What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 150 added, 92 removed, 192 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

our audited consolidated financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K , filed with the Securities and Exchange Commission , or SEC, on March 17 , 2022 .

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 17, 2022.

Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

The words “anticipate,” “believe,” “ continue ,” “co uld ,” “ estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We have based these forward-looking statements on our current expectations and projections about future events.

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We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

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

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

We are conducting a Phase 2b/3 clinical trial of Haduvio, which we refer to as the Phase 2b/3 PRISM trial, in adults with severe pruritus associated with prurigo nodularis.

The Phase 2b/3 PRISM trial is a randomized, double-blind, placebo controlled, two-arm treatment study that is designed to evaluate the safety and anti-pruritic efficacy of Haduvio in patients in the United States and Europe.

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

Based on the analysis, the independent Data Monitoring Committee, or DMC, recommended that the Phase 2b/3 PRISM trial should continue and that the trial size should increase from an initial enrollment target of 240 to 360 subjects, which maintains the statistical power for the primary endpoint.

Based on the DMC’s recommendation, we increased the planned trial size to 360 subjects.

We completed enrollment in the trial on January 31, 2022.

We expect to report top-line data in the second quarter 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, 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 a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (oral nalbuphine ER) to treat serious neurologically mediated conditions.

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

In June 2022, we reported positive results in our Phase 2b/3 clinical trial of Haduvio in prurigo nodularis, which we refer to as the Phase 2b/3 PRISM trial .

The Phase 2b/3 PRISM trial was a randomized, double-blind, placebo controlled, two-arm treatment study that was designed to evaluate the safety and efficacy of Haduvio in patients in the United States and Europe.

In the Phase 2b/3 PRISM trial, Haduvio demonstrated statistically significant results on the primary and all three key secondary endpoints.

The trial results comparing subjects randomized to Haduvio (n=168) or placebo (n=176) showed that :

25% of Haduvio subjects evaluated at week 14 met the primary endpoint of a 4-point reduction in the Worst Itch Numerical Rating Scale, or WI-NRS, from baseline compared to 14% of placebo subjects (p=0.0157);

Haduvio subjects experienced significantly greater improvements in ItchyQoL vs.

placebo (p=0.0002) at week 14, which was statistically significant across each of the three domains (symptoms, functional limitations, and emotions).

ItchyQoL is used to measure how pruritus impacts a subject’s quality of life;

55% of Haduvio subjects had at least a 1-category improvement in the 5-point scale in their Prurigo Activity Scale (PAS) (pruriginous lesions with excoriations), vs.

38% on placebo (p=0.006) as evaluated at week 14;

Haduvio subjects experienced significantly greater improvements in PROMIS sleep disturbance short form 8a vs.

placebo (p=0.0002) at week 14, which was statistically significant as early as week 6.

The safety results of the trial were generally consistent with the known safety profile of Haduvio from previous trials.

During the double-blind titration period (weeks 1-2), treatment-emergent adverse events, or TEAE, were more common in the Haduvio-treated subjects (66.1%) vs.

placebo-treated subjects (31.3%).

During the 12-week fixed-dose period, the occurrence of TEAEs were generally similar between Haduvio and placebo groups (48% Haduvio, 45% placebo).

Discontinuations during the 14 weeks of the trial were 36.9% in Haduvio-treated subjects vs.

19.3% in placebo-treated subjects.

During the 14-week double-blind portion of the Phase 2b/3 PRISM trial, eight subjects on Haduvio and six subjects on placebo experienced at least one treatment emergent Serious Adverse Event, or SAE.

None of the SAEs were considered by the investigator to be treatment-related.

Adverse events most commonly observed with Haduvio were nausea, dizziness, headache, and constipation.

We are continuing to conduct the open-label extension portion of the Phase 2b/3 PRISM trial, which we expect to complete in the first quarter of 2023.

We expect that we will need to conduct an additional Phase 3 clinical trial to support the submission of a new drug application, or NDA, to the U.S.

Food and Drug Administration, or the 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 prurigo nodularis and plan to request an end of Phase 2 meeting with the FDA.

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

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We expect to report efficacy and safety data for the full set of subjects for this trial in the third quarter of 2022.

We are currently focusing our financial and operational resources on completing the Phase 2b/3 PRISM and the Phase 2 CANAL trials and preparing for the initiation of the next trial of Haduvio for the treatment of chronic cough in adults with IPF .

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

We are actively preparing for the next trial in chronic cough in adults with IPF and are planning to discuss the program and trial plan with the FDA at a meeting scheduled for the third quarter of 2022.

We are currently focusing our financial and operational resources on completing the open-label extension portion of the Phase 2b/3 PRISM and the Phase 2 CANAL trials, preparing for meetings with the FDA on the results of both of these trials and preparing for the initiation of the next trial of Haduvio for the treatment of chronic cough in adults with IPF.

Since commencing operations in 2011, we have devoted substantially all of our efforts and financial resources to the clinical development of Haduvio.

We have not generated any revenue from product sales and, as a result, we have never been profitable and have incurred net losses in each year since commencement of our operations.

As of March 31, 2022, we had an accumulated deficit of $188.2 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 or chronic cough in adults with IPF and we can provide no assurance that we will ever generate significant revenue or profits.

As of June 30, 2022, we had an accumulated deficit of $196.3 million, primarily as a result of research and development and general and administrative expenses.

We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize Haduvio for the treatment of prurigo nodularis or chronic cough in adults with IPF and we can provide no assurance that we will ever generate significant revenue or profits.

In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO, and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million.

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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 March 31, 2022, we 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.

We began making sales pursuant to the ATM Sales Agreement in July 2020 , and as of June 30, 2022 , we had issued and sold an aggregate of 3 , 583 , 394 shares of common stock for gross proceeds of $ 1 1 .

0 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 May 2022, we amended the ATM Sales Agreement with SVB Leerink to increase the maximum aggregate offering price of common stock that we may issue and sell from time to time under the ATM Sales Agreement by $50.0 million , from $12.0 million to up to $62.0 million .

In August 2020, we entered into a loan and security agreement, or the SVB Loan Agreement, with Silicon Valley Bank, or SVB, pursuant to which SVB provided a term loan, or the SVB Term Loan, to us in the original principal amount of $14.0 million.

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The SVB Loan Agreement permits voluntary prepayment of all, but not less than all, of the SVB Term Loan, subject to a prepayment premium.

In July 2021 and April 2022, we entered into amendments to the SVB Loan Agreement with SVB, which we refer to as the Loan Amendments, that modified the conditions under which we will be required to cash collateralize the outstanding amounts owed to them under the SVB Loan Agreement.

In July 2021 and April 2022, we entered into amendments to the SVB Loan Agreement with SVB, which we refer to as the Loan Amendments, that modified the conditions under which we would be required to cash collateralize the outstanding amounts owed to them under the SVB Loan Agreement.

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

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

As of February 10, 2022, all of the pre-funded warrants had been exercised.

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.

Of the accompanying common stock warrants, we issued warrants to purchase an aggregate of 9,151,122 shares that are to expire in April 2025 and warrants to purchase an aggregate of 9,151,122 shares that are to 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 May 12, 2022, warrants to purchase 3,299,270 shares of common stock that were to expire on April 5, 2025 have been exercised.

As of August 11, 2022, all of the pre-funded warrants and all of the warrants to purchase shares of common stock that were to expire on April 5, 2025 had been exercised.

On April 11, 2022, we issued and sold in a private placement, or the April 2022 Private Placement, (i) an aggregate of 4,580,526 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 24,379,673 shares of our common stock.

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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.

As of March 31, 2022, we had cash and cash equivalents of $29.1 million.

In April 2022, we received approximately $55.0 million in gross proceeds from the April 2022 Private Placement and $4.5 million in proceeds from the exercise of common stock warrants that were issued in the October 2021 Private Placements.

We believe that our existing cash and cash equivalents, including the proceeds from the April 2022 Private Placement and the proceeds from the exercise of common stock warrants that were issued in the October 2021 Private Placements, will enable us to fund our operating expenses and capital expenditure requirements for at least

12 months from the date of issuance of the Condensed Consolidated F inancial S tatements included in this Quarterly Report on Form 10-Q.

As of June 30, 2022, we had cash, cash equivalents and marketable securities of $78.9 million.

In July 2022, we received approximately $4.1 million in proceeds from the exercise of common stock warrants that were issued in the October 2021 Private Placements.

We believe that our existing cash, cash equivalents and marketable securities, including the proceeds from the exercise of common stock warrants that were issued in the October 2021 Private Placements that we received in July 2022, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of issuance of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities.

Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 2b/3 PRISM trial in patients with pruritus associated with prurigo nodularis and the additional Phase 3 clinical trial we believe we will be required to conduct to support the submission of a NDA to the FDA for Haduvio for the treatment of pruritus associated with prurigo nodularis, our ongoing Phase 2 CANAL trial and the next trial we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF which we expect will be designed as a Phase 2b/3 trial, subject to discussions with the FDA.

We also expect to incur substantial expenditures in the foreseeable future related to the development and validation of our commercial manufacturing process for Haduvio and other development activities.

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

Specifically, in the near term, we expect to incur substantial expenses relating to the ongoing open-label extension portion of our Phase 2b/3 PRISM trial for prurigo nodularis, our Phase 2 CANAL trial and the next trial we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF, which we expect will be designed as a Phase 2b/3 trial, subject to discussions with the FDA.

In addition, we may continue to incur additional expenses if we determine to conduct an additional clinical trial for the treatment of prurigo nodularis, or 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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Adequate funding may not be available to us on acceptable terms or at all.

If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of Haduvio for one or more indications or delay our efforts to expand our product pipeline.

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 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 both our Phase 2b/3 PRISM and Phase 2 CANAL trials.

We experienced restrictions and delays at our clinical sites for both our Phase 2b/3 PRISM and Phase 2 CANAL trials.

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

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

We have taken precautionary measures intended to help minimize the risk of the virus to our employees, including allowing employees to work remotely part of the week.

Components of Operating Results

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Research and Development Expenses

All of our research and development expenses consist of expenses incurred in connection with the development of Haduvio.

For the periods presented, all of our research and development expenses consist of expenses incurred in connection with the development of Haduvio.

These expenses include personnel-related costs, including stock-based compensation, consulting costs, contract manufacturing costs and fees paid to clinical research organizations, or CROs, to conduct certain research and development activities on our behalf.

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

Other (Expense) Income, Net

Other Expense, Net

Change in Fair Value of Term Loan Derivative Liability

In connection with the SVB Term Loan, prior to the Third Amendment (as defined below) to the SVB Loan Agreement, as discussed below, upon the occurrence of the Phase 3 Event, as described below, the interest rate on the SVB Term Loan would increase by 2.00%.

In connection with the SVB Term Loan, prior to the Third Amendment (as defined below) to the SVB Loan Agreement upon the occurrence of the Phase 3 Event, as described below, the interest rate on the SVB Term Loan would increase by 2.00%.

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

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

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

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

Interest Income

Interest income consists of interest earned from money market funds on our cash and cash equivalents.

We adjusted this liability to fair value at each reporting date it remained outstanding.

We recognized changes in the fair value of this term loan derivative in our statements of comprehensive loss as a component of other expense, net.

See below as discussed under “—Results of Operations—Operating Expenses—Other Expense, Net.”

Interest Income, Net

Interest income consists of interest earned primarily on our cash , cash equivalents and marketable securities as well as accretion of discounts/amortization of premiums on purchases of marketable securities .

Interest Expense

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Prior to the Third Amendment to the SVB Loan Agreement, t he SVB Term Loan bore 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 received evidence satisfactory to it that we had (i) received positive data for the Phase 2b/3 PRISM trial sufficient to advance Haduvio into a second Phase 3 clinical trial for chronic pruritus associated with prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, which we refer to together as the Phase 3 Event, the interest rate under the SVB Term Loan would be adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25% .

If SVB received evidence satisfactory to it that we had (i) received positive data for the Phase 2b/3 PRISM trial sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, which we refer to together as the Phase 3 Event, the interest rate under the SVB Term Loan would be adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25% .

On April 6, 2022, we entered into the Third Amendment to the SVB Loan Agreement, or the Third Amendment.

Under the Third Amendment, amounts outstanding under the SVB Loan Agreement will accrue interest at a floating per annum rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%.

Under the Third Amendment, SVB agreed that amounts outstanding under the SVB Loan Agreement would accrue interest at a floating per annum rate equal to (i) the greater of (A) the prime rate plus 1.00% and (B) 4.25%, prior to raising $45.0 million in net proceeds from the sale of equity securities, which we refer to as the 2022 Equity Event, 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%.

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

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

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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

Comparison of the Three Months Ended June 30, 2022 and 2021

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

Three Months Ended March 31,

Three Months Ended June 30,

Operating expenses:

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Change in fair value of term loan derivative liability

Other expense

Interest income

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

Three Months Ended March 31,

Three Months Ended June 30,

Clinical development expenses

Personnel and related expenses

Other research and development expenses

Consulting expenses and professional fees

Stock-based compensation expenses

Total research and development expenses

Research and development expenses for the three months ended June 30, 2022 decreased to $5.1 million from $6.5 million for the corresponding period in 2021, primarily due to reduced purchases of clinical trial supplies and clinical trial subject recruitment costs, decreased consulting expenses and professional fees due to a reduction in our use of consulting services and the non-recurrence of professional recruiting fees related to hirings in the prior year period.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2022 increased slightly as compared to the corresponding period in 2021.

The increase was primarily due to higher market research costs.

Other Expense, Net

Other expense, net for the three months ended June 30, 2022 was $0.2 million compared to $0.6 million for the corresponding period in 2021.

The decrease was due to the non-recurrence of a $0.4 million expense from the prior year period related to the value of the shares of our common stock that we issued to Lincoln Park Capital Fund, LLC, or Lincoln Park, as consideration for Lincoln Park’s commitment to purchase shares of our common stock under a common stock purchase agreement, or the LPC Purchase Agreement, as described below.

Also contributing to the decrease is an increase of interest income of $0.2 million due to higher available cash balances and higher interest rates as we have deployed a large portion of our funds into marketable securities.

Offsetting these decreases was an increase in expense of $0.2 million related to the change in fair value and settlement of the term loan derivative liability.

Comparison of the Six Months Ended June 30, 2022 and 2021

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

Six Months Ended June 30,

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Other (expense) income:

Change in fair value of term loan derivative liability

Other expense

Interest income

Interest expense

Total other expense, net

Loss before income taxes

Income tax benefit

Operating Expenses

Research and Development Expenses

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

Six Months Ended June 30,

Clinical development expenses

Personnel and related expenses

Consulting expenses and professional fees

Stock-based compensation expenses

Other research and development expenses

Total research and development expenses

Research and development expenses for the three months ended March 31, 2022 decreased to $4.6 million from $5.6 million for the corresponding period in 2021, primarily due to decreased clinical trial subject recruitment costs.

Our consulting expenses and professional fees declined as well due to a reduction in our use of consulting services and the non-recurrence of professional recruiting fees related to hirings in the prior year period.

For the periods presented, all of our research and development expenses related to our development activity for Haduvio.

Research and development expenses for the six months ended June 30, 2022 decreased to $9.7 million from $12.1 million for the corresponding period in 2021, primarily due to decreased purchases of clinical trial supplies, decreased clinical trial subject recruitment costs, decreased consulting expenses and professional fees due to a reduction in our use of consulting services and the non-recurrence of professional recruiting fees related to hirings in the prior year period and decreased personnel-related expenses primarily due to severance in the prior year period that did not recur.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2022 decreased to $2.4 million from $2.5 million for the corresponding period in 2021.

The decrease was primarily due to lower legal fees as a result of the timing of certain intellectual property filings.

General and administrative expenses for the six months ended June 30, 2022 decreased to $5.1 million from $5.2 million for the corresponding period in 2021.

The decrease was primarily due to lower legal fees as a result of the timing of certain intellectual property filings partially offset by higher market research costs.

Other Expense, Net

Other expense, net for the six months ended June 30, 2022 was $0.5 million compared to $0.9 million for the corresponding period in 2021.

The decrease was due to the non-recurrence of a $0.4 million expense from the prior year period 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 decrease was also attributed to a decrease of $0.2 million attributable to expense being recognized for the change in fair value and settlement of the term loan derivative liability.

These decreases were offset by an increase in interest income of $0.2 million due to higher interest rates and higher average cash balances as well as the receipt of higher interest rate yields as we have deployed a large portion of our available cash into marketable securities.

Liquidity and Capital Resources

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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 March 31, 2022 we 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.

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.

During the three months ended March 31, 2022 , the Company had no sales of shares of 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, 2022 we 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.

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.

In May 2022, the Company amended the ATM Sales Agreement with SVB Leerink LLC to increase the maximum aggregate offering price of common stock that it may issue and sell from time to time under the ATM Sales Agreement by $50.0 million, from $12.0 million to up to $62.0 million.

During the three and six months ended June 30, 2022, the Company had no sales of shares of common stock under the ATM Sales 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.

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 .

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

The 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%.

Prior to the Third Amendment, the SVB Term Loan bore 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 received evidence satisfactory to it that we had (i) received positive data for the Phase 2b/3 PRISM trial, sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, the interest rate under the SVB Term Loan would have been adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%.

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

As a result of the Third Amendment, upon the closing of the April 2022 Private Placement, our obligations to achieve the Milestone Conditions and maintain the Minimum Required Cash terminated and the cash collateralization requirement under the SVB Loan Agreement will instead be triggered if we do not receive positive final data by December 31, 2022 from either our ongoing Phase 2b/3 PRISM trial of Haduvio for prurigo nodularis or our Phase 2 CANAL trial of Haduvio for the treatment of chronic cough in adults with IPF.

In addition, the Third Amendment modified the interest rate on the principal amount outstanding under the SVB Loan Agreement, as discussed above under “–Interest Expense.”

Under the terms of the Third Amendment, upon the closing of the April 2022 Private Placement, our obligations to achieve the Milestone Conditions and maintain the Minimum Required Cash terminated and the sole remaining cash collateralization requirement under the SVB Loan Agreement was the requirement that we receive positive final data by December 31, 2022 from either our Phase 2b/3 PRISM trial of Haduvio for prurigo nodularis or our Phase 2 CANAL trial of Haduvio for the treatment of chronic cough in adults with IPF.

On August 3, 2022, SVB confirmed that the reported data from the Phase 2b/3 PRISM trial satisfied the requirement for positive data and that the cash collateralization requirements of the SVB Loan Agreement were no longer in effect.

In addition, the Third Amendment modified the interest rate on the principal amount outstanding under the SVB Loan Agreement, as discussed above under “—Components of Operating Results—Operating Expenses—Interest Expense.”

Private Placements

On October 5 , 2021 and October 18 , 2021, we issued and sold in two private placement s (i) an aggregate of 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.

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 $1 4 .8 million.

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

As of February 10, 2022, all of the pre-funded warrants had been exercised.

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 May 12, 2022, common stock warrants to purchase 3,299,270 shares of common stock that were to expire on April 5, 2025 have been exercised.

As of August 11, 2022 , all of the pre-funded warrants and all of the common stock warrants to purchase shares of common stock that were to expire on April 5, 2025 had been exercised.

On April 11, 2022, we issued and sold in the April 2022 Private Placement, (i) an aggregate of 4,580,526 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 24,379,673 shares of our common stock.

Each share of our common stock was sold at a price of $1.90, and each pre-funded warrant was sold at a price of $1.899 per warrant share, for gross proceeds of approximately $55.0 million.

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.

As of March 31, 2022, we had cash and cash equivalents of $29.1 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):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities

Net cash (used in) provided by financing activities

Net cash used in investing activities

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Operating Activities

During the three months ended March 31, 2022, operating activities used $7.1 million of net cash, resulting from our net loss of $7.3 million and net changes in our operating assets and liabilities of $0.7 million, offset by non-cash charges of $0.9 million.

The non-cash charges consisted primarily of stock-based compensation expense of $0.7 million and $0.2 million of accretion/accrual of term loan discounts and debt issuance costs.

Changes in our operating assets and liabilities consisted of a $1.1 million decrease in accounts payable, a $0.4 million decrease in prepaid expenses and other current assets and an immaterial increase in accrued expenses and other liabilities.

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 decrease in prepayments of our corporate insurance policies.

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

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

During the six months ended June 30, 2022, operating activities used $13.3 million of net cash, resulting from our net loss of $15.4 million offset by net changes in our operating assets and liabilities of $0.5 million and by non-cash charges of $1.6 million.

The non-cash charges consisted primarily of stock-based compensation expense of $1.3 million and $0.3 million of accretion/accrual of term loan discounts and debt issuance costs.

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

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

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

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

Changes in our operating assets and liabilities consisted of a $0.9 million increase in accounts payable and a $0.4 million increase in accrued expenses and other liabilities partially offset by a $0.9 million increase in prepaid expenses and other current assets.

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

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

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

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 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 and $0.3 million of accretion/accrual of term loan discounts and debt issuance costs.

Changes in our operating assets and liabilities consisted of a $1.5 million increase in accounts payable, a $0.6 million increase in prepaid expenses and other current assets and a $0.3 million decrease in accrued expenses and other liabilities.

The increase 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 an increase in prepayments of our corporate insurance policies.

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, partially offset by an increase in accrued compensation and benefits.

Investing Activities

During the three months ended March 31, 2022 and 2021, no cash was provided by or used in investing activities.

During the six months ended June 30, 2022, net cash used in investing activities was $54.2 million, primarily related to purchases of marketable securities.

During the six months ended June 30, 2021, no cash was provided by or used in investing activities.

Financing Activities

During the three months ended March 31, 2022, net cash used in financing activities was $0.6 million, primarily consisting of repayments of $0.6 million on the SVB Term Loan and by payments of offering costs of less than $0.1 million, slightly offset by proceeds received from the exercise of warrants.

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

During the six months ended June 30, 2022, net cash provided by financing activities was $55.4 million, primarily consisting of net cash proceeds from our April 2022 Private Placement of $51.8 million and cash proceeds of $5.9 million from the exercise of warrants as well as cash proceeds from purchases under our 2019 Employee Stock Purchase Plan partially offset by repayments of $2.3 million on the SVB Term Loan, payments of offering costs of less than $0.1 million and payments of financing costs of less than $0.1 million associated with the Third Amendment to the SVB Loan Agreement.

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.

Funding Requirements

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 MAAs to the EMA and MHRA for Haduvio for the treatment of pruritus associated with prurigo nodularis if the PRISM trial is successful, our ongoing Phase 2 CANAL trial and our next clinical trial that we expect will be designed as a Phase 2b/3 trial, subject to discussions with the FDA, if the CANAL trial is successful, as well as any additional clinical trials required to support the submission of an NDA to the FDA and MAAs to the EMA and MHRA for Haduvio for the treatment of chronic cough in adults with IPF.

Specifically, in the near term, we expect to incur substantial expenses relating to:

the ongoing open-label extension portion of our Phase 2b/3 PRISM trial in patients with prurigo nodularis,

the Phase 2 CANAL trial and, if the CANAL trial is successful, the next trial we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF, which we expect will be designed as a Phase 2b/3 trial, subject to discussions with the FDA.

Generally, regulatory authorities require two adequate and well-controlled studies for approval.

We also expect to incur substantial expenditures in the foreseeable future related to the costs of commercialization activities, including manufacturing capabilities, for Haduvio and other development activities.

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.

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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, including our ongoing Phase 2b/3 PRISM trial and our ongoing Phase 2 CANAL trial, as well as any future product candidates;

the scope, progress, timing, costs and results of clinical trials of Haduvio, including the ongoing open-label extension portion of our Phase 2b/3 PRISM trial and our 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;

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

the costs of commercialization activities for Haduvio for the treatment of pruritus associated with prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any other serious neurologically mediated conditions or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of pruritus associated with prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any other serious neurologically mediated conditions or from any future product candidates;

our ability to identify potential collaborators for Haduvio for the treatment of pruritus associated with prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates;

the costs of commercialization activities for Haduvio for the treatment of prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any other serious neurologically mediated conditions or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any other serious neurologically mediated conditions or from any future product candidates;

our ability to identify potential collaborators for Haduvio for the treatment of prurigo nodularis or for the treatment of chronic cough in adults with IPF or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates;

the extent to which we acquire or in-license rights to other potential product candidates or technologies and the terms and timing of any such acquisition or licensing arrangements;

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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 April 2022 Private Placement, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024.

We believe that our existing cash, cash equivalents and marketable securities, including the proceeds we received in July 2022 from the exercise of common stock warrants that were issued in the October 2021 Private Placements, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2023.

This does not consider the cost of any additional clinical trial that we may determine to conduct for the treatment of prurigo nodularis.

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 and financing may not be available to us on acceptable terms, on a timely basis or at all.

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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 the treatment of pruritus associated with prurigo nodularis or for the treatment of chronic cough in adults with IPF or any other indication.

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 the treatment of prurigo nodularis or for the treatment of chronic cough in adults with IPF or any other indication.

If we raise additional funds by issuing equity securities, our stockholders may experience dilution.

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In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

Any debt financing or additional equity that we raise may contain terms that could adversely affect our common stockholders.

Any debt financing that we seek or additional equity that we raise may contain terms that could adversely affect our common stockholders.

If we are unable to raise sufficient capital as and when needed, we may be required to delay, reduce or abandon our product development programs or commercialization efforts.

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While our significant accounting policies are described in the Notes to our financial statements, we believe that the critical accounting policies described 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, 2021 are the most important to understanding and evaluating our reported financial results.

During the three months ended March 31, 2022, there were no material changes to our critical accounting policies.

During the six months ended June 30, 2022, there were no material changes to our critical accounting policies.

Recently Adopted Accounting Pronouncements

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.

There have been no new pronouncements adopted during the six months ended June 30, 2022 , which could be expected to materially impact the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

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

There have been no new pronouncements during the six months ended June 30, 2022 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