Trevi Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission, or SEC, on March 16, 2020. Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute 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. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” “could,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC. Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. Overview We are a clinical-stage biopharmaceutical company focused on the development and commercialization of Haduvio (nalbuphine ER) to treat serious neurologically mediated conditions. We are developing Haduvio for the treatment of chronic pruritus, chronic cough in patients with idiopathic pulmonary fibrosis, or IPF, and levodopa-induced dyskinesia, or LID, in patients with Parkinson’s disease. We are conducting a Phase 2b/3 clinical trial of Haduvio, which we refer to as the PRISM trial, in patients with severe pruritus associated with prurigo nodularis. The PRISM trial is a randomized, double-blind, placebo controlled, two-arm treatment study that is designed to evaluate the safety and anti-pruritic efficacy of Haduvio in patients in the United States and Europe. In accordance with the protocol for the PRISM trial, we conducted a sample size re-estimation, or SSRE, analysis in July 2020, following such time as approximately 45% of the patients in the trial were evaluable for the primary endpoint. Based on the analysis, the independent Data Monitoring Committee, or DMC, recommended that the PRISM trial should continue and that the trial size should increase from an initial enrollment target of 240 to 360 subjects, which maintains the statistical power for the primary endpoint. Based on the DMC’s recommendation, we plan to increase the size of the trial to 360 subjects. The pace of enrollment in the trial has been impacted by the COVID-19 pandemic as new patient screening and most patient enrollment was temporarily halted. Patient screening restrictions have been lifted in the United States and Europe. Many of our sites restarted patient screening and enrollment throughout May and June 2020. We now have approximately 80% of our sites screening patients. We have increased the number of active sites to more than 60 globally and approximately 155 subjects have enrolled in the trial. Based on the increased sample size, and considering the ongoing COVID-19 related restrictions, we expect to complete enrollment in the third quarter of 2021 and report top-line data in the fourth quarter of 2021. We are also conducting a Phase 2 clinical trial of Haduvio for chronic cough in patients with IPF. This Phase 2 clinical trial is a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in up to 56 patients with IPF in the United Kingdom. Due to the COVID-19 pandemic and the specific at-risk nature of IPF patients our clinical sites halted their enrollment and treatment of patients in this trial. We are amending the study protocol to reduce the number of in-person visits to facilitate this study being completed in an at-risk patient population for COVID-19. We are planning to restart enrollment in the second half of 2020. 17 In addition, we are conducting a Phase 1b cli nical trial in patients with chronic liver disease to evaluate the safety and pharm a cokinetics , or PK , of Haduvio in this population. This trial was designed as an open label, non-randomized, parallel-group, single and multiple ascending dose pharmacokinet ic trial in patients with mild, moderate and severe hepatic impairment. We completed the single ascending dosing portion of this trial in patients with mild , moderate and severe hepatic impairment and there were no se rious adverse events reported in the trial. After reviewing the safety and PK data generated to date in the single ascending dose portion of the trial, we believe that these data are sufficient to support further investigation of Haduvio in potential future safety and efficacy studie s in patients with relevant liver diseases. We intend to start planning for a Phase 2 trial of Haduvio in patients with pruritus associated with primary biliary cholangitis, or PBC. In addition, we intend to use the data from the hepatic impairment study t o support a new drug application, or NDA, submission for Haduvio for pruritus in prurigo nodularis . We have written the protocol for a Phase 2 clinical trial for LID in patients with Parkinson’s disease and plan to submit an Investigational New Drug, or IND, application to the FDA in the upcoming months. We are currently focusing our resources on completing the PRISM trial and Phase 2 trial for chronic cough in patients with IPF. We are continuing to prepare to conduct the Phase 2 trials for LID in patients with Parkinson’s disease and pruritus associated with PBC but plan to prioritize our cash and operational resources on our two lead clinical programs. Since commencing operations in 2011, we have devoted substantially all of our efforts and financial resources to the clinical development of Haduvio. We have not generated any revenue from product sales and, as a result, we have never been profitable and have incurred net losses in each year since commencement of our operations. As of June 30, 2020, we had an accumulated deficit of $130.1 million, primarily as a result of research and development and general and administrative expenses. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize Haduvio for the treatment of pruritus associated with prurigo nodularis, chronic cough in patients with IPF or LID in patients with Parkinson’s disease, and we can provide no assurance that we will ever generate significant revenue or profits. On May 9, 2019, we issued and sold 5,500,000 shares of common stock in our initial public offering, or IPO, and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million. Upon the closing of the IPO, our preferred stock then outstanding converted into an aggregate of 10,381,234 shares of common stock. On June 26, 2020, we entered into a sales agreement with SVB Leerink LLC, or SVB Leerink, which we refer to as the ATM Sales Agreement, under which we may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $12.0 million. Sales of common stock under the ATM Sales Agreement may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to make any sales of our common stock under the ATM Sales Agreement. We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of August 13, 2020 we have issued and sold an aggregate of 385,823 shares of common stock for gross proceeds of $2.2 million, before deducting estimated commissions and fees of $0.1 million. On August 13, 2020, we entered into a loan and security agreement, or the SVB Loan Agreement, with Silicon Valley Bank pursuant to which Silicon Valley Bank has agreed to provide a term loan, or the SVB Term Loan, to us in the original principal amount of $14.0 million. On the first business day of each month, we will be required to make monthly interest payments and commencing on March 1, 2022, we will be required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding obligations with respect to the SVB Term Loan are due and payable in full on February 1, 2024. The SVB Loan Agreement permits voluntary prepayment of all, but not less than all, of the SVB Term Loan, subject to a prepayment premium. For further discussion of the SVB Term Loan, see “—Liquidity and Capital Resources”. As of June 30, 2020, we had cash and cash equivalents of $44.2 million. We believe that our existing cash and cash equivalents, which includes the cash proceeds from the ATM Sales Agreement and anticipated proceeds of the SVB Term Loan described above, will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2022. Our estimate as to how long we expect our existing cash and cash equivalents to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.” Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations. 18 We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory app roval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM trial in patients with pruritus associated with prurigo nodularis, including as a result of the increase in the target number of patients to be enrolled from 240 to 360 following the completion of t he SSRE analysis, the additional Phase 3 clinical trial we will be required to conduct to support the submission of a n NDA to the United St ates Food and Drug Administration, or FDA, for Haduvio for the treatment of pruritus associated with prurigo nodularis, our ongoing Phase 2 clinical trial in chronic cough in patients with IPF , the development and validation of our commercial manufacturing process for Haduvio and other development activities, including potentially commencing Phase 2 clinical trial s for the treatment of LID in patients with Parkinson’s disease and for pruritus as sociated with PBC . In addition, we may continue to incur additional expenses as a result of COVID-19 and resulting clinical trial delays and interruptions. Furthermore, we expect to incur additional costs associated with operating as a public company, incl uding significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of Haduvio for one or more indications or delay our efforts to expand our product pipeline. Impacts of COVID-19 Pandemic The COVID-19 pandemic and government measures taken in response thereto have had a significant impact, both direct and indirect, on segments of the global economy and have interrupted our clinical trial activities, disrupted our business operations and have the potential to interrupt our supply chain. We have experienced restrictions and delays at our existing clinical sites and delays in activating new clinical sites. For example, in our ongoing PRISM trial , new patient screening and most enrollment was temporarily halted due to the COVID-19 pandemic. Patient screening restrictions have been lifted in the United States and Europe. Many of our sites restarted patient screening and enrollment throughout May and June 2020. Furthermore, multiple sites in the PRISM trial have begun requiring remote monitoring of patient data and we could be required to amend the protocols in our clinical trials to have fewer patient visits over the course of a study. In addition, the clinical sites in our ongoing Phase 2 trial for chronic cough in patients with idiopathic pulmonary fibrosis, or IPF, have suspended enrollment and treatment of patients in the trial due to the vulnerability of IPF patients to COVID-19. The COVID-19 pandemic may also adversely affect our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, and may result in further disruptions to our clinical trials due to prioritization of hospital and medical resources toward the outbreak, restrictions on travel of patients and healthcare providers, potential unwillingness of patients to enroll in trials at this time, or the inability of patients to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. The response to the COVID-19 pandemic may also redirect resources of regulators in a way that could adversely impact our ability to progress towards regulatory approvals and we may face impediments to regulatory meetings and approvals relating to our clinical trials due to measures intended to limit in-person interactions. The COVID-19 pandemic may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials. The spread of COVID-19, or another infectious disease, could also negatively affect the operations at our third-party suppliers, which could result in delays or disruptions in the supply of drug product used in our clinical trials. We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including allowing employees to work remotely, suspending all non-essential travel worldwide for our employees and discouraging employee attendance at industry events. 19 Components of Operating Results Operating Expenses Research and Development Expenses All of our research and development expenses consist of expenses incurred in connection with the development of Haduvio. These expenses include certain payroll and personnel expenses, including stock-based compensation, consulting costs, contract manufacturing costs and fees paid to clinical research organizations, or CROs, to conduct certain research and development activities on our behalf. We do not allocate our costs by each indication for which we are developing Haduvio, as a significant amount of our development activities broadly support all indications. In addition, several of our departments support our Haduvio drug candidate development program and we do not identify internal costs for each potential indication. We expect our research and development expenses to increase over the next few years as we pursue our development program, pursue regulatory approval of Haduvio in the United States and Europe and prepare for a possible commercial launch of Haduvio. Predicting the timing or the cost to conduct our Haduvio development program and prepare for a possible commercial launch of Haduvio is difficult and delays may occur because of many factors including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment, whether as a result of the COVID-19 pandemic or otherwise, in any of our clinical trials, we could be required to expend significant additional financial resources and time on our development program. Furthermore, we are unable to predict when or if Haduvio will receive regulatory approval in the United States or elsewhere with any certainty. General and Administrative Expenses General and administrative expenses consist principally of personnel-related costs, including stock-based compensation, for personnel in executive, finance, commercial and other administrative functions, professional fees for legal, consulting and accounting services as well as rent and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with stock exchange listing and SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company. Other Income (Expense), Net Change in Fair Value of Obligation for Loan Success Fee In connection with the Term Loan, we entered into the Success Fee Agreement under which we agreed to pay the lenders a Success Fee upon the occurrence of an exit event, as defined in the Success Fee Agreement. We recognized changes in the fair value of this obligation for the Success Fee in our statements of operations as a component of other income (expense), net. We recognized changes in the fair value of the obligation for the Success Fee until the Success Fee payment was triggered and paid upon the closing of our IPO in May 2019. Interest Income Interest income consists of interest earned from money market funds on our cash and cash equivalents. 20 Results of Operations Comparison of the Three Months Ended June 30, 2020 and 2019 The following table summarizes our results of operations for the periods indicated (in thousands): Three Months Ended June 30, 2020 2019 Change Operating expenses: Research and development $ 4,921 $ 5,528 $ (607 ) General and administrative 2,492 1,889 603 Total operating expenses 7,413 7,417 (4 ) Loss from operations (7,413 ) (7,417 ) 4 Other income (expense): Change in fair value of obligation for loan success fee — (163 ) 163 Interest income 14 229 (215 ) Total other income (expense), net 14 66 (52 ) Loss before income tax benefit (7,399 ) (7,351 ) (48 ) Income tax benefit 15 5 10 Net loss $ (7,384 ) $ (7,346 ) $ (38 ) Operating Expenses Research and Development Expenses The following table summarizes our research and development expenses for the periods indicated (in thousands): Three Months Ended June 30, 2020 2019 Clinical development expenses $ 3,814 $ 4,613 Personnel and related expenses 706 574 Consulting expenses and professional fees 282 274 Stock-based compensation expenses 84 30 Other research and development expenses 35 37 Total research and development expenses $ 4,921 $ 5,528 Research and development expenses for the three months ended June 30, 2020 decreased to $4.9 million from $5.5 million for the corresponding period in 2019. The decrease was primarily due to a $0.8 million decrease in clinical development expenses primarily related to the decrease in activity in our Phase 2 trial in chronic cough in patients with IPF due to the halting of enrollment and treatment of patients as a result of the COVID-19 pandemic. The decrease in clinical development expenses was partially offset by an increase in personnel and related expenses by $0.1 million as a result of an increase in our employee headcount and employee compensation and by $0.1 million related to stock-based compensation. For the periods presented, all of our research and development expenses related to our development activity for Haduvio. General and Administrative Expenses General and administrative expenses for the three months ended June 30, 2020 increased to $2.5 million from $1.9 million for the corresponding period in 2019. T he increase was primarily due to an increase in stock-based compensation expenses of $0.3 million, which we incurred from the issuance of new stock option grants in the second quarter of 2019 in connection with the IPO and in the first quarter of 2020 and an increase in expenses related primarily to being a public company of $0.3 million. 21 Other Income (Expense), Net Other income (expense), net for the three months ended June 30, 2020 decreased to other income, net of $14 thousand from other income, net of $66 thousand for the corresponding period in 2019. The decrease reflects the decrease in interest income of $0.2 million for the three months ended June 30, 2020 as compared to the prior year period due to lower market interest rates, which was largely offset by a $0.2 million reduction in expense due to a $0.2 million expense being recognized in the three months ended June 30, 2019 for the change in fair value of obligation for the Success Fee with no comparable expense recognized in the corresponding period in 2020. Results of Operations Comparison of the Six Months Ended June 30, 2020 and 2019 The following table summarizes our results of operations for the periods indicated (in thousands): Six Months Ended June 30, 2020 2019 Change Operating expenses: Research and development $ 10,940 $ 8,866 $ 2,074 General and administrative 5,112 3,363 1,749 Total operating expenses 16,052 12,229 3,823 Loss from operations (16,052 ) (12,229 ) (3,823 ) Other income (expense): Change in fair value of obligation for loan success fee — (215 ) 215 Interest income 171 287 (116 ) Total other income (expense), net 171 72 99 Loss before income tax benefit (15,881 ) (12,157 ) (3,724 ) Income tax benefit 24 9 15 Net loss $ (15,857 ) $ (12,148 ) $ (3,709 ) Operating Expenses Research and Development Expenses The following table summarizes our research and development expenses for the periods indicated (in thousands): Six Months Ended June 30, 2020 2019 Clinical development expenses $ 8,770 $ 7,113 Personnel and related expenses 1,400 1,163 Consulting expenses and professional fees 516 431 Stock-based compensation expenses 177 52 Other research and development expenses 77 107 Total research and development expenses $ 10,940 $ 8,866 Research and development expenses for the six months ended June 30, 2020 increased to $10.9 million from $8.9 million for the corresponding period in 2019. The increase was primarily due to a $1.7 million increase in clinical development expenses primarily related to increased activity in our Phase 2b/3 PRISM trial as well as an increase in expenses related to the purchase of clinical trial supplies. In addition, personnel and related expenses increased by $0.2 million as a result of an increase in our employee headcount, stock-based compensation expenses increased by $0.1 million and consulting expenses and professional fees increased by $0.1 million. For the periods presented, all of our research and development expenses related to our development activity for Haduvio. General and Administrative Expenses General and administrative expenses for the six months ended June 30, 2020 increased to $5.1 million from $3.4 million for the corresponding period in 2019. T he increase was primarily due to an increase in expenses related primarily to being a public company of $1.1 million and an increase in stock-based compensation expenses of $0.8 million, which we incurred from the issuance of new stock option grants in the second quarter of 2019 in connection with the IPO and in the first quarter of 2020. 22 Other Income (Expense), Net Other income (expense), net for the six months ended June 30, 2020 increased to other income, net of $0.2 million from other income, net of $72 thousand for the corresponding period in 2019. The increase reflects a $0.2 million reduction in expense due to a $0.2 million expense being recognized in the six months ended June 30, 2019 for the change in fair value of obligation for the Success Fee with no comparable expense recognized in the corresponding period in 2020, which was partially offset by a decrease in interest income of $0.1 million in the six months ended June 30, 2020 due primarily to lower market interest rates. Liquidity and Capital Resources Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. Prior to the completion of our IPO and concurrent private placement in May 2019, we financed our operations primarily through private placements of our preferred stock and convertible notes as well as borrowings under a term loan facility. From inception to our IPO, we raised an aggregate of $102.2 million in gross proceeds from sales of our preferred stock and convertible notes and borrowed $15.0 million under the term loan facility. As of June 30, 2018, all amounts owed under the term loan facility had been paid in full. In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million. As of June 30, 2020, we had cash and cash equivalents of $44.2 million. Our cash and cash equivalents are primarily held in money market accounts. On June 26, 2020, we entered into the ATM Sales Agreement, under which we may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $12.0 million. Sales of common stock under the ATM Sales Agreement may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to make any sales of our common stock under the ATM Sales Agreement. We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of August 13, 2020 we had issued and sold an aggregate of 385,823 shares of common stock for gross proceeds of $2.2 million, before deducting estimated commissions and fees of $0.1 million. On August 13, 2020, which we refer to as the Effective Date, we entered into the SVB Loan Agreement, with Silicon Valley Bank, as lender, or SVB, pursuant to which SVB has agreed to provide the SVB Term Loan. The proceeds from the SVB Term Loan may be used by us for working capital and general corporate purposes. The SVB Term Loan bears interest at a floating rate per annum equal to the greater of (A) the prime rate plus 1.00% and (B) 4.25%. If SVB receives evidence satisfactory to it that we have (i) received positive data for the PRISM trial, sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis, and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, the interest rate under the SVB Term Loan will be adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%. On the first business day of each month, we will be required to make monthly interest payments and commencing on March 1, 2022, we will be required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding obligations with respect to the SVB Term Loan are due and payable in full on February 1, 2024. The SVB Loan Agreement permits voluntary prepayment of all, but not less than all, of the SVB Term Loan, subject to a prepayment premium. Such prepayment premium would be 3.00% of the principal amount of the SVB Term Loan if prepaid prior to the first anniversary of the Effective Date, 2.00% of the principal amount of the SVB Term Loan if prepaid on or after the first anniversary of the Effective Date, but prior to the second anniversary of the Effective Date, and 1.00% of the principal amount of the SVB Term Loan if prepaid on or after the second anniversary of the Effective Date but prior to February 1, 2024. Upon repayment in full of the SVB Term Loan, we will be required to pay a final payment fee equal to $1.2 million. The SVB Term Loan and related obligations under the SVB Loan Agreement are secured by substantially all of our properties, rights and assets, except for our intellectual property (which is subject to a negative pledge under the SVB Loan Agreement). If we fail to meet certain equity raise requirements under the SVB Loan Agreement, we will be required to deposit unrestricted and unencumbered cash equal to 100% of the principal amount of the SVB Term Loan then outstanding in a cash collateral account with SVB, which can be used by SVB to prepay the SVB Term Loan at any time. The SVB Loan Agreement contains customary representations, warranties, events of default and covenants. The occurrence and continuation of an event of default could cause interest to be charged at the rate that is otherwise applicable plus 5.00% (unless SVB elects to impose a smaller increase) and would provide SVB with the right to accelerate all obligations under the SVB Loan Agreement and exercise remedies against us and the collateral securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including foreclosure against assets securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including our cash. 23 Cash Flows The following table summarizes our cash flows for each of the periods presented below (in thousands): Six Months Ended June 30, 2020 2019 Net cash used in operating activities $ (13,109 ) $ (9,157 ) Net cash used in investing activities (12 ) (9 ) Net cash provided by financing activities (12 ) 73,351 Net cash increase (decrease) $ (13,133 ) $ 64,185 Operating Activities During the six months ended June 30, 2020, operating activities used $13.1 million of cash, resulting from our net loss of $15.9 million, partially offset by changes in our operating assets and liabilities of $1.4 million, net and non-cash charges of $1.3 million. Changes in our operating assets and liabilities for the six months ended June 30, 2020 consisted of a $1.6 million increase in accounts payable, a $0.4 million increase in prepaid expenses, a $0.2 million decrease in accrued expenses and a $0.5 million decrease in receivables. The increase in accounts payable was primarily due to timing of CRO and other vendor invoices. The increase in prepaid expenses was primarily due to prepayments of our corporate insurance policies, partially offset by a decrease in prepayments made with respect to research, development and clinical trial work performed by our CROs and other vendors. The decrease in accrued expenses was primarily due to decreased accruals for research, development and clinical trial work performed by our CROs partially offset by increased accruals for professional fees. The decrease in receivables was primarily due to a refund of prepayments made to one of our vendors, which we received in the first quarter of 2020. The non-cash charges for the six months ended June 30, 2020 consisted primarily of stock-based compensation expense of $1.3 million. During the six months ended June 30, 2019, operating activities used $9.2 million of cash, resulting from our net loss of $12.1 million, partially offset by changes in our operating assets and liabilities of $2.4 million and non-cash charges of $0.6 million. Changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted primarily of a $2.3 million increase in accrued expenses, a $1.7 million increase in accounts payable, and a $1.5 million increase in prepaid expenses. The increase in accrued expenses was primarily due to increases in accruals related to our Phase 2b/3 PRISM trial in prurigo nodularis and to our Phase 2 trial for chronic cough in IPF. The increase in accounts payable was primarily due to timing of vendor invoices from our CROs and clinical trial material suppliers. The increase in prepaid expenses was primarily due to prepayments of our insurance policies and prepayments with respect to research, development and clinical trial work performed by our CROs. The non-cash charges for the six months ended June 30, 2019 consisted primarily of stock-based compensation expense of $0.4 million and changes in fair value of the Success Fee of $0.2 million. Investing Activities During the six months ended June 30, 2020 and 2019, we used an insignificant amount of cash in investing activities. Financing Activities During the six months ended June 30, 2020, cash provided by financing activities was insignificant, consisting of cash proceeds from stock option exercises and purchases under our 2019 Employee Stock Purchase Plan. During the six months ended June 30, 2019, net cash provided by financing activities was $73.4 million, primarily consisting of cash proceeds, net of underwriting discounts and commissions and placement agent fees, of $65.1 million from our IPO and concurrent private placement, and $10.0 million from our sales of shares of Series C preferred stock in the third tranche of our Series C preferred stock financing in January 2019, partially offset by costs relating to our IPO of $1.1 million and payment of the $0.7 million Success Fee. 24 Funding Requirements We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM trial, including as a result of the increase in the target number of patients to be enrolled from 240 to 360 based on the SSRE analysis, the additional Phase 3 clinical trial we will need to conduct to support the submission of an NDA to the FDA and a marketing authorization application to the European Medicines Agency for Haduvio for the treatment of pruritus associated with prurigo nodularis, our ongoing Phase 2 clinical trial in chronic cough in patients with IPF, the costs of commercialization activities, including manufacturing capabilities, for Haduvio and other development activities including potentially commencing Phase 2 clinical trials for the treatment of LID in patients with Parkinson’s disease and for pruritus associated with PBC. In addition, we have incurred and may continue to incur additional expenses as a result of COVID-19 and resulting clinical trial delays and interruptions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Our future funding requirements, both short-term and long-term, will depend on many factors, including: • the scope, progress, timing, costs and results of clinical trials of Haduvio for the treatment of pruritus associated with prurigo nodularis, including the increase in the target number of enrolled patients for our ongoing Phase 2b/3 PRISM trial from 240 to 360 subjects based on the SSRE analysis as well as the scope, progress, timing, costs and results of clinical trials of Haduvio for other serious neurologically mediated conditions, including our ongoing Phase 2 trial for chronic cough in patients with IPF, as well as any future product candidates; • the impacts of the COVID-19 pandemic on the scope, progress, timing, costs and results of our ongoing and planned clinical trials of Haduvio; • the number and characteristics of indications for which we seek to develop Haduvio or any future product candidates, and their respective development requirements; • the outcome, timing and costs of clinical and nonclinical trials and of seeking regulatory approvals, including the costs of supportive clinical studies such as our planned human abuse liability study and our planned Thorough QT studies; • the costs associated with the manufacture of necessary quantities of Haduvio or any future product candidate for clinical development in connection with regulatory submissions; • the costs of commercialization activities for Haduvio for the treatment of pruritus associated with prurigo nodularis or for any other serious neurologically mediated conditions or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; • subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of pruritus associated with prurigo nodularis or for any other serious neurologically mediated conditions or from any future product candidates; • our ability to identify potential collaborators for Haduvio for the treatment of pruritus associated with prurigo nodularis or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates; • the extent to which we acquire or in-license rights to other potential product candidates or technologies, and the terms and timing of any such acquisition or licensing arrangements; • our headcount growth and associated costs as we expand our research and development activities and establish a commercial infrastructure; • the costs of preparing, filing and prosecuting patent applications, maintaining, expanding and protecting our intellectual property rights and defending against intellectual property-related claims; • the effect of competing technological and market developments; • our ability to establish and maintain healthcare coverage and adequate reimbursement for our products; and • the costs of operating as a public company. 25 We believe that our existing cash and cash equivalents , which i nc lu d es the cash proceeds from our sales to date under the ATM Sales Agreement and the anticipated proceeds of the SVB Term Loan, will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2022 . We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We do not have any committed external source of funds other than the proceeds of the SVB Term Loan, which we expect to receive in the next week. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to complete the clinical development and commercialization of Haduvio for pruritus associated with prurigo nodularis or any other indication. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any debt financing into which we enter would result in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, granting liens over our assets, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. For example, in connection with the SVB Term Loan, we granted a security interest on all of our assets, excluding our intellectual property, agreed to a negative pledge on our intellectual property, agreed to restrictive covenants including, subject to certain exceptions, covenants that prohibit us from transferring all or any part of our business or property, changing our business, liquidating or dissolving, merging with or acquiring another entity, entering into a transaction that will result in a change in control, incurring additional indebtedness, creating any lien on our property, paying dividends or redeeming stock, making payments on subordinated debt or entering into material transactions with affiliates, and agreed to cash collateralize the SVB Term Loan in certain circumstances. Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates. Any debt financing or additional equity that we raise may contain terms that could adversely affect our common stockholders. If we are unable to raise sufficient capital as and when needed, we may be required to delay, reduce or abandon our product development programs or commercialization efforts. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. Critical Accounting Policies and Use of Estimates Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. During the six months ended June 30, 2020, there were no material changes to our critical accounting policies. Our critical accounting policies are described in the notes to the consolidated financial statements and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our 2019 Annual Report on Form 10-K for the year ended December 31, 2019, and in the notes to the Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. See Note 12 to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for discussion regarding our commitments and contingent commitments. Recently Adopted Accounting Pronouncements There have been no new accounting pronouncements adopted during the six months ended June 30, 2020. 26 Recently Issued Accounting Pronouncements There have been no new accounting pronouncements during the six months ended June 30, 2020, as compared to the recent accounting pronouncements described in Note 2 to our audited Consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019, which could be expected to materially impact our unaudited Condensed Consolidated Financial Statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not Required.