There are numerous risks and uncertainties associated with

the development and, subject to approval by the FDA, commercialization of our product candidates.

There are numerous risks and

uncertainties impacting our ability to enter into collaborations with third parties to participate in the development and potential

commercialization of our product candidates.

We are unable to precisely estimate the amounts of increased capital outlays and

operating expenditures associated with our anticipated or unanticipated clinical studies and ongoing development and pre-commercialization

All of these factors affect our need for additional capital resources.

To fund future operations, we will need to ultimately

raise additional capital and our requirements will depend on many factors, including the following:

further clinical development requirements or other requirements of the FDA related to approval of TLANDO;

the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities for

all of our product candidates, including LPCN 1144, TLANDO XR, LPCN 1148 and LPCN 1107;

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products

that we may develop;

the cost and timing of establishing sales, marketing and distribution capabilities, if any;

the terms and timing of any collaborative, licensing and other arrangements that we may establish;

the number and characteristics of product candidates that we pursue;

the cost, timing and outcomes of regulatory approvals;

the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments

or agreements relating to any of these types of transactions;

the extent to which we grow significantly in the number of employees or the scope of our operations.

may not be available to us on favorable terms, or at all.

Also, market conditions may prevent us from accessing the debt and equity

capital markets, including sales of our common stock through the ATM.

If we are unable to obtain adequate financing when needed,

we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or,

if any of our product candidates receive approval from the FDA, commercialization efforts.

We may seek to raise any necessary additional

capital through a combination of public or private equity offerings, including the ATM, debt financings, collaborations, strategic

alliances, licensing arrangements and other marketing and distribution arrangements.

These arrangements may not be available to

us or available on terms favorable to us.

To the extent that we raise additional capital through marketing and distribution arrangements,

other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights

to our product candidates, future revenue streams, research programs or product candidates or grant licenses on terms that may

not be favorable to us.

If we do raise additional capital through public or private equity offerings, the ownership interest of

our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences, warrants

or other terms that adversely affect our stockholders’

rights or further complicate raising additional capital in the future.

If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take

specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we are unable, for

any reason, to raise needed capital, we will have to reduce costs, delay research and development programs, liquidate assets,

dispose of rights, commercialize products or product candidates earlier than planned or on less favorable terms than desired or

reduce or cease operations.

Sources and Uses of Cash

The following table provides a summary

of our cash flows for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

Cash used in operating activities

$ (7,455,510 )

$ (5,560,807 )

Cash used in investing activities

Cash provided by financing activities

Net Cash Used in Operating Activities

During the six months ended June 30, 2020

and 2019, net cash used in operating activities was $7.5 million and $5.6 million, respectively.

Net cash used in operating activities

during the six months June 30, 2020 and 2019 was primarily attributable to cash outlays to support ongoing operations, including

research and development expenses and general and administrative expenses.

During 2020, we were performing activities related to

the LPCN 1144 LiFT Phase 2 paired biopsy clinical study and the submission of the TLANDO NDA.

During 2019, we were performing

activities related to the ABPM study for TLANDO and the POC liver imaging study for LPCN 1144.

Net Cash Used in

Investing Activities

During the six months ended June 30, 2020

and 2019, net cash used in investing activities was $117,000 compared to $3.5 million, respectively.

Net cash used in investing activities

during the six months ended June 30, 2020 was primarily the result of purchasing marketable investment securities, net, of $117,000.

Net cash used in investing activities during the six months ended June 30, 2019 was primarily the result of

purchasing marketable investment securities, net, of $3.5 million.

There were no capital expenditures for the six months

ended June 30, 2020 and 2019.

Net Cash Provided by Financing Activities

During the six months ended June 30, 2020

and 2019 net cash provided by financing activities was $11.7 million and $4.7 million, respectively.

Net cash provided by financing activities

during the six months ended June 30, 2020 was attributable to the net proceeds from the sale of 10,084,034 shares of common stock

pursuant to February 2020 Offering resulting in net proceeds of $5.7 million, to $6.9 million in proceeds from the exercise of

warrants and to $234,000 in loan proceeds under the Payment Protection Program offset by $1.1 million in debt principal repayments

under the SVB Loan and Security Agreement.

Net cash provided by financing activities

during the six months ended June 30, 2019 was primarily attributable to the net proceeds from the sale of 2,992,504 shares of common

stock pursuant to the ATM resulting in net proceeds of $6.3 million offset by $1.7 million in debt principal repayments under the

SVB Loan and Security Agreement.

Contractual Commitments and Contingencies

Long-Term Debt Obligations and Interest on Debt

January 5, 2018, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Silicon

Valley Bank (“SVB”) pursuant to which SVB agreed to lend us $10.0 million.

The principal borrowed under the Loan and

Security Agreement bears interest at a rate equal to the Prime Rate plus one percent per annum, which interest is payable monthly.

The loan matures on June 1, 2022 and we are required to make equal monthly payments of principal and interest for the remaining

term of the loan beginning in November 1, 2020 although there was a principal deferment period of six months beginning on April

1, 2020 due to COVID-19.

We will also be required to pay an additional final payment equal to $650,000 (the “Final Payment

Charge”) at maturity.

On April 21, 2020, we were

granted a loan from SVB in the aggregate amount of $234,000, pursuant to the Paycheck Protection Program (the “PPP”)

under Division A, Title I of the CARES Act, which was enacted March 27, 2020.

The PPP loan, which was in the form of a Note dated

April 21, 2020 issued by us, matures on April 21, 2022 and bears interest at a rate of 1.0% per annum, payable monthly commencing

on November 21, 2020.

The PPP loan may be prepaid by us at any time prior to maturity with no prepayment penalties.

the PPP loan may only be used for payroll costs, costs used to continue group health care benefits, mortgage payments, rent, utilities,

and interest on other debt obligations incurred before February 15, 2020.

We intend to use the entire loan amount for qualifying

Under the terms of the PPP, certain amounts of the PPP loan may be forgiven if they are used for qualifying expenses

as described in the CARES Act.

Purchase Obligations

enter into contracts and issue purchase orders in the normal course of business with clinical research organizations for clinical

trials and clinical and commercial supply manufacturing and with vendors for preclinical research studies, research supplies and

other services and products for operating purposes.

These contracts generally provide for termination on notice and are

cancellable obligations.

Operating Leases

In August 2004, we entered into an agreement

to lease our facility in Salt Lake City, Utah consisting of office and laboratory space which serves as our corporate headquarters.

On February 24, 2020, we modified and extended the lease through February 28, 2021.

Critical Accounting Policies and Significant Judgments and

management’s discussion and analysis of our financial condition and results of operations is based on our financial statements

which we have prepared in accordance with U.S.

generally accepted accounting principles.

In preparing our financial statements,

we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses 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

There have been no significant and material changes in our critical accounting policies during the six months

ended June 30, 2020, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition

and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates”

in our Form 10-K filed March

New Accounting Standards

to Note 12, in “Notes to Unaudited Condensed Consolidated Financial Statements”

for a discussion of accounting

standards not yet adopted.

Off-Balance Sheet Arrangements

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