What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-12 · 111 added, 118 removed, 229 unchanged (50% of the section changed)

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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.

The pace of enrollment in the trial was impacted by the pandemic caused by the novel coronavirus, or COVID-19, which pandemic we refer to as the COVID-19 pandemic, 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

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 .

We currently have more than 60 active sites globally and approximately 90% of the planned 360 subjects have enrolled in the trial.

Subject to the uncertainties associated with the COVID-19 pandemic, we expect to 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.

Food and Drug Administration, or FDA, a marketing authorization application, or MAA, to the European Medicines Agency, or EMA, and an MAA to the Medicines and Healthcare Products Regulatory Agency in the United Kingdom, or MHRA, 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.

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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.

Due to the COVID-19 pandemic and the specific at-risk nature of IPF patients, our clinical sites had previously 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.

This shelter-in-place directive expired in March 2021 and the remaining COVID-19 related restrictions were lifted in July 2021.

This shelter-in-place directive expired in March 2021, and the remaining COVID-19 pandemic related restrictions were lifted in July 2021.

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.

Screening activity has resumed and is steadily progressing at most 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 the COVID-19 pandemic and that other sites may cease to participate in the trial entirely.

Subject to the uncertainties associated with the COVID-19 pandemic 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.

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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.

As of September 30, 2021, we had an accumulated deficit of $172.4 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.

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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.

We began making sales pursuant to the ATM Sales Agreement in July 2020 and as of September 30, 2021, we had issued and sold an aggregate of 3,583,394 shares of

common stock for gross proceeds of $ 10 .

9 million, before deducting estimated commissions and allocated fees of $ 0.

Under the terms of the October 2021 Private Placements , as described below, we agreed to not issue and sell additional shares under the ATM Sales Agreement on or prior to January 4, 2022 .

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.

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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

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.

On October 5, 2021 and October 18, 2021, we issued and sold in two private placements, or the October 2021 Private Placements, in the aggregate (i) 4,225,053 shares of our common stock and accompanying warrants to purchase an aggregate of 8,450,106 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 4,926,069 shares of our common stock and accompanying warrants to purchase an aggregate of 9,852,138 shares of our common stock.

Each share of our common stock and accompanying common stock warrants were sold together at a combined price of $1.62, and each pre-funded warrant and accompanying common stock warrants were sold together at a combined price of $1.619, for gross proceeds of approximately $14.8 million.

Each pre-funded warrant has an exercise price of $0.001 per share, became exercisable immediately upon issuance and will continue to be exercisable until exercised in full.

Of the accompanying common stock warrants, warrants to purchase an aggregate of 9,151,122 shares will expire in April 2025 and warrants to purchase an aggregate of 9,151,122 shares will expire in October 2028.

The accompanying common stock warrants have an exercise price of $1.37 per share and became exercisable immediately upon issuance.

As of September 30, 2021, we had cash and cash equivalents of $29.3 million and in October 2021 we received approximately $14.8 million in gross proceeds from the October 2021 Private Placements.

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.

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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.

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

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

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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.

Impacts of the COVID-19 Pandemic

The COVID-19 pandemic and government measures taken in response thereto have had a significant impact, both direct and indirect, on segments of the global economy and have interrupted our clinical trial activities, disrupted our business operations and have the potential to interrupt our supply chain.

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

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.

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

Furthermore, multiple sites in the Phase 2b/3 PRISM trial required some remote monitoring of subject data, although all sites have

now re-opened for in-person monitoring visits .

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.

This shelter-in-place directive expired in March 2021 and the other COVID-19 related restrictions were lifted in July 2021.

This shelter-in-place directive expired in March 2021 and the other COVID-19 pandemic related restrictions were lifted in July 2021.

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.

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.

S creening activity has resumed and is steadily progressing at most 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 the COVID-19 pandemic and that other sites may cease to participate in the trial entirely .

The COVID-19 pandemic may also adversely affect our ability to recruit and retain principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 , and may result in further disruptions to our clinical trials due to prioritization of hospital and medical resources toward the outbreak, restrictions on travel of patients and healthcare providers, potential unwillingness of patients to enroll in trials at this time or the inability of patients to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services.

The response to the COVID-19 pandemic may also redirect resources of regulators in a way that could adversely impact our ability to progress towards regulatory approvals and we may face impediments to regulatory meetings and approvals relating to our clinical trials due to measures intended to limit in-person interactions .

The COVID-19 pandemic may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials.

The spread of COVID-19 or another infectious disease, could also negatively affect the operations at our third-party suppliers, which could result in delays or disruptions in the supply of drug product used in our clinical trials.

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Predicting the timing or the cost to conduct our Haduvio development program and prepare for a possible commercial launch of Haduvio is difficult and delays may occur because of many factors including factors outside of our control.

For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or if we experience significant delays in enrollment 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.

For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, whether as a result of the COVID-19 pandemic or otherwise, we could be required to expend significant additional financial resources and time on our development program.

Furthermore, we are unable to predict when or if, Haduvio will receive regulatory approval in the U.S.

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For further discussion of the Phase 3 Event, see “Interest Expense”.

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

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.

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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.

Other expense consists of the value of the shares of our common stock that we issued to Lincoln Park Capital Fund, LLC, or Lincoln Park, as a commitment fee as consideration for Lincoln Park’s commitment to purchase shares of our common stock under the common stock purchase agreement, or the LPC Purchase Agreement, we entered into with Lincoln Park in June 2021.

Interest Income

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Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

Comparison of the Three Months Ended September 30, 2021 and 2020

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

Three Months Ended June 30,

Three Months Ended September 30,

Operating expenses:

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Change in fair value of term loan derivative liability

Other expense

Interest income

Interest expense

Total other (expense) income, net

Total other expense, net

Loss before income taxes

Income tax benefit

Income tax (expense) benefit

Operating Expenses

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

Three Months Ended June 30,

Three Months Ended September 30,

Clinical development expenses

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Total research and development expenses

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.

Research and development expenses for the three months ended September 30, 2021 decreased to $4.7 million from $4.8 million for the corresponding period in 2020, primarily due to decreased purchases of clinical trial supplies.

This decrease was partially offset by an increase in personnel-related expenses as a result of an increase in our employee headcount .

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.

Results of Operations

Comparison of the Six Months Ended June 30, 2021 and 2020

General and administrative expenses for the three months ended September 30, 2021 decreased to $2.2 million from $2.4 million for the corresponding period in 2020.

The decrease was primarily due to decreased market research costs as well as lower stock-based compensation expense as a result of employee terminations, which were partially offset by higher legal and other professional fees.

Other Expense, Net

Other expense, net for the three months ended September 30, 2021 was $0.3 million compared to $0.1 million for the corresponding period in 2020.

This change was primarily due to a $0.2 million increase in interest expense due to a full quarter’s recognition of interest expense on the SVB Term Loan as the SVB Term Loan was entered into in August 2020.

Comparison of the Nine Months Ended September 30, 2021 and 2020

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating expenses:

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Other (expense) income:

Change in fair value of obligation for loan success fee

Change in fair value of term loan derivative liability

Other expense

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

Six Months Ended June 30,

Nine Months Ended September 30,

Clinical development expenses

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Total research and development expenses

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.

Research and development expenses for the nine months ended September 30, 2021 increased to $16.8 million from $15.8 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.

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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 .

General and administrative expenses for the nine months ended September 30, 2021 decreased to $7.4 million from $7.5 million for the corresponding period in 2020.

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.

Other (expense) income, net for the nine months ended September 30, 2021 was an expense of $1.2 million compared to income of less than $0.1 million for the corresponding period in 2020.

This change was primarily due to a $0.7 million increase in interest expense due to a full nine months of recognition of interest expense on the SVB Term Loan as the SVB Term Loan was entered into in August 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.

Also contributing to the change was a decrease in interest income of $0.2 million, primarily due to lower market interest rates and lower average cash balances.

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”).

Prior to the completion of our initial public offering, or the 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, or the Solar Term Loan.

From inception to our IPO, we raised an aggregate of $102.2 million in gross proceeds from sales of our preferred stock and convertible notes and borrowed $15.0 million under the Solar Term Loan.

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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.

We began making sales pursuant to the ATM Sales Agreement in July 2020 and as of September 30, 2021 we had issued and sold an aggregate of 3,583,394 shares of common stock for gross proceeds of $10.9 million, before deducting estimated commissions and allocated fees of $0.8 million.

Under the terms of the October 2021 Private Placements, we agreed to not issue or sell additional shares under the ATM Sales Agreement on or prior to January 4, 2022.

SVB Loan Agreement

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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.

On July 6, 2021, we and SVB entered into 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.

Under the Loan Amendment, if we fail to receive positive data in our Phase 2b/3 PRISM trial or, prior to June 30, 2022, fail to raise sufficient 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.

We would also have been required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement if we did not raise 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.

We satisfied this equity funding condition through a combination of equity issuances under our ATM Sales Agreement and the proceeds from the October 2021 Private Placements.

Private Placements

On October 5, 2021 and October 18, 2021, we issued and sold in two private placements in the aggregate (i) 4,225,053 shares of our common stock and accompanying warrants to purchase an aggregate of 8,450,106 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 4,926,069 shares of our common stock and accompanying warrants to purchase an aggregate of 9,852,138 shares of our common stock.

Each pre-funded warrant has an exercise price of $0.001 per share, became exercisable immediately upon issuance and will continue to be exercisable until exercised in full.

The accompanying common stock warrants have an exercise price of $1.37 per share and became exercisable immediately upon issuance.

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

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.

The LPC Purchase Agreement provides that, subject to the terms and conditions set forth therein, we have the right, but not the obligation, to 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 resale 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 terms of the October 2021 P rivate P lacements, we agreed to not issue or sell additional shares under the LPC Purchase Agreement on or prior to April 6 , 2023.

As of September 30, 2021, we had cash and cash equivalents of $29.3 million.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

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

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.

During the nine months ended September 30, 2021, operating activities used $22.7 million of net cash, resulting from our net loss of $25.4 million and net changes in our operating assets and liabilities of $0.1 million, partially offset by non-cash charges of $2.8 million.

The non-cash charges consisted primarily of stock-based compensation expense of $2.0 million, $0.4 million of accretion/accrual of term loan discounts and debt issuance costs and $0.4 million of other expense associated with 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.

Changes in our operating assets and liabilities consisted of a $0.2 million decrease in accrued expenses and other liabilities, a $0.1 million increase in prepaid expenses and other current assets and a $0.2 million increase in accounts payable.

The decrease in accrued expenses and other liabilities was primarily due to decreased accruals for research, development and clinical trial work performed by our CROs and decreased accruals related to non-income based taxes, partially offset by an increase in accrued consulting and professional fees.

The increase in prepaid expenses and other current assets was primarily due to an increase in prepayments of our corporate insurance policies.

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

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

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

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

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

The decrease in prepaid expenses and other current assets was primarily due to a refund of prepayments made to one of our vendors, which we received in the first quarter of 2020, partially offset by increases in prepaid expenses due to prepayments of our corporate insurance policies.

The non-cash charges for the nine months ended September 30, 2020 consisted primarily of stock-based compensation expense of $1.9 million.

Investing Activities

During the six months ended June 30, 2021 and 2020, we used an insignificant amount of cash in investing activities.

During the nine months ended September 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.

During the nine months ended September 30, 2021, net cash provided by financing activities was $7.0 million, primarily consisting of gross cash proceeds of $7.7 million from sales of our common stock under the ATM Sales Agreement before deducting estimated commissions and allocated fees of $0.6 million, partially offset by payments of offering costs of $0.4 million and payments of financing costs of $0.1 million associated with the First Amendment to the SVB Loan Agreement.

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

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.

Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM trial, 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 the COVID-19 pandemic 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 .

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Our future funding requirements, both short-term and long-term, will depend on many factors, including:

the scope, progress, timing, costs and results of clinical trials of Haduvio for the treatment of pruritus associated with prurigo nodularis, 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 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 2b/3 PRISM trial and our ongoing Phase 2 CANAL trial, as well as any future product candidates;

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;

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, or HAL, study and a potential Thorough QT, or TQT, study;

the costs associated with the manufacture of necessary quantities of Haduvio or any future product candidate for clinical development in connection with regulatory submissions;

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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.

the impact of the COVID-19 pandemic on the scope, progress, timing, costs and results of our ongoing and planned clinical trials of Haduvio.

We believe that our existing cash and cash equivalents, including the proceeds from our October 2021 Private Placements, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022, without giving effect to the rights of SVB under the SVB Loan Agreement if we fail to achieve either of the Milestone Conditions or 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 the Milestone Conditions.

If we fail to achieve any of the Milestone Conditions or to maintain the minimum cash requirement 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.

Our failure to

raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy .

We do not have any committed external source of funds.

Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations, 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.

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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.

During the nine months ended September 30, 2021, there were no material changes to our critical accounting policies.

Off-Balance Sheet Arrangements

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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.

There have been no new accounting pronouncements during the nine months ended September 30, 2021 which could be expected to materially impact our Condensed Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis