What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 100 added, 77 removed, 452 unchanged (28% of the section changed)

29 unchanged sentences

10,000,000 shares authorized;

no shares issued and outstanding at March 31, 2023 and December 31, 2022

no shares issued and outstanding at June 30, 2023 and December 31, 2022

Common stock, $ 0.001 par value:

120,000,000 shares authorized;

56,852,404 and 56,612,429 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

56,896,068 and 56,612,429 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

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(in thousands, except share and per share data)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Product revenue, net

License revenue

Total revenues

Costs and expenses:

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Loss from operations

Other income:

Other expense, net

Other income (expense):

Other income (expense), net

Interest expense

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Balance at March 31, 2023

Stock-based compensation expense

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

Foreign currency translation adjustment

Unrealized gain on marketable securities

Balance at June 30, 2023

Balance at December 31, 2021

4 unchanged sentences

Balance at March 31, 2022

Stock compensation expense

Issuance of common stock in connection with exercise of stock options

Unrealized gain on marketable securities

Unrealized loss on RareStone equity

Balance at June 30, 2022

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

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(in thousands)

Three months ended March 31,

Six months ended June 30,

Operating activities

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Non-cash interest expense and amortization of debt issuance costs

Unrealized gain on short-term investments

Non-cash rent expense

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Deferred revenue

Other long-term assets

Other long-term assets, net

Accounts payable, accrued expenses and other liabilities

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Maturities of short-term investments

Payment of milestone obligation under license agreement

Acquisition of IPR&D assets, including transaction costs

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Financing activities

Repayment of deferred royalty obligation

Proceeds from the exercise of stock options

Proceeds from issuance of common stock from ESPP

Repayments on deferred royalty obligation

Proceeds from royalty financing agreement, net of issuance costs

Net cash (used in) provided by financing activities

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Supplemental disclosure of non-cash investing activities:

Deferred financing costs in accrued expenses

Holdback payable associated with the acquisition, in accrued expenses

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We are focused on advancing our lead asset, IMCIVREE ® (setmelanotide), as a precision medicine designed to treat hyperphagia and severe obesity caused by rare melanocortin-4 receptor (MC4R) pathway diseases.

While obesity affects hundreds of millions of people worldwide, we are advancing IMCIVREE ® (setmelanotide) for a subset of individuals who have hyperphagia, a pathological hunger, and severe obesity due to an impaired MC4R pathway, which may be caused by traumatic injury or genetic variants.

While obesity affects hundreds of millions of people worldwide, we are advancing IMCIVREE ® (setmelanotide) for a subset of individuals who have hyperphagia, a pathological hunger that leads to abnormal food-seeking behaviors, and severe obesity due to an impaired MC4R pathway, which may be caused by traumatic injury or genetic variants.

The MC4R pathway is an endocrine pathway in the brain that is responsible for regulating hunger, caloric intake and energy expenditure, which consequently affect body weight.

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There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic may continue to impact its patients, employees, suppliers, vendors, business partners and distribution channels.

While the pandemic did not materially affect the Company's financial results and business operations for the three months ended March 31, 2023, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

While the pandemic did not materially affect the Company's financial results and business operations for the three and six months ended June 30, 2023, the Company is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to numerous uncertainties.

The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary.

The Company has incurred operating losses and negative cash flows from operations since inception.

As of March 31, 2023, the Company had an accumulated deficit of $ 762,237 .

As of June 30, 2023, the Company had an accumulated deficit of $ 808,940 .

The Company has primarily funded these losses through the proceeds from the sales of common and preferred stock, asset sales, royalty financing, out-license arrangements, as well as capital contributions received from the former parent company, Rhythm Holdings LLC.

To date, the Company has minimal product revenue and management expects operating losses to continue for the foreseeable future.

The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, commercialization activities and general and administrative functions relating to these operations.

The future success of

the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations.

At March 31, 2023, the Company had $ 294,582 of cash and cash equivalents and short-term investments on hand.

The Company has devoted substantially all of its resources to its drug development efforts, comprising of research and development, the acquisition of in process research and development assets, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property, commercialization activities and general and administrative

functions relating to these operations.

The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations.

At June 30, 2023, the Company had $ 253,602 of cash and cash equivalents and short-term investments on hand.

In the future, the Company will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, product sales and funded research and development programs to maintain the Company's operations and meet the Company's obligations.

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As permitted under these rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted.

The accompanying condensed consolidated balance sheet as of March 31, 2023, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2023 and 2022 and the condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 and the related footnote disclosures are unaudited.

The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 and the related footnote disclosures are unaudited.

In management's opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2022 and include all adjustments, which are all normal recurring adjustments, necessary for the fair presentation of the interim financial statements.

The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the full fiscal year, any other interim periods, or any future year or period.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements.

As of March 31, 2023, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

As of June 30, 2023, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

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These reclassifications had no effect on the reported results of operations or cash flows.

Specifically, in the condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2022, the Company has reclassified $ 160 of interest income which was previously recorded within other (expense) income, net to interest income.

Specifically, in the condensed consolidated statement of operations and comprehensive loss, the Company reclassified from other (expense) income to interest income $ 274 and $ 434 for the three and six months ended June 30, 2022, respectively.

The Company also reclassified from other (expense) income to interest expense $ 46 for each of the three and six months ended June 30, 2022.

In the condensed consolidated statements of cash flows, the Company reclassified $ 1,705 to accounts receivable and $ 1,580 to inventory from prepaid expenses and other current assets for the six months ended June 30, 2022.

The reason for the reclassifications was to conform with the current year’s presentation.

Segment Information

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The Company does not require collateral to secure amounts due from its customers.

As of March 31, 2023 and December 31, 2022, approximately 83 % and 85 % of all of the Company’s revenue was generated from a single customer in the United States.

For the three months ended June 30, 2023 and 2022, approximately 84 % and 86 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

For the six months ended June 30, 2023 and 2022, approximately 83 % and 90 %, respectively, of all of the Company’s revenue was generated from a single customer in the United States.

As of June 30, 2023 and December 31, 2022, approximately 80 % and 78 %, respectively, of the Company’s accounts receivable was outstanding from a single customer in the United States.

The Company relies on third-party manufacturers and suppliers for the manufacture and supply of its product.

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The Company relies on separate third parties to perform genetic testing in the United States and Europe, respectively.

The inability of the vendor to fulfill testing services for the Company could materially impact future operating results and adversely impact our ability to further develop setmelanotide.

The inability of the vendor to fulfill testing services for the Company could materially impact future operating

results and adversely impact our ability to further develop setmelanotide.

A change in the relationship with the genetic testing service providers, or an adverse change in their business, could materially impact future operating results.

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The Company analyzes amounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers.

As of March 31, 2023 and December 31, 2022, the Company determined an allowance for doubtful account was not required based upon our review of contractual payments and our customers’ circumstances.

As of June 30, 2023 and December 31, 2022, the Company determined an allowance for doubtful accounts was not required based upon our review of contractual payments and our customers’ circumstances.

Revenue Recognition

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These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns.

data and forecasted customer buying and payment patterns.

Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract.

The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is

considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Actual amounts of consideration ultimately received may differ from our estimates.

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Provisions for cash discounts are recorded as reductions of accounts receivable, and fees, rebates, and other incentives are recorded as a component of accrued expenses.

During the three months ended March 31, 2023 and 2022, we recorded product revenue, net, of $ 11,469 and $ 1,498 , respectively.

The table that summarizes balances and activity in each of the product revenue allowance and reserve categories has not been included for the three months ended March 31, 2023 due to the immateriality of the revenue recognized during the periods.

License Agreements

We generate revenue from license or similar agreements with pharmaceutical companies for the development and commercialization of certain of our products and product candidates.

Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances,

research and development services, and participation on certain committees with the counterparty.

Payments made by the customers may include non-refundable upfront fees, payments upon the exercise of customer options, payments based upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized.

Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances, research and development services, and participation on certain committees with the counterparty.

Payments made by the customers may include non-refundable upfront fees, payments upon the exercise of customer options, payments based

upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized.

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize the transaction price allocated to the license as revenue upon transfer of control of the license.

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According to the terms of the RareStone License , RareStone has agreed to seek local approvals to commercialize IMCIVREE for the treatment of obesity and hyperphagia due to biallelic POMC, PCSK1 or LEPR deficiency, as well as Bardet-Biedl and Alström syndromes.

Additionally, RareStone has agreed to fund efforts to identify and enroll patients from China in the Company’s global EMANATE trial, a Phase 3, randomized, double-blind, placebo-controlled trial to

evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of POMC/PCSK1 or LEPR;

Additionally, RareStone has agreed to fund efforts to identify and enroll patients from China in the Company’s global EMANATE trial, a Phase 3, randomized, double-blind, placebo-controlled trial to evaluate setmelanotide in four independent sub-studies in patients with obesity due to a heterozygous variant of POMC/PCSK1 or LEPR;

certain variants of the SRCI gene, and certain variants of the SH2B1 gene.

In accordance with the terms of the RareStone License , RareStone made an upfront payment to Rhythm of $ 7,000 and issued Rhythm 1,077,586 ordinary shares.

In accordance with

the terms of the RareStone License , RareStone made an upfront payment to Rhythm of $ 7,000 and issued Rhythm 1,077,586 ordinary shares.

The Company is eligible to receive development and commercialization milestones of up to $ 62,500 , as well as tiered royalty payments on annual net sales of IMCIVREE.

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The Company determined that the RareStone License contains two performance obligations, the delivery of the license and the supply of clinical and commercial product.

The Company further determined the supply of commercial product to RareStone contains a significant future discount and estimates the discount to be $ 1,286 , which is recorded as a component of deferred revenue on the condensed consolidated balance sheet at March 31, 2023 and December 31,2022.

Based on a relative fair-value allocation between the license and the manufacture of clinical and commercial product, the Company recognized $ 6,754 of license revenue in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2022 (recorded in the second quarter of 2022 upon the Company fulfilling its obligations in transferring the license to RareStone).

Based on a relative fair-value allocation between the license and the manufacture of clinical and commercial product, the Company recognized $ 6,754 of license revenue in the consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2022 upon the Company fulfilling its obligations in transferring the license to RareStone.

The discount related to commercial manufacturing supply will be deferred and recognized over the commercial supply period or upon termination of the agreement.

No license revenue was recognized during the three-month periods ended March 31, 2023 or 2022, respectively.

On October 28, 2022, we delivered written notice, or the Notice, to RareStone that we have terminated the RareStone License for cause.

No license revenue was recognized during the three and six month periods ended June 30, 2023, respectively.

On October 28, 2022, we delivered written notice, or the October Notice, to RareStone that we have terminated the RareStone License for cause.

In accordance with the Notice, we maintain that RareStone has materially breached its obligations under the RareStone License to fund, perform or seek certain key clinical studies and waivers, including with respect to our global EMANATE trial, among other obligations.

On December 21, 2022, RareStone provided written notice to us that it objects to the claims in the Notice, including our termination of the RareStone License for cause.

On March 16, 2023, we provided written notice to RareStone reaffirming our position that RareStone has materially breached its obligations under the RareStone License and that we have terminated the RareStone License for cause, and also requested documentation supporting RareStone’s purported dispute notice objecting to the claims in the Notice.

RareStone may attempt to cure the alleged breaches, which the Company believe to be incurable, within the timeframe specified under the RareStone License.

On March 16, 2023, we provided written notice, or the March Notice, to RareStone reaffirming our position that RareStone has materially breached its obligations under the RareStone License and that we have terminated the RareStone License for cause, and also requested documentation supporting RareStone’s purported dispute notice objecting to the claims in the Notice.

On May 10, 2023, RareStone provided written notice to the Company reaffirming its objections to the claims in our October Notice and March Notice, including to the Company’s termination of the RareStone License for cause.

Deferred Royalty Obligation

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To the extent the Company’s estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, the Company will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of our deferred royalty obligation.

The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization

period of the issuance costs requires the Company to make estimates that could impact the classification of such costs, as well as the period over which such costs will be amortized.

The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs requires the Company to make estimates that could impact the classification of such costs, as well as the period over which such costs will be amortized.

Prior to receiving approval from the FDA in November 2020 to sell IMCIVREE in the United States, the Company expensed all costs incurred related to the manufacture of IMCIVREE as research and development expense because of the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates.

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If such assets are considered to be impaired, the Company measures the impairment to be recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, less the cost to sell.

No events or changes in circumstances existed to require an impairment assessment during the three months ended March 31, 2023 and 2022, respectively.

Acquired IPR&D and Milestones Expenses

No events or changes in circumstances existed to require an impairment assessment during the three and six months ended June 30, 2023 and 2022, respectively.

Acquired IPR&D and Milestone Expense

In an asset acquisition, payments incurred prior to regulatory approval to acquire rights to in-process research and development projects are expensed as acquired IPR&D and recorded as a component of research and development expense in the condensed consolidated statements of operations and comprehensive net loss unless the project has an alternative future use.

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Where contingent development milestone payments are due to third parties, prior to regulatory approval, the payment obligations are expensed when the milestone results are achieved.

Regulatory and commercial milestone payments made to third parties

subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Regulatory and commercial milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of products sold over the remaining useful life of the related product.

Foreign Currency Translation

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Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at March 31, 2023 and December 31, 2022 were carried at fair value, determined according to the fair value hierarchy.

The Company’s cash equivalents and marketable securities, derivative liability and RareStone equity at June 30, 2023 and December 31, 2022 were carried at fair value, determined according to the fair value hierarchy.

See Note 6 for further discussion.

The carrying amounts reflected in the consolidated balance sheets for accounts payable and accrued expenses and other current liabilities approximate their fair values due to their short-term maturities at March 31, 2023 and December 31, 2022, respectively.

Net Loss Per Share

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Three Months Ended

Six Months Ended

Stock options

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The assets acquired were In-Process Research and Development (IPR&D) assets.

However, since the IPR&D assets were determined to have no alternative future use, the Company recognized the $ 5,400 of purchase consideration as research and development expense in the three months ended March 31, 2023.

However, since the IPR&D assets were determined to have no alternative future use, the Company recognized the $ 5,650 of purchase consideration as research and development expense in the six months ended June 30, 2023.

The Company determined that the additional contingent consideration did not meet the definition of a derivative as of the acquisition date.

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Xinvento's results of operations are included in the condensed consolidated financial statements from the date of acquisition.

For the three months ended March 31, 2023, the net loss associated with the operations of Xinvento were de-minimis in the Company’s condensed consolidated statements of operations.

For the three and six months ended June 30, 2023, the net loss associated with the operations of Xinvento was de minimis in the Company’s condensed consolidated statements of operations.

Inventory consists of the following:

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Fair Value of Financial Assets and Liabilities

As of March 31, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $ 294,582 and $ 333,288 , respectively, which approximates fair value.

As of June 30, 2023 and December 31, 2022, the carrying amount of cash and cash equivalents and short-term investments was $ 253,602 and $ 333,288 , respectively, which approximates fair value.

Cash and cash equivalents and short-term investments includes investments in U.S.

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Fair Value Measurements as of

March 31, 2023 using:

June 30, 2023 using:

Cash equivalents:

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Derivative liability

The estimated fair value of the derivative liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty was determined using Level 3 inputs.

The estimated fair value of the derivative liability related to our Royalty Interest Financing Agreement (RIFA) with HealthCare Royalty Partners was determined using Level 3 inputs.

The fair value measurement of the derivative liability is sensitive to changes in the unobservable inputs used to value the financial instrument.

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and (6) the probability of a change in control occurring during the term of the instrument.

Three months ended

Six months ended

Beginning aggregate estimated fair value of Level 3 RareStone equity

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Ending aggregate estimated fair value of Level 3 RareStone equity

Three months ended

Six months ended

Beginning aggregate estimated fair value of Level 3 liabilities

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The following tables summarize the Company's marketable securities:

March 31, 2023

June 30, 2023

Corporate debt securities and commercial paper (due within 1 year)

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The Company estimated the incremental borrowing rate for the leased asset based on a range of comparable interest rates the Company would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

As of March 31, 2023, the Company has not entered into any lease arrangements classified as a finance lease.

As of June 30, 2023, the Company has not entered into any lease arrangements classified as a finance lease.

The Company’s corporate headquarters is located in Boston, Massachusetts.

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The Company has not included the five-year renewal option to extend the lease in its measurement of the right-of-use asset or lease liability.

The following table presents the maturities of the Company’s operating lease liability related to office space as of March 31, 2023, all of which is under a non-cancellable operating lease:

The following table presents the maturities of the Company’s operating lease liability related to office space as of June 30, 2023, all of which is under a non-cancellable operating lease:

Operating Lease

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Intangible Assets

As of March 31, 2023

As of June 30, 2023

As of December 31, 2022

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Capitalized Milestones

As of March 31, 2023, the Company’s finite-lived net intangible assets, which totaled $ 7,669 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

As of June 30, 2023, the Company’s finite-lived net intangible assets, which totaled $ 7,456 resulted from the capitalization of certain milestone payments made to Ipsen Pharma, S.A.S., or Ipsen, in accordance with the terms of the Company’s license agreement with Ipsen, in connection with the Company’s first commercial sale of IMCIVREE in the U.S.

in March 2021 and in France in March 2022.

As of March 31, 2023, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 and $ 130 for the three months ended March 31, 2023 and 2022, respectively Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive loss.

The Company did not record an income tax provision for the three months ended March 31, 2023 and 2022, respectively as the Company generated sufficient tax losses during the period.

As of June 30, 2023, amortization expense for the next five years and beyond is summarized as follows:

Amortization expense totaled $ 214 , $ 428 , $ 114 and $ 216 for the three and six months ended June 30, 2023 and 2022, respectively.

Amortization expense is included in cost of sales in the condensed consolidated statements of operations and comprehensive loss.

The Company did not record an income tax provision for the three months ended June 30, 2023 and 2022, respectively, as the Company generated sufficient tax losses during the period.

The Company expects to generate sufficient tax losses in the current year to offset income and thus no current year liability is expected.

The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.

As of March 31, 2023, an aggregate of 14,547,139 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options, restricted stock units, and performance stock units that have been issued totaling 8,632,792 and 1,340,676 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

As of June 30, 2023, an aggregate of 14,503,475 shares of common stock were reserved for future issuance under the Company’s stock plans, including outstanding stock options, restricted stock units, and performance stock units that have been issued totaling 8,723,552 and 1,340,676 shares are available for future grants under the Company’s 2017 Employee Stock Purchase Plan.

On February 9, 2022, the Company’s board of directors adopted the Rhythm Pharmaceuticals, Inc.

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Other terms of awards, including vesting requirements, are determined by the Company’s board of directors and are subject to the provisions of the Inducement Plan.

Stock options granted to employees generally vest over a four-year period but may be granted with different vesting terms.

Stock options

granted to employees generally vest over a four-year period but may be granted with different vesting terms.

Certain options may provide for accelerated vesting in the event of a change in control.

Stock options granted under the Inducement Plan expire no more than 10 years from the date of grant.

As of March 31, 2023, 384,840 stock option awards have been issued under the Inducement Plan.

As of March 31, 2023, 197,165 restricted stock unit awards have been granted under the Inducement Plan.

As of March 31, 2023, 417,995 shares of common stock are available for future grant under the Inducement Plan.

As of June 30, 2023, 469,430 stock option awards have been issued under the Inducement Plan.

As of June 30, 2023, 234,585 restricted stock unit awards have been granted under the Inducement Plan.

As of June 30, 2023, 295,985 shares of common stock are available for future grant under the Inducement Plan.

Related-Party Transactions

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 322 and $ 480 for the three months ended March 31, 2023 and 2022, respectively.

Outstanding payments due to these related parties as of March 31, 2023 and December 31, 2022 were $ 75 and $ 13 , respectively, and were included within accounts payable on the condensed consolidated balance sheet.

Expenses paid directly to consultants and vendors considered to be related parties amounted to $ 383 , $ 705 , $ 498 and $ 978 for the three and six months ended June 30, 2023 and 2022, respectively.

Outstanding payments due to these related parties as of June 30, 2023 and December 31, 2022 were $ 6 and $ 13 , respectively, and were included within accounts payable on the condensed consolidated balance sheet.

Long-Term Obligations

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We are entitled to receive the remaining $ 25,000 of the Investment Amount forty-five business days following achievement of a specified amount of cumulative net sales of IMCIVREE between July 1, 2022 and September 30, 2023.

On July 28, 2023, we gave notice to the Investors that we achieved the specified cumulative net sales milestone and, based on the terms of the agreement, we expect to receive the remaining $ 24,375 of the Investment Amount net of debt issuance costs during the third quarter of 2023.

As consideration for the Investment Amount and pursuant to the RIFA, we agreed to pay the Investors a tiered royalty on our annual net revenues, or Revenue Interest, including worldwide net product sales and upfront payments and milestones.

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The total Revenue Interests payable by us to the Investors is capped between 185 % and 250 % of the Investment Amount paid, dependent on the aggregate royalty paid between 2028 and 2032.

If a change of control of occurs,

the Investors may accelerate payments due under the RIFA up to the Hard Cap plus any other obligations payable under the RIFA.

If a change of control of occurs, the Investors may accelerate payments due under the RIFA up to the Hard Cap plus any other obligations payable under the RIFA.

The repayment period commenced on July 8, 2022 for the Initial Investment Amount, and expires on the earlier of (i) the date at which the Investors received cash payments totaling an aggregate of a Hard Cap ranging from 185 % to 250 % of the Initial Investment Amount or (ii) the legal maturity date of July 8, 2034.

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In the event of a change of control, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time, ranging from 185 % to 250 % plus any Under Performance Payment of the Investment Amount less payments previously received by Investors.

In addition, upon the occurrence of an event of default, including, among others, our failure to pay any amounts due to Investors under the deferred royalty obligation, insolvency, our failure to pay indebtedness when due, the revocation of regulatory approval of IMCIVREE in the U.S.

In addition, upon the occurrence of an event of default, including, among

others, our failure to pay any amounts due to Investors under the deferred royalty obligation, insolvency, our failure to pay indebtedness when due, the revocation of regulatory approval of IMCIVREE in the U.S.

or our breach of any covenant contained in the RIFA and our failure to cure the breach within the prescribed time frame, we are obligated to pay Investors an amount equal to the Hard Cap in effect at the time of default ranging from 185 % to 250 % plus any Under Performance Payment of the Investment Amount less payments previously received by Investors.

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We determined the fair value of the derivative using an option pricing Monte Carlo simulation model taking into account the probability of change of control occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements.

The aggregate fair value of the embedded derivative liability was $ 1,290 and $ 1,340 as of March 31, 2023 and December 31, 2022, respectively.

The aggregate fair value of the embedded derivative liability was $ 1,320 and $ 1,340 as of June 30, 2023 and December 31, 2022, respectively.

We will remeasure the embedded derivative to fair value each reporting period until the time the features lapse and/or termination of the deferred royalty obligation.

For the three-month period ended March 31, 2023 we recognized other income in the amount of $ 50 , due to the remeasurement of the embedded derivative liability.

The carrying value of the deferred royalty obligation as of March 31, 2023 was $ 77,520 based on $ 75,000 of proceeds, net of the fair value of the bifurcated embedded derivative liability upon execution of the RIFA, and debt issuance costs incurred.

The carrying value of the deferred royalty obligation approximated fair value as of March 31, 2023 and December 31, 2022.

The effective interest rate as of March 31, 2023 was 16.37 %.

For the three and six month periods ended June 30, 2023 we recognized other expense (income) of $ 30 and ($ 20 ), due to the remeasurement of the embedded derivative liability, respectively.

The carrying value of the deferred royalty obligation as of June 30, 2023 was $ 79,347 based on $ 75,000 of proceeds, net of the fair value of the bifurcated embedded derivative liability upon execution of the RIFA, and debt issuance costs incurred.

The carrying value of the deferred royalty obligation approximated fair value as of June 30, 2023 and December 31, 2022.

The effective interest rate as of June 30, 2023 was 16.18 %.

In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $ 2,662 .

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements