Trevi Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 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,” “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. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC. Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. Overview We are a clinical-stage biopharmaceutical company focused on the development and commercialization of 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, or U.S 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 subjects 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 was impacted by the novel coronavirus pandemic, or COVID-19, as new subject screening and most subject enrollment were temporarily halted in March 2020. Our sites began to restart subject screening and enrollment during May and June 2020. We have increased the number of active sites to more than 60 globally and approximately 285 18 subjects have enrolled in the trial. 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 in the first half of 2022 . 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 U.S. 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. This trial 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 U.K. Due to the COVID-19 pandemic and the specific at-risk nature of IPF patients, our clinical sites halted their enrollment and treatment of subjects in this trial in March 2020. While subject 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.K. government. This shelter-in-place directive expired in March 2021 and the remaining COVID-19 related restrictions were lifted in July 2021. The U.K. government may choose to reinstate any and/or all of the restrictions in the future depending on COVID-19 infection rates. 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 as the clinical research related infrastructure was disrupted by COVID-19 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. Subject to the uncertainties associated with COVID-19 and COVID-19 related restrictions in the U.K., we expect to report top-line data for this trial in the first half of 2022. 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 financial 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 additional indications for which we may choose to pursue the development of Haduvio. Since commencing operations in 2011, we have devoted substantially all our efforts and financial resources to the clinical development of Haduvio. We have not generated any revenue from product sales and, as a result, we have never been profitable and have incurred net losses in each year since commencement of our operations. As of June 30, 2021, we had an accumulated deficit of $165.1 million, primarily as a result of research and development and general and administrative expenses. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize Haduvio for the treatment of pruritus associated with prurigo nodularis, chronic cough in patients with IPF or LID in patients with Parkinson’s disease and we can provide no assurance that we will ever generate revenue or profits. In June 2020, we entered into an at-the-market 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, or the Securities Act , 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 June 30, 2021, we 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. In August 2020, we entered into a loan and security agreement, or the SVB Loan Agreement, with Silicon Valley Bank, or SVB pursuant to which SVB 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 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. 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. In July 2021, we and SVB entered into an amendment to the SVB Loan Agreement, which we refer to as the Loan Amendment, that modified the conditions under which we will be required to cash collateralize the outstanding amounts owed to them under the SVB Loan Agreement. For further discussion of the SVB Term Loan and the Loan Amendment, see “—Liquidity and Capital Resources”. In June 2021, we entered into a common stock purchase agreement, or the LPC Purchase Agreement, with Lincoln Park Capital Fund, LLC , or Lincoln Park. The LPC Purchase Agreement provides that, subject to the terms and conditions therein, we have the right, but not the obligation, to sell, at our 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, we issued 170,088 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the LPC Purchase 19 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 our shares of common stock. We may terminate the LPC Purchase Agreement at any time, at our sole discretion, without any additional cost or penalty. As of June 30, 2021, we had cash and cash equivalents of $36.4 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 Condensed Consolidated 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) , we concluded that there is substantial doubt about our ability to continue as a going concern as of the date of issuance of the Condensed Consolidated 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 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 COVID-19 and related clinical trial delays and interruptions. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of Haduvio for one or more indications or delay our efforts to expand our product pipeline. Impacts of COVID-19 COVID-19 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. For example, in our ongoing Phase 2b/3 PRISM trial, new subject screening and most enrollment was temporarily halted due to COVID-19 in March 2020. Many of our sites restarted subject screening and enrollment throughout May and June 2020. Furthermore, multiple sites in the Phase 2b/3 PRISM trial are requiring remote monitoring of subject 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 COVID-19. In addition, the clinical sites in our ongoing Phase 2 CANAL trial temporarily suspended enrollment and treatment of subjects 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 subject visits and procedures. While subject 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. government. This shelter-in-place directive expired in March 2021 and the other COVID-19 related restrictions were lifted in July 2021. The U.K. government may choose to reinstate any and/or all of the restrictions in the future depending on COVID-19 infection rates. 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 as the clinical research related infrastructure was disrupted by COVID-19 and that other sites may cease to participate in the trial entirely. COVID-19 may also adversely affect our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 and may result in further disruptions to our clinical trials due to prioritization of hospital and medical resources toward the outbreak, restrictions on travel of patients and healthcare providers, potential unwillingness of patients to enroll in trials at this time or the inability of patients to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. The response to COVID-19 may also redirect resources of regulators in a way that could adversely impact our ability to progress towards regulatory approvals and we may face impediments to regulatory meetings and approvals relating to our clinical trials due to measures intended to limit in-person interactions. COVID-19 may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials. The spread of COVID-19 or another infectious disease, could also negatively affect the operations at our third-party suppliers, which could result in delays or disruptions in the supply of drug product used in our clinical trials. We have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including allowing employees to work remotely part of the week and suspending non-essential travel worldwide for our employees. 20 Components of Operating Results Operating Expenses Research and Development Expenses All of our research and development expenses consist of expenses incurred in connection with the development of Haduvio. These expenses include 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 all of our costs by each indication for which we are developing Haduvio, as a significant amount of our development activities broadly support all indications. In addition, several of our departments support our Haduvio drug candidate development program and we do not identify internal costs for each potential indication. We expect our research and development expenses to increase over the next few years as we pursue our development program, pursue regulatory approval of Haduvio in the U.S., Europe and other jurisdictions outside the U.S. and prepare for a possible commercial launch of Haduvio. Predicting the timing or the cost to conduct our Haduvio development program and prepare for a possible commercial launch of Haduvio is difficult and delays may occur because of many factors including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, whether as a result of COVID-19 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 U.S. or elsewhere with any certainty. General and Administrative Expenses General and administrative expenses consist principally of personnel-related costs, including stock-based compensation for personnel in executive, finance, commercial and other administrative functions; professional fees for legal, consulting and accounting services; as well as rent and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation and expanded infrastructure. Other (Expense) Income, Net 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%. For further discussion of the Phase 3 Event, see “Interest Expense”. 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. Other Expense Other expense consists of the value of the shares of our common stock that we issued to Lincoln Park as a commitment fee as consideration for Lincoln Park’s commitment to purchase shares of our common stock under the LPC Purchase Agreement. Interest Income Interest income consists of interest earned from money market funds on our cash and cash equivalents. 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 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 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. We will then 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. 21 Results of Operations Comparison of the Three Months Ended June 30, 2021 and 2020 The following table summarizes our results of operations for the periods indicated (in thousands): Three Months Ended June 30, 2021 2020 Change Operating expenses: Research and development $ 6,498 $ 4,921 $ 1,577 General and administrative 2,669 2,492 177 Total operating expenses 9,167 7,413 1,754 Loss from operations (9,167 ) (7,413 ) (1,754 ) Other (expense) income: Change in fair value of term loan derivative liability 40 — 40 Other expense (375 ) — (375 ) Interest income 2 14 (12 ) Interest expense (296 ) — (296 ) Total other (expense) income, net (629 ) 14 (643 ) Loss before income taxes (9,796 ) (7,399 ) (2,397 ) Income tax benefit 2 15 (13 ) Net loss $ (9,794 ) $ (7,384 ) $ (2,410 ) Operating Expenses Research and Development Expenses The following table summarizes our research and development expenses for the periods indicated (in thousands): Three Months Ended June 30, 2021 2020 Change Clinical development expenses $ 4,237 $ 3,814 $ 423 Personnel and related expenses 1,343 706 637 Consulting expenses and professional fees 594 282 312 Stock-based compensation expenses 251 84 167 Other research and development expenses 73 35 38 Total research and development expenses $ 6,498 $ 4,921 $ 1,577 Research and development expenses for the three months ended June 30, 2021 increased to $6.5 million from $4.9 million for the corresponding period in 2020, primarily due to an increase in personnel-related expenses as a result of an increase in our employee headcount, increased costs associated with increased activity and enrollment in our ongoing Phase 2b/3 PRISM trial as well as increased purchases of clinical trial supplies and an increase in consulting and professional fees. These increases were partially offset by decreased expenses reflecting the completion of our Phase 1b clinical trial in patients with chronic liver disease in the first half of 2020. For the periods presented, all of our research and development expenses related to our development activity for Haduvio. General and Administrative Expenses General and administrative expenses for the three months ended June 30, 2021 increased to $2.7 million from $2.5 million for the corresponding period in 2020. The increase was primarily due to increased legal and professional fees partially offset by a reduction in personnel-related expenses . Other (Expense) Income, Net Other (expense) income, net for the three months ended June 30, 2021 was an expense of $0.6 million compared to income of less than $0.1 million for the corresponding period in 2020. This change was due to 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 as well as an increase of $0.4 million related to the value of the shares of our common stock that we issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of our common stock under the LPC Purchase Agreement. 22 Results of Operations Comparison of the Six Months Ended June 30, 2021 and 2020 The following table summarizes our results of operations for the periods indicated (in thousands): Six Months Ended June 30, 2021 2020 Change Operating expenses: Research and development $ 12,087 $ 10,940 $ 1,147 General and administrative 5,169 5,112 57 Total operating expenses 17,256 16,052 1,204 Loss from operations (17,256 ) (16,052 ) (1,204 ) Other (expense) income: Change in fair value of obligation for loan success fee 34 — 34 Other expense (375 ) — (375 ) Interest income 5 171 (166 ) Interest expense (590 ) — (590 ) Total other (expense) income, net (926 ) 171 (1,097 ) Loss before income taxes (18,182 ) (15,881 ) (2,301 ) Income tax benefit 17 24 (7 ) Net loss $ (18,165 ) $ (15,857 ) $ (2,308 ) Operating Expenses Research and Development Expenses The following table summarizes our research and development expenses for the periods indicated (in thousands): Six Months Ended June 30, 2021 2020 Change Clinical development expenses $ 8,048 $ 8,770 $ (722 ) Personnel and related expenses 2,520 1,400 1,120 Consulting expenses and professional fees 998 516 482 Stock-based compensation expenses 424 177 247 Other research and development expenses 97 77 20 Total research and development expenses $ 12,087 $ 10,940 $ 1,147 Research and development expenses for the six months ended June 30, 2021 increased to $12.1 million from $10.9 million for the corresponding period in 2020, primarily due to an increase in personnel-related expenses as a result of an increase in our employee headcount, including an increase in stock-based compensation associated with the increase in employee headcount. Consulting and professional fees were also higher. These increases were partially offset by decreased 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. For the periods presented, all of our research and development expenses related to our development activity for Haduvio. General and Administrative Expenses General and administrative expenses for the six months ended June 30, 2021 increased to $5.2 million from $5.1 million for the corresponding period in 2020. The increase was primarily due to increased legal and professional fees partially offset by a reduction in personnel-related expenses . Other (Expense) Income, Net Other (expense) income, net for the six months ended June 30, 2021 was an expense of $0.9 million compared to income of $0.2 million for the corresponding period in 2020. This change was due to a $0.6 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 as well as an increase of $0.4 million related to the value of the shares of our common stock that we issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of our common stock under the LPC Purchase Agreement. The overall change was also due to a decrease in interest income of $0.2 million, primarily due to lower market interest rates and lower average cash balances. 23 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 initial public offering (“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 our prior term loan with Solar Capital, Ltd. and Square 1 Bank (“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. As of June 30, 2018, all amounts owed under the Solar Term Loan had been paid in full. In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million. 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. 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 June 30, 2021 we 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. SVB Loan Agreement In August 2020, we entered into the SVB Loan Agreement with 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 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%. 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. 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 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). The SVB Loan Agreement contains customary representations, warranties, events of default and covenants. The occurrence and continuation of an event of default could cause interest to be charged at the rate that is otherwise applicable plus 5.00% (unless SVB elects to impose a smaller increase) and would provide SVB with the right to accelerate all obligations under the SVB Loan Agreement and exercise remedies against us and the collateral securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including foreclosure against assets securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including our cash. On July 6, 2021, we and SVB entered into a loan amendment to the SVB Loan Agreement, or the Loan Amendment. The Loan Amendment modifies the conditions under which we are required to cash collateralize outstanding amounts owed to SVB under the SVB Loan Agreement. Under the Loan Amendment, if we fail to receive positive data in our Phase 2b/3 PRISM trial or fail 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 our planned second Phase 3 clinical trial of Haduvio for prurigo nodularis and our ongoing operations, each of which we refer to as a Milestone Condition, 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. In addition, the Loan Amendment provides that if we fail to maintain at least $20.0 million in unrestricted and unencumbered cash in our accounts with SVB at any time prior to the satisfaction of all the Milestone Conditions, we will be required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement. Equity Purchase Agreement On June 18, 2021, we entered into the LPC Purchase Agreement with Lincoln Park for an equity line financing. The LPC Purchase Agreement provides that, subject to the terms and conditions set forth therein, we have the right, but not the obligation, to 24 sell to Lincoln Park and Lincoln Park is obligated to purchase up to $15.0 million of shares of common stock at our sole discretion, over a 24-month period commencing on July 23, 2021 . We filed a registration statement on Form S-1 covering the re sale of shares of common stock that are issued to Lincoln Park under the LPC Purchase Agreement, which was declared effective on July 14 , 2021 . As part of the LPC Purchase Agreement, we issued 170,088 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the LPC Purchase Agreement. Under the LPC Purchase Agreement, we may, at our discretion, direct Lincoln Park to purchase on any single business day or a Regular Purchase, up to (i) 100,000 shares of common stock if the closing sale price of our common stock is not below $7.50 per share on Nasdaq, (ii) 75,000 shares of common stock if the closing sale price of our common stock is not below $5.00 per share on Nasdaq or (iii) 50,000 shares of common stock if the closing sale price of our common stock is below $5.00 per share on Nasdaq. In any case, Lincoln Park’s commitment in any single Regular Purchase may not exceed $2,000,000. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of our common stock immediately preceding the time of sale as computed under the LPC Purchase Agreement. Under the LPC Purchase Agreement, we may not effect any sales of shares of common stock on any purchase date that the closing sale price of our common stock on Nasdaq is less than the floor price of $0.50 per share. In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the LPC Purchase Agreement. The net proceeds under the LPC Purchase Agreement to us will depend on the frequency of sales and the number of shares sold to Lincoln Park and prices at which we sell shares to Lincoln Park. Under applicable rules of Nasdaq and pursuant to the terms of the LPC Purchase Agreement, in no event may we issue or sell to Lincoln Park under the LPC Purchase Agreement shares of our common stock in excess of 4,175,167 shares (including the 170,088 commitment shares), which represents 19.99% of the 20,886,283 shares of our common stock that were outstanding immediately prior to the execution of the LPC Purchase Agreement or the Exchange Cap, unless (i) we obtain stockholder approval to issue shares of our common stock in excess of the Exchange Cap or (ii) the average price of all applicable sales of our common stock to Lincoln Park under the LPC Purchase Agreement equals or exceeds $2.18 per share (which represents the closing sale price of our common stock immediately prior to the execution of the LPC Purchase Agreement), such that the issuances and sales of our common stock to Lincoln Park under the LPC Purchase Agreement would be exempt from the Exchange Cap limitation under applicable Nasdaq rules. The LPC Purchase Agreement also prohibits us from directing Lincoln Park to purchase any shares of our common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership, at any single point in time, of more than 9.99% of the then total outstanding shares of common stock. The LPC Purchase Agreement contains customary representations, warranties, covenants, indemnification and termination provisions. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our common stock. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on our ability to enter into additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with us to purchase securities over a period of time from us at a price based on the market price of the common stock at the time of such purchase), rights of first refusal, participation rights, penalties or liquidated damages in the LPC Purchase Agreement. The LPC Purchase Agreement may be terminated by us at any time, at our sole discretion, without any cost or penalty. During any “event of default” under the LPC Purchase Agreement, Lincoln Park does not have the right to terminate the LPC Purchase Agreement; however, we may not initiate any purchase of shares by Lincoln Park until such event of default is cured. As of June 30, 2021, we had cash and cash equivalents of $36.4 million. Our cash and cash equivalents are primarily held in money market accounts. Cash Flows The following table summarizes our cash flows for each of the periods presented below (in thousands): Six Months Ended June 30, 2021 2020 Change Net cash used in operating activities $ (15,476 ) $ (13,109 ) $ (2,367 ) Net cash used in investing activities — (12 ) 12 Net cash provided by (used in) financing activities 6,900 (12 ) 6,912 Net decrease in cash and cash equivalents $ (8,576 ) $ (13,133 ) $ 4,557 Operating Activities During the six months ended June 30, 2021, operating activities used $15.5 million of net cash, resulting from our net loss of $18.2 million and partially offset by net changes in our operating assets and liabilities of $0.6 million and by non-cash charges of $2.1 million. The non-cash charges consisted primarily of stock-based compensation expense of $1.5 million, $0.4 million of other 25 expense associated with the value of the share s of our common stock that we issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shar es of our common stock under the LPC Purchase Agreement and $ 0.3 million of accretion/a ccrual of term loan discounts and debt issuance costs. C hanges in our operating assets and liabilities consisted of a $ 1. 5 million in crease in accounts payable, a $ 0.6 m illion in crease in prepaid expenses and other current assets a nd a $ 0. 3 million de crease in accrued expenses and other liabilities . The in crease in accounts payable was primarily due to the timing of vendor invoices. The increase in prepaid expenses and other current assets was primarily due to a n in crease in prepayments of our corporate insurance policies . The de crease in accrued expenses and other liabilities was primarily due to de creased accruals for research, development and clinical trial work performed by our CROs, partially offset by a n in crease in accrued compensation and benefits. During the six months ended June 30, 2020, operating activities used $13.1 million of cash, resulting from our net loss of $15.9 million, partially offset by changes in our operating assets and liabilities of $1.4 million, net and non-cash charges of $1.3 million. Changes in our operating assets and liabilities for the six months ended June 30, 2020 consisted of a $1.6 million increase in accounts payable, a $0.1 million decrease in prepaid expenses and other assets and a $0.2 million decrease in accrued expenses. The increase in accounts payable was primarily due to timing of CRO and other vendor invoices. The decrease in prepaid expenses and other assets was primarily due to a refund of prepayments made to one of our vendors, which we received in the first quarter of 2020 and a decrease in prepayments made with respect to research, development and clinical trial work performed by our CROs and other vendors partially offset by prepayments of our corporate insurance policies. The decrease in accrued expenses was primarily due to decreased accruals for research, development and clinical trial work performed by our CROs partially offset by increased accruals for professional fees. The non-cash charges for the six months ended June 30, 2020 consisted primarily of stock-based compensation expense of $1.3 million. Investing Activities During the six months ended June 30, 2021 and 2020, we used an insignificant amount of cash in investing activities. Financing Activities During the six months ended June 30, 2021, net cash provided by financing activities was $6.9 million, consisting of gross cash proceeds of $7.4 million from sales of our common stock under the ATM Sales Agreement before deducting estimated commissions and allocated fees of $0.6 million as well as cash proceeds from purchases under our 2019 Employee Stock Purchase Plan offset by payments of offering costs. During the six months ended June 30, 2020, cash used in financing activities was insignificant, consisting of payments of offering costs offset by cash proceeds from stock option exercises and purchases under our 2019 Employee Stock Purchase Plan. Funding Requirements We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM trial, including as a result of the increase in the target number of subjects 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 MAA 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. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms or at all. Our future funding requirements, both short-term and long-term, will depend on many factors, including: • the scope, progress, timing, costs and results of clinical trials of Haduvio for the treatment of pruritus associated with prurigo nodularis, 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 impact of COVID-19 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 (“HAL”) study and a potential Thorough QT (“TQT”) study; 26 • the costs associated with the manufacture of necessary quantities of Haduvio or any future product candidate for clinical development in connection with regulatory submissions; • the costs of commercialization activities for Haduvio for the treatment of pruritus associated with prurigo nodularis or for any other serious neurologically mediated conditions or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities; • subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of pruritus associated with prurigo nodularis or for any other serious neurologically mediated conditions or from any future product candidates; • our ability to identify potential collaborators for Haduvio for the treatment of pruritus associated with prurigo nodularis or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates; • the extent to which we acquire or in-license rights to other potential product candidates or technologies and the terms and timing of any such acquisition or licensing arrangements; • our headcount growth and associated costs as we expand our research and development activities and establish a commercial infrastructure; • the costs of preparing, filing and prosecuting patent applications, maintaining, expanding and protecting our intellectual property rights and defending against intellectual property-related claims; • the effect of competing 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; and • 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, without giving effect to the rights of SVB under the SVB Loan Agreement if we fail to achieve any of the Milestone Conditions or to the impact of any equity financing that we may conduct to satisfy the equity raise requirements of the SVB Loan Agreement. If we fail to achieve any of the Milestone Conditions and SVB cash collateralizes the amounts then owed to SVB under the SVB Loan Agreement or uses such amounts to prepay the SVB Term Loan, the period for which we will be able to fund our operating expenses and capital expenditure requirements will be significantly shorter. 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. We are required under the SVB Loan Agreement to raise in an equity financing of at least $15.0 million in net proceeds by October 31, 2021. However, such a financing may not be available to us on acceptable terms, on a timely basis 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. Other than our right to cause Lincoln Park to purchase shares of our common stock under the LPC Purchase Agreement, which is subject to certain limitations and conditions, w e do not have any committed external source of funds. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to complete the clinical development and commercialization of Haduvio for pruritus associated with prurigo nodularis or any other indication. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any debt financing into which we enter would result in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, granting liens over our assets, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. For example, in connection with the SVB Term Loan, we granted a security interest on all of our assets, excluding our intellectual property, agreed to a negative pledge on our intellectual property, agreed to restrictive covenants including, subject to certain exceptions, covenants that prohibit us from transferring all or any part of our business or property, changing our business, liquidating or dissolving, merging with or acquiring another entity, entering into a transaction that will result in a change in control, incurring additional indebtedness, creating any lien on our property, paying dividends or redeeming stock, making payments on subordinated debt or entering into material transactions with affiliates and agreed to cash collateralize the SVB Term Loan in certain circumstances. Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates. Any debt financing or additional equity that we raise may contain terms that could adversely affect our common stockholders. 27 If we are unable to raise sufficient capital as and when needed, we may be required to delay, reduce or abandon our product development programs or commercialization efforts. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. Critical Accounting Policies and Use of Estimates Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 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; income tax; 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 six months ended June 30, 2021, there were no material changes to our critical accounting policies. Off-Balance Sheet Arrangements Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. See Note 11 to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for discussion regarding our commitments and contingent commitments. Recently Adopted Accounting Pronouncements 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 six months ended June 30, 2021, which could be expected to materially impact our unaudited Condensed Consolidated Financial Statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not Required.