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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 134 added, 113 removed, 229 unchanged (52% of the section changed)

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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 (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.

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (oral nalbuphine ER) for the treatment of chronic cough in adults with idiopathic pulmonary fibrosis, or IPF, and other chronic cough indications, and for the treatment of prurigo nodularis.

Chronic Cough.

In September 2022, we announced positive data from the full set of subjects in our Phase 2 clinical trial of Haduvio for the treatment of chronic cough in adults with IPF, which we refer to as the Phase 2 CANAL trial.

The Phase 2 CANAL trial was a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study that was designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in adults with IPF that we conducted at multiple sites in the United Kingdom.

In total, we enrolled 38 subjects in the study.

In the full subject data set, Haduvio demonstrated statistically significant results for the primary efficacy endpoint of daytime cough frequency reduction (p<0.0001) and for key secondary endpoints on patient and clinician reported outcomes.

The trial results comparing subjects randomized to Haduvio or placebo showed that:

On the primary efficacy endpoint, Haduvio subjects had a 75.1% reduction in daytime cough frequency at end of treatment period vs.

study baseline compared to placebo subjects who had a 22.6% reduction, a 52.5% placebo-adjusted change (p<0.0001);

Haduvio subjects had a 76.1% reduction in 24-hour cough frequency at end of treatment period vs.

study baseline compared to placebo subjects who had a 25.3% reduction, a 50.8% placebo-adjusted change (p<0.0001);

In a post-hoc analysis, 97% of Haduvio subjects had at least a 30% reduction in 24-hour cough frequency compared to 35% of placebo subjects, signifying a clinically meaningful reduction in cough (p<0.0001);

Subjects on Haduvio experienced a statistically significant improvement as measured by their patient reported outcomes compared to placebo over the 3-week treatment period in the EXACT2:

Cough Frequency Score (p=0.001) and Cough Severity Numerical Rating Scale (p=0.0001);

Based on the Clinical Global Impression of Change rating measuring clinicians’ view of change since the start of the trial, 62% of Haduvio subjects improved vs.

baseline compared to 19% of placebo subjects (p=0.01).

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

There were two serious adverse events reported during the trial, neither of which was considered by the investigator to be treatment related.

Adverse events most commonly observed during the trial were nausea, fatigue, constipation, dizziness, somnolence, vomiting, headache, anxiety and depression.

We are in discussions with the U.S.

Food and Drug Administration, or FDA, regarding the design of the next clinical trials of Haduvio for the treatment of chronic cough in adult patients with IPF.

We expect the objectives for the next trials will be to determine the minimally effective dose in this patient population as well as the safety in this specific patient population.

Subject to alignment with the FDA, we aim to initiate these trials in the first half of 2023.

We also plan to develop Haduvio for additional chronic cough indications, which we expect will commence initially with a Phase 2 clinical trial of Haduvio for the treatment of refractory chronic cough, which we anticipate commencing in 2023.

We will need to submit an IND for Haduvio before proceeding with our planned trials for chronic cough in adults with IPF.

Prurigo Nodularis .

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.

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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.

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

placebo-treated subjects (31.3%).

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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.

The Phase 2 CANAL trial is a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study that is designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in adults with IPF.

This trial was originally designed to enroll approximately 60 subjects with a goal to have 44 study completers.

We are conducting the trial at multiple sites in the United Kingdom.

In February 2022, we conducted an interim statistical analysis for this trial.

The interim analysis (N=26) was statistically significant on the primary efficacy endpoint demonstrating a 52% placebo-adjusted reduction in the geometric mean percent change in daytime cough events (p<0.0001, conditional power 100%) for Haduvio.

P-value is a conventional statistical method for measuring the statistical significance of clinical results.

A p-value of less than 0.05 is generally considered to represent statistical significance, meaning that there is a less than five percent likelihood that the observed results occurred by chance.

The interim analysis was conducted by an independent statistical team according to the pre-specified endpoint in the protocol.

In March 2022, in light of the statistically significant efficacy results from the interim analysis, we concluded enrollment early for our Phase 2 CANAL trial.

In total, we enrolled approximately 40 subjects in the study.

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 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.

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 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 in the first quarter of 2023.

Following discussions with the FDA and other regulatory authorities, we plan to determine next steps with respect to our prurigo nodularis program, including with respect to the timing and conduct of a Phase 3 clinical trial.

We will need to obtain additional funding prior to commencing any Phase 3 clinical trial.

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 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.

As of September 30, 2022, we had an accumulated

deficit of $ 204.6 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 chronic cough in adults with IPF or other chronic cough indications or for the treatment of prurigo nodularis 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 initial public offering, or the 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.

Upon the closing of the IPO, our preferred stock then outstanding converted into an aggregate of 10,381,234 shares of common stock.

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

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.

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.

We are not obligated to make any sales of our common stock under the ATM Sales Agreement.

We began making sales pursuant to the ATM Sales Agreement in July 2020 , and as of June 30, 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 .

We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of September 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.

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

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.

As of November 10, 2022, 1,851,852 of the warrants to purchase shares of common stock that are to expire in April 2025 and 7,851,852 of the warrants to purchase shares of common stock that are to expire in October 2028 remained outstanding.

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 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.

On September 27, 2022, we issued and sold 14,252,670 shares of our common stock and, in lieu of common stock to certain investors, pre-funded warrants to purchase 14,247,330 shares of common stock in a public offering, or the September 2022 Offering, at a public offering price of $1.93 per share of common stock and $1.929 per pre-funded warrant pursuant to an underwriting agreement, or the Underwriting Agreement, with SVB Securities LLC, Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co.

Inc., as representatives of the several underwriters, or the Underwriters.

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.

Under the terms of the Underwriting Agreement, we agreed not to issue and sell additional shares until after November 21, 2022 except in certain circumstances, including the issuance and sale of additional shares pursuant to the Underwriting Agreement.

Under the terms of the Underwriting Agreement, we granted the Underwriters an option, or the Option, exercisable for 30 days, to purchase up to an additional 4,275,000 shares of common stock, or the Additional Shares, at the public offering price of $1.93 per share.

Underwriters partially exercise d the Option to purchase 1,600,428 Additional Shares, which shares were issued and sold on October 25, 2022.

The September 2022 Offering, including the initial closing on September 27, 2022 and the Option closing on October 25, 2022 , resulted in aggregate gross proceeds to us of approximately $5 8 .

As of September 30, 2022, we had cash, cash equivalents and marketable securities of $125.6 million.

We believe that our existing cash, cash equivalents and marketable securities 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 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.

Specifically, in the near term, we expect to incur substantial expenses relating to the next trials we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF, our planned Phase 2 clinical trial of Haduvio for the treatment of refractory chronic cough, the ongoing open-label extension portion of our Phase 2b/3 PRISM trial for prurigo nodularis, a human abuse liability, or HAL, study to further characterize the abuse potential of oral nalbuphine.

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.

While the current trajectory of the COVID-19 pandemic is uncertain, in the future we may continue to experience adverse impacts on our clinical trial activities, business operations, financial condition, and prospects as a result of the future evolution of the virus, among other factors.

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.

The COVID-19 pandemic or other outbreaks of infectious disease 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 pandemic, 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 impede patient movement or interrupt healthcare services.

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

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

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

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

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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.

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

We do not allocate all of our costs by each indication for which we are developing Haduvio, as a significant amount of our development activities broadly support all indications.

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

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

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

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

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Results of Operations

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

Operating expenses:

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Loss from operations

Other (expense) income:

Other income (expense):

Change in fair value of term loan derivative liability

Other expense

Interest income

Interest income, net

Interest expense

Total other expense, net

Total other income (expense), net

Loss before income taxes

Income tax benefit

Income tax benefit (expense)

Operating Expenses

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

Three Months Ended June 30,

Three Months Ended September 30,

Clinical development expenses

Personnel and related expenses

Other research and development 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 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.

Research and development expenses for the three months ended September 30, 2022 increased to $5.8 million from $4.7 million for the corresponding period in 2021, primarily due to startup activities for our planned trials including purchases of clinical trial supplies and increased costs associated with increased activity in our Phase 2 CANAL trial as compared to the third quarter of 2021, offset by a reduction in costs associated with decreased activity in our Phase 2b/3 PRISM trial due to the completion of the blinded portion of the trial in the second quarter of 2022.

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

General and administrative expenses for the three months ended September 30, 2022 increased to $2.6 million from $2.2 million for the corresponding period in 2021, primarily due to higher legal fees associated with intellectual property filings and increased market research costs.

Other Income (Expense), Net

Other income (expense), net for the three months ended September 30, 2022 was $0.1 million compared to other expense, net of $0.3 million for the corresponding period in 2021.

The change was primarily due to an increase in interest income of $0.4 million due to higher cash equivalent and marketable securities balances and higher interest rate yields.

Comparison of the Nine Months Ended September 30, 2022 and 2021

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

Six Months Ended June 30,

Nine Months Ended September 30,

Operating expenses:

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Other expense

Interest income

Interest income, net

Interest expense

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

Six Months Ended June 30,

Nine Months Ended September 30,

Clinical development expenses

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Consulting expenses and professional fees

Stock-based compensation expenses

Other research and development expenses

Stock-based compensation expenses

Total research and development expenses

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.

Research and development expenses for the nine months ended September 30, 2022 decreased to $15.5 million from $16.8 million for the corresponding period in 2021, primarily due to decreased clinical trial recruitment and other activity costs in our Phase 2b/3 PRISM trial due to the completion of the blinded portion of the trial in the second quarter of 2022, 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.

These decreases were partially offset by an increase in startup activities for our planned trials including purchases of clinical trial supplies.

General and Administrative Expenses

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.

General and administrative expenses for the nine months ended September 30, 2022 increased to $7.7 million from $7.4 million for the corresponding period in 2021.

The increase was primarily due to 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.

Other expense, net for the nine months ended September 30, 2022 was $0.4 million compared to $1.2 million for the corresponding period in 2021.

The decrease in expense was primarily due to an increase in interest income of $0.6 million due to higher cash equivalent and marketable securities balances and higher interest rate yields.

The decrease was also 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.

These decreases were partially offset by the increase of $0.2 million attributable to expense being recognized for the change in fair value and settlement of the term loan derivative liability.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations.

Prior to the completion of our initial public offering, or the IPO, and concurrent private placement in May 2019, we financed our operations primarily through private placements of our preferred stock and convertible notes as well as borrowings under our prior term loan.

Prior to the completion of our IPO and concurrent private placement in May 2019, we financed our operations

primarily through private placements of our preferred stock and convertible notes as well as borrowings under our prior term loan .

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

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

In May 2022, we amended the ATM Sales Agreement with SVB Leerink LLC 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.

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.

We are not obligated to make any sales of our common stock under the ATM Sales Agreement.

We began making sales pursuant to the ATM Sales Agreement in July 2020 and as of June 30, 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.

We began making sales pursuant to the ATM Sales Agreement in July 2020 and as of September 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.

During the three and nine months ended September 30, 2022, we sold no 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.

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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On July 6, 2021, we and SVB entered into the First Amendment to the SVB Loan Agreement, or the First Amendment.

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

Under the First Amendment, if we failed to receive positive data in our Phase 2b/3 PRISM trial or, prior to June 30, 2022, failed to raise sufficient net proceeds from the sale of equity securities to finance our planned second Phase 3 clinical trial of Haduvio for prurigo nodularis and our ongoing operations, each of which we refer to as a Milestone Condition, we 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 First Amendment provided that if we failed to maintain at least $20.0 million in unrestricted and unencumbered cash in our accounts with SVB, or the Minimum Required Cash, at any time prior to the satisfaction of all the Milestone Conditions, we would also have been required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement.

The First Amendment modified the conditions under which we were required to cash collateralize outstanding amounts owed to SVB under the SVB Loan Agreement.

Under the First Amendment, if we failed to receive positive data in our Phase 2b/3 PRISM trial or, prior to June 30, 2022, failed to raise sufficient net proceeds from the sale of equity securities to finance our planned second Phase 3 clinical trial of Haduvio for prurigo nodularis and our ongoing operations, each of which we refer to as a Milestone Condition, we would have been 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 have been used by SVB to prepay the SVB Term Loan at any time.

In addition, the First Amendment provided that if we failed to maintain at least $20.0 million in unrestricted and unencumbered cash in our accounts

with SVB , or the Minimum Required Cash, at any time prior to the satisfaction of all the Milestone Conditions, we would also have been required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement.

We would also have been required to cash collateralize all outstanding amounts owed to SVB under the SVB Loan Agreement if we did not raise at least $15.0 million in net proceeds from the sale of equity securities during the period from June 1, 2021 through October 31, 2021.

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

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

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

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Private Placements

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.

On October 5, 2021 and October 18, 2021, we issued and sold in two private placements (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.

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

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

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 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 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.

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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.

Public Offering

On September 27, 2022, we issued and sold in the September 2022 Offering 14,252,670 shares of our common stock and, in lieu of common stock to certain investors, pre-funded warrants to purchase 14,247,330 shares of common stock at a public offering price of $1.93 per share of common stock and $1.929 per pre-funded warrant pursuant to the Underwriting Agreement.

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.

Under the terms of the Underwriting Agreement, we agreed not to issue and sell additional shares until November 21, 2022 except in certain circumstances, including the issuance and sale of additional shares pursuant to the Underwriting Agreement.

Under the terms of the Underwriting Agreement, we granted the Underwriters an Option, exercisable for 30 days, to purchase up to an additional 4,275,000 Additional Shares at the same price per share.

The initial closing of the September 2022 Offering occurred on September 27, 2022.

Subsequent to the initial closing, the Underwriters partially exercised the Option to purchase 1,600,428 Additional Shares.

The Option closing occurred on October 25, 2022.

The September 2022 Offering, including the initial closing on September 27, 2022 and the Option closing on October 25, 2022, resulted in aggregate gross proceeds to us of approximately $58.1 million.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities

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Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

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 $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.

During the nine months ended September 30, 2022, operating activities used $21.8 million of net cash, resulting from our net loss of $23.6 million and net changes in our operating assets and liabilities of $0.4 million, offset by non-cash charges of $2.2 million.

The non-cash charges consisted primarily of stock-based compensation expense of $1.8 million and $0.4 million of accretion/accrual of term loan discounts and debt issuance costs, offset by $0.3 million of accretion of our available-for-sale marketable securities.

Changes in our operating assets and liabilities consisted of a $0.5 million decrease in accounts payable and a $0.5 million increase in prepaid expenses and other current assets, partially offset by a $0.6 million increase in accrued expenses and other liabilities.

The decrease 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 as well as an increase in interest income receivable related to our marketable securities.

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 and increased accruals for consulting and professional fees partially offset by a decrease in accrued compensation and benefits.

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

The non-cash charges consisted primarily of stock-based compensation expense of $2.0 million, $0.4 million of accretion/accrual of term loan discounts and debt issuance costs and $0.4 million of other expense associated with the value of the shares of our common stock that we issued to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of our common stock under the LPC Purchase Agreement.

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

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

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

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 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.

During the nine months ended September 30, 2022, net cash used in investing activities was $59.1 million, primarily related to purchases of and proceeds from maturities of available-for-sale marketable securities.

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

Financing Activities

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.

During the nine months ended September 30, 2022, net cash provided by financing activities was $110.7 million, primarily consisting of net cash proceeds from our April 2022 Private Placement and our September 2022 Offering of $103.0 million, cash proceeds of $11.8 million from the exercise of warrants and cash proceeds from the exercise of stock options of $0.1 million, partially offset by repayments of $4.1 million on the SVB Term Loan and payments of offering costs of $0.2 million.

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

Funding Requirements

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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.

the next trials we plan to conduct for Haduvio for the treatment of chronic cough in adults with IPF;

our planned Phase 2 clinical trial of Haduvio for the treatment of refractory chronic cough;

our HAL study;

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

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

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

Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

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

the scope, progress, timing, costs and results of clinical trials of Haduvio, 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 scope, progress, timing, costs and results of clinical trials of Haduvio, including the next clinical trials for the treatment of cough in adults with IPF, our planned Phase 2 clinical trial in refractory chronic cough, and our ongoing open-label extension portion of our Phase 2b/3 PRISM trial, as well as of any future product candidates;

the number and characteristics of indications for which we seek to develop Haduvio or any future product candidates and their respective development requirements;

the outcome, timing and costs of clinical and nonclinical trials and of seeking regulatory approvals, including the costs of supportive clinical studies such as our planned human abuse liability, or HAL, study and a potential Thorough QT, or TQT, study;

the outcome, timing and costs of clinical and nonclinical trials and of seeking regulatory approvals, including the costs of supportive clinical studies such as our HAL study and a potential Thorough QT study;

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

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 costs of commercialization activities for Haduvio for the treatment of chronic cough in adults with IPF or for any other chronic cough indications or for the treatment of prurigo nodularis 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 chronic cough in adults with IPF or for any other chronic cough indications or for the treatment of prurigo nodularis 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 other chronic cough indications 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, 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.

We believe that our existing cash, cash equivalents and marketable securities, including the gross proceeds we received in October 2022 from the sale of the Additional Shares to the Underwriters upon the partial exercise of their Option in the September 2022 Offering, will enable us to fund our operating expenses and capital expenditure requirements into 2026, subject to agreement with the FDA on the next clinical trials of Haduvio for the treatment of chronic cough in adults with IPF.

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.

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

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

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

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

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Future debt securities or other financing arrangements could contain similar or more restrictive negative covenants.

We are also bound by certain contractual terms and obligations that may limit or otherwise impact our ability to raise additional funding in the near-term including, but not limited to, provisions in the October 2021 Private Placements prohibiting us from obtaining additional financing through a variable rate transaction such as an equity line of credit.

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.

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

During the nine months ended September 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 six months ended June 30, 2022 , which could be expected to materially impact the Company’s Condensed Consolidated Financial Statements.

There have been no new pronouncements adopted during the nine months ended September 30, 2022, which could be expected to materially impact our Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

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.

There have been no new pronouncements issued during the nine months ended September 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