Quoin Pharmaceuticals, Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included in Part I-Item 1 of this Form 10-Q, as well as our consolidated financial statements and notes thereto included in our Form 10-K. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q. Overview We are a clinical stage specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. Our initial focus is on the development of products, using our proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. Our first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary in-licensed Invisicare® technology, is under development as a potential treatment fort Netherton Syndrome (“NS”), a rare hereditary genetic disease. QRX003 is currently being tested in two clinical studies in the United States (“U.S.”) under an open Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). We are also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, we entered into Research Agreements with the Queensland University of Technology (“QUT”), under which we have obtained an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma. Our objective is to develop and commercialize proprietary therapeutic drug products. To this effect, we intend to develop and seek marketing approvals from the FDA and other worldwide regulatory bodies for rare and orphan diseases. To achieve these objectives, we plan to: ● complete the late-stage clinical testing of QRX003 and, if successful, file for marketing approval in the United States and other territories; ● prepare to commercialize QRX003 by establishing our own sales infrastructure in the U.S. and Europe and entering into distribution partnerships in other territories such as those currently established for Canada, Australia/New Zealand, the Middle East, China, Hong Kong, Taiwan, Latin America, Central and Eastern Europe, Turkey and Singapore; and ● pursue business development activities by seeking partnering, licensing, merger and acquisition opportunities or other transactions to further expand our pipeline and drug-development capabilities. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue our operations. See “Liquidity and Capital Resources”. ​ 18 Table of Contents ADS Ratio Change and Ordinary Share Reverse Split Effective July 18, 2023, the ratio of American Depositary Shares (“ADSs”) evidencing ordinary shares changed from 1 ADS representing five thousand (5,000) ordinary shares to 1 ADS representing sixty thousand (60,000) ordinary shares, which resulted in a 1 for 12 reverse split of the issued and outstanding ADSs. Effective November 8, 2023, the Company completed a 1 for 60,000 reverse split of the ordinary shares which resulted in the ratio ADSs evidencing ordinary shares to be changed from 1 ADS representing sixty thousand (60,000) ordinary shares to 1 ADS representing one (1) ordinary share. All ordinary share, ADSs and related option and warrant information presented in this section, as well as our financial statements and accompanying footnotes, has been retroactively adjusted to reflect the number of ordinary shares and ADSs resulting from the aforementioned ordinary share reverse split and ADS ratio changes. Key Events Clinical Development Quoin’s lead asset, QRX003, is currently in late-stage clinical development in the U.S. under an open IND application with the FDA. Five clinical sites in the U.S. have been opened for this study, patients are actively being screened and recruited into the study and dosing commenced in December 2022. This study is a randomized, double blinded assessment of two different doses of QRX003 versus a placebo vehicle in NS patients. The test materials are applied once daily, over a twelve-week period, to pre-selected areas of the patient’s body. Based on discussions with the FDA, a number of different clinical endpoints are being assessed in the study, including but not limited to, an Investigators Global Assessment (IGA), Patient’s Global Assessment (PaGA) and Pruritis. In November 2022, we submitted a protocol for our second clinical study in NS patients to the FDA under our currently open IND (the “Open Label Study”) . This study was cleared by the FDA to initiate in December 2022. Dosing commenced in March 2023, patients are actively being screened and recruited into the study,. This study is being conducted in ten NS patients who are currently receiving off-label systemic therapy, primarily systemic biologic therapy. This is an open-label study with no placebo control. While there is no assurance regarding the final results of the Open Label Study, we have received the initial positive clinical data based on the available data from six evaluable subjects completing the Open Label Study. Both of our NS clinical studies are running concurrently and utilize the same clinical trial sites and investigators. Public Offering On February 24, 2023 (the “February Closing Date”), we completed an offering (the “February Offering”) of 412,500 ordinary shares represented by 412,500 ADSs at a purchase price of $12.00 per ADS and a pre-funded warrant (the “February Pre-Funded Warrant”) to purchase 170,833 ordinary shares represented by 170,833 ADSs at a per pre-funded warrant price of $11.9988, with each ADS and February Pre-Funded Warrant accompanied by an ordinary warrant (the “February Common Warrant”) for aggregate gross proceeds of $7.0 million, resulting in net proceeds of approximately $5.8 million, after deducting the placement agent’s fees and offering expenses paid by us, and excluding the proceeds, if any, from the subsequent exercise of the February Common Warrants. Each February Common Warrant has an exercise price of $12.00 per ADS and expires on the fifth anniversary of the February Closing Date. On the February Closing Date, the holder of the February Pre-Funded Warrant exercised its Pre-Funded Warrant in full. In connection with the February Offering, we entered into a Securities Purchase Agreement (the “February Purchase Agreement”) with certain institutional investors. Under the February Purchase Agreement, subject to certain exemptions, we agreed not to: (i) for a period of ninety (90) days after the closing date of the February Offering, issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ADSs, ordinary shares or ordinary share equivalents or (ii) file any registration statement or amendment or supplement thereto, other than a registration statement on Form S-8 in connection with any employee benefit plan or any post-effective amendment to a registration statement declared effective by the Securities and Exchange Commission (the “SEC”) and (ii) for a period of 180 days after the closing date of the February Offering, enter into an agreement to effect a “variable rate transaction” as defined in the February Purchase Agreement. In connection with the February Offering, we entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both our offering completed in August 2022 (the “August Offering”) and the February Offering. The Warrant Amendments amended certain terms of the Common Warrants issued to such 2022 Purchasers in the August Offering. 19 Table of Contents Specifically, the Warrant Amendments reduced the exercise price of such warrants to $13.20 and extended the term during which those warrants could remain exercisable until February 24, 2028. Nasdaq Listing On April 5, 2023, we received a letter from Listing Qualifications staff of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that the closing bid price per ADS was below the required minimum of $1.00 for a period of 30 consecutive business days and that the we did not meet the minimum bid price requirements set forth in Nasdaq Rule 5550(a)(2). Pursuant to Nasdaq Rule 5810(c)(3)(A), we had a period of one hundred eighty (180) calendar days, or until October 2, 2023 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. On August 1, 2023, we received a letter from Nasdaq stating that the closing bid price per ADS was at $1.00 or greater for the last 10 consecutive business days. Accordingly, we regained compliance with Listing Rule 5550(a)(2) and the matter was closed. There can be no assurance that we will be able to maintain compliance with Nasdaq’s minimum bid-price requirement for continued listing. If our ADSs are delisted from Nasdaq, it will have a material negative impact on the actual and potential liquidity our securities, as well as a material negative impact on our ability to raise future capital. Components of Our Results of Operations Operating Expenses Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses. Research and Development Expenses Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We utilize outside consultants and third parties to conduct the majority of our research and development, under the supervision of our management team. Future research and development expenses may include: ● employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses, share-based compensation, overhead related expenses and travel related expenses for our research and development personnel; ● expenses incurred under agreements with CROs, as well as consultants that support the implementation of the clinical studies described above; ● manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch; ● formulation, research and development expenses related to QRX003; and other products we may choose to develop; and ● costs for sponsored research. Research and development activities will continue to be central to our business plan. Products in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to be significant over the next several years as personnel and compensation costs increase and we conduct late-stage clinical studies and prepare to seek regulatory approval for QRX003 and any other future product. 20 Table of Contents The duration, costs and timing of clinical trials of QRX003 and any other future product will depend on a variety of factors that include, but are not limited to: ● the number of trials required for approval; ● the per patient trial costs; ● the number of patients that participate in the trials; ● the number of sites included in the trials; ● the countries in which the trial is conducted; ● the length of time required to enroll eligible patients; ● the number of doses that patients receive; ● the drop-out or discontinuation rates of patients; ● the potential additional safety monitoring or other studies requested by regulatory agencies; ● the duration of patient follow-up; ● the timing and receipt of regulatory approvals; and ● the efficacy and safety profile of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of compensation and employee related expenses including non-cash stock-based compensation, professional fees and other corporate expenses. We anticipate that our general and administrative expenses may increase during the remainder of 2023 to support our continued research and development activities. These increases will include compensation and employee-related expenses including stock-based compensation, increased costs related to the potential hiring of personnel, travel costs and fees to outside consultants, lawyers and accountants. Other Expenses (income) Other expenses (income) consist primarily of non cash fair value adjustments of warrants, forgiveness of trade payable, interest income and unrealized loss on investments. 21 Table of Contents Results of Operations – Three months ended September 30, 2023 compared to the three months ended September 30, 2022 ​ The following table sets forth our results of operations for the three months ended September 30, 2023, compared to the three months ended September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ ​ ​ ​ ​ 2023 ​ 2022 ​ Change Operating expenses ​ ​ ​ General and administrative ​ $ 1,366,464 ​ $ 1,582,059 ​ $ (215,595) Research and development ​ 758,759 ​ 745,506 ​ 13,253 Total operating expenses ​ 2,125,223 ​ 2,327,565 ​ (202,342) Other (income) and expenses ​ ​ ​ ​ ​ ​ Unrealized loss and (gain) ​ (2,119) ​ 3,053 ​ (5,172) Interest income ​ (196,425) ​ (15,132) ​ (181,293) Interest expense ​ ​ — ​ ​ 714,081 ​ ​ (714,081) Total other (income) expense ​ (198,544) ​ 702,002 ​ (900,546) Net loss ​ $ (1,926,679) ​ $ (3,029,567) ​ $ 1,102,888 ​ General and Administrative Expenses General and administrative expenses were approximately $1,366,000 and $1,582,000, in the three months ended September 30, 2023 and 2022, respectively, representing a decrease of approximately $216,000, or approximately 14%. The decrease was primarily due to a decrease in public company costs of $73,000, decreased travel costs for $41,000 and a decrease in insurance costs of $53,000. Research and Development Expenses Our research and development expenses during the three months ended September 30, 2023 and 2022 were approximately $759,000 and $746,000, respectively, representing an increase of approximately $13,000, or approximately 2%. The increase was primarily due to an increase of $303,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology, offset by an approximately $278,000 credit for prior expenses incurred during the period of March 2023 to July 2023. We expect to increase our research and development efforts during the remainder of 2023 as we continue to conducting the studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above. We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set forth above. The license from Skinvisible was obtained in October 2019. Amortization of intangible assets was approximately $26,000 in each of the three month periods ended September 30, 2023 and 2022. Other (Income) and Expenses: Interest income and unrealized loss We earned approximately $196,000 in interest income and approximately $2,000 in unrealized gain, and earned approximately $15,000 in interest income and incurred approximately $3,000 in unrealized loss in the three months ended September 30, 2023 and September 30, 2022, respectively, from our cash and cash equivalents and investments in marketable debt securities. Interest expense on promissory notes we issued in 2020 “the 2020 Notes” was $714,000 in the three months ended September 30, 2022. 22 Table of Contents Results of Operations – Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 The following table sets forth our results of operations for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ ​ ​ ​ 2023 ​ 2022 ​ Change Operating expenses ​ ​ ​ General and administrative ​ $ 4,685,241 ​ $ 5,112,002 ​ $ (426,761) Research and development ​ 2,475,596 ​ 2,059,769 ​ 415,827 Total operating expenses ​ 7,160,837 ​ 7,171,771 ​ (10,934) Other (income) and expenses ​ ​ ​ ​ ​ ​ Forgiveness of trade payable ​ ​ — ​ ​ (416,000) ​ ​ 416,000 Warrant liability (income) expense ​ — ​ (77,237) ​ 77,237 Unrealized loss ​ 11,926 ​ ​ 3,053 ​ ​ 8,873 Interest income ​ (536,068) ​ (15,132) ​ (520,936) Interest expense ​ ​ — ​ 714,081 ​ (714,081) Total other (income) expense ​ (524,142) ​ 208,765 ​ (732,907) Net loss ​ $ (6,636,695) ​ $ (7,380,536) ​ $ 743,841 ​ General and Administrative Expenses General and administrative expenses were approximately $4,685,000 and $5,112,000, in the nine months ended September 30, 2023 and 2022, respectively, representing a decrease of approximately $427,000, or approximately 8%. The decrease was primarily due to a decrease in legal fees and other public company expenses of $528,000, a decrease in insurance of $156,000, offset by an increase of $259,000 in non-cash stock-based compensation expense. Research and Development Expenses Our research and development expenses during the nine months ended September 30, 2023 and 2022 were approximately $2,476,000 and $2,060,000, respectively, representing an increase of approximately $416,000, or approximately 20%. The increase was primarily due to an increase of $668,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology, offset by an approximately $278,000 credit for prior expenses incurred during the period of March 2023 to July 2023. We expect to increase our research and development efforts during the remainder of 2023 as we continue to conduct the studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above. We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set out above. The license from Skinvisible was obtained in October 2019. Amortization of intangible assets was approximately $78,000 in each of the nine month periods ended September 30, 2023 and 2022. Other (Income) and Expenses: Interest and unrealized loss We earned approximately $536,000 in interest income and incurred approximately $12,000 in unrealized loss, and earned approximately $15,000 in interest income and incurred approximately $3,000 in unrealized loss, in the nine months ended September 30, 2023 and September 30 2022, respectively, from our cash and cash equivalents and investments in marketable debt securities. Interest expense on the 2020 Notes was approximately $714,000 in the nine months ended September 30, 2022. 23 Table of Contents Warrant liability income We determined our warrants issued to investors in our 2020 Notes (the “2020 Noteholder Warrants”) required liability treatment at fair value, which was remeasured at each reporting period up to March 2022. The 2020 Noteholder Warrants were exchanged for new warrants and reclassified as an equity instrument in March 2022. In the nine months ended September 30, 2022, we incurred a fair value gain of ($77,000) related to the 2020 Noteholder Warrants. Forgiveness of trade payable In our balance sheet as of December 31, 2021 we had a liability of $584,000 representing amounts due to an investor relations firm for services commencing in 2017. Effective March 31, 2022, we entered into a settlement with such firm to decrease the liability to $168,000 which resulted in approximately $416,000 of income recognized in the nine months ended September 30, 2022. Liquidity and Capital Resources We have incurred net losses every year since inception and had an accumulated deficit of approximately $44.2 million at September 30, 2023. We have a limited operating history and have historically funded our operations through debt and equity financings. We incurred net losses of approximately $6.6 million and negative cash flows from operations of $4.6 million for the nine months ended September 30, 2023. At September 30, 2023, we had cash and cash equivalent balances totaling $3.2 million and investments of $10.8 million. We have determined that we have sufficient resources to effect our business plan for at least one year from the issuance of the unaudited consolidated financial statements included in this report. However, we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Additional financing will be required to complete the research and development of our therapeutic targets and our other operating requirements, which may not be available at acceptable terms, if at all. If we are unable to obtain additional funding when it becomes necessary, the development of our product candidates will be impacted and we would likely be forced to delay, reduce, or terminate some or all of our development programs, all of which could have a material adverse effect on our business, results of operations and financial condition. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will continue to increase in 2023 as we advance the clinical development of QRX003. Future Funding Requirements We will need to obtain further funding through public or private offerings of our capital stock, debt financing, collaboration and licensing arrangements or other sources, the requirements for which will depend on many factors, including: ● the scope, timing, rate of progress and costs of our drug development efforts, preclinical development activities, the timing of laboratory testing and clinical trials for our product candidates; ● the number and scope of clinical programs we decide to pursue; ● the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates; ● the scope and costs of development and commercial manufacturing activities; ● the cost and timing associated with commercializing our product candidates, if they receive marketing approval; ● the extent to which we acquire or in-license other product candidates and technologies; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; 24 Table of Contents ● our ability to establish and maintain collaborations on favorable terms, if at all; ● our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval; ● our implementation of operational, financial and management systems; and ● the costs associated with being a public company. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of QRX003, any future product, or potentially discontinue operations. To the extent that we raise additional capital through the sale of our equity or convertible debt securities, and pursuant to the exercise of warrants issued to our investors in the August Offering and February Offering, the ownership interest of our equity holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or proposed products, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market any future product that we would otherwise prefer to develop and market ourselves. Summary Statement of Cash Flows As of September 30, 2023, we had approximately $3,163,000 in cash and cash equivalents and $10,818,000 in investments in marketable securities. The table below presents our cash flows for the nine month periods ended September 30, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ 2023 2022 Net cash used in operating activities ​ $ (4,640,784) ​ $ (6,538,390) Net cash used in investing activities ​ (455,684) ​ (10,149,121) Net cash provided by financing activities ​ 5,399,266 ​ 14,454,570 Net increase (decrease) in cash and cash equivalents ​ $ 302,798 ​ $ (2,232,941) ​ Operating Activities Net cash used in operating activities was approximately $4,641,000 and $6,538,000 in the nine months ended September 30, 2023 and 2022, respectively. The decrease in 2023 was primarily due to a decrease in prepaid expenses and increase in accrued expenses, offset by a decrease in accounts payable. 25 Table of Contents Investing Activities Net cash used in investing activities was approximately $456,000 and $10,149,000 in the nine months ended September 30, 2023 and 2022, respectively. The cash used in investing activities for the nine months ended September 30, 2023 consisted of net purchases of short maturity US Treasury Bills from the proceeds of the February Offering, and the cash used in investing activities in the nine months ended September 30, 2022 consisted consisted of net purchases of short maturity US Treasury Bills from the proceeds of the August Offering and payments of remaining amounts due under our license agreement with Skinvisible, see “Research and Development Commitments” below. Financing Activities Net cash provided by financing activities was approximately $5,399,000 for the nine months ended September 30, 2023. The net cash provided increased due to the receipt of approximately $5,849,000 in net proceeds from the February Offering partially offset by repayments of amounts due to officers of $450,000. Net cash provided by financing activities in the nine months ended September 30, 2022 was $14,545,000, representing net proceeds of $14.9 million from the August 2022 Offering, offset by repayments of amounts due to officers of $450,000. Research and Development Commitments In October 2019, Quoin Inc. entered into the Exclusive Licensing Agreement (as amended from time to time, the “License Agreement”) with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted us an exclusive royalty-bearing license relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including those related to QRX003 and QRX004. We made Skinvisible a one-time non-refundable, non-creditable license fee of $1 million (the “License Fee”). In addition, we agreed to pay Skinvisible a single digit royalty percentage of our net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. We also agreed to pay Skinvisible 25% of any revenues we receive as royalties in the event that we sublicense any licensed products to a third party. The License Agreement also requires that we make a $5 million payment to Skinvisible upon receiving approval in the U.S. or European Union, whichever occurs first, for the first drug product developed using intellectual property licensed thereunder. In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of three years with Therapeutics Inc. for managing preclinical and clinical development for new products in the field of dermatology. The agreement required the execution of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. A work order was entered into in June 2022 for the first QRX003 clinical study at an expected estimated cost of approximately $4.4 million through 2024. A further work order was entered into in December 2022 for the second QRX003 clinical study at an expected estimated cost of approximately $830,000 through 2024. For the three and nine months ended September 30, 2023 and 2022, we incurred a research and development expense under these agreements of approximately $155,000 and $1,113,000, and $423,000 and $904,000, respectively. During the three months ended September 30, 2023, we received a credit of approximately $278,000 applied to prior expenses incurred during the period of March 2023 to July 2023. In November 2021, we entered into a commitment with Queensland University of Technology for research related services associated with Netherton Syndrome of approximately $250,000 for an initial expected period of eighteen months. In May 2022, we entered into a commitment with Queensland University of Technology for research related services associated with Scleroderma of approximately $610,000 for an initial expected period of eighteen months. For the three and nine months ended September 30, 2023 and 2022, we incurred research and development costs related to these agreements of approximately $85,000 and $361,000, and $173,000 and $250,000, respectively. Critical Accounting Policies and Use of Estimates There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2022. 26 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information otherwise required under this Item 3.