What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-10 · 182 added, 275 removed, 290 unchanged (61% of the section changed)

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(Amounts in thousands, except share and per share amounts)

September 30,

Current assets:

Cash and cash equivalents

Prepaid expenses and other current assets

Prepaid expenses

Other current assets

Total current assets

Deferred offering costs

Other non-current assets

Operating lease right-of-use asset

Security deposits and other non-current assets

Property, equipment and leasehold improvements, net

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Accrued expenses

Term loan - current portion

Term loan derivative liability - current portion

Operating lease liability - current portion

Term loan derivative liability

Operating lease liability

Total current liabilities

Term loan - long term portion

Term loan derivative liability - long term portion

Operating lease liability - long term portion

Operating lease liability

Total liabilities

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$ 0.001 par value;

5,000,000 shares authorized at September 30, 2021

and December 31, 2020;

no shares issued or outstanding at September 30, 2021 or

December 31, 2020.

5,000,000 shares authorized at March 31, 2022 and December 31, 2021;

no shares issued or outstanding at March 31, 2022 and December 31, 2021.

Common stock:

$ 0.001 par value;

200,000,000 shares authorized at September 30, 2021

and December 31, 2020;

and 21,621,524 and 18,546,786 shares

issued and outstanding at September 30, 2021 and December 31, 2020, respectively.

200,000,000 shares authorized at March 31, 2022 and December 31, 2021;

and 30,805,804 and 28,505,804 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

Additional paid-in capital

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Three Months Ended

September 30,

Nine 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 (expense) benefit

Income tax benefit

Basic and diluted net loss per common share outstanding

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Stockholders’

Balance at June 30, 2021

Stock-based compensation

Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees

Balance at September 30, 2021

Balance at June 30, 2020

Stock-based compensation

Issuance of common stock from exercise of stock options

Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees

Balance at September 30, 2020

Stockholders’

Balance at December 31, 2021

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Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees

Issuance of common stock from Employee Stock Purchase Plan

Issuance of common stock to Lincoln Park Capital Fund (see Note 7)

Balance at September 30, 2021

Issuance of common stock from warrant exercise

Balance at March 31, 2022

Balance at December 31, 2020

Stock-based compensation

Issuance of common stock from exercise of stock options

Issuance of common stock from Employee Stock Purchase Plan

Issuance of common stock under the at-the-market sales agreement, net of commissions and allocated fees

Balance at September 30, 2020

Balance at March 31, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(Amounts in thousands)

Nine Months Ended

September 30,

Three Months Ended March 31,

Operating activities:

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Accretion/accrual of term loan discounts and debt issuance costs

Other expense related to transaction with Lincoln Park Capital Fund, LLC

Stock-based compensation

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Net cash used in operating activities

Investing activities:

Purchases of property, equipment and leasehold improvements

Net cash used in investing activities

Financing activities:

Proceeds from term loan

Payments of financing costs of term loan

Repayments of term loan

Proceeds from at-the-market sales, net of commissions

Proceeds from exercises of stock options

Proceeds from employee stock purchase plan

Proceeds from exercises of warrants

Payments of offering costs

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

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The Company is currently developing Haduvio for the treatment of chronic pruritus associated with prurigo nodularis and chronic cough in patients with idiopathic pulmonary fibrosis (“IPF”).

The Company is also developing Haduvio in levodopa-induced dyskinesia (“LID”) in patients with Parkinson’s disease.

These conditions share a common pathophysiology that is mediated through opioid receptors in the central and peripheral nervous systems.

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Nalbuphine’s mechanism of action also mitigates the risk of abuse associated with μ-opioid agonists because it antagonizes or blocks, the μ-opioid receptor.

Parenteral nalbuphine is not classified as a controlled substance in the U.S.

Parenteral nalbuphine is not scheduled as a controlled substance in the U.S.

and most of Europe.

In accordance with Accounting Standards Update (“ASU”) No.

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

2014-15”), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The Company’s Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business.

Since inception, the Company has financed its operations primarily through private placements of convertible preferred stock and convertible notes prior to its initial public offering (“IPO”), borrowings under its prior term loan facility, proceeds from its IPO and concurrent private placement completed in May 2019, sales of its common stock pursuant to the at-the-market Sales Agreement (the “ATM Sales Agreement”) (Note 7) with SVB Leerink LLC that the Company entered into in June 2020 and the term loan facility with Silicon Valley Bank (“SVB”) that the Company entered into in August 2020.

The Company has incurred recurring losses since inception, including net losses of $ 25.4 million for the nine months ended September 30, 2021 and $ 32.8 million for the year ended December 31, 2020.

As of September 30, 2021, the Company had cash and cash equivalents of $ 29.3 million compared to $ 45.0 million of cash and cash equivalents as of December 31, 2020.

The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $ 172.4 million as of September 30, 2021.

The Company expects to continue to incur losses for the foreseeable future.

As of November 10, 2021, the date of issuance of these Condensed Consolidated Financial Statements, the Company believes that its cash and cash equivalents as of September 30, 2021, together with the proceeds from the Company’s October 2021 private placements (Note 12), will not be sufficient to fund its operating expenses and capital expenditure requirements for 12 months from the date of issuance of these Condensed Consolidated Financial Statements.

The Company plans to seek to address this condition by raising additional capital to finance its operations.

The future viability of the Company is dependent on its ability to raise additional capital to finance its operations.

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing.

Therefore, it is not considered probable, as defined in ASU No.

2014-15, that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern.

To execute its business plans, the Company will need substantial funding to support its continuing operations and pursue its growth strategy.

Until such time that the Company can generate significant revenue from product sales, if ever, the Company expects

to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions.

The Company may not be able to obtain financing when needed on acceptable terms or at all.

The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce or abandon its product development programs or commercialization efforts, which could adversely affect its business prospects.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 and 2020 included herein, have been prepared in accordance with accounting principles generally accepted in the U.S.

The accompanying unaudited interim Condensed Consolidated Financial Statements for the three months ended March 31, 2022 and 2021 included herein have been prepared in accordance with accounting principles generally accepted in the U.S.

(“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim information.

Certain prior year balances have been reclassified to conform to the current year presentation.

Such reclassifications did not affect loss from operations or net loss.

Certain information and footnote disclosures typically prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.

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All amounts presented are in thousands of dollars, except share and per share amounts, unless noted otherwise.

The Company has evaluated events occurring subsequent to September 30, 2021 for potential recognition or disclosure in the Condensed Consolidated Financial Statements.

Refer to Note 12 for disclosure related to events occurring subsequent to September 30, 2021.

The Company has evaluated events occurring subsequent to March 31, 2022 for potential recognition or disclosure in the Condensed Consolidated Financial Statements and concluded there were no subsequent events that required recognition or disclosure other than those provided in Note 11.

Use of Estimates

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In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows.

On an ongoing basis, management evaluates its estimates in light of changes in circumstances, facts and experience.

Changes in estimates are recorded in the period in which they become known.

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Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheet as of September 30, 2021 and the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021 and 2020 are unaudited.

The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the Company’s opinion, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of its financial position as of September 30, 2021 and the results of its operations and its cash flows for the three and nine months ended September 30, 2021 and 2020.

The results for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2021 or any other interim period or any future year or period.

The accompanying interim Condensed Consolidated Balance Sheet as of March 31, 2022 and the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 are unaudited.

The unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the Company’s opinion, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statements of its financial position as of March 31, 2022 and the results of its operations and its cash flows for the three months ended March 31, 2022 and 2021.

The results for the three months ended March 31, 2022 and 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or any other interim period or any future year or period.

Cash Equivalents

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Fair Value Measurements

The Company’s financial instruments have consisted of cash and cash equivalents, other current assets, accounts payable, accrued expenses, term loans and term loan derivative liability (Note 6).

Fair value estimates of these instruments are made at a

specific point in time, based on relevant market information.

The Company’s financial instruments have consisted of cash and cash equivalents, other current assets, accounts payable, accrued expenses, term loans, term loan derivative liability and warrants to acquire the Company’s common stock.

Fair value estimates of these instruments are made at a specific point in time, based on relevant market information.

The carrying amounts of cash and cash equivalents, other current assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments.

The carrying amount of the term loan approximates its fair value due to its floating market-based interest rate.

The term loan derivative liability is recorded at fair value , which is estimated utilizing a probability-weighted cash flow approach (Note 6).

The fair value of the term loan derivative liability is estimated utilizing a probability-weighted cash flow approach.

The warrants to acquire the Company’s common stock are not required to be accounted for at fair value.

Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, and requires certain disclosures about fair value measurements.

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Level 3—Unobservable inputs—includes amounts derived from valuation models where one or more significant inputs are unobservable and require the company to develop relevant assumptions.

The following table summarizes the financial assets and financial liabilities measured at fair value on a recurring basis and the basis for that measurement, by level within the fair value hierarchy (Note 6):

September 30, 2021

The following table summarizes the financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, and the basis for that measurement, by level within the fair value hierarchy:

March 31, 2022

Financial assets carried at fair value:

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The following table represents a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs):

September 30, 2021

March 31, 2022

December 31, 2021

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The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the financing.

After consummation of an equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the financings.

Should the planned equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed immediately as a charge to operating expenses.

Research and Development Expenses

All of the Company’s research and development expenses consist of expenses incurred in connection with the development of Haduvio.

These expenses include certain payroll and personnel expenses, including stock-based compensation, consulting costs, contract manufacturing costs and fees paid to clinical research organizations (“CROs”) to conduct certain research and development activities on the Company’s behalf.

Research and Development (“R&D”) Expenses

All of the Company’s R&D expenses consist of expenses incurred in connection with the development of Haduvio.

The Company does not allocate its costs by each indication for which it is developing Haduvio, as a significant amount of the Company’s development activities broadly support all indications.

In addition, several of the Company’s departments support the Company’s Haduvio drug candidate development program and the Company does not identify internal costs for each potential indication.

The Company expenses both internal and external research and development expenses as they are incurred.

Accrued Research and Development Expenses

The Company has entered into agreements with CROs, contract manufacturing organizations (“CMOs”) and other companies that provide services in connection with the Company’s research and development activities.

The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events and contracted costs.

The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on the Condensed Consolidated Balance Sheets.

The Company expenses both internal and external R&D expenses as they are incurred.

Accrued R&D Expenses

The Company has entered into agreements with CROs, contract manufacturing organizations (“CMOs”) and other companies that provide services in connection with the Company’s R&D activities.

The Company’s R&D accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events and contracted costs.

The estimated costs of R&D provided, but not yet invoiced, are included in accrued expenses on the Condensed Consolidated Balance Sheets.

If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly.

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All patent-related costs in connection with filing and prosecuting patent applications are expensed to general and administrative expense as incurred, as recoverability of such expenditures is uncertain.

The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and then in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant.

Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.

If warrants do not meet liability classification under ASC 480, the Company assesses the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature.

If the warrants do not require liability classification under ASC 815, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815 or other applicable GAAP.

After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity.

Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss.

For equity classified warrants, no changes in fair value are recognized after the issuance date.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employees for consultancy services in accordance with ASC 718, Stock Compensation (“ASC 718”).

ASC 718 requires the recognition of compensation expense, using a fair value based method, for costs related to all stock-based payments including stock options.

The Company’s determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option-pricing model for stock options with time-based and performance-based vesting and is impacted by the price of its common stock as well as changes in assumptions regarding a number of complex and subjective variables.

These variables include expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends.

The fair value is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period) on a straight-line basis.

For performance-based vesting, the fair value is also recognized on a straight-line basis over the requisite service period based on whether the performance conditions are probable.

The Company reassesses the probability of achieving the performance conditions at each reporting date.

Forfeitures are accounted for as they occur.

Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables.

Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

ASC 718 requires the recognition of compensation expense, using a fair - value based method, for costs related to all stock-based awards including stock options.

The Company’s determination of the fair value of stock -based awards on the date of grant utilizes the Black-Scholes valuation model for stock options with time-based and performance-based vesting and is impacted by the price of its common stock as well as changes in assumptions regarding a number of subjective variables.

These variables include the expected term that stock options will remain outstanding, expected common stock price volatility over the term of the stock option s , risk-free interest rates and expected dividends.

Changes in the variables can materially affect the fair value and ultimately how much stock-based compensation expense is recognized.

These inputs are subjective and generally require analysis and judgment to develop.

Expected Term—The expected term assumption represents the weighted average period that the stock-based awards are expected to be outstanding.

The Company has elected to use the “simplified method” for estimating the expected term of the options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

The Company has elected to use the “simplified method” for estimating the expected term of its stock options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option.

Expected Volatility—For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies.

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Risk-Free Interest Rate—The risk-free interest rate is based on the yield available on U.S.

Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Prior to the Company’s IPO in May 2019, the estimated fair value of the common stock underlying the Company’s stock options was determined at each grant date by the Company’s board of directors, with input from management.

All options to purchase shares of common stock were intended to be exercisable at a price per share not less than the per share fair value of the Company’s common stock underlying those options on the date of grant.

In the absence of a public trading market for the Company’s common stock prior to the Company’s IPO in May 2019, on each grant date, the Company developed an estimate of the fair value of its common stock based on the information known to the Company on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock and in part on input from an independent third-party valuation.

As is provided for in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the Company generally relied on valuations for up to twelve months unless the Company had experienced a material event that would have affected the estimated fair value of its common stock.

The valuations of the Company’s common stock performed prior to the Company’s IPO in May 2019, were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Practice Aid”).

The methodology to determine the fair value of common stock included estimating the fair value of the enterprise using a market approach, which estimates the fair value of the Company by including an estimation of the value of the business based on the guideline public companies under a number of different scenarios.

The assumptions used to determine the estimated fair value of the Company’s common stock were based on numerous objective and subjective factors, combined with management judgment, including external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry;

the Company’s stage of development;

the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of the Company’s common stock;

the prices at which the Company sold shares of convertible preferred stock;

the Company’s financial condition and operating results, including the Company’s levels of available capital resources;

the progress of the Company’s research and development efforts;

the stage of development and business strategy;

the equity market conditions affecting comparable public companies;

the general U.S.

market conditions and the lack of marketability of the Company’s common stock.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date.

In accordance with the Practice Aid, the Company considered the following methods:

Option Pricing Method (“OPM”)—The OPM treats common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes.

Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preferences at the time of a liquidity event, such as a strategic sale or merger.

The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price.

In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share stock price.

Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock liquidation preference is paid.

The OPM uses the Black-Scholes option-pricing model to price the call options.

This model defines the securities’ fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities.

Probability Weighted Expected Return Method (“PWERM”)—Under the PWERM methodology, the fair value of common stock is estimated based upon an analysis of future values for the company, assuming various outcomes.

The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock.

The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock.

Hybrid Method—The hybrid method is a PWERM where the equity value in one of the scenarios is calculated using an OPM.

In the hybrid method used by the Company, it considered an IPO as the other potential future liquidity event.

The equity value for the IPO scenario was determined using the guideline public company (“GPC”), method under the market approach.

The relative probability of the IPO scenario was determined based on an analysis of market conditions at the time and expectations as to the timing and likely prospects of the IPO at each valuation date.

In application of the GPC method, the Company considered publicly traded companies in the biopharmaceutical industry that had a similar profile to the Company’s as well as recently completed IPOs as indicators of estimated future value in an IPO.

The Company then discounted that future value back to the valuation date at an appropriate discount rate.

In determining the estimated fair value of the Company’s common stock prior to Company’s IPO in May 2019, the board of directors considered the fact that the Company’s stockholders could not freely trade the Company’s common stock in the public markets.

Accordingly, the Company’s board of directors applied discounts to reflect the lack of marketability of common stock based on the weighted-average expected time to liquidity.

The estimated fair value of the Company’s common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

Subsequent to the completion of the Company’s IPO in May 2019, the fair value of the Company’s common stock has been determined based on the closing price of the Company’s common stock as reported on the date of grant on the primary stock exchange on which the Company’s common stock is traded.

Treasury zero-coupon issues similar in duration to the expected term of the stock-based award.

The fair value is recognized over the period during which an optionee is required to provide services in exchange for the stock option, known as the requisite service period (usually the vesting period) on a straight-line basis.

For performance-based vesting, the fair value is also recognized on a straight-line basis over the requisite service period based on whether the performance conditions are probable.

The Company reassesses the probability of achieving the performance conditions at each reporting date.

Forfeitures are accounted for as they occur.

The Company accounts for income taxes using the asset and liability method.

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These Condensed Consolidated Financial Statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts.

There are no material uncertainties regarding the tax positions that the Company has taken through March 31, 2022 and December 31, 2021.

The Company does not have any interest or penalties accrued related to tax positions as it does not have any unrecognized tax benefits.

In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of interest expense.

Under ASC 842, Leases (“ASC 842”), the Company determines if an arrangement is a lease at its inception.

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As the Company’s leases do not provide an implicit rate within the lease, the Company uses its incremental borrowing rate, which is updated periodically, based on information available at the commencement date of the lease to determine the present value of the lease payments.

Basic and Diluted Net Loss per Common Share

Basic and Diluted Net Income (Loss) per Common Share

Basic and diluted net loss per common share outstanding is determined by dividing net loss by the weighted average common shares outstanding during the period.

For all periods presented, shares issuable upon exercise of stock options have been excluded from the calculation because their effects would be anti-dilutive.

Basic shares outstanding includes the weighted average effect of the Company’s outstanding pre - funded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock.

For all periods presented, shares issuable upon exercise of stock options and warrants to purchase shares of common stock (other than pre-funded warrants) have been excluded from the calculation because their effects would be anti-dilutive.

Therefore, the weighted average common shares used to calculate both basic and diluted net loss per share are the same for each of the periods presented.

The Company has one reporting segment which is also the Company’s only operating segment.

Management uses one measurement of profitability and does not segregate its business for internal reporting.

All long-lived assets are maintained in the U.S.

Recently Adopted Accounting Pronouncements

On January 1, 2021 , the Company adopted ASU No.

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

The adoption of the new guidance did not affect the Company’s Condensed Consolidated Financial Statements.

There have been no new pronouncements adopted during the three months ended March 31, 2022, which could be expected to materially impact the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

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

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

September 30, 2021

December 31, 2020

Prepaid corporate insurance

Prepaid other and other current assets

Prepaid R&D costs

Total prepaid expenses and other current assets

There have been no new pronouncements issued during the three months ended March 31, 2022, which could be expected to materially impact the Company’s Condensed Consolidated Financial Statements.

Effective March 1, 2013, the Company entered into a lease for office space in New Haven, CT and commencing March 1, 2018, the Company entered into the First Amendment to the lease (collectively, the “Office Space Lease”).

The leased space is approximately 5,600 square feet and the Office Space Lease has a term of 60 months.

The leased space approximates 5,600 square feet and the Office Space Lease has a term of 60 months.

The Office Space Lease requires monthly payments ranging from approximately $ 10 to $ 12 through February 1, 2023 and provides for two designated months of free rent.

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Lease expense is recognized on a straight-line basis over the lease term.

The Company had no new leases during the nine months ended September 30, 2021.

The Office Space Lease is an operating lease and the remaining term as of September 30, 2021 is approximately 1.5 years .

The Company had no new leases during the three months ended March 31, 2022.

The Office Space Lease is an operating lease and the remaining term as of March 31, 2022 is approximately 1.0 year .

The Company has no financing leases.

The following table summarizes the Company’s operating lease as presented on its Condensed Consolidated Balance Sheets:

September 30, 2021

March 31, 2022

December 31, 2021

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Total operating lease liabilities

Future minimum lease payments from September 30, 2021 until the expiration of the operating leases are as follows:

Future minimum lease payments from March 31, 2022 until the expiration of the operating leases are as follows:

Total lease payments

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Carrying value of operating lease liabilities

Lease expense under operating leases, including leases of office equipment, was $ 29 and $ 31 for the three months ended September 30, 2021 and 2020, respectively and $ 90 and $ 93 for the nine months ended September 30, 2021 and 2020, respectively.

Lease payments made in the three months ended September 30, 2021 and 2020 were $ 35 and $ 23 , respectively and $ 104 and $ 103 for the nine months ended September 30, 2021 and 2020, respectively, with such amounts reflected in the Condensed Consolidated Statements of Cash Flows in operating activities.

Lease expense under operating leases, including leases of office equipment, was $ 39 and $ 30 for the three months ended March 31, 2022 and 2021, respectively.

Lease payments made in the three months ended March 31, 2022 and 2021 were $ 35 and $ 34 , respectively, with such amounts reflected in the Condensed Consolidated Statements of Cash Flows in operating activities.

Accrued Expenses

Accrued expenses consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

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Total accrued expenses

SVB Term Loan

On August 13, 2020 (the “Effective Date”), the Company entered into a loan and security agreement (the “SVB Loan Agreement”) with SVB, as lender, pursuant to which SVB provided a term loan to the Company in the original principal amount of $ 14.0 million (the “SVB Term Loan”).

The Company may use the proceeds from the SVB Term Loan for working capital and general corporate purposes.

Silicon Valley Bank Term Loan

On August 13, 2020 (the “Effective Date”), the Company entered into a loan and security agreement (the “SVB Loan Agreement”) with Silicon Valley Bank, as lender (“SVB”), pursuant to which SVB provided a term loan to the Company in the original principal amount of $ 14.0 million (the “SVB Term Loan”).

The SVB Term Loan bears interest at a floating rate per annum equal to the greater of (A) the prime rate plus 1.00 % and (B) 4.25 %.

If SVB receives evidence satisfactory to it that the Company has (i) received positive data for the Phase 2b/3 clinical trial of Haduvio sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3 clinical trial and the Company’s operations, (together, the “Phase 3 Event”), the interest rate under the SVB Term Loan will be adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00 % and (B) 6.25 % (see term loan derivative liability discussion below).

On the first business day of each month, the Company will be required to make monthly interest payments and commencing on March 1, 2022, the Company will be required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest.

If SVB received evidence satisfactory to it that the Company had (i) received positive data for the Phase 2b/3 clinical trial of Haduvio sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis, and (ii) raised sufficient financing to fund such Phase 3 clinical trial and the Company’s operations, (together, the “Phase 3 Event”), the interest rate under the SVB Term Loan would have been adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00 % and (B) 6.25 % (see term loan derivative liability discussion below).

Commencing on March 1, 2022 and on the first business day of each month thereafter, the Company is required to make monthly interest payments and the Company will be required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest.

All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding obligations with respect to the SVB Term Loan are due and payable in full on February 1, 2024 .

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On July 6, 2021, the Company and SVB entered into a First Amendment (the “Loan Amendment”) to the SVB Loan Agreement.

The Loan Amendment modifies the conditions under which the Company is required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement .

Under the Loan Amendment, if the Company fails to receive positive data in its Phase 2b/3 PRISM trial or to raise by June 30, 2022 sufficient net proceeds from the sale of equity securities to finance its planned second phase 3 clinical trial of Haduvio for prurigo nodularis and its ongoing operations (each a “Milestone Condition”), the Company will be required to deposit unrestricted and unencumbered cash equal to 100 % of the principal amount of the SVB Term Loan then outstanding in a cash collateral account with SVB, which can be used by SVB to prepay the SVB Term Loan at any time.

In addition, the Loan Amendment provides that if the Company fails to maintain at least $ 20.0 million in unrestricted and unencumbered cash in its accounts with SVB at any time prior to the satisfaction of all the Milestone Conditions, the Company will be required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement .

The Loan Amendment modified the conditions under which the Company was required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement .

Under the Loan Amendment, if the Company failed to receive positive data in its Phase 2b/3 PRISM trial or to raise by June 30, 2022 sufficient net proceeds from the sale of equity securities to finance its planned second Phase 3 clinical trial of Haduvio for prurigo nodularis and its ongoing operations (each a “Milestone Condition”), the Company would be required to deposit unrestricted and unencumbered cash equal to 100 % of all outstanding amounts owed to SVB in a cash collateral account with SVB, which could be used by SVB to prepay the SVB Term Loan at any time.

In addition, the Loan Amendment provided that if the Company failed to maintain at least $ 20.0 million in unrestricted and unencumbered cash in its accounts with SVB at any time prior to the satisfaction of all the Milestone Conditions (the “Minimum Required Cash”), the Company would be required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement .

The Company would also have been required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement if it 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.

The Company satisfied this equity funding condition through a combination of equity issuances under the Company’s ATM Sales Agreement and two private placements, which took place in October 2021 (see Note 6).

On April 11, 2022, the Company and SVB entered into a Third Amendment to the SVB Loan Agreement.

Refer to Note 11 for additional information.

The SVB Loan Agreement contains customary representations, warranties, events of default and covenants.

The occurrence and continuation of an event of default could cause interest to be charged at the rate that is otherwise applicable plus 5.00 % (unless SVB elects to impose a smaller increase) and would provide SVB with the right to accelerate all obligations under the SVB Loan Agreement and exercise remedies against the Company and the collateral securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including foreclosure against assets securing the SVB Term Loan and other obligations under the SVB Loan Agreement, including the Company’s cash.

The SVB Loan Agreement also restricts the payment of dividends on the Company’s common stock.

In August 2020, in connection with the SVB Term Loan, the Company paid $ 57 in financing costs to a third party, which were recorded as deferred charges and will be amortized over the life of the SVB Term Loan using the effective interest method.

In connection with the Loan Amendment, the Company paid $ 68 in financing costs to a third party, which were recorded as deferred charges and will be amortized over the remaining life of the SVB Term Loan using the effective interest method.

Amortization of these deferred financing charges totaled $ 11 and $ 22 for the three and nine months ended September 30, 2021, respectively and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations.

The unamortized deferred charges totaled $ 93 and $ 48 at September 30, 2021 and December 31, 2020, respectively and are included as a direct reduction of the carrying value of the term loan payable on the Company’s Condensed Consolidated Balance Sheets.

Amortization of these deferred financing charges totaled $ 17 and $ 6 for the three months ended March 31, 2022 and 2021, respectively and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations.

The unamortized deferred charges totaled $ 59 and $ 76 at March 31, 2022 and December 31, 2021, respectively, and are included as a direct reduction of the carrying value of the term loan payable on the Company’s Condensed Consolidated Balance Sheets.

In August 2020, in connection with the execution of the SVB Loan Agreement, the Company paid $ 27 in financing costs to SVB, which were recorded as loan discounts.

These loan discounts are included as a reduction in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets and will be accreted over the life of the SVB Term Loan using the effective interest method.

Accretion of these loan discounts totaled $ 3 and $ 8 for the three and nine months ended September 30, 2021

and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations.

At September 30, 2021 and December 31, 2020 , the loan discount-financing costs balance was $ 15 and $ 23 , respectively.

Accretion of these loan discounts totaled $ 2 and $ 3 for the three months ended March 31, 2022 and 2021, respectively, and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations.

At March 31, 2022 and December 31, 2021, the loan discount-financing costs balance was $ 10 and $ 12 , respectively.

In connection with the SVB Loan Agreement, the Company is obligated to pay a final payment fee of $ 1.2 million upon repayment in full of the SVB Term Loan.

The final payment fee is being accrued over the life of the SVB Term Loan using the effective interest method and is included as an increase in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets.

At September 30, 2021 and December 31, 2020, $ 538 and $ 183 was accrued for the final payment fee, respectively.

Upon the occurrence of the Phase 3 Event, the interest rate on the SVB Term Loan will increase by 2.00 % (the “Contingent Interest Rate Increase”) as described above.

Accrual of this final payment fee totaled $ 117 and $ 118 for the three months ended March 31, 2022 and 2021, respectively, and is included in interest expense in the Company’s Condensed Consolidated Statements of Operations.

At March 31, 2022 and December 31, 2021, $ 774 and $ 657 was accrued for the final payment fee, respectively.

U pon SVB receiving evidence satisfactory to it that the Company has (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 the Company’s operations, the interest rate on the SVB Term Loan will increase by 2.00 % (the “Contingent Interest Rate Increase”) as described above.

The Contingent Interest Rate Increase represents a free-standing financial instrument.

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The Company adjusts this liability to fair value at each reporting date it remains outstanding, with such adjustments recorded as non-cash charges in other (expense) income, net in the Company’s Condensed Consolidated Statements of Operations.

The total fair value of this liability was determined to be $ 167 and $ 196 at September 30, 2021 and December 31, 2020, respectively.

The change in fair value of the term loan derivative liability as of September 30, 2021 as compared to the fair value at December 31, 2020 was $ 29 .

The term loan derivative liability is presented as a current liability on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2021 and as a non-current liability as of December 31, 2020.

The total fair value of this liability was determined to be $ 125 and $ 114 at March 31, 2022 and December 31, 2021, respectively.

The change in fair value of the term loan derivative liability as of March 31, 2022 as compared to the fair value at December 31, 2021 was $ 11 .

The term loan derivative liability is presented as a current liability on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.

Upon recording such term loan derivative liability, the Company also recorded an offsetting term loan discount – interest, to be amortized to interest expense in the Company’s Condensed Consolidated Statements of Operations through the SVB Term Loan’s maturity date using the effective interest method.

Such amortization was $ 19 and $ 56 in the three and nine months ended September 30, 2021, respectively.

At September 30, 2021 and December 31, 2020, the balance of the term loan discount – interest was $ 102 and $ 158 , respectively and is included as a reduction in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets.

Such amortization was $ 18 and $ 18 in the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022 and December 31, 2021, the balance of the term loan discount – interest was $ 66 and $ 84 , respectively, and is included as a reduction in the balance of the term loan payable on the Company’s Condensed Consolidated Balance Sheets.

Fair values of the term loan derivative liability are estimated utilizing a probability-weighted cash flow approach, including variables for the timing of the Phase 3 Event and other probability estimates.

For the fair value calculations of the term loan derivative liability at September 30, 2021 and December 31, 2020, significant inputs included the Contingent Interest Rate Increase of 2.00 %, a discount rate of 12.0 % and the SVB Term Loan maturity date of February 1, 2024.

As of September 30, 2021, the Company had outstanding borrowings of $ 14.0 million under the SVB Term Loan and the term loan payable balance as presented on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 was comprised as shown below.

September 30, 2021

For the fair value calculations of the term loan derivative liability at March 31, 2022 and December 31, 2021, significant inputs included the Contingent Interest Rate Increase of 2.00 %, a discount rate of 12.0 % and the SVB Term Loan maturity date of February 1, 2024.

As of March 31, 2022 and December 31, 2021, the Company had outstanding borrowings of $ 13.4 million and $ 14.0 million, respectively, under the SVB Term Loan and the term loan payable balance as presented on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 was comprised as shown below.

March 31, 2022

December 31, 2021

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Term loan payable, non-current

Interest expense on the SVB Term Loan, which is comprised of interest payments, accretion and amortization of term loan discounts and the accrual of the final payment fee, is shown below for the three and nine months ended September 30, 2021 and 2020, respectively.

Interest expense on the SVB Term Loan, which is comprised of interest payments, accretion and amortization of term loan discounts and the accrual of the final payment fee, is shown below for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, the interest rate applicable to borrowings under the SVB Term Loan was 4.25%.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Interest payments

Accretion and amortization of term loan discounts

Accrual of the final payment fee

Accretion and amortization of term loan discounts

Stockholders’ Equity

As of September 30, 2021 and December 31, 2020, the Company had reserved shares of common stock for the exercise of outstanding stock options and shares of common stock remaining available for future stock-based awards under the Company’s 2012 Stock Incentive Plan, 2019 Stock Incentive Plan and 2019 Employee Stock Purchase Plan, as shown in the table below:

September 30,

As of March 31, 2022 and December 31, 2021, the Company had reserved shares of common stock for future issuance as shown in the table below:

Shares of common stock reserved for future issuance under the 2012 Stock Incentive Plan

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Shares of common stock reserved for future issuance under the 2019 Employee Stock Purchase Plan

Private Placements

On October 5, 2021 and October 18, 2021, the Company issued common stock and warrants to purchase common stock in two private placements (the “October 2021 Private Placements”).

Refer to Note 12 for additional information.

Shares to be issued upon exercise of common stock warrants and pre-funded warrants

Shares to be issued upon sales under the LPC Purchase Agreement

At-the-Market Offering

In June 2020, the Company entered into the ATM Sales Agreement, under which the Company may issue and sell shares of its common stock, from time to time, having an aggregate offering price of up to $ 12.0 million.

In June 2020, the Company entered into the ATM Sales Agreement with SVB Leerink LLC, under which the Company may issue and sell shares of its common stock, from time to time, having an aggregate offering price of up to $ 12.0 million.

Sales of common stock under the ATM Sales Agreement may be made by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.

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The Company began making sales pursuant to the ATM Sales Agreement in July 2020.

During the three and nine months ended September 30, 2021, the Company issued and sold an aggregate of 162,026 and 2,895,518 shares of common stock, respectively, for gross proceeds of $ 0.3 million and $ 7.7 million, respectively, before deducting estimated commissions and allocated fees of less than $ 0.1 million and $ 0.6 million, respectively.

As of September 30, 2021, the Company 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, as described in Note 12, the Company agreed not to issue or sell additional shares under the ATM Sales Agreement on or prior to January 4, 2022.

During the three months ended March 31, 2021, the Company issued and sold an aggregate of 1,367,621 shares of common stock for gross proceeds of $ 4.4 million, before deducting estimated commissions and allocated fees of $ 0.3 million.

No sales were made during the three months ended March 31, 2022.

As of March 31, 2022, the Company had issued and sold an aggregate of 3,583,394 shares of common stock for gross proceeds of $ 11.0 million, before deducting estimated commissions and allocated fees of $ 0.8 million.

Equity Purchase Agreement

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The agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.

Under the terms of the October 2021 Private Placements, the Company agreed to not issue or sell additional shares under the LPC Purchase Agreement on or prior to April 6, 2023.

Under the terms of the October 2021 private placements described below, the Company agreed to not issue or sell additional shares under the LPC Purchase Agreement on or prior to April 6, 2023.

Private Placements

On October 5, 2021, the Company issued and sold to an initial investor in a private placement priced at-the-market under Nasdaq rules, (i) 2,373,201 shares of the Company’s common stock and accompanying warrants to purchase an aggregate of 4,746,402 shares of the Company’s common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 4,926,069 shares of the Company’s common stock and accompanying warrants to purchase an aggregate of 9,852,138 shares of the Company’s common stock.

Each share of the Company’s 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 $ 11.8 million.

Each pre-funded warrant had an exercise price of $ 0.001 per share, became exercisable immediately upon issuance and was exercisable until exercised in full.

Of the accompanying common stock warrants, warrants to purchase an aggregate of 7,299,270 shares will expire on April 5, 2025 , and warrants to purchase an aggregate of 7,299,270 shares will expire on October 5, 2028 .

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

On October 18, 2021, the Company issued and sold to New Enterprise Associates 16, L.P., an existing stockholder of the Company (“NEA”) and related party, in a private placement, 1,851,852 shares of the Company’s common stock and accompanying warrants to purchase an aggregate of 3,703,704 shares of the Company’s common stock.

Each share of the Company’s common stock and accompanying common stock warrants were sold together at a combined price of $ 1.62 for gross proceeds of approximately $ 3.0 million.

Of the accompanying common stock warrants, warrants to purchase an aggregate of 1,851,852 shares of the Company’s common stock will expire on April 18, 2025 , and warrants to purchase an aggregate of 1,851,852 shares of the Company’s common stock will expire on October 18, 2028 .

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

Total net proceeds from the two October private placements were $ 13.7 million, after deducting issuance costs of $ 1.1 million .

Warrant activity, including activity related to the pre-funded warrants, for the three months ended March 31, 2022 is shown in the table below:

Outstanding as of December 31, 2021

Outstanding as of March 31, 2022

As of March 31, 2022, all of the pre-funded warrants had been exercised to purchase shares of the Company’s common stock at the exercise price of $ 0.001 per share.

The pre-funded and common stock warrants are classified as equity in accordance with ASC 815 given that the pre-funded and common stock warrants are indexed to the Company’s own shares of common stock and meet the requirements to be classified in permanent equity.

On April 11, 2022, the Company issued common stock and pre-funded warrants to purchase common stock in a private placement.

Refer to Note 11 for additional information.

On April 11, 2022, common stock warrants to purchase approximately 3.3 million shares of common stock were exercised, which provided $4.5 million in cash proceeds to the Company.

Such warrants had been issued in the October 2021 private placements and were set to expire on April 5, 2025.

Stock-Based Awards

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The 2019 Plan is administered by the Company’s board of directors.

The total number of shares of common stock that may be issued under the 2019 Plan and the 2012 Plan was 4,060,617 as of September 30, 2021, of which 1,011,437 shares remained available for grant under the 2019 Plan.

Awards may be made under the 2019 Plan for up to such number of shares of the Company’s common stock as is equal to the sum of i) 1,578,947 shares;

plus ii) the number of shares (up to 1,157,894 shares) equal to the number of shares of the Company’s common stock subject to outstanding awards under the 2012 Stock Incentive Plan (the “2012 Plan”) that expire, terminate or are otherwise cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right;

plus iii) an annual increase to

be added on the first day of each fiscal year, beginning with 2020 and continuing through 2029, equal to the lesser of (a) 2,105,623 shares of common stock, (b) 4 % of the number of outstanding shares of the Company’s common stock on such date and (c) an amount determined by the Company’s board of directors.

Effective January 1, 2021 and January 1, 2020, respectively, t he number of shares reserved for issuance under the 2019 Plan increased pursuant to the terms of the 2019 Plan by an additional 741,871 shares and 713,383 shares, equal to 4 % of the Company’s then-outstanding c ommon s tock .

The total number of shares of common stock that may be issued under the 2019 Plan and the 2012 Stock Incentive Plan (the “2012 Plan”) was 5,206,441 as of March 31, 2022, of which 1,141,850 shares remained available for grant under the 2019 Plan.

Awards may be made under the 2019 Plan for up to such number of shares of the Company’s common stock as is equal to the sum of:

i) 1,578,947 shares;

plus ii) the number of shares (up to 1,157,894 shares) equal to the number of shares of the Company’s common stock subject to outstanding awards under the 2012 Plan that expire, terminate or are otherwise cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right;

plus iii) an annual increase to be added on the first day of each fiscal year, beginning with 2020 and continuing through 2029, equal to the least of (a) 2,105,623 shares of common stock, (b) 4 % of the number of outstanding shares of the Company’s common stock on such date, and (c) an amount determined by the Company’s board of directors.

Effective January 1, 2022 and January 1, 2021, respectively, the number of shares reserved for issuance under the 2019 Plan increased, pursuant to the terms of the 2019 Plan, by an additional 1,140,232 shares and 741,871 shares, equal to 4 % of the Company’s then-outstanding common stock .

The 2012 Plan was adopted by the Company’s board of directors and stockholders.

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The Company’s board of directors administers the 2012 Plan.

In April 2019, the Company’s board of directors adopted a resolution effective on May 7, 2019, that no further equity-based awards may be granted under the 2012 Plan.

Options granted under the 2019 Plan and the 2012 Plan have a maximum term of ten years .

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Options granted to directors generally vest over one to two years .

As of September 30, 2021 and December 31, 2020, respectively, options to purchase 2,287,627 shares and 1,249,653 shares of common stock were granted and outstanding, net of cancellations, under the 2019 Plan.

As of September 30, 2021 and December 31, 2020, options to purchase 761,553 and 921,824 shares of common stock, respectively, were granted and outstanding, net of cancellations, under the 2012 Plan.

In April 2019, the Company’s board of directors adopted a resolution effective on May 7, 2019, that no further stock options or other equity-based awards may be granted under the 2012 Plan.

In February 2021, the compensation committee of the Company’s board of directors approved the grant of stock options with performance-based vesting (“PSOs”) to employees of the Company.

As of March 31, 2022 and December 31, 2021, respectively, options to purchase 3,401,502 shares and 2,263,752 shares of common stock were granted and outstanding, net of cancellations, under the 2019 Plan.

As of March 31, 2022 and December 31, 2021, respectively, options to purchase 663,089 and 665,720 shares of common stock, were granted and outstanding, net of cancellations, under the 2012 Plan.

In February 2021, the compensation committee of the Company’s board of directors approved the grant of stock options to purchase 450,875 shares of common stock with performance-based vesting (“PSOs”) to employees of the Company.

The PSOs granted in February 2021, vest based on the timing and successful results of the Company’s PRISM or CANAL clinical trials.

A summary of the Company’s combined stock option activity for the 2019 Plan and the 2012 Plan for the nine months ended September 30, 2021 is as follows:

A summary of the Company’s combined stock option activity for the 2019 Plan and the 2012 Plan for the three months ended March 31, 2022 is as follows:

Outstanding as of December 31, 2021

Outstanding as of September 30, 2021

Options exercisable as of September 30, 2021

Options unvested as of September 30, 2021

Outstanding as of March 31, 2022

Options exercisable as of March 31, 2022

Options unvested as of March 31, 2022

In April 2019, the Company’s board of directors adopted the 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which became effective on May 7, 2019.

The 2019 ESPP is administered by the Company’s board of directors.

The total number of shares of common stock that may be issued under the 2019 ESPP Plan was 518,918 as of September 30, 2021, of which 503,789 shares remain available for issuance.

The total number of shares of common stock that may be issued under the 2019 ESPP was 803,976 as of March 31, 2022, of which 755,689 shares remain available for issuance.

The number of shares of the Company’s common stock that have been approved to be issued under the 2019 ESPP is equal to the sum of i) 155,106 shares plus ii) an annual increase to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2020 and continuing for each fiscal year until and including, the fiscal year ending December 31, 2029, equal to the least of (a) 526,315 shares of common stock, (b) 1 % of the number of outstanding shares of the Company’s common stock on such date and (c) an amount determined by the Company’s board of directors.

Effective January 1, 2021 and January 1, 2020, respectively, the aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP increased, pursuant to the terms of the 2019 ESPP, by an additional 185,467 shares and 178,345 shares, equal to 1 % of the Company’s then-outstanding common stock .

All of the Company’s employees are eligible to participate in the 2019 ESPP, provided that:

such person is customarily employed by the Company for more than 20 hours a week and for more than five months in a calendar year;

such person has been employed by the Company for at least three months prior to enrolling in the 2019 ESPP;

such person was an employee of the Company on the first day of the applicable offering period under the 2019 ESPP.

Effective January 1, 2022 and January 1, 2021, respectively, the aggregate number of shares of the Company’s common stock that may be issued under the 2019 ESPP increased, pursuant to the terms of the 2019 ESPP, by an additional 285,058 shares and 185,467 shares, in each case equal to 1 % of the Company’s then-outstanding common stock .

The following table summarizes the classifications of stock-based compensation expenses for the 2012 Plan, the 2019 Plan and the 2019 ESPP recognized in the Condensed Consolidated Statements of Operations:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development expense

General and administrative expense

During the three and nine months ended September 30, 2021 and 2020, the Company maintained a full valuation allowance on deferred tax assets.

The amounts recorded for income tax (expense) benefit during the three and nine months ended September 30, 2021 and 2020, were to align the Company’s estimates for its state research and development credits in each given year.

Research and development expense

During the three months ended March 31, 2022 and 2021, the Company maintained a full valuation allowance on deferred tax assets.

The amounts recorded for income taxes during the three months ended March 31, 2022 and 2021 were to align the Company’s estimates for its state research and development credits in each given year.

Net Loss per Share

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted average common shares used in net loss per share attributable to common stockholders, basic and diluted

Basic and diluted net loss per common share outstanding

Basic shares outstanding includes the weighted average effect of the Company’s pre-funded warrants from the date of issuance, the exercise of which requires little or no consideration for the delivery of shares of common stock.

The Company’s potential dilutive securities, which include stock options, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share.

In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The common shares underlying stock options, based on stock options outstanding as of September 30, 2021 and 2020, were excluded from the calculations of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.

The following potential common shares, presented based on shares outstanding as of March 31, 2022 and 2021, respectively, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

Shares as of March 31,

Stock Options

Collaborative and Licensing Agreements

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Endo Pharmaceuticals Inc.

In May 2011, the Company entered into an agreement with Penwest Pharmaceuticals Co.

(“Penwest”) (subsequently merged into its parent, Endo Pharmaceuticals Inc.

(“Endo”)) for an exclusive worldwide sublicensable license under certain patent rights and know-how controlled by Penwest to develop and commercialize products incorporating nalbuphine hydrochloride in any formulation, including an extended-release formulation such as Haduvio, in all fields and for any use.

Under the license agreement, the Company paid Penwest a non-creditable, minimal non-refundable upfront license fee.

In May 2011, the Company entered into an agreement with Penwest Pharmaceuticals Co., which subsequently merged into its parent, Endo Pharmaceuticals Inc.

(“Endo”), for an exclusive worldwide sublicensable license under certain patent rights and know-how controlled by Endo to develop and commercialize products incorporating nalbuphine hydrochloride in any formulation, including an extended-release formulation such as Haduvio, in all fields and for any use.

Under the license agreement, the Company paid Endo a non-creditable, non-refundable upfront license fee.

The Company may also become obligated to make milestone payments to Endo of $ 0.3 million, which would become due upon the successful completion of the first Phase 3 clinical trial of a licensed product candidate, such as the Phase 2b/3 PRISM trial, and $ 0.8 million, which would become due upon the marketing approval of a licensed product in the U.S.

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The Company’s royalty obligation with respect to each licensed product in each country commences upon the first commercial sale of the product in that country and extends until the later of the expiration, unenforceability or invalidation of the last valid claim of any licensed patent or application covering the licensed product in the country or the expiration of 10 years after the first commercial sale of the licensed product in the country, which period is referred to as the royalty term.

Upon the expiration of the

royalty term for a product in a country , the Company is thereafter obligated to pay a low single-digit know-how and trademark royalty.

Upon the expiration of the royalty term for a product in a country , the Company is thereafter obligated to pay a low single-digit know-how and trademark royalty.

Under the agreement, the Company has granted Endo a non-exclusive, royalty-free (except for pass-through payments to third parties), sublicensable license under its relevant patent rights to use any improvement the Company makes to Endo’s controlled release technology for any product other than the products under which it is licensed by Endo.

5 unchanged sentences

If the agreement is terminated under certain specified circumstances, the Company will be deemed to have granted Endo a perpetual, royalty-free (except for pass-through payments to third parties), worldwide, exclusive, sublicensable license under any improvements the Company made to the licensed know-how and any related patent rights the Company has to manufacture and commercialize the licensed products.

Exclusive License Agreement with Rutgers

In November 2018, the Company entered into an agreement with Rutgers, The State University of New Jersey (“Rutgers”) for an exclusive, worldwide, sublicensable license under certain patent rights controlled by Rutgers and for a non-exclusive, worldwide, sublicensable license under certain know-how controlled by Rutgers, in each case to develop and commercialize products incorporating nalbuphine for any human or animal use.

Upon entering into the license agreement, the Company paid Rutgers a minimal upfront license issue fee, which was recorded as R&D expense in 2018 and agreed to pay Rutgers a minimal annual license fee.

The Company may become obligated to make milestone payments to Rutgers in the aggregate of up to $ 0.3 million based on the achievement of certain clinical, regulatory and sales milestones.

The Company has also agreed to pay Rutgers a low single-digit percentage of certain income it receives from sublicensees and to pay tiered low single-digit royalties based on net sales of licensed products by the Company, its affiliates and sublicensees.

The Company’s royalty obligation with respect to each licensed product in each country commences on the date of the first commercial sale of the licensed product in that country following receipt of marketing approval and extends until the later of the date of expiration, unenforceability or invalidation of the last valid claim of any licensed patent or patent application covering the licensed product in the country and 10 years after the first commercial sale of the first licensed product sold anywhere in the world, which period is referred to as the royalty term.

Upon the expiration of the royalty term for a licensed product in a country, the license granted to the Company under the agreement shall become perpetual, fully paid-up, irrevocable and royalty-free in such country.

The royalty is subject to reduction in certain circumstances.

In June 2021, the Company entered into an amendment with Rutgers to extend the deadline to commence a clinical trial on nalbuphine ER for LID to December 31, 2022.

The Company paid a minimal fee related to this amendment, which was recorded as R&D expense during the second quarter of 2021.

Restructuring Agreement with MentiNova, LLC

In November 2018, concurrent with the signing of the agreement with Rutgers described above, the Company entered into a restructuring agreement with MentiNova, LLC (“MentiNova”), for the purchase of specified information and know-how, specified contractual rights and benefits and all books and records of MentiNova related thereto (collectively, the “Acquired Assets”).

Upon entering into the license agreement, the Company paid MentiNova an aggregate upfront payment of $ 0.1 million, which was recorded as R&D expense in 2018, subject to specified closing adjustments.

The Company may become obligated to make milestone payments to MentiNova in the aggregate of up to $ 1.2 million based on the achievement of certain clinical and regulatory milestones as well as tiered low single-digit royalties based on net sales of products containing nalbuphine as the sole active pharmaceutical ingredient that are developed by the Company using the Acquired Assets or the intellectual property licensed to the Company under the Rutgers agreement described above (the “Rutgers IP”) for indications that are within the scope of the Rutgers IP.

The royalty is subject to reduction in certain circumstances.

Commitments and Contingencies

A significant portion of the Company’s development activities are outsourced to third parties under agreements, including with CROs and contract manufacturers in connection with clinical trials and production of clinical trial materials.

These arrangements may

require the Company to pay termination costs to the third parties for reimbursement of costs and expenses incurred in the event of the orderly termination of contractual services.

These arrangements may require the Company to pay termination costs to the third parties for reimbursement of costs and expenses incurred in the event of the orderly termination of contractual services.

The Company also has commitments under lease and licensing agreements (Note 3 and Note 9).

Subsequent Events

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.

Each share of the Company’s common stock and accompanying common stock warrants were sold together at a combined price of $ 1.62 for gross proceeds of approximately $ 3.0 million.

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

On April 6, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers, pursuant to which the Company agreed to issue and sell to the purchasers, in a private placement priced at-the-market under Nasdaq rules, (i) 4,580,526 shares of the Company’s common stock, par value $ 0.001 per share, at a purchase price of $ 1.90 per share, and (ii) pre-funded warrants to purchase up to an aggregate of 24,379,673 shares of common stock at a purchase price of $ 1.899 per warrant (the “April 2022 Private Placement”).

Each pre-funded warrant has an exercise price of $ 0.001 per share, is exercisable immediately and will be exercisable until the pre-funded warrant is exercised in full.

The April 2022 Private Placement, which closed on April 11, 2022, resulted in gross proceeds to the Company of approximately $ 55.0 million.

New Enterprise Associates 16, L.P., an existing stockholder of the Company and a related party (“NEA”), as well as an affiliate of NEA, participated in the offering.

Registration Rights Agreement

On April 6, 2022, in connection with the April 2022 Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the purchasers, pursuant to which the Company agreed to register for resale the shares issued in the private placement, as well as the shares of common stock issuable upon exercise of the pre-funded warrants.

Under the Registration Rights Agreement, the Company agreed to file a registration statement covering the resale by the purchasers of the shares and pre-funded warrant shares within 30 days following the date the Registration Rights Agreement was entered into.

The registration statement was filed on May 2, 2022 and was declared effective on May 11, 2022.

Loan Amendment

On April 6, 2022, the Company and SVB entered into a Third Amendment (the “Third Amendment”) to the Loan and Security Agreement, dated as of August 13, 2020, by and between the Company and SVB, as amended to date (the “Loan Agreement”).

The Third Amendment principally modified the conditions under which the Company is required to cash collateralize all outstanding amounts owed to SVB under the Loan Agreement.

As a result of the Third Amendment, when the Company raised $ 45.0 million in net proceeds from the sale of equity securities (the “2022 Equity Event”), the Company’s obligations to achieve the Milestone Conditions and maintain the Minimum Required Cash terminated.

The closing of the April 2022 Private Placement constituted the 2022 Equity Event.

Upon the Company’s achievement of the 2022 Equity Event, the cash collateralization requirement under the Loan Agreement will instead be triggered if the Company does not receive positive final data by December 31, 2022 from either its ongoing Phase 2b/3 PRISM trial of Haduvio for prurigo nodularis or its Phase 2 CANAL trial of Haduvio for the treatment of chronic cough in adults with IPF.

In addition, the Third Amendment modifies the interest rate on the principal amount outstanding under the Loan Agreement.

As a result of the Third Amendment, amounts outstanding under the Loan Agreement accrue interest at a floating per annum rate equal to (i) prior to the occurrence of the 2022 Equity Event, the greater of (A) the prime rate plus 1.00 % and (B) 4.25 %, and (ii) upon and after the occurrence of the 2022 Equity Event, the greater of (A) the prime rate plus 3.00 % and (B) 6.25 %.

Warrant Exercises

On April 11, 2022, common stock warrants to purchase approximately 3.3 million shares of common stock were exercised, which provided $ 4.5 million in cash proceeds to the Company.

Such warrants had been issued in the October 2021 private placements and were set to expire on April 5, 2025.

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 1. Financial Statements