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Item 7. Management’s Discussion and Analysis

2021-03-17 compared with 2020-03-13 · 114 added, 80 removed, 168 unchanged (54% of the section changed)

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We are a dermatology therapeutics company committed to the development and commercialization of novel treatments that provide meaningful benefit for people living with skin diseases .

Our lead product candidate, VP-102, is a proprietary drug-device combination of our novel topical solution of cantharidin, a widely recognized, naturally sourced agent to treat topical dermatological conditions, administered through our single-use precision applicator.

Our lead product candidate, VP-102, is a proprietary drug-device combination of our topical solution of cantharidin, a widely recognized, naturally sourced agent to treat topical dermatological conditions, administered through our single-use precision applicator.

We are initially developing VP-102 for the treatment of molluscum contagiosum, or molluscum, a highly contagious and primarily pediatric viral skin disease, and common warts.

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In addition to patent protection we are seeking, VP-102 has the potential to be the first FDA-approved product for molluscum and for its active pharmaceutical ingredien t , or API, to be characterized as a new chemical entity, or NCE, with the five years of non-patent regulatory exclusivity associated with that designation.

We also believe VP-102 has the potential to qualify for pediatric exclusivity, which would provide for an additional six months of non-patent exclusivity.

We believe VP-102 has the potential to qualify for pediatric exclusivity, which would provide for an additional six months of non-patent exclusivity.

In January 2019, we reported positive top-line results from our Phase 3 CAMP-1 and CAMP-2 pivotal trials with VP-102 for the treatment of molluscum.

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VP-102 was well-tolerated in both trials, with no serious adverse events reported in VP-102 treated subjects.

CAMP-1 was conducted under a special protocol assessment, or SPA, agreement with the FDA.

Based on the results from these trials, we submitted a new drug application, or NDA, to the FDA for VP-102 for the treatment of molluscum in September 2019.

In November 2019, we received notice that the FDA accepted the NDA for filing, with a Prescription Drug User Fee Act, or PDUFA, goal date of July 13, 2020.

CAMP-1 was conducted under a special protocol assessment, or SPA, agreement with the FDA.

In July 2020, we received a Complete Response Letter, or CRL, from the FDA for our NDA.

The CRL indicated the need for additional information regarding certain aspects of the chemistry, manufacturing and controls, or CMC, processes for the drug/device combination as well as human factors validation.

The FDA did not identify any clinical deficiencies.

A Type A meeting was held with the FDA in October 2020 to discuss the issues that were identified in the CRL and the resubmission of the NDA for VP-102.

We resubmitted our NDA for VP-102 for the treatment of molluscum in December 2020.

In February 2021, we received notice that the FDA accepted the resubmitted NDA for filing, with a PDUFA goal date of June 23, 2021.

In June 2019, we announced positive topline results from our COVE-1 Phase 2 open label clinical trial of VP-102 for the treatment of verruca vulgaris, or common warts.

Based on the results of the COVE-1 trial, and following an End-of-Phase 2 meeting with the FDA we plan to initiate two Phase 3 clinical trials in the first half of 2020.

Based on feedback from the FDA regarding a potential Phase 3 trial protocol, we are currently evaluating conducting an additional Phase 2 clinical trial of VP-102 for the treatment of common warts.

In addition, we are also developing VP-102 for the treatment of external genital warts.

We initiated a Phase 2 clinical trial evaluating the optimal dose regimen, efficacy, safety and tolerability of VP-102 in patients with external genital warts in June 2019.

We expect to report topline data results from this trial in the second half of 2020.

In addition, we are conducting necessary preclinical activities for VP-103, our second cantharidin-based product candidate, and plan to initiate a Phase 2 clinical trial in subjects with plantar warts in mid-2020.

We retain exclusive, royalt y -free rights to our product candidates across all indications.

In November 2020, we announced positive topline results from our Phase 2 clinical trial of VP-102 for the treatment of external genital warts.

Based on the results of the Phase 2 trial, we requested an end of Phase 2 meeting with the FDA in the first quarter of 2021.

In addition, we are conducting necessary drug development activities for VP-103, our second cantharidin-based product candidate, and are evaluating when to initiate a Phase 2 clinical trial for the treatment of plantar warts.

We also intend to develop our third product candidate, LTX-315, for the treatment of dermatological oncology indications.

On March 17, 2021, we entered into a collaboration and license agreement, or the Torii Agreement, with Torii Pharmaceutical Co., Ltd., or Torii, pursuant to which we granted Torii an exclusive license to develop and commercialize our product candidates that contain a topical formulation of cantharidin for the treatment of molluscum contagiosum and common warts in Japan, including VP-102.

Additionally, we granted Torii a right of first negotiation with respect to additional indications for the licensed products and certain additional products for use in the licensed field, in each case in Japan.

Pursuant to the Torii Agreement, we are entitled to receive an up-front payment from Torii of $11.5 million.

Additionally, we are entitled to receive from Torii an additional $58.0 million in aggregate payments contingent on achievement of specified development, regulatory, and sales milestones, in addition to tiered transfer price payments for supply of product in the percentage range of the mid-30s to the mid-40s of net sales

In August 2020, we entered into an exclusive license agreement with Lytix Biopharma AS, or Lytix, pursuant to which we obtained a worldwide, license for certain technology of Lytix to develop LTX-315 for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic merkel cell carcinoma.

We intend to submit an Investigational New Drug Application, or IND, for LTX-315 in the first half of 2021.

Our strategy is to advance VP-102 through regulatory approval and self-commercialize in the United States for the treatment of several skin diseases.

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In the future, we also intend to develop VP-102 for commercialization in additional geographic regions, either alone or together with a strategic partner.

We have a limited operating history.

We have been actively monitoring the novel coronavirus, or COVID-19, pandemic and its impact globally.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19.

As a direct result of COVID-19, we decided to delay the initiation of our previously planned Phase 3 clinical trials to evaluate VP-102 in subjects with common warts as well as our previously planned Phase 2 clinical trial to evaluate VP-103 in subjects with plantar warts.

Since our inception in 2013, our operations have focused on developing VP-102, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials.

We do not have any product candidates approved for sale and have not generated any revenue from product sales.

We have funded our operations primarily through the sale of equity

and equity-linked securities.

We have funded our operations primarily through the sale of equity and equity-linked securities and through borrowing under our loan agreement with Silicon Valley Bank.

On June 19, 2018, we completed an IPO of common stock, which resulted in the issuance and sale of 5,750,000 shares of common stock at a public offering price of $15.00 per share, generating net proceeds of $78.4 million after deducting underwriting discounts and other offering costs.

On March 10, 2020, we entered into (i) a mezzanine loan and security agreement, or the Mezzanine Loan Agreement, with Silicon Valley Bank, as administrative agent and collateral agent, or the Agent, and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders, or the Mezzanine Lenders, pursuant to which the Mezzanine Lenders have agreed to lend us up to $50.0 million in a series of term loans, and (ii) a loan and security agreement, or the Senior Loan Agreement, and together with the Mezzanine Loan Agreement, the Loan Agreements, with Silicon Valley Bank, as lender, or the Senior Lender, and together with the Mezzanine Lenders, the Lenders, pursuant to which the Senior Lender has agreed to provide us a revolving line of credit of up to $5.0 million.

Upon entering into the Loan Agreements, we borrowed $35.0 million in term loans from the Mezzanine Lenders.

We entered into amendments to the Loan Agreements in October 2020 under which we borrowed an additional $5.0 million in term loans on March 1, 2021 and we may borrow an additional $10.0 million in term loans subject to (i) FDA approval of our NDA for VP-102 for the treatment of molluscum prior to September 31, 2021, and (ii) compliance with a minimum liquidity covenant.

We believe that our existing cash, cash equivalents and marketable securities as of December 31, 2020, combined with the $11.5 million up-front payment we are entitled to receive pursuant to the Torii Agreement, will be sufficient to support our planned operations at least through the first quarter of 2022.

Since inception, we have incurred significant operating losses.

For the years ended December 31, 2019 and 2018, our net loss was $28.2 million and $20.6 million, respectively.

For the year s ended December 31, 20 20 and 201 9 , our net loss was $ 4 2.7 million and $ 2 8 .

2 million, respectively.

As of December 31, 20 20 , we had an accumulated deficit of $ 10 3.9 million.

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initiate clinical trials evaluating VP-102 for the treatment of external genital warts;

initiate clinical trials evaluating VP-103 for the treatment of plantar warts;

pursue regulatory approvals for VP-102 for the treatment of molluscum, and eventually for the treatment of common warts, external genital warts or any other indications we may pursue for VP-102, as well as for VP-103;

initiate clinical trials evaluating VP-103 for the treatment of plantar warts, and LTX-315 for the treatment of dermatological oncology indications ;

seek to discover and develop additional product candidates;

ultimately establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval, including VP-102 and VP-103;

seek to in-license or acquire additional product candidates for other dermatological conditions;

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incur additional legal, accounting and other expenses in operating as a public company.

On March 10, 2020 , we entered into (i) a mezzanine loan and security agreement, or the Mezzanine Loan Agreement, with Silicon Valley Bank, as administrative agent and collateral agent, or the Agent, and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders, or the Mezzanine Lenders, pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $50.0 million in a series of term loans, and (ii) a loan and security agreement , or the Senior Loan Agreement , and together with the Mezzanine Loan Agreement, the Loan Agreements, wi th Silicon Valley Bank , as lender, or the Senior Lender, and together with the Mezzanine Lenders, the Lenders , pursuant to which the Senior Lender has agreed to provide the Company a revolving line of credit of up to $5.0 million.

The availability for the remaining $15 million in term loans is subject to our achievement of (i) a specified amount in trailing six-month net revenue and (ii) a specified amount raised in equity.

Upon entering into the Loan Agreement s, we borrowed $35 .0 million in term loans from the Mezzanine Lenders .

We believe the $35 million in proceeds received at closing of term loan in combination with existing cash, cash equivalents, and marketable securities will be sufficient to support our planned operations, which include expenses for the commercialization of YCANTH™, if approved, and continued full clinical development of VP-102 for additional indications, including common warts and external genital warts, as well as VP-103 for plantar warts, at least through the second quarter of 2021 .

Services Agreement with PBM Capital Group, LLC

In December 2015, we entered into a services agreement, or SA, with PBM Capital Group, LLC, or PBM, an affiliate of PBM Capital Investments, LLC, and controlled by Paul B.

Manning, one of our directors, to engage PBM for certain business development, operations, technical, contract, accounting and back office support services.

We agreed to pay PBM a fee of $2,500 per month for these services.

The SA had an initial term of 12 months and automatically renewed monthly thereafter.

See Note 5 to our financial statements for additional information.

In March 2018, we entered into an amendment to the SA with PBM effective as of April 1, 2018, which extended the term of the SA until March 31, 2019 and increased the management fee we are obligated to pay to PBM to $50,000 per month.

The SA as amended, provides for termination by us with 30 days advance notice or a mutually agreed upon effective date for transition as individual services are cancelled with a corresponding reduction in the monthly management fee.

On January 1, 2019 and October 1, 2019, the SA was amended to reduce the monthly management fee to $26,333 and $5,000, respectively, as a result of a reduction in services provided by PBM.

Critical Accounting Policies and Significant Judgments and Estimates

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Actual results may differ from these estimates under different assumptions or conditions.

A summary of ou r significant accounting policies appears in the notes to our audited financial statements for the year ended December 31, 201 9 included in this A nnual R eport on Form 10-K.

A summary of our significant accounting policies appears in the notes to our audited financial statements for the year ended December 31, 2020 included in this Annual Report on Form 10-K.

However, we believe that the following accounting policies are important to understanding and evaluating our reported financial results, and we have accordingly included them in this discussion.

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Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Stock-Based Compensation

Stock- B ased Compensation

We recognize the grant-date fair value of share-based awards issued as compensation as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to increase over the next several years as we increase personnel costs, including stock-based compensation, initiate and conduct Phase 3 clinical trials of VP-102 in patients with common warts, conduct our ongoing Phase 2 trial with VP-102 in external genital warts, initiate a Phase 2 trial with VP-103 in plantar warts and conduct other clinical trials and prepare regulatory filings for our product candidates.

We expect our research and development expenses to increase over the next several years as we increase personnel costs, including stock-based compensation, initiate and conduct clinical trials of VP-102 in patients with common warts, VP-102 in patients with external genital warts, VP-103 in patients with plantar warts, LTX-315 for dermatological oncology indications, and conduct other clinical trials and prepare regulatory filings for our product candidates.

The successful development of our product candidates is highly uncertain.

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As of December 31, 2020, we had federal and state net operating loss carryforwards of approximately $82.7 million and $84.1 million, respectively.

The federal net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 will begin to expire, if not utilized, by 2033.

The federal net operating loss carryforwards included in the foregoing totals that were generated prior to 2018 (federal of approximately $6.9 million) will begin to expire, if not utilized, by 2033.

Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986, as amended, and similar provisions.

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Interest income

Interest expense

Other expense

Total other income

Total other (expense) income

Research and Development Expenses

Research and development expenses were $15.7 million for the year ended December 31, 2020, compared to $15.4 million for the year ended December 31, 2019.

The increase of $2.6 million was primarily attributable to costs associated with Phase 2 and Phase 3 clinical activities for VP-102 , an increase in c osts associated with increased headcount and associated salary, bonus and stock-based compensation expense .

The increase of $0.2 million was primarily attributable to increased Chemistry, Manufacturing and Controls, or CMC, costs related to our development of VP-102 for molluscum and increased compensation costs, partially offset by decreased clinical costs related to our development of VP-102 for molluscum.

General and Administrative Expenses

General and administrative expenses were $24.5 million for the year ended December 31, 2020, compared to $14.6 million for the year ended December 31, 2019.

The increase of $5.5 million was primarily a result of increased headcount and associated salary, bonus and stock-based compensation expenses, and increased insurance, professional fees and other operating expenses .

The increase of $9.9 million was primarily a result of higher stock-based compensation costs, which includes $4.8 million of stock-based compensation expense recorded in December 2020 related to the modification of a stock award to a former executive.

The increase was also driven by expenses related to increased headcount, an increase in insurance, professional fees, and other operating costs, and an increase in expenses related to pre-commercial activities for VP-102.

Interest Income

Interest income for the years ended December 31, 2020 and 2019 consisted of interest earned on our cash, cash equivalents and marketable securities .

The decrease of $1.4 million was primarily a result of lower interest income due to lower interest rates.

Interest Expense

Interest expense for the year ended December 31, 2020 consisted of interest expense on the Mezzanine Loan Agreement as noted in Note 11 to our financial statements.

Results of Operations for Years Ended December 31, 2019 and 2018

For a discussion and analysis of changes in financial condition and results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 13, 2020.

Liquidity and Capital Resources

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

We have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our IPO, receiving aggregate gross proceeds of $123.2 million.

We have financed our operations since inception through sales of our convertible preferred stock and the sale of our common stock in our IPO, receiving aggregate gross proceeds of $123.2 million and most recently, $40.0 million of gross proceeds from the Mezzanine Loan Agreement noted below.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $65.5 million.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years.

On March 10, 2020, we entered into (i) a mezzanine loan and security agreement, or the Mezzanine Loan Agreement, with Silicon Valley Bank, as administrative agent and collateral agent, or the Agent, and Silicon Valley Bank and West River Innovation Lending Fund VIII, L.P., as lenders, or the Mezzanine Lenders, pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $50.0 million in a series of term loans, and (ii) a loan and security agreement, or the Senior Loan Agreement, and together with the Mezzanine Loan Agreement, the Loan Agreements, with Silicon Valley Bank, as lender, or the Senior Lender, and together with the Mezzanine Lenders, the Lenders, pursuant to which the Senior Lender has agreed to provide the Company a revolving line of credit of up to $5.0 million.

The availability for the remaining $15 million in term loans is subject to our achievement of (i) a specified amount in trailing six-month net revenue and (ii) a specified amount raised in equity.

Upon entering into the Loan Agreements, the Company borrowed $35.0 million in term loans from the Mezzanine Lenders.

See Note 13 to our financial statements for additional information.

On March 10, 2020, or the Effective Date, we entered into (i) the Mezzanine Loan Agreement with the Agent, and the Mezzanine Lenders, pursuant to which the Mezzanine Lenders have agreed to lend us up to $50.0 million in a series of term loans, and (ii) the Senior Loan Agreement with the Senior Lender, pursuant to which the Senior Lender has agreed to provide us with a revolving line of credit of up to $5.0 million.

Upon entering into the Loan Agreements, we borrowed $35.0 million in term loans from the Mezzanine Lenders, or the Term A Loan.

On October 26, 2020, we entered into (i) the first amendment to the Mezzanine Loan Agreement, or the Mezzanine Loan Amendment and (ii) the first amendment to the Senior Loan Agreement, or the Senior Loan Amendment with the Lenders, under which we borrowed an additional $5.0 million in term loans on March 1, 2021.

Under the terms of the Mezzanine Loan Agreement, as amended, we may, at our sole discretion, borrow from the Mezzanine Lenders up to an additional $10.0 million in term loans, or the Term B2 Loan.

The Term B2 Loan will be available for draw if we receive approval from the FDA of the NDA for VP-102 prior to September 30, 2021 and maintain compliance with the minimum liquidity covenant until the earlier of September 30, 2021 or the occurrence of an event of default.

Under the terms of the Senior Loan Agreement, as amended, we may, at our sole discretion, borrow from the Senior Lender one or more advances on the revolving credit line, or the Revolving Loans, and together with the Term Loans, the Loans) in an aggregate amount not to exceed the lesser of (i) 85% of the aggregate amount then-contained in our eligible accounts receivable and (ii) $5.0 million.

Our obligations under the Senior Loan Agreement and the Mezzanine Loan Agreement, as amended, are secured by, respectively, a first priority perfected security interest and second priority perfected security interest in substantially all of our current and future assets, other than our intellectual property (except rights to payment from the sale, licensing or disposition of such intellectual property).

We have also agreed not to encumber our intellectual property assets, except as permitted by the Loan Agreements.

All of the Loans mature on March 1, 2024, or the Maturity Date.

The Term Loans will be interest-only through March 31, 2022, followed by 24 equal monthly payments of principal and interest;

provided that if we draw the Term B Loan, the Term Loans will be interest-only through September 30, 2022, followed by 18 equal monthly

payments of principal and interest.

The Term Loans will bear interest at a floating per annum rate equal to the greater of (i) 7.25% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 2.50%.

The Revolving Loans will bear interest at a floating per annum rate equal to the greater of (i) 6.00% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 1.25%.

Under the terms of the Mezzanine Loan Agreement, as amended, we will be required to make a final payment fee of $3,750,000 payable on the earlier of (i) the Maturity Date, (ii) the acceleration of any Term Loans, or (iii) the prepayment of the Term Loans, or the Final Payment.

We are recording the final payment fee using the effective interest rate method over the term of the Term Loan with an increase in debt.

We may prepay all, or any portion of the Term Loans upon 5 business days advance written notice to the Agent, provided that we will be obligated to pay a prepayment fee equal to (i) $1.5 million if prepaid on or before October 26, 2021, (ii) $1.0 million if prepaid between October 27, 2021 and October 26, 2022, and (iii) $0.5 million if prepaid between October 27, 2022 and October 26, 2023 and (iv) no prepayment fee if prepaid after October 26, 2023, each, a Prepayment Fee.

We may terminate the revolving credit line under the Senior Loan Agreement at any time upon three business days advance written notice to the Senior Lender.

If we terminate the revolving credit line prior to the Maturity Date, we must pay to the Senior Lender an early termination fee of $50,000, or the Termination Fee.

Under the Loan Agreements, as amended, we are subject to a number of affirmative and restrictive covenants, including covenants regarding maintaining a specified minimum liquidity ratio, delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, protection of intellectual property rights, dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness or liens, investments and transactions with affiliates, and, beginning as of March 31, 2022, achieving minimum levels of trailing six-month net product revenues, among other customary covenants.

As of December 31, 2020 we were in compliance with all covenants.

Upon the occurrence of certain events, including but not limited to our failure to satisfy our payment obligations under the Loan Agreements, the breach of certain of our other covenants under the Loan Agreements, or the occurrence of a material adverse change, cross defaults to other indebtedness or material agreements, judgment defaults and defaults related to failure to maintain governmental approvals failure of which to maintain could result in a material adverse effect, the Agent and the Lenders will have the right, among other remedies, to declare all principal and interest immediately due and payable, to exercise secured party remedies, to receive the Final Payment and Termination Fee and, if the payment of principal and interest is due prior to the Maturity Date, to receive the applicable Prepayment Fee.

The Loan Agreements also include subjective acceleration clauses that permit the Lenders to accelerate the maturity date under certain circumstances, including a material adverse change in our business, operations, or financial condition or a material impairment of the prospect of repayment of our obligations to the Mezzanine Lenders.

Pursuant to the Loan Agreement Amendments, we are subject to a minimum liquidity covenant defined as the balance of the of our unrestricted cash, cash equivalents, and marketable securities in accounts maintained at Silicon Valley Bank being greater than one and one half times our aggregate outstanding obligations to the Mezzanine Lenders.

We believe that without additional financing, it is probable that we will not be in compliance with the minimum liquidity ratio covenant at some point in the next twelve months .

In accordance with FASB ASC 470, since the Mezzanine Loan Agreement contains subjective acceleration clauses and assessment that it is probable that the minimum liquidity ratio covenant will not be met, we have classified all outstanding principal and final payment fees as a current liability in the accompanying balance sheet as of December 31, 2020.

Even if we are not in compliance with the minimum liquidity covenant and the debt becomes due, we believe that we currently have sufficient funds to meet our operating requirements for at least the next twelve months from the issuance of these financial statements.

The following table summarizes our cash flows for the years ended December 31, 2020 and 2019 (in thousands):

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Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

During the year ended December 31, 2019, operating activities used $27.4 million of cash, primarily resulting from a net loss of $28.2 million and non-cash stock-based compensation of $3.3 million.

Net cash used by changes in operating assets and liabilities of $1.7 million consisted primarily of an increase in prepaid expenses and other

assets of $1.6 million.

The increase in prepaid expenses and other assets was primarily due to prepayments for clinical development and product development activities and annual insurance policy payments.

During the year ended December 31, 2018, operating activities used $17.9 million of cash, primarily resulting from a net loss of $20.6 million and non-cash stock-based compensation of $2.3 million.

Net cash provided by changes in operating assets and liabilities of $0.9 million consisted primarily of increases in accounts payable and accrued expenses of $1.8 million, partially offset by increases in prepaid expenses and other assets of $0.9 million.

The increase in accounts payable and accrued expenses was primarily due to clinical trial and product development activities, and accruals for expenses related to a consulting agreement with our former Chief Scientific Officer, and discretionary annual employee bonuses.

During the year ended December 31, 2020, operating activities used $30.2 million of cash, primarily resulting from a net loss of $42.7 million and noncash stock-based compensation of $9.8 million.

Net cash provided by changes in operating assets and liabilities of $1.6 million consisted primarily of an increase accrued expenses of $1.4 million.

The increase in accrued expenses was primarily due to accruals for clinical development and product development activities.

During the year ended December 31, 2019, operating activities used $27.4 million of cash, primarily resulting from a net loss of $28.2 million and noncash stock-based compensation of $3.3 million.

Net cash used by changes in operating assets and liabilities of $1.7 million consisted primarily of an increase in prepaid expenses and other assets of $1.6 million.

The increase in prepaid expenses and other assets was primarily due to prepayments for clinical development and product development activities and annual insurance policy payments.

Investing Activities

During the year ended December 31, 2019, net cash provided by investing activity was related to sales and maturities of marketable securities of $117.7 million partially offset by the purchase of marketable securities of $89.9 million and an increase in long-term deposits of $1.2 million.

During the year ended December 31, 2018, net cash used in investing activities was primarily related to the purchase of marketable securities of $79.1 million.

In addition, $0.7 million and $0.8 million was used for the purchase and construction of property and equipment during the years ended December 31, 2019 and 2018, respectively.

During the year ended December 31, 2020, net cash used in investing activities was related to the purchase of marketable securities of $71.7 million and purchases of property, plant and equipment of $1.5 million, partially offset by the sales and maturities of marketable securities of $69.8 million.

During the year ended December 31, 2019, net cash provided by investing activities was related to sales and maturities of marketable securities of $117.7 million partially offset by the purchase of marketable securities of $89.9 million and an increase in long-term deposits of $1.2 million.

In addition, $0.7 million was used for the purchase and construction of property and equipment during the year ended December 31, 2019.

Financing Activities

During the ended December 31, 2020, net cash provided by financing activities was $35.2 million, which was primarily related to the proceeds from issuance of debt net of issuance costs of $34.5 million.

During the ended December 31, 2019, net cash provided by financing activities was $0.4 million related to the proceeds from exercise of stock options.

During the year ended December 31, 2018, net cash provided by financing activities was $99.4 million consisting of the net proceeds from the issuance of common stock in connection with the IPO and from the issuance of shares of Series C preferred stock in February and March 2018.

Funding Requirements

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If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We believe the $35 million we borrowed in March 2020 in combination with existing cash, cash equivalents, and marketable securities will be sufficient to support our planned operations, which include expenses for the commercialization of YCANTH™, if approved, and continued full clinical development of VP-102 for additional indications, including common warts and external genital warts, as well as VP-103 for plantar warts, at least through the second quarter of 2021.

We believe that our existing cash, cash equivalents, and marketable securities as of December 31, 2020 , combined with the $11.5 million up-front payment we are entitled to receive pursuant to the Torii Agreement, will be sufficient to support our planned operations at least through the f irst quarter of 202 2 .

Our future capital requirements will depend on many factors, including:

the costs, timing and outcome of regulatory review of our product candidates;

the scope, progress, results and costs of our clinical trials;

the scope, prioritization and number of our research and development programs;

the costs, timing and outcome of regulatory review of our product candidates;

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

our ability to maintain compliance with covenants under our loan agreements;

the extent to which we acquire or in-license other product candidates and technologies;

the impact on the timing of our clinical trials and our business due to the COVID-19 pandemic;

the costs to scale up and secure manufacturing arrangements for commercial production;

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Our commercial revenues, if any, will be derived from sales of a product candidate that we do not expect to be commercially available in the near term, if at all.

We may not achieve significant revenue from product sales prior to the use of the net proceeds from our IPO.

Accordingly, we may need to continue to rely on additional financing to achieve our business objectives.

We may need to continue to rely on additional financing to achieve our business objectives.

Adequate additional financing may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights.

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Contractual Obligations and Commitments

On July 16, 2018, we entered into a supply agreement with our raw material supplier.

This agreement does not require any future purchases but does provide for limited geographic exclusivity in exchange for minimum annual purchases.

During 2019, we issued a single purchase order covered under the terms of the supply agreement totaling approximately $1.8 million.

As of December 31, 2019, we made a prepayment of approximately $1.1 million against this purchase order.

In January 2020, we received the initial shipment of material.

We have a remaining outstanding obligation of another $0.7 million under the terms of this purchase order for material which we anticipate receiving during the first half of 2020.

On April 9, 2018, we entered into an agreement to sublease 4,962 square feet of office space in West Chester, Pennsylvania.

The agreement requires annual rental payments of approximately $0.1 million and is scheduled to expire on May 31, 2021.

On July 1, 2019, we entered into a lease for 5,829 square feet of office space located in West Chester, Pennsylvania that is expected to serve as our new headquarters beginning in mid-2020.

The initial term of the lease is seven years with one five-year renewal option and an ongoing right of first offer to lease up to approximately 5,000 square feet of additional space on the same floor of the building.

Base rent over the initial lease term is $1.3 million, and we are also responsible for our share of the landlord’s operating expenses.

On March 10, 2020, we entered into the Mezzanine Loan Agreement, pursuant to which the Mezzanine Lenders have agreed to lend the Company up to $50.0 million in a series of term loans, and the Senior Loan Agreement with Senior Lender, pursuant to which the Senior Lender has agreed to provide us a revolving line of credit of up to $5.0 million subject to the borrowing base.

Upon entering into the Loan Agreements, we borrowed $35.0 million in term loans from the Mezzanine Lenders.

Under the terms of the Mezzanine Loan Agreement, we may, at our sole discretion, borrow from the Mezzanine Lenders up to an additional $15.0 million in term loans, or the Term B Loan, and together with the Term

A Loan, the Term Loans, upon our achiev ement of (i) a specified amount in trailing six-month net revenue and (ii) a specified amount raised in equity, or collectively, the Term B Milestone.

We may draw the Term B Loan during the period commencing on the date of the occurrence of the Term B Milestone and ending on the ear liest of (i) December 31, 2021 and (ii) the occurrence of an e vent of d efault .

All of the Term Loans mature on March 1, 2024, or the Maturity Date.

The Term Loans will be interest-only through March 31, 2022, followed by 24 equal monthly payments of principal and interest;

provided that if we draw the Term B Loan, the Term Loans will be interest-only through September 30, 2022, followed by 18 equal monthly payments of principal and interest.

The Term Loans bear interest at a floating per annum rate equal to the greater of (i) 7.25% and (ii) the sum of (a) the prime rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 2.50%.

The following table sets forth a summary of our contractual obligations as of December 31, 2020 (in thousands):

Payments Due by Period

Less than 1 Year

More than 5 Years

Principal payments on debt (1)

Interest and lender fees on debt (2)

Operating leases (3)

Principal payments assume the company maintains compliance with its minimum liquidity covenant to avoid an acceleration of payments.

Interest payable reflects the rate in effect as of December 31, 2020.

The interest rate on borrowings under the senior loan agreement is variable and resets monthly.

Lender Fees reflect final payment fees due.

Reflects obligations primarily related to our office lease in West Chester, Pennsylvania.

In addition, on August 7, 2020, we entered into an exclusive license agreement, or the Lytix Agreement, with Lytix, pursuant to which we obtained a worldwide, exclusive, royalty-bearing license, with the right to sublicense, for certain technology of Lytix to research, develop, manufacture, have manufactured, use, sell, have sold, offer for sale, import and otherwise commercialize LTX-315 for use in all malignant and pre-malignant dermatological indications, other than metastatic melanoma and metastatic merkel cell carcinoma.

Our right to manufacture the active pharmaceutical ingredient is limited to certain instances, and Lytix is obligated to manufacture and supply our clinical and commercial needs for such active pharmaceutical ingredient.

We are obligated to use commercially reasonable efforts to develop and to commercialize the product, which development and commercialization will be overseen by a joint steering committee.

Lytix has agreed not to pursue any products in the field of dermatology other than LTX-315 for use in metastatic melanoma and metastatic merkel cell carcinoma.

Lytix has granted us an exclusive option to negotiate for an exclusive license for use of LTX-315 in additional dermatological indications.

In connection with entering the Lytix Agreement, we made an initial payment of $250,000 and an additional payment of $2.3 million upon the achievement by Lytix of a regulatory milestone.

Additionally, we are obligated to pay up to $111.0 million contingent on achievement of specified development, regulatory, and sales milestones, and tiered royalties based on worldwide annual net sales ranging in the low double digits to the mid-teens, subject to certain customary reductions.

Our obligation to pay royalties expires on a country-by-country and product-by-product basis on the later of the expiration or abandonment of the last to expire licensed patent covering LTX-315 anywhere in the world and expiration of regulatory exclusivity for LTX-315 in such country.

Additionally, all upfront fees and milestone-based payments received by us from a sublicensee will be treated as net sales and will be subject to the royalty payment obligations under the Lytix Agreement, and all royalties received by us from a sublicensee shall be shared with Lytix at a rate that is initially 50% but decreases based on the stage of development of LTX-315 at the time such sublicense is granted.

Off-Balance Sheet Arrangements

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We do not currently hedge our foreign currency exchange rate risk.

As of December 31, 2019, we had minimal or no liabilities denominated in foreign currencies, but our purchase order with a supplier, pursuant to which we agreed to purchase approximately $1.8 million of crude cantharidin material, is denominated in Chinese yuan.

As of December 31, 2019, we had a prepayment of approximately $1.1 million and $0.7 million remains outstanding and unpaid under this purchase order.

As of December 31, 2020, we had minimal or no liabilities denominated in foreign currencies.

Inflation generally affects us by increasing our cost of labor and clinical trial costs.

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What changed 10-K

Item 7. Management’s Discussion and Analysis