Trevi Therapeutics, Inc. 10-Q

Item 1. Financial Statements. Trevi Therapeutics, Inc. Condensed Consolidated Balance Sheets (unaudited) (Amounts in thousands, except share and per share amounts) June 30, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 36,425 $ 45,001 Prepaid expenses and other current assets 2,055 1,268 Total current assets 38,480 46,269 Deferred offering costs 162 284 Operating lease right-of-use asset 181 227 Security deposits and other non-current assets 248 248 Property, equipment and leasehold improvements, net 78 103 Total assets $ 39,149 $ 47,131 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 3,488 $ 2,016 Accrued expenses 3,316 3,426 Term loan - current portion 2,333 — Term loan derivative liability - current portion 162 — Operating lease liability - current portion 111 113 Total current liabilities 9,410 5,555 Term loan - long term portion 11,912 13,954 Term loan derivative liability – long term portion — 196 Operating lease liability - long term portion 91 144 Total liabilities 21,413 19,849 Commitments and contingencies (Note 11) Stockholders’ equity Preferred stock: $ 0.001 par value; 5,000,000 shares authorized at June 30, 2021 and December 31, 2020; no shares issued or outstanding at June 30, 2021 or December 31, 2020. — — Common stock: $ 0.001 par value; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; and 21,459,498 and 18,546,786 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively. 21 19 Additional paid-in capital 182,857 174,240 Accumulated deficit ( 165,142 ) ( 146,977 ) Total stockholders’ equity 17,736 27,282 Total liabilities and stockholders’ equity $ 39,149 $ 47,131 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Operations (unaudited) (Amounts in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating expenses: Research and development $ 6,498 $ 4,921 $ 12,087 $ 10,940 General and administrative 2,669 2,492 5,169 5,112 Total operating expenses 9,167 7,413 17,256 16,052 Loss from operations ( 9,167 ) ( 7,413 ) ( 17,256 ) ( 16,052 ) Other (expense) income: Change in fair value of term loan derivative liability 40 — 34 — Other expense ( 375 ) — ( 375 ) — Interest income 2 14 5 171 Interest expense ( 296 ) — ( 590 ) — Total other (expense) income, net ( 629 ) 14 ( 926 ) 171 Loss before income taxes ( 9,796 ) ( 7,399 ) ( 18,182 ) ( 15,881 ) Income tax benefit 2 15 17 24 Net loss $ ( 9,794 ) $ ( 7,384 ) $ ( 18,165 ) $ ( 15,857 ) Basic and diluted net loss per common share outstanding $ ( 0.49 ) $ ( 0.41 ) $ ( 0.92 ) $ ( 0.89 ) Weighted average common shares used in net loss per share attributable to common stockholders, basic and diluted 20,123,461 17,835,952 19,772,201 17,835,261 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (Amounts in thousands, except share amounts) Additional Total Common Stock Paid- Accumulated Stockholders’ Shares Amount in Capital Deficit Equity Balance at March 31, 2021 19,914,407 $ 20 $ 179,013 $ ( 155,348 ) $ 23,685 Stock-based compensation — — 745 — 745 Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees 1,365,871 1 2,707 — 2,708 Issuance of common stock from Employee Stock Purchase Plan 9,132 — 17 — 17 Issuance of common stock to Lincoln Park Capital Fund (see Note 7) 170,088 — 375 — 375 Net loss — — — ( 9,794 ) ( 9,794 ) Balance at June 30, 2021 21,459,498 $ 21 $ 182,857 $ ( 165,142 ) $ 17,736 Balance at March 31, 2020 17,834,570 $ 18 $ 169,476 $ ( 122,692 ) $ 46,802 Stock-based compensation — — 589 — 589 Issuance of common stock from exercise of stock options 15,185 — 27 — 27 Issuance of common stock from Employee Stock Purchase Plan 1,397 — 3 — 3 Net loss — — — ( 7,384 ) ( 7,384 ) Balance at June 30, 2020 17,851,152 $ 18 $ 170,095 $ ( 130,076 ) $ 40,037 Additional Total Common Stock Paid- Accumulated Stockholders’ Shares Amount in Capital Deficit Equity Balance at December 31, 2020 18,546,786 $ 19 $ 174,240 $ ( 146,977 ) $ 27,282 Stock-based compensation — — 1,463 — 1,463 Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees 2,733,492 2 6,762 — 6,764 Issuance of common stock from Employee Stock Purchase Plan 9,132 — 17 — 17 Issuance of common stock to Lincoln Park Capital Fund (see Note 7) 170,088 — 375 — 375 Net loss — — — ( 18,165 ) ( 18,165 ) Balance at June 30, 2021 21,459,498 $ 21 $ 182,857 $ ( 165,142 ) $ 17,736 Balance at December 31, 2019 17,834,570 $ 18 $ 168,746 $ ( 114,219 ) $ 54,545 Stock-based compensation — — 1,319 — 1,319 Issuance of common stock from exercise of stock options 15,185 — 27 — 27 Issuance of common stock from Employee Stock Purchase Plan 1,397 — 3 — 3 Net loss — — — ( 15,857 ) ( 15,857 ) Balance at June 30, 2020 17,851,152 $ 18 $ 170,095 $ ( 130,076 ) 40,037 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Trevi Therapeutics, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) (Amounts in thousands) Six Months Ended June 30, 2021 2020 Operating activities: Net loss $ ( 18,165 ) $ ( 15,857 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 25 21 Change in fair value of term loan derivative liability ( 34 ) — Accretion/accrual of term loan discounts and debt issuance costs 291 — Other expense related to transaction with Lincoln Park Capital Fund, LLC 375 — Stock-based compensation 1,463 1,319 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 592 ) 76 Accounts payable 1,471 1,561 Accrued expenses and other liabilities ( 310 ) ( 229 ) Net cash used in operating activities ( 15,476 ) ( 13,109 ) Investing activities: Purchases of property, equipment and leasehold improvements — ( 12 ) Net cash used in investing activities — ( 12 ) Financing activities: Proceeds from at-the-market sales, net of commissions 6,972 — Proceeds from exercises of stock options — 27 Proceeds from employee stock purchase plan 17 3 Payments of offering costs ( 89 ) ( 42 ) Net cash provided by (used in) financing activities 6,900 ( 12 ) Net decrease in cash and cash equivalents ( 8,576 ) ( 13,133 ) Cash and cash equivalents at beginning of period 45,001 57,313 Cash and cash equivalents at end of period $ 36,425 $ 44,180 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Trevi Therapeutics, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (in thousands, except share and per share data) 1. Nature of the Business Trevi Therapeutics, Inc. (“Trevi” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (nalbuphine ER) to treat serious neurologically mediated conditions. The Company is currently developing Haduvio for the treatment of chronic pruritus associated with prurigo nodularis and chronic cough in patients with idiopathic pulmonary fibrosis (“IPF”). The Company is also developing Haduvio in levodopa-induced dyskinesia (“LID”) in patients with Parkinson’s disease. These conditions share a common pathophysiology that is mediated through opioid receptors in the central and peripheral nervous systems. Due to nalbuphine’s mechanism of action as a modulator of opioid receptors, the Company believes Haduvio has the potential to be effective in treating each of these conditions. Haduvio is an oral extended-release formulation of nalbuphine. Nalbuphine is a mixed κ-opioid receptor agonist and μ-opioid receptor antagonist that has been approved and marketed as an injectable for pain indications for more than 20 years in the United States (“U.S.”) and Europe. The κ- and μ-opioid receptors are known to be critical mediators of itch, cough and certain movement disorders. Nalbuphine’s mechanism of action also mitigates the risk of abuse associated with μ-opioid agonists because it antagonizes or blocks, the μ-opioid receptor. Parenteral nalbuphine is not classified as a controlled substance in the U.S. and most of Europe. Liquidity In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU No. 2014-15”), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued. The Company’s Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has financed its operations primarily through private placements of convertible preferred stock and convertible notes prior to its initial public offering (“IPO”), borrowings under its prior term loan facility, proceeds from its IPO and concurrent private placement completed in May 2019, sales of its common stock pursuant to the at-the-market Sales Agreement (the “ATM Sales Agreement”) (Note 7) with SVB Leerink LLC that the Company entered into in June 2020 and the term loan facility with Silicon Valley Bank (“SVB”) that the Company entered into in August 2020. The Company has incurred recurring losses since inception, including net losses of $ 18.2 million for the six months ended June 30, 2021 and $ 32.8 million for the year ended December 31, 2020. As of June 30, 2021, the Company had cash and cash equivalents of $ 36.4 million compared to $ 45.0 million of cash and cash equivalents as of December 31, 2020. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $ 165.1 million as of June 30, 2021. The Company expects to continue to generate losses for the foreseeable future. As of August 12, 2021, the date of issuance of these Condensed Consolidated Financial Statements, the Company expects that its cash and cash equivalents as of June 30, 2021 will not be sufficient to fund its current business plan including related operating expenses and capital expenditure requirements through at least 12 months from the date of issuance of these Condensed Consolidated Financial Statements. The Company plans to seek to address this condition by raising additional capital to finance its operations. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing. Therefore, it is not considered probable, as defined in ASU No. 2014-15, that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern. 5 To execute its business plans, the Company will need substantial funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing when needed on acceptable terms or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or abandon its product development programs or commercialization efforts, which could adversely affect its business prospects. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim Condensed Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020 included herein, have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim information. Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect loss from operations or net loss. Certain information and footnote disclosures typically prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying unaudited Condensed Consolidated Financial Statements and notes should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report on Form 10-K”). The accompanying Condensed Consolidated Financial Statements include the accounts of Trevi Therapeutics, Inc. and its wholly-owned subsidiary Trevi Therapeutics Limited. Intercompany balances and transactions have been eliminated. All amounts presented are in thousands of dollars, except share and per share amounts, unless noted otherwise. The Company has evaluated events occurring subsequent to June 30, 2021 for potential recognition or disclosure in the Condensed Consolidated Financial Statements and concluded there were no subsequent events that required recognition or disclosure. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of the expenses during the reporting periods. Significant estimates and assumptions reflected in these Condensed Consolidated Financial Statements include, but are not limited to, the recognition of research and development (“R&D”) expenses, the valuation of stock-based awards and the valuation allowance of deferred tax assets resulting from net operating losses. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. On an ongoing basis, management evaluates its estimates in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. The inputs into the Company’s estimates also considered the economic implications of COVID-19 on the Company’s estimates. Unaudited Interim Financial Information The accompanying interim Condensed Consolidated Balance Sheet as of June 30, 2021 and the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the Company’s opinion, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of its financial position as of June 30, 2021 and the results of its operations and its cash flows for the three and six months ended June 30, 2021 and 2020. The results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2021 or any other interim period or any future year or period. Cash Equivalents The Company classifies short-term, highly liquid investments with an original term of three months or less at the date of purchase as cash equivalents. 6 Fair Value Measurements The Company’s financial instruments have consisted of cash and cash equivalents, other current assets, accounts payable, accrued expenses, term loans and term loan derivative liability (Note 6). Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. The carrying amounts of cash and cash equivalents, other current assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. The carrying amount of the term loan approximates its fair value due to its floating market-based interest rate. The term loan derivative liability is recorded at fair value, which is estimated utilizing a probability-weighted cash flow approach (Note 6). Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions and are classified into the following fair value hierarchy: Level 1—Observable inputs—quoted prices in active markets for identical assets and liabilities. Level 2—Observable inputs other than the quoted prices in active markets for identical assets and liabilities—such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets or other inputs that are observable or can be corroborated by observable market data. Level 3—Unobservable inputs—includes amounts derived from valuation models where one or more significant inputs are unobservable and require the company to develop relevant assumptions. The following table summarizes the financial assets and financial liabilities measured at fair value on a recurring basis and the basis for that measurement, by level within the fair value hierarchy (Note 6): Level 1 Level 2 Level 3 June 30, 2021 Financial assets carried at fair value: Money market funds (1) $ 35,492 $ — $ — Financial liabilities carried at fair value: Term loan derivative liability $ — $ — $ 162 December 31, 2020 Financial assets carried at fair value: Money market funds ( 1) $ 44,095 $ — $ — Financial liabilities carried at fair value: Term loan derivative liability $ — $ — $ 196 (1) Included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The following table represents a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs): June 30, 2021 December 31, 2020 Financial liabilities Balance at beginning of period $ 196 $ 187 Change in fair value of term loan derivative liability ( 34 ) 9 Balance at end of period $ 162 196 Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements (consisting of furniture, computer and office equipment and leasehold improvements) are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets ( three years for computer equipment, five years for furniture and office equipment and the shorter of the term of the lease or useful life for leasehold improvements). 7 Impairment of Long-Lived Assets ASC 360, Property, Plant and Equipment, addresses the financial accounting and reporting for impairment or disposal of long-lived assets. The Company reviews the recorded values of long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. Foreign Currency Transactions The Company, at times, contracts with vendors and consultants outside of the U.S., resulting in liabilities denominated in foreign currency. The transactions are recorded in U.S. dollars on the transaction dates and any currency fluctuation through the payment date is recorded as currency gains or losses in the Condensed Consolidated Statements of Operations. Deferred Offering Costs The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed immediately as a charge to operating expenses. Deferred offering costs relating to the Company’s ATM Sales Agreement were $ 162 and $ 284 as of June 30, 2021 and December 31, 2020, respectively, excluding $ 508 and $ 105 , respectively, which has been recorded as a reduction to stockholders’ equity in connection with sales under the agreement. Research and Development Expenses All of the Company’s 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 (“CROs”) to conduct certain research and development activities on the Company’s behalf. The Company does not allocate its costs by each indication for which it is developing Haduvio, as a significant amount of the Company’s development activities broadly support all indications. In addition, several of the Company’s departments support the Company’s Haduvio drug candidate development program and the Company does not identify internal costs for each potential indication. The Company expenses both internal and external research and development expenses as they are incurred. Accrued Research and Development Expenses The Company has entered into agreements with CROs, contract manufacturing organizations (“CMOs”) and other companies that provide services in connection with the Company’s research and development activities. The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on the Condensed Consolidated Balance Sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CROs, CMOs and other companies under these arrangements in advance of the performance of the related services are recorded as prepaid expenses or as non-current deposits, as applicable, and are recognized as expenses as the goods are delivered or the related services are performed. Patent Costs All patent-related costs in connection with filing and prosecuting patent applications are expensed to general and administrative expense as incurred, as recoverability of such expenditures is uncertain. Stock-Based Compensation The Company accounts for stock-based compensation arrangements with employees and non-employees for consultancy services in accordance with ASC 718, Stock Compensation (“ASC 718”). ASC 718 requires the recognition of compensation expense, using a fair value based method, for costs related to all stock-based payments including stock options. The Company’s determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option-pricing model for stock options with time-based and performance-based vesting and is impacted by the price of its common stock as well as changes in assumptions regarding a number of complex and subjective variables. These variables include expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends. 8 The fair value is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period) on a straight-line basis. For performance-based vesting, the fair value is also recognized on a straight-line basis over the requisite service period based on whether the performance conditions are probable. The Company reassesses the probability of achieving the performance conditions at each reporting date. Forfeitures are accounted for as they occur. Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require analysis and judgment to develop. Expected Term—The expected term assumption represents the weighted average period that the stock-based awards are expected to be outstanding. The Company has elected to use the “simplified method” for estimating the expected term of the options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Expected Volatility—For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies. Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently has no history or expectation of paying cash dividends on its common stock. Risk-Free Interest Rate—The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. Prior to the Company’s IPO in May 2019, the estimated fair value of the common stock underlying the Company’s stock options was determined at each grant date by the Company’s board of directors, with input from management. All options to purchase shares of common stock were intended to be exercisable at a price per share not less than the per share fair value of the Company’s common stock underlying those options on the date of grant. In the absence of a public trading market for the Company’s common stock prior to the Company’s IPO in May 2019, on each grant date, the Company developed an estimate of the fair value of its common stock based on the information known to the Company on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock and in part on input from an independent third-party valuation. As is provided for in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the Company generally relied on valuations for up to twelve months unless the Company had experienced a material event that would have affected the estimated fair value of its common stock. The valuations of the Company’s common stock performed prior to the Company’s IPO in May 2019, were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Practice Aid”). The methodology to determine the fair value of common stock included estimating the fair value of the enterprise using a market approach, which estimates the fair value of the Company by including an estimation of the value of the business based on the guideline public companies under a number of different scenarios. The assumptions used to determine the estimated fair value of the Company’s common stock were based on numerous objective and subjective factors, combined with management judgment, including external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry; the Company’s stage of development; the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of the Company’s common stock; the prices at which the Company sold shares of convertible preferred stock; the Company’s financial condition and operating results, including the Company’s levels of available capital resources; the progress of the Company’s research and development efforts; the stage of development and business strategy; the equity market conditions affecting comparable public companies; the general U.S. market conditions and the lack of marketability of the Company’s common stock. The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, the Company considered the following methods: • Option Pricing Method (“OPM”)—The OPM treats common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preferences at the time of a liquidity event, such as a strategic sale or merger. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value 9 immediately after the convertible preferred stock liquidation preference is paid. The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the securities’ fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities. • Probability Weighted Expected Return Method (“PWERM”)—Under the PWERM methodology, the fair value of common stock is estimated based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. • Hybrid Method—The hybrid method is a PWERM where the equity value in one of the scenarios is calculated using an OPM. In the hybrid method used by the Company, it considered an IPO as the other potential future liquidity event. The equity value for the IPO scenario was determined using the guideline public company (“GPC”), method under the market approach. The relative probability of the IPO scenario was determined based on an analysis of market conditions at the time and expectations as to the timing and likely prospects of the IPO at each valuation date. In application of the GPC method, the Company considered publicly traded companies in the biopharmaceutical industry that had a similar profile to the Company’s as well as recently completed IPOs as indicators of estimated future value in an IPO. The Company then discounted that future value back to the valuation date at an appropriate discount rate. In determining the estimated fair value of the Company’s common stock prior to Company’s IPO in May 2019, the board of directors considered the fact that the Company’s stockholders could not freely trade the Company’s common stock in the public markets. Accordingly, the Company’s board of directors applied discounts to reflect the lack of marketability of common stock based on the weighted-average expected time to liquidity. The estimated fair value of the Company’s common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event. Subsequent to the completion of the Company’s IPO in May 2019, the fair value of the Company’s common stock has been determined based on the closing price of the Company’s common stock as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized. The Company applies the provisions of ASC 740, Income Taxes (“ASC 740”), which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. These Condensed Consolidated Financial Statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts. Leases Under ASC 842, Leases (“ASC 842”), the Company determines if an arrangement is a lease at its inception. If an operating lease has a term greater than one year, the lease is recognized in the balance sheet as a right-of-use asset and an operating lease liability at lease commencement. The Company elected the short-term lease practical expedient, therefore, if an operating lease has a term less than one year, the Company will not recognize the lease on its balance sheet. The operating right-of-use asset represents the Company’s right of use to an underlying asset for the term of the lease and the operating liability represents the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are determined and recognized on the commencement date of the lease based on the present value of lease payments over the term of the lease. As the Company’s leases do not provide an implicit rate within the lease, the Company uses its incremental borrowing rate, which is updated periodically, based on information available at the commencement date of the lease to determine the present value of the lease payments. Basic and Diluted Net Loss per Common Share Basic and diluted net loss per common share outstanding is determined by dividing net loss by the weighted average common shares outstanding during the period. For all periods presented, shares issuable upon exercise of stock options have been excluded from the calculation because their effects would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per share are the same for each of the periods presented. 10 Recently Adopted Accounting Pronouncements On January 1, 2021 , the Company adopted ASU No. 2019-12- Income Taxes (Topic 740) , which simplifies the accounting for income taxes. The adoption of the new guidance did not affect the Company’s Condensed Consolidated Financial Statements. Recently Issued Accounting Pronouncements There have been no new accounting pronouncements during the six months ended June 30, 2021, which could be expected to materially impact the Company’s unaudited Condensed Consolidated Financial Statements. 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: June 30, 2021 December 31, 2020 Prepaid corporate insurance $ 1,436 $ 562 Prepaid other and other current assets 432 373 Prepaid R&D costs 187 333 Total prepaid expenses and other current assets $ 2,055 $ 1,268 4. Leases Effective March 1, 2013, the Company entered into a lease for office space in New Haven, CT and commencing March 1, 2018, the Company entered into the First Amendment to the lease. The leased space is approximately 5,600 square feet and the lease has a term of 60 months. The lease requires monthly payments ranging from approximately $ 10 to $ 11 through February 1, 2023 and provides for two designated months of free rent. The incremental borrowing rate used on existing leases was 13.0 %. The right-of-use asset also includes any lease payments related to initial direct costs and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term. The Company had no new leases during the six months ended June 30, 2021. The Company’s current operating leases consist of real estate and the remaining term is approximately 1.7 years . The Company has no financing leases. The following table summarizes the Company’s operating leases as presented on its Condensed Consolidated Balance Sheets: June 30, 2021 December 31, 2020 Assets: Operating lease right-of-use asset $ 181 $ 227 Liabilities: Operating lease liabilities, current portion 111 113 Operating lease liabilities, long term portion 91 144 Total operating lease liabilities $ 202 $ 257 Future minimum lease payments from June 30, 2021 until the expiration of the operating leases are as follows: 2021 $ 70 2022 131 2023 24 Total lease payments 225 Less: imputed discount rate ( 23 ) Carrying value of operating lease liabilities $ 202 Lease expense under operating leases, including leases of office equipment, was $ 30 and $ 31 for the three months ended June 30, 2021 and 2020, respectively and $ 61 and $ 62 for the six months ended June 30, 2021 and 2020, respectively. Lease payments made in the three months ended June 30, 2021 and 2020 were $ 35 and $ 35 , respectively and $ 69 and $ 80 for the six months ended June 30, 2021 and 2020, respectively, with such amounts reflected in the Condensed Consolidated Statements of Cash Flows in operating activities. 11 5. Accrued Expenses Accrued expenses consisted of the following: June 30, 2021 December 31, 2020 Accrued R&D projects $ 1,370 $ 1,754 Accrued compensation and benefits 1,037 954 Accrued consulting and professional fees 760 560 Accrued other 149 158 Total accrued expenses $ 3,316 $ 3,426 6. Debt SVB Term Loan On August 13, 2020 (the “Effective Date”), the Company entered into a loan and security agreement (the “SVB Loan Agreement”) with SVB, as lender, pursuant to which SVB provided a term loan to the Company in the original principal amount of $ 14.0 million (the “SVB Term Loan”). The Company may use the proceeds from the SVB Term Loan 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 the Company has (i) received positive data for the Phase 2b/3 clinical trial of Haduvio 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 the Company’s operations, (together, 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 % (see term loan derivative liability discussion below). On the first business day of each month, the Company will be required to make monthly interest payments and commencing on March 1, 2022, the Company 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, the Company 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 the Company’s properties, rights and assets, except for its intellectual property (which is subject to a negative pledge under the SVB Loan Agreement). On July 6, 2021, the Company and SVB entered into a First Amendment (the “Loan Amendment”) to the SVB Loan Agreement. The Loan Amendment modifies the conditions under which the Company is required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement . Under the Loan Amendment, if the Company fails to receive positive data in its Phase 2b/3 PRISM trial or to meet certain equity raise requirements, including raising at least $ 15.0 million in net proceeds from the sale of equity securities during the period from June 1, 2021 through October 31, 2021 and raising by June 30, 2022, sufficient additional net proceeds from the sale of equity securities to finance its planned second phase 3 clinical trial of Haduvio for prurigo nodularis and its ongoing operations (each a “Milestone Condition”), the Company 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. In addition, the Loan Amendment provides that if the Company fails to maintain at least $ 20.0 million in unrestricted and unencumbered cash in its accounts with SVB at any time prior to the satisfaction of all the Milestone Conditions, the Company will be required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement . 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 the Company 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 the Company’s cash. In August 2020, in connection with the SVB Term Loan, the Company paid $ 57 in financing costs to a third party, which were recorded as deferred charges and will be amortized over the life of the SVB Term Loan using the effective interest method. Amortization of these deferred financing charges totaled $ 5 and $ 11 for the three and six months ended June 30, 2021, respectively and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations. The SVB Term Loan 12 discount - unamortized deferred charges totaled $ 36 and $ 48 at June 30, 2021 and December 31, 2020 , respectively and is included as a direct reduction of the carrying value of the term loan payable on the Company’s Condensed Consolidated Balance Sheet s . In August 2020, in connection with the execution of the SVB Loan Agreement, the Company paid $ 27 in financing costs to SVB, which were recorded as loan discounts. These loan discounts are included as a reduction in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets and will be accreted over the life of the SVB Term Loan using the effective interest method. Accretion of these loan discounts totaled $ 2 and $ 5 for the three and six months ended June 30, 2021 and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations. At June 30, 2021 and December 31, 2020, the loan discount-financing costs balance was $ 18 and $ 23 , respectively. In connection with the SVB Loan Agreement, the Company is obligated to pay a final payment fee of $ 1.2 million upon repayment in full of the SVB Term Loan. The final payment fee is being accrued over the life of the SVB Term Loan using the effective interest method and is included as an increase in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets. At June 30, 2021 and December 31, 2020, $ 420 and $ 183 was accrued for the final payment fee, respectively. Upon the occurrence of the Phase 3 Event, the interest rate on the SVB Term Loan will increase by 2.00 % (the “Contingent Interest Rate Increase”) as described above. The Contingent Interest Rate Increase represents a free-standing financial instrument. Accordingly, the Company accounted for the Contingent Interest Rate Increase as a derivative under ASC 815, Derivatives and Hedging and therefore, recorded a term loan derivative liability for the Contingent Interest Rate Increase at its fair value of $ 187 on the Effective Date of the SVB Loan Agreement. The Company adjusts this liability to fair value at each reporting date it remains outstanding, with such adjustments recorded as non-cash charges in other (expense) income, net in the Company’s Condensed Consolidated Statements of Operations. The total fair value of this liability was determined to be $ 162 and $ 196 at June 30, 2021 and December 31, 2020, respectively. The change in fair value of the term loan derivative liability as of June 30, 2021 as compared to the fair value at its last measurement at December 31, 2020 date was $ 34 . The term loan derivative liability is presented as a current liability on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2021 and as a non-current liability as of December 31, 2020. Upon recording such term loan derivative liability, the Company also recorded an offsetting term loan discount – interest, to be amortized to interest expense in the Company’s Condensed Consolidated Statements of Operations through the SVB Term Loan’s maturity date using the effective interest method. Such amortization was $ 19 and $ 37 in the three and six months ended June 30, 2021, respectively. At June 30, 2021 and December 31, 2020, the balance of the term loan discount – interest was $ 121 and $ 158 , respectively and is included as a reduction in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets. Fair values of the term loan derivative liability are estimated utilizing a probability-weighted cash flow approach, including variables for the timing of the Phase 3 Event and other probability estimates. For the fair value calculations of the term loan derivative liability at June 30, 2021 and December 31, 2020, significant inputs included the Contingent Interest Rate Increase of 2.00 %, a discount rate of 12.0 % and the SVB Term Loan maturity date of February 1, 2024. As of June 30, 2021 the Company had outstanding borrowings of $ 14.0 million under the SVB Term Loan and the term loan payable balance as presented on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 was comprised as shown below. June 30, 2021 December 31, 2020 Principal outstanding under term loan $ 14,000 $ 14,000 Term loan discount-interest ( 121 ) ( 158 ) Term loan discount-unamortized deferred charges ( 36 ) ( 48 ) Term loan discount-financing costs, net of accretion ( 18 ) ( 23 ) Term loan-final payment fee 420 183 14,245 13,954 Less current portion 2,333 - Term loan payable, non-current $ 11,912 $ 13,954 13 Interest expense on the SVB Term Loan, which is comprised of interest payments, accretion and amortization of term loan discounts and the accrual of the final payment fee, is shown below for the three and six months ended June 30, 2021. There was no such expense under the SVB Term Loan for the three and six months ended June 30, 2020. Three months ended June 30, Six Months Ended June 30, 2021 2021 Interest payments $ 150 $ 299 Accretion and amortization of term loan discounts 27 54 Accrual of the final payment fee 119 237 $ 296 $ 590 7. Stockholders’ Equity As of June 30, 2021 and December 31, 2020, the Company had reserved s hares of common stock for the exercise of outstanding stock options and shares of common stock remaining available for future stock-based awards under the Company’s 2012 Stock Incentive Plan, 2019 Stock Incentive Plan and 2019 Employee Stock Purchase Plan, as shown in the table below: June 30, 2021 December 31, 2020 Shares of common stock reserved for future issuance under the 2012 Stock Incentive Plan 885,418 921,824 Shares of common stock reserved for future issuance under the 2019 Stock Incentive Plan 3,175,199 2,396,922 Shares of common stock reserved for future issuance under the 2019 Employee Stock Purchase Plan 503,789 327,454 4,564,406 3,646,200 At-the-Market Offering In June 2020, the Company entered into the ATM Sales Agreement, under which the Company may issue and sell shares of its 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. The Company is not obligated to make any sales of its common stock under the ATM Sales Agreement. The Company began making sales pursuant to the ATM Sales Agreement in July 2020. During the three and six months ended June 30, 2021, the Company issued and sold an aggregate of 1,365,871 and 2,733,492 shares of common stock, respectively, for gross proceeds of $ 3.0 million and $ 7.4 million, respectively, before deducting estimated commissions and allocated fees of $ 0.2 million and $ 0.6 million, respectively. As of June 30, 2021, the Company had issued and sold an aggregate of 3,421,368 shares of common stock for gross proceeds of $ 10.6 million, before deducting estimated commissions and allocated fees of $ 0.8 million. Equity Purchase Agreement On June 18, 2021, the Company entered into a common stock purchase agreement (“LPC Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). The LPC Purchase Agreement provides that, subject to the terms and conditions therein, the Company has the right, but not the obligation, to sell, at its discretion, to Lincoln Park up to $ 15.0 million of shares of common stock over a 24 -month period commencing on July 23, 2021. In addition, under the LPC Purchase Agreement, the Company issued 170,088 shares of common stock to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of the Company’s common stock under the LPC Purchase Agreement. The purchase price per share of the shares sold will be based on the market prices prevailing immediately preceding the time of sale as computed under the LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s common stock. The agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty. Stock-Based Awards In April 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the “2019 Plan”), which became effective on May 7, 2019. The 2019 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2019 Plan. The 2019 Plan is administered by the Company’s board of directors. 14 The total number of shares of common stock that may be issued under the 2019 Plan and the 2012 Plan was 4,060,617 as of June 30, 2021, of which 858,240 shares remained available for grant under the 2019 Plan. Awards may be made under the 2019 Plan for up to such number of shares of the Company’s common stock as is equal to the sum of i) 1,578,947 shares; plus ii) the number of shares (up to 1,157,894 shares) equal to the number of shares of the Company’s common stock subject to outstanding awards under the 2012 Stock Incentive Plan (the “2012 Plan”) that expire, terminate or are otherwise cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus iii) an annual increase to be added on the first day of each fiscal year, beginning with 2020 and continuing through 2029, equal to the lesser of (a) 2,105,623 shares of common stock, (b) 4 % of the number of outstanding shares of the Company’s common stock on such date and (c) an amount determined by the Company’s board of directors. Effective January 1, 2021 and January 1, 2020, respectively, the number of shares reserved for issuance under the 2019 Plan increased pursuant to the terms of the 2019 Plan by an additional 741,871 shares and 713,383 shares, equal to 4 % of the Company’s then-outstanding common stock . The 2012 Plan was adopted by the Company’s board of directors and stockholders. The 2012 Plan provides for the issuance of stock-based awards to the Company’s employees, officers, directors, consultants and advisors. The Company’s board of directors administers the 2012 Plan. Options granted under the 2019 Plan and the 2012 Plan have a maximum term of ten years . Options granted to employees, officers and non-employees generally vest over four years based on varying vesting schedules that primarily include: 25 % vesting on the first anniversary date of grant and the balance ratably over the next 36 months or vesting in equal monthly or quarterly installments over four ye ars. Options granted to directors generally vest over one to two years. As of June 30, 2021 and December 31, 2020, respectively, options to purchase 2,316,959 shares and 1,249,653 shares of common stock were granted and outstanding, net of cancellations, under the 2019 Plan. As of June 30, 2021 and December 31, 2020, options to purchase 885,418 and 921,824 shares of common stock, respectively, were granted and outstanding, net of cancellations, under the 2012 Plan. In April 2019, the Company’s board of directors adopted a resolution effective on May 7, 2019, that no further stock options or other equity-based awards may be granted under the 2012 Plan. In February 2021, the compensation committee of the Company’s board of directors approved the grant of stock options with performance-based vesting (“PSOs”) to employees of the Company. The PSOs granted in February 2021, vest based on the timing and successful results of the Company’s PRISM or CANAL clinical trials. A summary of the Company’s combined stock option activity for the 2019 Plan and the 2012 Plan for the six months ended June 30, 2021 is as follows: Number of Option Shares Weighted Average Exercise Price Outstanding as of December 31, 2020 2,171,477 $ 5.62 Granted 1,363,875 $ 3.02 Forfeited ( 331,824 ) $ 4.57 Expired ( 1,151 ) $ 10.00 Exercised — $ — Outstanding as of June 30, 2021 3,202,377 $ 4.62 Options exercisable as of June 30, 2021 1,393,630 $ 5.12 Options unvested as of June 30, 2021 1,808,747 $ 4.24 In April 2019, the Company’s board of directors adopted the 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which became effective on May 7, 2019. The 2019 ESPP is administered by the Company’s board of directors. The total number of shares of common stock that may be issued under the 2019 ESPP Plan was 518,918 as of June 30, 2021, of which 503,789 shares remain available for issuance. The number of shares of the Company’s common stock that have been approved to be issued under the 2019 ESPP is equal to the sum of i) 155,106 shares plus ii) an annual increase to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2020 and continuing for each fiscal year until and including, the fiscal year ending December 31, 2029, equal to the least of (a) 526,315 shares of common stock, (b) 1 % of the number of outstanding shares of the Company’s common stock on such date and (c) an amount determined by the Company’s board of directors. Effective January 1, 2021 and January 1, 2020, respectively, the aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP increased, pursuant to the terms of the 2019 ESPP, by an additional 185,467 shares and 178,345 shares, equal to 1 % of the Company’s then-outstanding common stock . 15 All of the Company’s employees are eligible to participate in the 2019 ESPP, provided that: • such person is customarily employed by the Company for more than 20 hours a week and for more than five months in a calendar year; • such person has been employed by the Company for at least three months prior to enrolling in the 2019 ESPP; and • such person was an employee of the Company on the first day of the applicable offering period under the 2019 ESPP. The following table summarizes the classifications of stock-based compensation expenses for the 2012 Plan, the 2019 Plan and the 2019 ESPP recognized in the Condensed Consolidated Statements of Operations: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development expense $ 251 $ 84 $ 424 $ 177 General and administrative expense 494 505 1,039 1,142 $ 745 $ 589 $ 1,463 $ 1,319 8. Income Taxes During the three and six months ended June 30, 2021 and 2020, the Company maintained a full valuation allowance on deferred tax assets. Therefore, the Company has not recorded a provision for income taxes. 9 . Net Loss per Share The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net loss $ ( 9,794 ) $ ( 7,384 ) $ ( 18,165 ) $ ( 15,857 ) Weighted average common shares used in net loss per share attributable to common stockholders, basic and diluted 20,123,461 17,835,952 19,772,201 17,835,261 Basic and diluted net loss per common share outstanding $ ( 0.49 ) $ ( 0.41 ) $ ( 0.92 ) $ ( 0.89 ) The Company’s potential dilutive securities, which include stock options, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The common shares underlying stock options, based on stock options outstanding as of June 30, 2021 and 2020, were excluded from the calculations of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect. 10 . Collaborative and Licensing Agreements The Company enters into collaborative and licensing agreements with pharmaceutical companies to in-license, develop, manufacture and/or market products that fit within its business strategy. Endo Pharmaceuticals Inc. In May 2011, the Company entered into an agreement with Penwest Pharmaceuticals Co. (“Penwest”) (subsequently merged into its parent, Endo Pharmaceuticals Inc. (“Endo”)) for an exclusive worldwide sublicensable license under certain patent rights and know-how controlled by Penwest to develop and commercialize products incorporating nalbuphine hydrochloride in any formulation, including an extended-release formulation such as Haduvio, in all fields and for any use. Under the license agreement, the Company paid Penwest a non-creditable, minimal non-refundable upfront license fee. The Company may also become obligated to make milestone payments to Endo of $ 0.3 million, which would become due upon the successful completion of the first Phase 3 clinical trial of a licensed product candidate, such as the Phase 2b/3 PRISM trial and $ 0.8 million, which would become due upon the marketing approval of a licensed product in the U.S. and to pay mid-single-digit royalties based on net sales of the licensed products by the Company, its affiliates and sublicensees. In addition, the Company is obligated to pay Endo a low-to-mid double-digit percentage of certain income it receives from sublicensees, based on the date of the definitive agreement under which the sublicense was granted. 16 The Company’s royalty obligation with respect to each licensed product in each country commences upon the first commercial sale of the product in that country and extends until the later of the expiration, unenforceability or invalidation of the last valid claim of any licensed patent or application covering the licensed product in the country or the expiration of 10 years after the first commercial sale of the licensed product in the country, which period is referred to as the royalty term. Upon the expiration of the royalty term for a product in a country , the Company is thereafter obligated to pay a low single-digit know-how and trademark royalty. Under the agreement, the Company has granted Endo a non-exclusive, royalty-free (except for pass-through payments to third parties), sublicensable license under its relevant patent rights to use any improvement the Company makes to Endo’s controlled release technology for any product other than the products under which it is licensed by Endo. Both the Company and Endo have the right to terminate the agreement if the other party materially breaches the agreement and fails to cure the breach within specified cure periods. Endo also has the right to terminate in the event the Company undergoes specified bankruptcy, insolvency or liquidation events. The Company has the right to terminate the agreement at its convenience at any time on 180 days’ notice to Endo. Additionally, if the Company or any of the Company’s sublicensees challenge the validity or enforceability of any licensed patent rights covering a licensed product and that challenge is not terminated within a specified period, the agreement will immediately terminate and all licenses granted under the agreement shall be revoked. Upon termination of the agreement, the Company must transfer to Endo all regulatory filings and approvals relating to the development, manufacture or commercialization of the licensed products and all trademarks, other than the Company’s corporate trademarks, then being used in connection with the licensed products. If the agreement is terminated under certain specified circumstances, the Company will be deemed to have granted Endo a perpetual, royalty-free (except for pass-through payments to third parties), worldwide, exclusive, sublicensable license, under any improvements the Company made to the licensed know-how and any related patent rights the Company has to manufacture and commercialize the licensed products. Exclusive License Agreement with Rutgers In November 2018, the Company entered into an agreement with Rutgers, The State University of New Jersey (“Rutgers”) for an exclusive, worldwide, sublicensable license under certain patent rights controlled by Rutgers and for a non-exclusive, worldwide, sublicensable license under certain know-how controlled by Rutgers, in each case to develop and commercialize products incorporating nalbuphine for any human or animal use. Upon entering into the license agreement, the Company paid Rutgers a minimal upfront license issue fee, which was recorded as R&D expense in 2018 and agreed to pay Rutgers a minimal annual license fee. The Company may become obligated to make milestone payments to Rutgers in the aggregate of up to $ 0.3 million based on the achievement of certain clinical, regulatory and sales milestones. The Company has also agreed to pay Rutgers a low single-digit percentage of certain income it receives from sublicensees and to pay tiered low single-digit royalties based on net sales of licensed products by the Company, its affiliates and sublicensees. The Company’s royalty obligation with respect to each licensed product in each country commences on the date of the first commercial sale of the licensed product in that country following receipt of marketing approval and extends until the later of the date of expiration, unenforceability or invalidation of the last valid claim of any licensed patent or patent application covering the licensed product in the country and 10 years after the first commercial sale of the first licensed product sold anywhere in the world, which period is referred to as the royalty term. Upon the expiration of the royalty term for a licensed product in a country, the license granted to the Company under the agreement shall become perpetual, fully paid-up, irrevocable and royalty-free in such country. The royalty is subject to reduction in certain circumstances. In June 2021, the Company entered into an amendment with Rutgers to extend the deadline to commence a clinical trial on nalbuphine ER for LID to December 31, 2022. The Company paid a minimal fee related to this amendment, which was recorded as R&D expense during the second quarter of 2021. Restructuring Agreement with MentiNova, LLC In November 2018, concurrent with the signing of the agreement with Rutgers described above, the Company entered into a restructuring agreement with MentiNova, LLC (“MentiNova”), for the purchase of specified information and know-how, specified contractual rights and benefits and all books and records of MentiNova related thereto (collectively, the “Acquired Assets”). Upon entering into the license agreement, the Company paid MentiNova an aggregate upfront payment of $ 0.1 million, which was recorded as R&D expense in 2018, subject to specified closing adjustments. The Company may become obligated to make milestone payments to MentiNova in the aggregate of up to $ 1.2 million based on the achievement of certain clinical and regulatory milestones as well as tiered low single-digit royalties based on net sales of products containing nalbuphine as the sole active 17 pharmaceutical ingredient that are developed by the Company using the Acquired Assets or the intellectual property licensed to the Company under the Rutgers agreement described above (the “Rutgers IP”) for indications that are within the scope of the Rutgers IP. The royalty is subject to reduction in certain circumstances. 1 1 . Commitments and Contingencies A significant portion of the Company’s development activities are outsourced to third parties under agreements, including with CROs and contract manufacturers in connection with the production of clinical trial materials. These arrangements may require the Company to pay termination costs to the third parties for reimbursement of costs and expenses incurred in the event of the orderly termination of contractual services. The Company also has commitments under lease and licensing agreements (Note 4 and Note 10).