What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-04 · 158 added, 221 removed, 170 unchanged (69% of the section changed)

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Our actual results could differ materially from those discussed in the forward-looking statements.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled “Item 1A-Risk Factors”.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled “Item 1A.

Risk Factors”.

The Company was formed through the merger (the "Merger") between Foamix Pharmaceuticals Ltd.

("Foamix") and Menlo Therapeutics Inc.

The Merger was accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill.

In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements are deemed those of the predecessor entity and, accordingly, the historical financial statements presented herein are those of Foamix.

The Company changed its name to VYNE Therapeutics Inc.

in September 2020.

Company Overview

We are a specialty pharmaceutical company focused on developing proprietary, innovative and differentiated therapies in dermatology and beyond.

Our products, AMZEEQ for the treatment of inflammatory lesions of moderate-to-severe acne vulgaris in adults and patients 9 years of age and older, and ZILXI for the treatment of inflammatory lesions of rosacea in adults, are the first topical minocycline products to be approved by the FDA.

AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively, and serve as a springboard for commercializing additional innovative products.

In addition, our product pipeline includes FCD105 (minocycline 3% and adapalene 0.3%), our proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris.

FCD105 is a Phase 3-ready asset that we believe has the potential to be a best-in-class treatment for patients with acne.

In addition, we recently announced a development program for FMX114, which is a combination topical gel for the potential treatment of mild-to-moderate atopic dermatitis.

We plan to conduct a Phase 2a proof-of-concept study for FMX114 in the third quarter of 2021.

AMZEEQ and ZILXI utilize our proprietary Molecule Stabilizing Technology (MST)™ platform that is also being used to develop FCD105.

Our MST™ proprietary foam platform is designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that was previously available only in oral form despite its prevalent use in dermatology.

In addition to the MST platform, we have a number of proprietary delivery platforms in development that enable topical delivery of other APIs, each having unique pharmacological features and characteristics designed to keep the API stable when delivered and directed to the target site.

We believe our MST vehicle and other topical delivery platforms may offer significant advantages over alternative delivery options and are suitable for multiple application sites across a range of conditions.

We are a biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.

Our most advanced product candidate, FMX114, which is in Phase 2a, is being evaluated for the potential treatment of mild-to-moderate AD.

We are also in the pre-clinical stages of developing products containing BET inhibitor compounds.

Our initial BET inhibitor candidate in development is VYN201, a locally administered pan-BET inhibitor, which we are exploring in various immuno-inflammatory diseases, including skin diseases .

In addition, we continue to explore opportunistic transactions that may enhance our pipeline portfolio, as well as support our current operations and fund our future growth.

Beginning in the second quarter of 2021, we conducted a review of our commercial and research and development portfolio to determine how to optimally deploy capital and drive shareholder value.

During the course of this review, we carefully considered the revenues received from the commercialization of AMZEEQ (minocycline) topical foam, 4%, and ZILXI (minocycline) topical foam, 1.5%, and the associated costs to drive those revenues, the protracted negative impact of the COVID-19 pandemic during the commercial launches of both AMZEEQ and ZILXI, the payor landscape, as well as the costs to develop each of our pipeline products.

During this process, we evaluated several strategic options, including the acquisition of marketed assets, out-licensing our approved products outside of the United States, and possible partnering or co-development relationships with interested parties.

Following our review, we determined to initiate a process to divest our topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s former Phase 3 proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris) and the underlying Molecule Stabilizing Technology platform.

On January 12, 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey Medical Corporation ("Journey”) pursuant to which we sold our Molecule Stabilizing Technology franchise, including AMZEEQ, ZILXI, and FCD105 (the “MST Franchise”), to Journey.

The assets included certain contracts, including the license agreement with Cutia Therapeutics (HK) Limited (“Cutia”), inventory and intellectual property related to the MST Franchise (together, the “Assets”).

Pursuant to the Purchase Agreement, Journey assumed certain liabilities of the MST Franchise including, among others, those arising from VYNE’s patent infringement suit initiated against Padagis Israel Pharmaceuticals Ltd.

There were no current or long-term liabilities recorded by the Company which were transferred to the Buyer.

Pursuant to the Purchase Agreement, VYNE received an upfront payment of $20.0 million and will receive an additional $5.0 million on the one-year anniversary of the closing of the transaction.

We are also eligible to receive sales milestone payments of up to $450.0 million in the aggregate upon the achievement of specified levels of net sales on a product-by-product basis, beginning with annual net sales exceeding $100.0 million (with products covered in three categories (1) AMZEEQ (and certain modifications), (2) ZILXI (and certain modifications), and (3) FCD105 and other products covered by the patents being transferred, including certain modifications).

In addition, we are entitled to receive certain payments from any licensing or sublicensing of the assets by Journey outside of the United States.

As we transitioned from a commercial organization to one focused on research and development, we further streamlined operations by continuing to eliminate the vast majority of planned expenditures supporting our commercial operations.

Furthermore, we reduced our workforce of 106 as of December 31, 2020 to 28 as of December 31, 2021 through the termination of approximately 70 employees and through additional attrition.

We incurred a one-time charge of $1.6 million in the year ended December 31, 2021 in connection with this restructuring plan, consisting of $1.4 million of employee

termination costs, including severance and other benefits, and retention payments of $0.2 million.

Additional charges of $0.2 million related to retention payments are anticipated through June 30, 2022.

Key Developments

Below is a summary of selected key developments affecting our business that have occurred since December 31, 2020:

• On November 10, 2019, Menlo, Foamix and Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo (“Merger Sub”), entered into the Merger Agreement.

Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020.

Foamix was deemed the “accounting acquirer” in the Merger and the Merger was accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill.

In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements are deemed those of the predecessor entity.

• On March 9, 2020, we entered into an Amended and Restated Credit Agreement and Guaranty, whereby we have guaranteed the indebtedness obligation of our subsidiary borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders.

$35.0 million was outstanding under the Amended and Restated Credit Agreement as of December 31, 2020, with no availability for additional borrowings.

On August 5, 2020, the parties amended the minimum net revenue covenant contained in the Amended and Restated Credit Agreement and Guaranty following an assessment of the impact of the COVID-19 pandemic on the Company's business.

• On March 24, 2020, we announced that Andrew Saik joined the Company as our Chief Financial Officer and Treasurer.

• On April 2, 2020, we announced that we entered into a settlement and license agreement to resolve the remaining pending patent litigation involving Finacea foam.

• In April 2020, LEO remedied the supply chain issues related to Finacea and resumed commercial sales.

• On April 6, 2020, we announced top line results from the Phase III PN Trials for serlopitant.

Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis.

We currently do not intend to further pursue the development of serlopitant internally.

As such, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets of $49.8 million and $4.5 million, respectively, in its consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

• On April 23, 2020, we announced that we entered into the Cutia License Agreement with respect to our minocycline products and product candidate, once approved, on an exclusive basis in Greater China.

Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved, FCD105 in the Greater China territory.

We will supply the finished licensed products to Cutia for clinical and commercial use.

We received an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product.

We will also receive royalties on net sales of any licensed products.

• The COVID-19 pandemic has directly impacted our business operations.

There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will continue to impact our patients, employees, suppliers, vendors, business partners and distribution channels.

Our product sales, particularly during the second and fourth quarters of 2020, were negatively impacted by the pandemic due to a surge in reported cases and restrictions adopted in response thereto.

However, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to numerous uncertainties, including duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development and distribution of effective treatments or vaccines, and the resumption of widespread economic activity.

A further-extended duration of the pandemic could continue to have a material adverse effect on our product sales for AMZEEQ and ZILXI.

In addition, any prolonged material disruption of the Company’s employees, suppliers, manufacturing, or customers could further materially negatively impact our consolidated financial position, consolidated results of operations and consolidated cash flows.

We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.

• On May 28, 2020, the FDA approved ZILXI for the treatment of inflammatory lesions of rosacea in adults.

ZILXI is the first minocycline product of any kind to be approved by the FDA for use in rosacea.

ZILXI became available in pharmacies nationwide on October 1, 2020.

• On June 2, 2020, we announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris.

Study FX2016-40 enrolled 447 patients in the United States who were randomized to either FCD105 foam, 3% minocycline foam, 0.3% adapalene foam, or vehicle foam.

The Company anticipates commencing a Phase III program for FCD105 in 2021.

• On June 9, 2020, we completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $7.40 per share.

The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.

The number of shares sold and purchase price have been adjusted to reflect the Company's 1-for-4 reverse stock split.

See below for additional discussion about the reverse stock split.

• On September 4, 2020, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to change our corporate name to “VYNE Therapeutics Inc.”

• Effective as of September 10, 2020, Mr.

LePore joined our Board.

LePore has more than 40 years of experience in the pharmaceutical industry, in both private and public sectors, and with board and operational experience in each.

He previously served as Chairman, Chief Executive Officer and President of Par Pharmaceutical Companies, Inc.

• On October 1, 2020, ZILXI became available in pharmacies nationwide, and on October 7, 2020, we announced that Express Scripts, one of the nation’s leading pharmacy benefit managers (PBMs), has elected to cover ZILXI on Express Scripts’ National Preferred, Flex, and Basic commercial formularies, representing millions of additional covered lives in the U.S.

that follow these formularies.

• During the fourth quarter of 2020, the Company expanded its distribution model with respect to AMZEEQ and ZILXI to include independent and specialty pharmacies in an effort to further reduce barriers for patients to initiate and maintain therapy.

• VYNE was added to the Nasdaq Biotechnology Index effective as of December 21, 2020.

• During the three months ended December 31, 2020, the Company issued and sold 1,175,000 shares of common stock at a weighted average price per share of $7.00 for $8.0 million in net proceeds pursuant to a Sales Agreement with Cantor Fitzgerald & Co.

("Cantor Fitzgerald") through an at-the-market equity offering program under which Cantor Fitzgerald acted as our sale agent.

In addition, from January 1, 2021 through January 25, 2021, the Company issued and sold an additional 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds.

Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.

The number of shares sold and purchase prices have been adjusted to reflect the Company's 1-for-4 reverse stock split.

See below for additional discussion about the reverse stock split.

• On January 21, 2021, the Company announced the execution of a contract with one of the largest pharmacy benefit managers in the U.S.

with respect to AMZEEQ and ZILXI.

• From January 1, 2021 through January 25, 2021, the Company sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds pursuant to a Sales Agreement (the "2019 Sales Agreement") with Cantor Fitzgerald & Co.

("Cantor Fitzgerald") through an at-the-market equity offering program under which Cantor Fitzgerald acted as our sales agent.

Effective as of January 25, 2021, the Company terminated the 2019 Sales Agreement.

• On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share.

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See below for additional discussion about the reverse stock split.

• On February 1, 2021, we announced that the FDA approved a label update for AMZEEQ, including new information indicating the low propensity of Propionibacterium acnes (more commonly known as P.

acnes) to develop resistance to minocycline.

• On February 10, 2021, our Board of Directors approved a one-for-four reverse stock split of our outstanding shares of common stock.

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FMX114 attempts to address both the source and cause of inflammation in atopic dermatitis and support skin barrier recovery.

• Tyler Zeronda was appointed as our interim Chief Financial Officer and Treasurer, effective as of June 18, 2021, following the resignation of Andrew Saik.

Zeronda was named Chief Financial Officer and Treasurer of the Company on March 14, 2022.

• On July 19, 2021, we amended our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000 shares.

The increase in the number of authorized shares was approved by the holders of a majority of the outstanding shares of common stock at the Company's annual meeting of stockholders held on July 19, 2021.

• On August 11, 2021, the Company prepaid its outstanding indebtedness in addition to a 4% prepayment fee and accrued but unpaid interest.

Following the prepayment, the Amended and Restated Credit Agreement and the security interests thereunder were terminated.

• On August 12, 2021, we announced a licensing arrangement with In4Derm, giving us access to their library of novel BET inhibitor compounds.

• On August 12, 2021, we announced that we initiated a process to explore a sale or license of our topical minocycline franchise and the refocusing of our resources on our immuno-inflammatory development programs.

• On August 12, 2021, we entered into a sales agreement with Cantor Fitzgerald & Co.

to sell shares of our common stock, from time to time, with aggregate gross sales proceeds of up to $50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald will act as our sales agent.

From August 12, 2021 through December 31, 2021, we issued and sold 1,955,313 shares of common stock at a weighted average sales price per share of $1.57 for $2.9 million in net proceeds.

• On October 19, 2021, we announced that the first patient was enrolled in our Phase 1b/2a clinical trial evaluating FMX114 for the treatment of mild-to-moderate atopic dermatitis.

We expect topline results from the study in the second quarter of 2022.

• On October 21, 2021, we announced the formation of a scientific advisory board ("SAB") composed of leading scientists and academics specializing in immunological and inflammatory diseases.

The SAB will provide scientific expertise and guidance to the VYNE management team and Board, as the Company progresses its pipeline of innovative treatments for immuno-inflammatory conditions.

• On October 26, 2021, we announced preclinical data showing that our pan-BET inhibitor, VYN201, significantly reduced the expression of several key pro-inflammatory cytokines relevant to Th17-mediated autoimmune diseases in an animal model and an ex vivo human tissue study.

• On January 12, 2022, we entered into the Purchase Agreement with Journey pursuant to which we divested the Assets for $25.0 million and milestone payments of up to $450.0 million in aggregate upon the achievement of specified levels of net sales of the products covered by the Purchase Agreement.

Of the $25.0 million, $20.0 million was received at close and $5.0 million is due upon the one-year anniversary of the transaction.

This transaction was accounted for in 2022.

See discussion in Note 17 to the audited financial statements.

• On January 19, 2022, we announced findings from the Phase 1b safety portion of the Phase 1b/2a trial evaluating FMX 114.

• On February 28, 2022, we received a notification from Nasdaq that we are not in compliance with the requirement to maintain a minimum closing bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2), because the closing bid price of the Company’s common stock was below $1.00 per share for 30 consecutive business days.

We have a period of 180 calendar days from the date of notification, or until August 29, 2022, to regain compliance with the minimum bid price requirement.

The notification does not impact the listing of the Company’s common stock on the Nasdaq Global Select Market at this time.

• On March 7, 2022, we announced positive preclinical data for VYN201 in a human skin model of vitiligo.

In the model, VYN201 reduced the expression of key pro-inflammatory biomarkers relevant to the pathogenesis of vitiligo, and demonstrated marked reduction in melanocyte loss.

• On March 15, 2022, we entered into a purchase agreement (the "Equity Purchase Agreement"), with Lincoln Park Capital Fund, LLC ("Lincoln Park") which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park, at our discretion, up to $30.0 million of shares of our common stock over the 36-month term of the Equity Purchase Agreement.

Upon execution of the Equity Purchase Agreement, we issued 1,667,593 shares of our common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Equity Purchase Agreement.

Our revenue during the periods presented has been primarily comprised of AMZEEQ and ZILXI product sales and collaboration and license revenue.

During 2019, we were engaged in pre-launch sales and marketing planning activities and other pre-commercialization efforts in order to support the commercialization of AMZEEQ in the United States.

AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively.

We have generated product revenue of $10.2 million for the year ended December 31, 2020.

We generated product revenue of $13.8 million for the year ended December 31, 2021.

We will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval.

Our ability to generate

revenues from sales will depend on the successful commercialization of AMZEEQ and ZILXI and any other product candidates that receive marketing approval.

We will not generate revenue from the sales of AMZEEQ or ZILXI after January 12, 2022 as a result of the sale of the Assets.

Historically, we have generated revenues under development and license agreements, including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to LEO.

In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to the ongoing suspension of the manufacturing of Finacea by LEO, following inadequate supply of quality-compliant batches of the API used in such product.

In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to a suspension of the manufacturing of Finacea by LEO following inadequate supply of quality-compliant batches of the API used in such product.

In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sale in the United States.

In the year ended December 31, 2021 we received royalties of $0.9 million.

We may become entitled to additional contingent payments in the future, subject to achievement of the applicable clinical results by our other licensees.

However, in light of the current phase of development and associated milestone schedules under these agreements, we do not expect to receive significant payments in the near term, if at all.

We are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized.

Additionally, as described in “Key Developments,” on April 23, 2020, we announced that we entered into a licensing agreement with Cutia for our other topical minocycline products and product candidate, if approved, on an exclusive basis in Greater China.

Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory.

We will supply the finished licensed products to Cutia for clinical and commercial use.

We received an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product.

We will also receive royalties on net sales of any licensed products pursuant to the agreement.

In the year ended December 31, 2020, we recognized license revenue of $10.0 million.

Our rights to royalty payments from the sale of Finacea were not transferred in the sale of the Assets.

Additionally, on April 23, 2020, we announced that we entered into a licensing agreement with Cutia for our topical minocycline products and product candidate.

We received an upfront cash payment of $10 million related to the licensing agreement with Cutia in 2020.

The Cutia license agreement was assigned to Journey in connection with the sale of the Assets.

Therefore, we will not receive any payments from Cutia going forward.

Cost of Goods Sold

Cost of goods sold was $1.4 million for the year ended December 31, 2020.

There was no cost of goods sold in the year ended December 31, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 75.8% was favorably impacted during the year ended December 31, 2021 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods.

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Research and development expenses

Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI and FCD105.

Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI and FCD105, FMX114, VYN201 and VYN202.

Our total research and development expenses for the year ended December 31, 2021 and 2020 were approximately $25.0 million and $43.5 million, respectively.

We charge all research and development expenses to operations as they are incurred.

Following the sale of the MST Franchise in January 2022, our research and development will be focused on our BET inhibitor platform and FMX 114.

Research and development expenses consist primarily of:

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• expenses incurred to acquire, develop and manufacture clinical trial materials;

• facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs;

• costs associated with the creation, development and protection of intellectual property;

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Our selling, general and administrative expenses for the year ended December 31, 2021 and 2020 were approximately $54.5 million and $89.5 million, respectively.

This increase was primarily associated with the expansion of our employee base, including sales force, to support the growth of our operations, severance expenses for Menlo employees, stock based compensation awards, merger expenses and sales and marketing expenses incurred in connection with the commercialization of AMZEEQ and ZILXI.

The decline in these costs is primarily associated with cost savings measures related to our shift from a commercial organization to a research and development organization beginning in August 2021.

The decrease is also due to severance expenses for Menlo employees, stock based compensation awards, merger expenses and sales and marketing expenses which were incurred in connection with the commercialization of AMZEEQ and ZILXI in 2020 that were not incurred in 2021.

Our selling, general and administrative expenses consist principally of:

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Interest Expense

Interest expense primarily consists of interest expense on our long-term debt.

Interest expense primarily consisted of interest expense on our long-term debt.

During the year ended December 31, 2021, interest expense also included prepayment penalties of $1.4 million and the write off of deferred financing costs of $1.6 million.

As a result of the prepayment of our indebtedness outstanding under the Amended and Restated Credit Agreement in August 2021, we do not expect to incur material interest expense going forward.

Other Income, net

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Subsequent ownership changes may further affect the limitation in future years.

State NOLs and tax credit

carryforwards may be subject to similar limitations under state laws.

State NOLs and tax credit carryforwards may be subject to similar limitations under state laws.

We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Sections 382 or 383.

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As a result, even if we earn net taxable income, our ability to use the NOL and tax credit carryforwards may be materially limited, which could harm our future operating results by effectively increasing our future tax obligations.

Results of Operations for the Year Ended December 31, 2020 and December 31, 2019

Results of Operations for the Years Ended December 31, 2021 and December 31, 2020

Summary of Operations

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Cost of goods sold 3.3 1.4 2.0 140.5 %

Operating Expenses

Research and development expenses 25.0 43.5 (18.6) (42.7) %

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CSR Remeasurement — 84.7 (84.7) (100.0) %

Total Operating Expenses 79.4 272.1 (192.7) (70.8) %

Operating Loss 68.0 252.5 (184.5) (73.1) %

Interest expense 5.6 4.4 1.2 27.8 %

Other income, net (1.1) (1.4) 0.3 (22.9) %

Other expense (income), net 0.1 (1.1) 1.2 (112.2) %

Loss before income tax 73.8 255.8 (182.0) (71.1) %

Taxes on income (0.4) (0.3) (0.2) 73.6 %

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Revenues totaled $14.8 million and $21.0 million for the years ended December 31, 2021 and 2020, respectively.

For the year ended December 31, 2020, our revenue consisted of $10.2 million of product sales, primarily associated with AMZEEQ and ZILXI, which were launched in January 2020 and October 2020, respectively, $10.0 million of license revenue, and $0.8 million of royalty revenue.

For the year ended December 31, 2019, revenues consisted solely of royalty revenues.

The increase in license revenue for the year ended December 31, 2020 as compared to license revenue for the year ended December 31, 2019 is due to the upfront payment received under the Cutia License Agreement for the marketing and sale of our topical minocycline products in Greater China.

Circumstances surrounding the COVID-19 pandemic have negatively impacted our ability to execute our commercial strategy with respect to AMZEEQ and ZILXI.

For example, our product sales, particularly during the second and fourth quarters of 2020, were negatively impacted by restrictions put in place in response to the pandemic.

Specifically, many healthcare providers suspended access to their office for pharmaceutical sales representatives.

In addition, many patients have chosen not to visit or contact their healthcare providers which has limited new patient access and conversion.

The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, virus waves and the distribution of vaccines and treatment options.

An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ and ZILXI.

For the year ended December 31, 2021, our revenue consisted of $13.8 million of product sales, and $0.9 million of royalty revenue.

For the year ended December 31, 2020, our revenues consisted of $10.2 million of product sales, $10.0 million of license revenue, and $0.8 million of royalty revenue.

We divested our minocycline business on January 12, 2022.

As a result of the sale, we will not generate revenue from the sales of AMZEEQ or ZILXI following such date.

In addition, the Cutia License Agreement was assigned to Journey in connection with the sale.

Therefore, we will not be entitled to payments under the Cutia License Agreement going forward.

The decrease in license revenue for the year ended December 31, 2021 as compared to license revenue for the year ended December 31, 2020 is due to the upfront payment received in 2020 under the Cutia License Agreement for the marketing and sale of the topical minocycline products in Greater China.

No similar payments were received in 2021.

Cost of Goods Sold

Cost of goods sold was $1.4 million for the year ended December 31, 2020.

There was no cost of goods sold in the year ended December 31, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 86% was favorably impacted during the year ended December 31, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods.

If inventory sold during the year ended December 31, 2020 was valued at cost, our gross margin for the period then ended would have been 83%.

Cost of goods sold was $3.3 million and $1.4 million for the years ended December 31, 2021 and 2020, respectively.

The increase in cost of goods sold was primarily due to an increase in sales volume.

Our gross margin percentage was 75.8% and 86.4% for the years ended December 31, 2021 and December 31, 2020, respectively, was favorably impacted by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods.

If inventory sold during the year ended December 31, 2021 and December 31, 2020 was valued at cost, our gross margin for the period then ended would have been 74.6% and 82.5%.

Research and development expenses

Our research and development expenses for the year ended December 31, 2021 were $25.0 million, representing a decrease of $18.6 million, or 42.7%, compared to $43.5 million for the year ended December 31, 2020.

Clinical and manufacturing expense for AMZEEQ and ZILXI decreased as both products were commercialized in 2020.

Clinical trials for FCD105 concluded in April 2020 resulting in a decrease in expense during the second half of the year.

This was offset by an increase in clinical costs related to serlopitant and employee-related expenses of $12.4 million, including $3.8 million related to severance expenses payable to our former employees, and stock based compensation of $3.1 million.

The decrease was primarily driven by a $11.2 million decrease in employee related expenses due to severance payments made in 2020 to former Menlo employees, a $11.8 million decrease in clinical and manufacturing expenses due to the completion of the FCD105 and serlopitant trials and a $2.0 decrease in depreciation expense related to a write off of fixed assets during the fourth quarter of 2020.

These decreases are offset by $6.5 million of increased clinical costs related to FMX114 and the BET inhibitor assets licensed from In4Derm.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended December 31, 2020 were $89.5 million, representing an increase of $44.4 million, or 98%, compared to $45.1 million for the year ended December 31, 2019.

Employee-related expenses increased primarily due to the expansion of our employee base, including sales force to support the growth of our operations.

As result of the merger, we incurred $4.7 million of severance expense, $7.7 million of additional selling, general and administrative expenses, and $9.9 million of stock based compensation.

Sales and marketing expenses increased due to the commercialization of AMZEEQ and ZILXI.

Our selling, general and administrative expenses for the year ended December 31, 2021 were $54.5 million, representing a decrease of $35.1 million, or 39.2%, compared to $89.5 million for the year ended December 31, 2020.

The decrease was driven by a $21.0 million reduction in employee related expenses in 2021 as compared to 2020, including $8.2 million of incremental stock based compensation related to the conversion of the Contingent Stock Rights ("CSRs") issued as part of the Merger in 2020 that was not incurred in 2021.

The decrease in employee related expenses was also due to a reduction in workforce in 2021 resulting from the decision to divest the minocycline franchise.

Corporate and professional costs decreased by approximately $14.1 million including a decrease of approximately $10.1 million for costs which were eliminated or reduced in 2021 following the Merger.

Goodwill and in-process research & development impairments

Goodwill and in-process research & development impairments for the year ended December 31, 2020 were $54.3 million.

There were no impairments for the year ended December 31, 2019.

In the year ended December 31, 2020, we recorded impairments of $4.5 million for Goodwill and $49.8 million for in process research and development due to the failed clinical trials for serlopitant for the treatment of pruritus associated with prurigo nodularis.

CSR Remeasurement

Contingent Stock Right Remeasurement for the year ended December 31, 2020 was $84.7 million.

For the year ended December 31, 2020 we incurred $84.7 million of expense due to the remeasurement of the CSR to fair value which was driven by the result of the Phase III PN Trials.

During 2020, we recorded goodwill and in-process research & development impairments of $54.3 million of which $4.5 million was recorded for goodwill and $49.8 million for in process research and development due to the failed clinical trials for serlopitant for the treatment of pruritus associated with prurigo nodularis.

No impairments were recorded in the year ended December 31, 2021.

Contingent Stock Right Remeasurement

At the time of the merger transaction with Foamix, we entered into a contingent stock right agreement that called for the issuance of additional shares of our common stock to legacy Foamix shareholders upon negative data from the Phase III PN Trials.

Since the trials did not meet the milestones outlined per the agreement, the contingent stock rights were remeasured, resulting in an expense of $84.7 million for the year ended December 31, 2020.

Since the trials did not meet the milestones outlined per the agreement, the contingent stock rights were remeasured, resulting in an expense of $84.7 million in the year ended December 31, 2020.

No such expense occurred in the year ended December 31, 2021.

Interest Expense

Interest expense for the year ended December 31, 2021 was $5.6 million, representing an increase of $1.2 million, or 27.8%, compared to $4.4 million for the year ended December 31, 2020.

The increase was primarily attributable to an increase in the average long-term debt outstanding during the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the Company entering into a credit agreement in July 2019.

Other Income, net

Other Income, net for the year ended December 31, 2020 was $1.1 million, representing a decrease of $0.3 million, or 23%, compared to $1.4 million for the year ended December 31, 2019.

Other Income, net decreased primarily due to a $1.0 million decrease in gains from marketable securities, a $0.5 million decrease in interest on bank deposits offset by $1.0 million of gains on derivative liabilities.

Taxes on income

Our tax benefit for the year ended December 31, 2020 was $0.3 million, representing an increase of $0.1 million, or 47%, compared to $0.2 million for the year ended December 31, 2019.

The increase is primarily attributable to the prepayment penalty of $1.4 million associated with the prepayment of our outstanding debt and the write off of deferred financing costs of $1.6 million, offset by the elimination of ongoing interest expense and deferred financing cost amortization.

Other expense (income), net

Other expense (income), net for the year ended December 31, 2021 was $0.1 million, representing a decrease of $1.2 million, or 112%, compared to $(1.1) million for the year ended December 31, 2020.

The decrease is primarily due to gains on derivative liabilities and marketable securities in 2020.

No such gains occurred in 2021.

Since inception, we have funded operations primarily through private and public placements of our equity, debt and warrants and through fees, cost reimbursements and payments received from our licensees.

We commenced generating product revenues related to sales of AMZEEQ and ZILXI in January 2020 and October 2020, respectively.

We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our products and product candidates, if approved, are commercially successful, if at all.

We will not generate any

revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products.

VYNE Pharmaceuticals Inc., a Delaware corporation (the “Borrower”), VYNE Pharmaceuticals Ltd.

and the Company, each as a guarantor, the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent for the lenders, entered into an Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020 (as amended, the “Amended and Restated Credit Agreement”).

We have guaranteed the indebtedness obligation of the Borrower under the Amended and Restated Credit Agreement and also granted a first priority security interest in substantially all of our assets for the benefit of the lenders.

As of December 31, 2020, approximately $35.0 million was drawn under the Amended and Restated Credit Agreement with no availability for additional borrowings thereunder.

In addition, the parties entered into Amendment No.

1 to Amended and Restated Credit Agreement (the "Amendment") on August 5, 2020.

The Amendment provided for a covenant "holiday" with respect to the minimum net revenue covenant such that the compliance with such covenant commenced with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020.

Accordingly, as of the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024.

We have incurred significant transaction-related expenses in connection with negotiating and completing the Merger.

Transaction-related expenses, which include legal, accounting and financial advisor fees and other service provider costs, were approximately $21.8 million.

We incurred $11.7 million of these costs during the year ended December 31, 2020 in our statements of operations and comprehensive loss, and we do not expect to incur any additional significant costs relating to the Merger in future periods.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant for pruritic conditions.

Following the receipt of the results of the Phase III PN Trials and the impact of the COVID-19 pandemic, the Company revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other product candidates.

In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

As of December 31, 2020, we had cash, cash equivalents, restricted cash and investments of $59.4 million.

Our cash, cash equivalents and investments are held in money market accounts and marketable securities.

We believe that our existing cash and investments as of December 31, 2020, the net proceeds received from the registered direct offering and the “at-the-market” offerings in January 2021 of $73.0 million and projected cash flows from revenues will provide sufficient resources for our operating expense and capital requirements through the end of 2022.

The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the impact of the COVID-19 pandemic, our ability to successfully commercialize AMZEEQ and ZILXI, and any unforeseen cash needs.

In addition, the Company may seek additional financing in order to achieve its longer-term strategic plans.

The COVID-19 pandemic has had a significant impact, both direct and indirect, on global businesses and commerce, including our own operations.

For example, our product sales for AMZEEQ and ZILXI have been negatively impacted by office closures as a result of the pandemic.

Even as our customers’ offices began to reopen, our access to healthcare providers remained limited which dampened sales and negatively impacted our ability to execute our commercial strategy with respect to AMZEEQ and similarly impacted sales of ZILXI, which we launched on October 1, 2020.

The future progression of the outbreak and its effects on our business and operations are uncertain.

Many patients have chosen not to visit or contact their healthcare providers regarding their skin conditions, which has limited new patient access and conversion.

In response to the outbreak, we have taken certain steps to safeguard our employees, healthcare professionals and our other partners.

For example, beginning in the first quarter of 2020, our sales force and marketing team were removed from the field and adopted remote and virtual sales activities, including tele-detailing, web-based speaker programs and virtual product education sessions, as needed, in order to meet patients’ needs.

In addition, there was a surge in COVID-19 cases in the fourth quarter of 2020 that prompted several regions to re-institute restrictions, which continued to negatively impact our sales force’s ability to access healthcare providers.

No assurance can be made that remote sales tactics will be as effective as those used prior to the outbreak of COVID-19.

If the activities of our sales force continue to be disrupted due to the pandemic or patients elect not to visit their healthcare providers during the pandemic, we may continue to generate less revenue than expected, which would have a material adverse effect on our financial results and liquidity as well as hinder our ability to satisfy certain covenants contained in our Amended and Restated Credit Agreement.

The future progression of the outbreak and its effects on our business and operations are uncertain.

AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, we will no longer be generating revenue from the sale of these products.

We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our product candidates, if approved, are commercially successful, if at all.

We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory

approval and commercialize such products.

For the year ended December 31, 2021, we incurred a net loss of $73.3 million and used $56.4 million of cash in operations.

As of December 31, 2021, we had cash and cash equivalents of $42.9 million.

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

We also received proceeds of $20.0 million from the sale of the MST Franchise in January 2022 and will receive an additional $5.0 million payment on the one year anniversary of the sale.

Following the sale of the MST Franchise, we are refocusing our limited resources on our drug development programs.

Research and development activities for these programs, including preclinical and clinical testing of our drug candidates, will require significant additional financing.

The future viability of the Company and our ability to continue as a going concern is dependent on our ability to raise sufficient working capital through either debt or equity financing to fund our operations and successfully develop commercially viable drug candidates.

There is no assurance we will be able to achieve these objectives under acceptable terms or at all.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our audited consolidated financial statements are issued.

The accompanying audited consolidated financial statements have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business.

Our ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including our ability to raise additional capital to fund our operations, positive results from clinical trials for FMX114, and the successful development and positive results from clinical trials for the BET inhibitor programs.

Based on our current plans and assumptions, we believe that absent sufficient proceeds received from equity transactions, financing transactions or business development transactions, we will not have sufficient cash and cash equivalents to fund our operations beyond one year from the issuance of these financial statements.

Accordingly, we will, over the course of the next twelve months, require significant additional financing to continue our operations.

These factors therefore, raise substantial doubt about our ability to continue as a going concern.

Failure to successfully receive additional financing will require us to delay, scale back or otherwise modify our business and our research and development activities and other operations.

Risk Factors—Other Risks Related to Our Business and Financial Operations—We will need substantial additional funding to fund our operations, and there is substantial doubt about our ability to continue as a going concern.

We could also be forced to delay, reduce or terminate our research and development activities which would have a material adverse effect on our financial condition." The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.

Capital Resources

To date, we have financed our operations primarily through private and public placements of our common stock, debt and warrants and through fees, cost reimbursements and payments received from our licensees.

To date, we have financed our operations primarily through private and public placements of our common stock, debt and warrants and through the sale of our products, fees, cost reimbursements and payments received from our licensees.

The following table summarizes our statement of cash flows for the years ended December 31, 2021 and 2020:

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Net cash used in operating activities

Net cash used in operating activities was $137.1 million in the year ended December 31, 2020, compared to $73.4 million in the year ended December 31, 2019.

The increase of $63.7 million in the net cash used in operating activities in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to the growth in operations and the Merger.

During the year ended December 31, 2021, net cash used in operating activities was $56.4 million and primarily reflected our net loss of $73.3 million offset by non-cash charges of $8.1 million in stock based compensation and $1.4 million in deferred finance charge write-offs and $4.8 million of net increase in assets and liabilities.

During the year ended December 31, 2020, net cash used in operating activities was $137.1 million and primarily reflected our net loss of $255.6 million, partially offset by non-cash charges of $54.3 million of impairments, $84.7 million of remeasurement of CSRs, share-based compensation of 18.1 million and the loss on the disposal of fixed assets of 2.1 million.

The remainder of the cash used in operations is driven by net decrease in assets and liabilities.

Net cash provided by investing activities

Net cash provided by investing activities was $89.1 million in the year ended December 31, 2020, compared to $41.9 million used in in the year ended December 31, 2019.

The increase of $47.2 million in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to the cash acquired through the Merger partially offset by a decrease in investments in bank deposits and marketable securities.

During the year ended December 31, 2021, net cash provided by investing activities was $1.0 million and was comprised of proceeds from the sale and maturity of marketable securities.

During the year ended December 31, 2020, net cash provided by investing activities was $89.1 million and was primarily comprised of cash acquired through the Merger of $38.6 million and proceeds from the sale and maturity of marketable securities and bank deposits of $50.6 million.

Net cash provided by financing activities

Net cash provided by financing activities was $61.8 million in the year ended December 31, 2020, compared to $48.0 million in the year ended December 31, 2019.

The increase of $13.9 million in net cash provided by financing activities in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to an increase in share offerings in the year ended December 31, 2020.

During the year ended December 31, 2021, net cash provided by financing activities was $39.8 million and was primarily attributable to $76.0 million of cash from the issuance of common stock offset by $36.4 million from the prepayment of debt repayment.

During the year ended December 31, 2020, net cash provided by financing activities was $61.8 million and was primarily the result of proceeds from the issuance of common stock.

Cash and funding sources

The table below summarizes our main sources of financing for the years ended December 31, 2020 and 2019:

Cash acquired through the Merger Proceeds from at-the-market offerings (1)

Proceeds from our underwritten

public offerings (1)

Proceeds from our direct public

offerings (1)

Proceeds from loans and issuance

of warrant (1)

Proceeds from issuance of common stock Total

(in thousands of U.S.

2020 $ 38,641 $ 7,993 53,646 $ — $ — $ — $ 100,280

2019 $ — $ — $ — $ 13,714 $ 33,903 $ 333 $ 47,950

__________________________

(1) Net of issuance costs.

Our sources of funding in the year ended December 31, 2020 totaled $100.3 million and consisted primarily of $38.6 million cash and investments acquired in the Merger, $53.6 million proceeds from an underwritten public offering of common stock completed in June 2020, and $8.0 million proceeds from our at-the-market program during the fourth quarter of 2020.

Our sources of financing in the year ended December 31, 2019 totaled $49.6 million and consisted primarily of $33.9 million of net proceeds from the first two tranches of the Term Loan and $13.7 million of net proceeds from the registered offering under the Purchase Agreement.

From January 1, 2021 through January 25, 2021, the Company issued and sold an additional 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds, as adjusted for the Company's 1-for-4 reverse stock split, in "at-the-market" offerings pursuant to the Sales Agreement.

Our sources of funding in the year ended December 31, 2021 totaled $76.0 million and consisted primarily of $29.2 million net proceeds from our at-the-market program and $46.8 million net proceeds from our registered direct public offering completed in January 2021.

On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share for $46.8 million in net proceeds, as adjusted for the Company's 1-for-4 reverse stock split.

We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years other than our commitments under the Amended and Restated Credit Agreement.

From August 12, 2021 through December 31,2021, the Company issued and sold 1,955,313 shares of common stock at a weighted average per share price of $1.57 pursuant to the Sales Agreement for $2.9 million in net proceeds.

Our sources of funding in the year ended December 31, 2020 totaled $100.3 million and consisted primarily of $38.6 million of cash and investments acquired in the Merger, $53.6 million of proceeds from an underwritten public offering of common stock completed in June 2020, and $8.0 million of proceeds from our at-the-market program during the fourth quarter of 2020.

We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years.

Contractual Obligations

Our significant non-cancelable contractual obligations as of December 31, 2020 are summarized in the following table:

Payments due by period

Total Less than 1 year 1-3 years 3-5 years More than 5 years Other

(in thousands of U.S.

Operating lease obligations (1)

$ 1,825 $ 913 $ 912 $ — $ — $ —

Long-term debt—principal (2)

35,000 — 35,000 — — —

Long-term debt—interest (2)

13,589 3,903 9,686 — — —

Liability for employee severance benefits (3)

312 — — — — 312

Purchase Obligation (4)

2,390 2,390 — — — —

Total $ 53,116 $ 7,206 $ 45,598 $ — $ — $ 312

_______________________________

(1) Operating lease obligations consist of lease of our facilities and lease of vehicles.

(2 ) As of December 31, 2020, there was $35 million outstanding under our Amended and Restated Credit Agreement, which matures on July 29, 2024 and bears interest of 8.25% plus the greater of the one-month LIBOR and 2.75%.

Refer to Note 12 to our consolidated financial statements included elsewhere in this report for further information.

(3) The liability is considered long term, however we cannot estimate the exact period in which they will be paid.

(4) Purchase obligations primarily include non-cancelable commitments under our contract manufacturing agreements.

Our significant non-cancelable contractual obligations as of December 31, 2021 consisted of:

• Obligations under lease commitments (see Note 10)

• Open purchase commitments of $3.9 million

Funding requirements

Our present and future funding requirements will depend on many factors, including, inter alia:

• the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our drug products AMZEEQ and ZILXI and any other pipeline product that is commercialized;

• selling, marketing and patent-related activities undertaken in connection with the commercialization of AMZEEQ, ZILXI and any other product candidates, as well as costs involved in the development of an effective sales and marketing organization;

• the progress, timing and completion of preclinical testing and clinical trials for pipeline product candidates, including FCD105 and FMX114;

Our present and future funding requirements will depend on many factors, including, but not limited to the following:

• costs associated with the research and development of drug candidates;

• the time and costs involved in obtaining regulatory approval for our other pipeline product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates;

• the efforts necessary to institute post-approval regulatory compliance requirements for AMZEEQ and ZILXI;

• terms and timing of any acquisitions, collaborations or other arrangements;

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Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

Our capital expenditures for 2020 and 2019 amounted to $0.1 million and $1.1 million, respectively.

During 2019, these expenditures were primarily related to laboratory equipment, computers and leasehold improvements.

For more information as to the risks associated with our future funding needs, see “Item 1A - Risk Factors—Risks Related to Our Business and Industry—We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts” included herein.

For more information as to the risks associated with our future funding needs, see “Item 1A—Risk Factors” included herein.

Off-Balance Sheet Arrangements

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While our significant accounting policies are more fully described in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in “Financial Statements and Supplementary Data” of this Annual Report, we believe that the following accounting policies are the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations.

These policies relate to the more significant areas involving management’s judgments and estimates and that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

These policies relate to significant areas involving management’s judgments and estimates and that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

The extent to which the COVID-19 pandemic continues to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

the magnitude and duration of the pandemic;

the extent to which patients and our sales representatives are able to access healthcare provider offices;

the impact on worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage;

the impact on worldwide macroeconomic conditions;

the speed of the anticipated recovery;

and governmental and business reactions to the pandemic.

The Company's product sales for 2020, particularly during the second and fourth quarters, were negatively impacted by office closures and our sales force's limited ability to access healthcare providers.

No assurance can be given that such office closures will not occur again in future periods, and if such closures do occur, or any other circumstance arises such that patients or our sales representatives are restricted in their ability to connect with healthcare providers, our product sales would be negatively impacted.

In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2021 and through the date of this report.

The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition.

The Company recorded impairments of goodwill and certain indefinite-lived intangibles;

however, these impairments were unrelated to the impact of COVID-19 (See “Note 3 – Business Combination” for more information).

The Company’s future

assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Revenue Recognition

We record revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606").

For the Collaboration Agreement under ASC 606, we identify the performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is satisfied.

For the Collaboration Agreement under ASC 606, we identify the performance

obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is satisfied.

We identify the performance obligations included within the agreement and evaluate which performance obligations are distinct.

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As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide quantitative or qualitative disclosures about market risk.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

VYNE THERAPEUTICS INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2021

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-K

Item 7. Management’s Discussion and Analysis