What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-12 · 127 added, 151 removed, 138 unchanged (67% of the section changed)

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.

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, 2020 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 25, 2021.

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.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” 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.

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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.

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.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (nalbuphine ER) to treat serious neurologically mediated conditions.

We are developing Haduvio for the treatment of chronic pruritus associated with prurigo nodularis and chronic cough in patients with idiopathic pulmonary fibrosis, or IPF.

We are also developing Haduvio in 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 Phase 2b/3 PRISM trial, in patients with severe pruritus associated with prurigo nodularis.

The Phase 2b/3 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 Phase 2b/3 PRISM trial, we conducted a sample size re-estimation, or SSRE, analysis in July 2020, following such time as approximately 45% of the initial targeted number of patients in the trial were evaluable for the primary endpoint.

Based on the analysis, the independent Data Monitoring Committee, or DMC, recommended that the Phase 2b/3 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 have increased the planned trial size 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 were temporarily halted.

Patient screening restrictions have been lifted in the United States and Europe.

The pace of enrollment in the trial has been impacted by the COVID-19 pandemic as new patient screening and most patient enrollment were temporarily halted in March 2020.

Our sites began to restart patient screening and enrollment during 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 255 subjects have enrolled in the trial.

Based on the increased sample size, and considering the uncertainties associated with the COVID-19 pandemic, we continue to 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 patients with IPF and is designed to enroll approximately 60 subjects with a goal to have 44 study completers.

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.

While patient screening and enrollment resumed at certain clinical trial sites in the fourth quarter of 2020, some sites may take longer to resume screening and enrollment due to increased COVID-19

infection rates in the areas where they are located, and we expect other sites may cease to participate in the trial entirely.

We recently amend ed the study proto col to reduce the number of in-person visits and procedures to facilitate this study being completed in an at-risk patient population for COVID-19.

This trial is currently being conducted in the United Kingdom, and w e are assessing additional study sites i n Germany which could potentially accelerate enrollment and reduce the risks inherent to single-country recruitment during the C OVID -19 pandemic.

In addition, we conducted a Phase 1b clinical trial in patients with chronic liver disease to evaluate the safety and pharmacokinetics, or PK, of Haduvio in this population.

This trial was designed as an open label, non-randomized, parallel-group, single and multiple ascending dose pharmacokinetic 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 serious adverse events reported in the trial.

After reviewing the safety and PK data generated 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 studies in patients with relevant liver diseases without the need to conduct the multiple ascending dose portion of the trial.

We intend to use the data from the hepatic impairment study to support a new drug application, or NDA, submission for Haduvio for pruritus in prurigo nodularis and evaluate the potential to conduct a Phase 2 trial with pruritus associated with primary biliary cholangitis, or PBC.

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 future.

We are currently focusing our resources on completing the PRISM trial and our Phase 2 trial for chronic cough in patients with IPF.

We are continuing to prepare to conduct the Phase 2 trial for LID in patients with Parkinson’s disease and evaluate the potential to conduct a Phase 2 trial in patients with pruritus associated with PBC, but plan to prioritize our cash and operational resources on our two lead clinical programs.

Subject to the uncertainties associated with the COVID-19 pandemic, we expect to complete enrollment in the second half of 2021 and report top-line data approximately four months after enrollment is complete.

If the Phase 2b/3 PRISM trial is successful, we expect that we will use the Phase 2b/3 PRISM trial and an additional Phase 3 clinical trial that we believe we will need to conduct to support the submission of a new drug application, or NDA, to the United States Food and Drug Administration, or FDA, and a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, for Haduvio for the treatment of pruritus associated with prurigo nodularis.

We are also conducting a Phase 2 clinical trial of Haduvio for chronic cough in patients with IPF, which we refer to as the Phase 2 CANAL trial.

The Phase 2 CANAL trial is a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study that is designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in patients with IPF and is designed to enroll approximately 60 subjects with a goal to have 44 study completers.

We are conducting the trial at multiple sites 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 in March 2020.

While patient screening and enrollment resumed at certain clinical trial sites in the fourth quarter of 2020, all sites in the trial paused screening again in December 2020 in response to a shelter in place directive from the U .

This directive expired in March 202 1 and we expect the other COVID-19 related restrictions will continue to be lifted through June 2021, assuming the pandemic does not worsen in the United Kingdom.

Initial screening activity has resumed at certain sites following the lifting of the shelter in place directive.

However, we expect that some sites may take longer to resume their trial activity due to increased COVID-19 infection rates in the areas where they are located and that other sites may cease to participate in the trial entirely.

We amended the study protocol to reduce the number of in-person visits and procedures to facilitate this study being completed in an at-risk patient population for COVID-19.

We have decided not to pursue opening new clinical sites in Germany due to the estimated timing and cost to add these additional sites.

Instead, in light of the easing of pandemic restrictions in the United Kingdom, we are focusing our efforts on the completion of enrollment in the Phase 2 CANAL trial in the United Kingdom.

With respect to LID, we have written the protocol for a Phase 2 clinical trial for LID in patients with Parkinson’s disease.

We plan to determine next steps in the program once we complete the Phase 2b/3 PRISM and Phase 2 CANAL trials.

We are currently focusing our cash and operational resources on completing the Phase 2b/3 PRISM and the Phase 2 CANAL trials.

After we receive top-line data from both of these trials, we will evaluate other additional indications for which we may choose to pursue development of Haduvio.

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 September 30, 2020, we had an accumulated deficit of $137.5 million, primarily as a result of research and development and general and administrative expenses.

As of March 31, 2021, we had an accumulated deficit of $155.3 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.

In June 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 September 30, 2020 we had issued and sold an aggregate of 466,758 shares of common stock for gross proceeds of $2.5 million, before deducting estimated commissions and fees of $0.2 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 provided a term loan, or the SVB Term Loan, to us in the original principal amount of $14.0 million.

We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of March 31, 2021, we had issued and sold an aggregate of 2,055,497 shares of common stock for gross proceeds of $7.6 million, before deducting estimated commissions and allocated fees of $0.5 million.

In August 2020, we entered into a loan and security agreement, or the SVB Loan Agreement, with Silicon Valley Bank pursuant to which Silicon Valley Bank provided 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.

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For further discussion of the SVB Term Loan, see “—Liquidity and Capital Resources”.

As of September 30, 2020 , we had cash and cash equivalents of $ 53.3 million.

We be lieve that our existing cash and cash equivalents 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 f und 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 rai se additional capital to finance our operations.

As of March 31, 2021, we had cash and cash equivalents of $41.6 million.

We believe that our existing cash and cash equivalents will not enable us to fund our operating expenses and capital expenditure requirements for 12 months from the date of issuance of the interim financial statements included in this Quarterly Report on Form 10-Q.

After considering various risks and uncertainties as prescribed by Accounting Standards Update No.

2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , or ASU No.

2014-15, we concluded that there is substantial doubt about our ability to continue as a going concern as of the date of issuance of the interim financial statements included in this Quarterly Report on Form 10-Q without additional capital.

We have based our estimate as to how long we expect our existing cash and cash equivalents to continue to fund our operations 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.

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 in patients with pruritus associated with prurigo nodularis, including as a result of the increase in the target number of subjects to be enrolled from 240 to 360 following the completion of the SSRE analysis, the additional Phase 3 clinical trial we will be required to conduct to support the submission of an NDA to the United States 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 trials for the treatment of LID in patients with Parkinson’s disease and for pruritus associated 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, including significant legal, accounting, investor relations and other expenses.

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, and the additional Phase 3 clinical trial we believe we will be required to conduct to support the submission of an NDA to the FDA for Haduvio for the treatment of pruritus associated with prurigo nodularis, our ongoing Phase 2 CANAL 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 trials for the treatment of LID in patients with Parkinson’s disease.

In addition, we may continue to incur additional expenses as a result of the COVID-19 pandemic and related clinical trial delays and interruptions.

We will need substantial additional funding to support our continuing operations and pursue our growth strategy.

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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.

We have experienced restrictions and delays at our existing clinical sites.

For example, in our ongoing Phase 2b/3 PRISM trial, new patient screening and most enrollment was temporarily halted due to the COVID-19 pandemic in March 2020.

Many of our sites restarted patient screening and enrollment throughout May and June 2020.

Furthermore, multiple sites in the PRISM trial are requiring remote monitoring of patient data and we could be required to amend the protocol for the trial to have fewer patient visits over the course of the trial.

In addition, the clinical sites in our ongoing Phase 2 trial for chronic cough in patients with IPF temporarily suspended enrollment and treatment of patients in the trial due to the vulnerability of IPF patients to COVID-19 and we recently amended the protocol for the trial to reduce the number of in-person patient visits and procedures.

While patient screening and enrollment for our Phase 2 clinical trial for chronic cough in patients with IPF resumed at certain clinical trial sites in the fourth quarter of 2020, some sites may take longer to resume screening and enrollment due to increased COVID-19 infection rates in the areas where they are located, and we expect other sites may cease to participate in the trial entirely.

Furthermore, multiple sites in the Phase 2b/3 PRISM trial are requiring remote monitoring of patient data.

We also experienced slower recruitment activities in the Phase 2b/3 PRISM trial worldwide through the latter part of 2020 and the beginning of 2021 due to the resurgence of the COVID-19 pandemic.

In addition, the clinical sites in our ongoing Phase 2 CANAL trial temporarily suspended enrollment and treatment of patients in the trial due to the vulnerability of IPF patients to COVID-19 and as a result, we amended the protocol for the trial to reduce the number of in-person patient visits and procedures.

While patient screening and enrollment for our Phase 2 CANAL trial resumed at certain clinical trial sites in the fourth quarter of 2020, all sites in the trial paused screening again in December 2020 in response to a shelter in place directive from the U.K.

This directive expired in March 2021 and we expect the other COVID-19 related restrictions will continue to be lifted through June 2021, assuming the pandemic does not worsen in the United Kingdom.

Initial screening activity has resumed at certain sites following the lifting of the shelter in place directive.

We have decided not to pursue opening new clinical sites in Germany due to the estimated timing and cost to add these additional sites.

Instead, in light of the easing of pandemic restrictions in the United Kingdom, we are focusing our efforts on the completion of enrollment in the Phase 2 CANAL trial in the United Kingdom.

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.

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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.

These expenses include personnel-related costs, 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.

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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.

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 in any of our clinical trials, whether as a result of the COVID-19 pandemic or otherwise,

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.

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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

Interest Expense on our Term Loan Facility

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation and expanded infrastructure.

Other (Expense) Income, Net

Interest Expense

In August 2020, we entered into the SVB Loan Agreement under which we borrowed $14.0 million under a term loan, or the SVB Term Loan.

In connection with the SVB Term Loan, we recognize interest expense which includes amortization of deferred financing charges, accretion of loan discount-financing costs, accrual of the final payment fee, amortization of the term loan discount-interest and the stated interest on the SVB Term Loan.

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 Silicon Valley Bank receives evidence satisfactory to it that the 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% .

If Silicon Valley Bank receives evidence satisfactory to it that we have (i) received positive data for the Phase 2b/3 PRISM trial sufficient to advance Haduvio into a second Phase 3 clinical trial for chronic pruritus associated with prurigo nodularis, and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, which we refer to together as the Phase 3 Event, 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% .

The SVB Term Loan requires interest-only payments until March 2022.

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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.

Change in Fair Value of Obligation for Loan Success Fee

In connection with our prior term loan with Solar Capital, Ltd.

and Square 1 Bank, which we refer to as the Solar Term Loan, we entered into a success fee agreement under which we agreed to pay the lenders a success fee, which we refer to as the 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.

Change in Fair Value of Term Loan Derivative Liability

In connection with the SVB Term Loan, upon the occurrence of the Phase 3 Event, the interest rate on the SVB Term Loan will increase by 2.00%.

This contingent interest rate increase represents a free-standing financial instrument.

Accordingly, we accounted for the contingent interest rate increase as a derivative under Accounting Standards Codification, or ASC, 815, Derivatives and Hedging , and therefore, we recorded a term loan derivative liability for the contingent interest rate increase at its fair value.

We adjust this liability to fair value at each reporting date it remains outstanding.

We recognized changes in the fair value of this term loan derivative in our statements of operations as a component of other (expense) income, net.

Interest Income

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Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the periods indicated (in thousands):

Three Months Ended September 30,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income (expense):

Interest income

Interest expense

Total other income (expense), net

Loss before income tax benefit

Income tax benefit

Operating Expenses

Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated (in thousands):

Three Months Ended September 30,

Clinical development expenses

Personnel and related expenses

Consulting expenses and professional fees

Stock-based compensation expenses

Other research and development expenses

Total research and development expenses

Research and development expenses for the three months ended September 30, 2020 decreased to $4.8 million from $5.7 million for the corresponding period in 2019.

The decrease was primarily due to decreased activity in our Phase 1b clinical trial in patients with chronic liver disease due to the completion of the trial, as well as decreased activity in our Phase 2 trial in chronic cough in patients with IPF due to the temporary pausing of enrollment and treatment of patients as a result of the COVID-19 pandemic.

The decrease in expenses related to these two trials was partially offset by an increase in activity and enrollment in our ongoing Phase 2b/3 PRISM trial.

In addition, the decrease in clinical development expenses was partially offset by an increase in personnel and related expenses of $0.2 million as a result of an increase in our employee headcount and employee 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 September 30, 2020 increased to $2.4 million from $2.0 million for the corresponding period in 2019.

T he increase was primarily due to an increase in stock-based compensation expenses of $0.2 million, which we incurred from the issuance of new stock option grants in the first quarter of 2020 and a $0.2 million increase in expenses related primarily to consulting fees.

Other Income (Expense), Net

Other income (expense), net for the three months ended September 30, 2020 decreased to other (expense), net of $0.1 million from other income, net of $0.3 million for the corresponding period in 2019.

The decrease reflects a decrease in interest income of $0.3 million for the three months ended September 30, 2020 as compared to the prior year period, primarily due to lower market interest rates and a $0.1 million increase in expense due to interest expense on the SVB Term Loan recognized in the three months ended September 30, 2020 with no comparable expense recognized in the corresponding period in 2019.

Results of Operations

Comparison of the Nine Months Ended September 30, 2020 and 2019

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our results of operations for the periods indicated (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Operating expenses:

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Loss from operations

Other income (expense):

Change in fair value of obligation for loan success fee

Other (expense) income:

Change in fair value of term loan derivative liability

Interest income

Interest expense

Total other income (expense), net

Total other (expense) income, net

Loss before income tax benefit

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The following table summarizes our research and development expenses for the periods indicated (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Clinical development expenses

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Total research and development expenses

Research and development expenses for the nine months ended September 30, 2020 increased to $15.8 million from $14.5 million for the corresponding period in 2019.

The increase was primarily due 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.

The increase from these activities was partially offset by reduced spending on our Phase 1b clinical trial in patients with chronic liver disease due to the completion of the trial, as well as less activity in our Phase 2 trial in chronic cough in patients with IPF due to the temporary pausing of enrollment and treatment of patients as a result of the COVID-19 pandemic.

In addition, personnel and related expenses increased by $0.4 million as a result of an increase in our employee headcount and stock-based compensation expenses increased by $0.2 million.

Research and development expenses for the three months ended March 31, 2021 decreased to $5.6 million from $6.0 million for the corresponding period in 2020, primarily due to a decrease in clinical development expenses related to decreased purchases of clinical trial supplies and decreased expenses reflecting the completion of our Phase 1b clinical trial in patients with chronic liver disease in the first half of 2020.

These decreased clinical development expenses were partially offset by increased costs associated with increased activity and enrollment in our ongoing Phase 2b/3 PRISM trial.

The decrease in clinical development expenses was partially offset by an increase in personnel-related expenses as a result of an increase in our employee headcount, as well as an increase in consulting and professional fees.

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 nine months ended September 30, 2020 increased to $7.5 million from $5.4 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 $1.0 million and an increase in stock-based compensation expenses of $1.0 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.

Other Income (Expense), Net

Other income (expense), net for the nine months ended September 30, 2020 decreased to other income, net of $26 thousand from other income, net of $0.4 million for the corresponding period in 2019.

The decrease reflects the decrease in interest income of $0.4 million for the nine months ended September 30, 2020 as compared to the prior year period, primarily due to lower market interest rates and a $0.1 million increase in expense due to interest expense on the SVB Term Loan recognized in the nine months ended September 30, 2020 with no comparable expense recognized in the corresponding period in 2019.

These changes in interest income and interest expense were partially offset by a decrease in expense of $0.2 million attributable to expense being recognized in the nine months ended September 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.

General and administrative expenses for the three months ended March 31, 2021 decreased to $2.5 million from $2.6 million for the corresponding period in 2020.

The decrease was primarily due to a decrease in stock-based compensation expense.

Other (Expense) Income, Net

Other (expense) income, net for the three months ended March 31, 2021 was an expense of $0.3 million compared to income of $0.2 million for the corresponding period in 2020.

This increase in expense was due to a decrease in interest income of $0.2 million, primarily due to lower market interest rates and a $0.3 million increase in interest expense due to interest expense on the SVB Term Loan recognized with no comparable expense recognized in the corresponding period in 2020.

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 the Solar Term Loan.

and Square 1 Bank, which we refer to as the Solar Term Loan.

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 Solar Term Loan.

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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 September 30, 2020, we had cash and cash equivalents of $53.3 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.

In June 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.

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 provided the SVB Term Loan in the original principal amount of $14.0 million.

We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of March 31, 2021 we had issued and sold an aggregate of 2,055,497 shares of common stock for gross proceeds of $7.6 million, before deducting estimated commissions and allocated fees of $0.5 million.

In August 2020, we entered into the SVB Loan Agreement, with Silicon Valley Bank, as lender, or SVB, pursuant to which SVB provided the SVB Term Loan in the original principal amount of $14.0 million.

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 are 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.

If SVB receives evidence satisfactory to it that we have (i) received positive data for the Phase 2b/3 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%.

O n the first business day of each month, we are 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.

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.

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 date on which we entered into the SVB Term Loan, or 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.

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.

If we fail to meet certain equity raise requirements under the SVB Loan Agreement, including raising $12.0 million by June 30, 2021, 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.

T he 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 5.0 0 % (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.

As of March 31, 2021, we had cash and cash equivalents of $41.6 million.

Our cash and cash equivalents are primarily held in money market accounts.

The following table summarizes our cash flows for each of the periods presented below (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash increase (decrease)

Net cash decrease in cash and cash equivalents

Operating Activities

During the nine months ended September 30, 2020, operating activities used $20.1 million of cash, resulting from our net loss of $23.2 million, partially offset by changes in our operating assets and liabilities of $1.2 million, net and non-cash charges of $2.0 million.

Changes in our operating assets and liabilities for the nine months ended September 30, 2020 consisted of a $1.2 million increase in accrued expenses, a $0.2 million increase in prepaid expenses, a $0.3 million decrease in accounts payable and a $0.5 million decrease in receivables.

The increase in accrued expenses was primarily due to increased accruals for research, development and clinical trial work performed by our CROs and increased accruals related to professional fees.

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.

During the three months ended March 31, 2021, operating activities used $7.6 million of cash, resulting from our net loss of $8.4 million and changes in our operating assets and liabilities of $0.1 million, net, partially offset by non-cash charges of $0.9 million.

The non-cash charges consisted primarily of stock-based compensation expense of $0.7 million and $0.1 million of accretion/accrual of term loan discounts and debt issuance costs.

Changes in our operating assets and liabilities consisted of a $1.2 million decrease in accounts payable, a $0.7 million decrease in prepaid expenses and other current assets and a $0.4 million increase in accrued expenses.

The decrease in accounts payable was primarily due to the timing of vendor invoices.

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 nine months ended September 30, 2020 consisted primarily of stock-based compensation expense of $1.9 million.

During the nine months ended September 30, 2019, operating activities used $16.9 million of cash, resulting from our net loss of $19.5 million, partially offset by changes in our operating assets and liabilities of $1.6 million and non-cash charges of $1.0 million.

Changes in our operating assets and liabilities for the nine months ended September 30, 2019 consisted primarily of a $2.4 million increase in accrued expenses, a $0.4 million increase in prepaid expenses and a $0.3 million decrease in accounts payable.

The increase in accrued expenses was primarily due to increases in accruals related to our Phase 2b/3 PRISM trial in prurigo nodularis, our Phase 2 trial for chronic cough in IPF and our Phase 1b trial in patients with chronic liver disease.

The increase in prepaid expenses was primarily due to prepayments of our insurance policies partially offset by a decrease in prepayments of $0.4 million related to our human abuse liability, or HAL, study.

The decrease in accounts payable was primarily due to timing of vendor invoices.

The non-cash charges for nine months ended September 30, 2019 consisted primarily of stock-based compensation expense of $0.8 million and changes in fair value of the Success Fee of $0.2 million.

The decrease in prepaid expenses and other current assets was primarily due to a decrease in prepayments of our corporate insurance policies and our research, development and clinical trial work performed by our CROs and other vendors.

The increase in accrued expenses was primarily due to increased accruals for research, development and clinical trial work performed by our CROs, partially offset by a decrease in accrued compensation and benefits.

During the three months ended March 31, 2020, operating activities used $4.7 million of cash, resulting from our net loss of $8.5 million, partially offset by changes in our operating assets and liabilities of $3.1 million and non-cash charges of $0.7 million.

The non-cash charges consisted primarily of stock-based compensation expense of $0.7 million.

Changes in our operating assets and liabilities consisted of a $1.4 million increase in accrued expenses, a $0.6 million increase in accounts payable, a $1.1 million decrease in prepaid expenses and other current assets.

The increase in accrued expenses was primarily due to increases in accruals related to our Phase 2b/3 PRISM trial and our Phase 2 CANAL trial.

The increase in accounts payable was primarily due to timing of vendor invoices.

The decrease in prepaid expenses and other current assets was primarily due to a decrease in prepayments of our insurance, a decrease of prepayments under our ongoing research, development and clinical trial work performed by CROs and a decrease in other current assets for payments made to one of our vendors, which we received in the first quarter of 2020.

Investing Activities

During the nine months ended September 30, 2020 and 2019, we used an insignificant amount of cash in investing activities.

During the three months ended March 31, 2021 and 2020, no cash was provided by or used in investing activities.

Financing Activities

During the nine months ended September 30, 2020, net cash provided by financing activities was $16.1 million, primarily consisting of cash proceeds from the SVB Term Loan of $14.0 million and gross cash proceeds of $2.5 million from sales of our common stock under the ATM Sales Agreement, before deducting estimated commissions and fees of $0.2 million.

During the nine months ended September 30, 2019, net cash provided by financing activities was $73.2 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 $1.2 million and payment of the $0.7 million Success Fee.

During the three months ended March 31, 2021, net cash provided by financing activities was $4.1 million, consisting of gross cash proceeds of $4.4 million from sales of our common stock under the ATM Sales Agreement, before deducting estimated commissions and allocated fees of $0.3 million.

During the three months ended March 31, 2020, no cash was provided by or used in financing activities.

Funding Requirements

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.

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 believe we will need to conduct to support the submission of an NDA to the FDA and a marketing authorization application to the EMA for Haduvio for the treatment of pruritus associated with prurigo nodularis, our ongoing Phase 2 CANAL trial, 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.

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.

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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 scope, progress, timing, costs and results of clinical trials of Haduvio for the treatment of pruritus associated with prurigo nodularis, 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 CANAL trial, 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;

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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;

the effect of competing technologies and market developments;

our ability to establish and maintain healthcare coverage and adequate reimbursement for our products;

the costs of operating as a public company;

We believe that our existing cash and cash equivalents 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 o btain additional financing, which may not be available to us on acceptable terms, or at all.

our ability to continue as a going concern.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the second quarter 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.

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Actual results may differ from these estimates under different assumptions or conditions.

During the nine months ended September 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.

We believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results:

research and development expense;

stock-based compensation expense;

and fair value measurements.

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 Annual Report on Form 10-K for the year ended December 31, 2020.

During the three months ended March 31, 2021, there were no material changes to our critical accounting policies.

Off-Balance Sheet Arrangements

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Recently Adopted Accounting Pronouncements

There have been no new accounting pronouncements adopted during the nine months ended September 30, 2020.

On January 1, 2021, we adopted Accounting Standards Update No.

2019-12- Income Taxes (Topic 740) , which simplifies the accounting for income taxes.

The adoption of the new guidance did not affect our Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

There have been no new accounting pronouncements during the nine months ended September 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.

There have been no new accounting pronouncements during the three months ended March 31, 2021 which could be expected to materially impact our unaudited Condensed Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk.

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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 2. Management’s Discussion and Analysis