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Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-17 · 178 added, 216 removed, 112 unchanged (78% of the section changed)

5 unchanged sentences

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 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:

• 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.

The net proceeds of the offering were approximately $46.8 million, after deducting placement agent fees 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 February 10, 2021, our Board of Directors approved a one-for-four reverse stock split of our outstanding shares of common stock.

The reverse stock split was effected on February 12, 2021 at 5:00 p.m.

Eastern time.

At the effective time, every four issued and outstanding shares of our common stock were converted into one share of common stock.

No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market.

In connection with the reverse stock split, the number of authorized shares of our common stock was also reduced on a one-for-four basis, from 300 million to 75 million.

The par value of each share of common stock remained unchanged.

A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

• On March 1, 2021, we announced development plans for FMX114 for the potential treatment of mild-to-moderate atopic dermatitis.

FMX114 is a fixed combination of tofacitinib, which is a pan-Janus kinase (JAK) inhibitor, and fingolimod, a sphingosine 1-phosphate receptor modulator.

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.

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

In August 2021, we entered into a transaction with Tay providing us with exclusive worldwide rights to research, develop and commercialize products containing BET inhibitors for the treatment of any disease, disorder or condition in humans.

Through our access to this library of new chemical BET inhibitor compounds, we plan to develop product candidates for a diverse set of indications.

Based on preclinical data generated to date, we have chosen to focus our initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.

Our lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure.

To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models.

We believe that these data suggest potential broad utility for VYN201 across multiple routes of administration.

In November 2022, we initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo.

In February 2023, we announced positive preliminary safety data from the Phase 1a portion of the trial.

The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023 and we expect topline results from this trial in mid-2023.

Our second program is VYN202, a BD2-selective oral small molecule BET inhibitor.

VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and is being designed to achieve class-leading selectivity (BD2 vs.

BD1), maximum potency versus BD2 and optimal oral bioavailability.

By maximizing BD2 selectivity, we believe VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity is common.

We intend to actively evaluate and enter into strategic partnerships to advance our product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance our molecules in therapeutic areas outside of our core focus in immunology.

We believe selectively entering into collaborations has the potential to expand and accelerate the development of our programs and maximize the value of our pipeline.

Known Trends, Events and Uncertainties

Business and Macroeconomic Conditions

The extent of the impact of macroeconomic events and conditions, including inflation, increasing interest rates, adverse developments affecting financial institutions, increasing financial market volatility and uncertainty, the impact of war or military conflict, including the war in Ukraine, and public health pandemics on our operational and financial performance will continue to depend on certain developments, including the impact on our financing activities, clinical studies, employee or industry events, and effect on our suppliers and manufacturers, all of which are uncertain and cannot be predicted.

Adverse effects of these large macroeconomic conditions have been prevalent in many of the areas where we, our CROs, suppliers or third-party business partners conduct business and as a result, we have experienced disruptions and may continue to experience more pronounced disruptions in our operations.

For example, we have experienced delays in enrollment in our clinical trials, and we may continue to experience such delays for a variety of reasons, including COVID-19, labor shortages and supply chain disruptions in distribution of clinical trial materials, study monitoring and data analysis, any of which could materially adversely impact our business, results of operations and overall financial performance in future periods.

In addition, financial markets have experienced a period of high volatility due to these macroeconomic factors.

The persistence of this volatility may impact our ability to engage in capital market activities and adequately fund our operations.

As of the filing date of this Annual Report, the extent to which these macroeconomic events and conditions may impact our financial condition, results of operations or liquidity is uncertain.

The effect of these macroeconomic events and conditions may not be fully reflected in our results of operations and overall financial performance until future periods.

See Part I, Item 1A “Risk Factors” for further discussion of the possible impact of these macroeconomic conditions on our business.

Collaboration Arrangements

Agreements with Tay Therapeutics

On April 30, 2021, we entered into the Option Agreement with Tay.

Pursuant to the Option Agreement, Tay granted us an exclusive option to obtain certain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds for the treatment of any disease, disorder or condition in humans.

Pursuant to the Option Agreement, we agreed to use commercially reasonable efforts to stabilize, develop and manufacture a product with a pan-BD BET inhibitor as its active ingredient and Tay agreed to provide a mutually agreed data package for its Oral BETi Compounds.

We paid a $1.0 million non-refundable cash payment to Tay upon execution of the Option Agreement, 50% of which was to be used by Tay in the development of the Oral BETi Compounds.

Locally Administered Pan-BD BET Inhibitor Program (VYN201)

On August 6, 2021, we exercised our option with respect to the VYN201 program and, on August 9, 2021, the parties entered into the VYN201 License Agreement granting VYNE a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds.

We have the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at our sole cost and discretion.

We are required to use commercially reasonable efforts to develop and, if approved, commercialize such products.

Pursuant to the VYN201 License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products.

Pursuant to the VYN201 License Agreement, we may develop a product that contains or incorporates a specific BET inhibitor, whether alone or in combination with other active ingredients, in any form, formulation, presentation, or dosage, and for any mode of administration.

We made a $0.5 million cash payment to Tay in connection with entering into the VYN201 License Agreement.

Pursuant to the VYN201 License Agreement, we have agreed to make cash payments to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States of up to $15.75 million for all indications.

Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

In addition, with respect to any products we commercialize under the VYN201 License Agreement, we will pay tiered royalties to Tay on net sales of such licensed products by us, our affiliates, or sublicensees, of 5%, 7.5% and 10% based on tiered annual net sales bands subject to specified reductions.

We are obligated to pay royalties until the later of (1) the tenth anniversary of the first commercial sale of the relevant licensed product, (2) the expiration of the last valid claim of the licensed patent rights covering such licensed product in such country and (3) the expiration of regulatory exclusivity for the relevant licensed product in the relevant country, on a licensed product-by-licensed product and country-by-country basis.

Selective BET Inhibitor Program (VYN202)

Under the Option Agreement, we have an exclusive option (the “Option”) to obtain certain exclusive worldwide rights to research, develop and commercialize products containing Tay’s Oral BETi Compounds.

Under the original terms of the Option Agreement, the Option was to expire upon the earlier of (i) 14 days following the delivery of an agreed data package and selection of a lead candidate by In4Derm and (ii) June 30, 2022 (the “Option Term”).

On June 15, 2022, the parties entered into a letter agreement to extend the Option Term to February 28, 2023.

We recently informed Tay that we would like additional time to complete our assessment of the Oral BETi Compounds.

In consideration of the significant progress made by the parties and our desire to maintain optionality with respect to our right to exercise the Option for the Oral BETi Compounds, the parties entered into a Letter Agreement on February 27, 2023 (the “Letter Agreement”) to extend the Option Term to April 30, 2023.

Pursuant to the terms of the Letter Agreement, we agreed to pay Tay $250,000 to extend the Option Term.

This fee will be deducted from the $4.0 million payable to Tay in the event that we exercise the Option pursuant to the Option Agreement.

Upon exercise of the Option, the parties will sign a license agreement (the “Oral License Agreement”) and we will pay Tay a $4.0 million cash payment, less the amount paid pursuant to the Letter Agreement.

The Oral License Agreement will include cash payments of up to $43.75 million payable to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications.

Tay will be entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

In addition, with respect to any products we commercialize under the Oral License Agreement, we will pay tiered royalties to Tay on net sales of such licensed products by us, our affiliates, or sublicensees, of 5%, 7.5% and 10% based on tiered annual net sales bands subject to specified reductions.

Components of Results of Operations

Our revenue reported for the periods presented is comprised of AMZEEQ and ZILXI product sales and royalty revenue.

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

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

We have not generated revenue from the sales of these products following January 12, 2022, the date we sold the MST Franchise to Journey.

As a result of the disposition of these assets, product sales have been reclassified to discontinued operations for all periods presented.

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.

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 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.

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.

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 Pharma A/S ("LEO").

In the year ended December 31, 2022 and 2021 we received royalties of $0.5 million and $0.9 million, respectively.

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

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.

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

Cost of goods sold expenses consist primarily of:

Cost of goods sold expenses consist of direct and indirect costs to procure and manufacture AMZEEQ and ZILXI and primarily consist of:

◦ third party expenses incurred in manufacturing product for sale;

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◦ other costs associated with delivery and manufacturing of product.

Prior to receiving FDA approval, these costs for AMZEEQ and ZILXI were expensed as research and development expenses.

We began capitalizing inventory costs for AMZEEQ and ZILXI after receipt of FDA approval.

As a result of the sale of the MST Franchise, cost of goods sold has been reclassified to discontinued operations for all periods presented.

Operating Expenses

Research and development expenses

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.

Our research and development expenses have related primarily to the development of FMX114, VYN201 and VYN202.

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.

Following the sale of the MST Franchise in January 2022, our research and development has been focused on our immuno-inflammatory pipeline, including VYN201, VYN202 and FMX114.

As a result of the sale of the MST Franchise in January 2022, research and development expenses related to the MST Franchise have been reclassified to discontinued operations for all periods presented.

Our total research and development expenses for the years ended December 31, 2022 and 2021 were $18.4 million and $19.5 million, respectively.

Research and development expenses consist primarily of:

• employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses;

• employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses, for researched and development personnel;

• expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies;

• 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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Selling, general and administrative expenses

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.

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 for the year ended December 31, 2022 and 2021 were $16.4 million and $20.3 million, respectively.

Our selling, general and administrative expenses consist principally of:

• employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;

• costs associated with selling, marketing and shipping and handling costs;

• legal and professional fees for auditors and other consulting expenses;

• facility, information technology and depreciation expenses.

As a result of the sale of the MST Franchise in January 2022, selling, general and administrative expenses related to the MST Franchise have been reclassified to discontinued operations for all periods presented.

Interest Expense

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

During 2021, interest expense primarily consisted of interest expense on our long-term debt of $2.6 million.

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

Other Income, net primarily consists of gains from interest earned from our bank deposits, financial income on our marketable securities and a revaluation of our derivative liability.

We prepaid our indebtedness outstanding under the Amended and Restated Credit Agreement in August 2021.

Accordingly, we did not incur interest expenses in 2022.

Other Income (Expense), net

Other income (expense), net primarily consists of interest earned on our cash and cash equivalents and foreign exchange rate gains and losses.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception.

We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any other product, if approved in the future, generates adequate revenues for us to reach profitability.

We expect to continue to incur NOLs until such a time when we generate adequate revenues for us to reach profitability.

As of December 31, 2022, we had federal and state net operating loss carryforwards of $318.3 million and $90.4 million, respectively, of which $44.3 million and $89.0 million of these carryforwards will begin to expire starting in 2031 through 2040 for federal and state purposes, respectively.

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The federal credits begin to expire in 2031 and the California research credits have no expiration dates.

As of December 31, 2021, the Company had $270.7 million in federal and state NOLs with no limited period of use.

In December 2020, the Company began liquidation proceedings of its Israeli subsidiary, VYNE Pharmaceuticals Ltd., to align with its business strategy.

As a result thereof, the Company's intellectual property was assigned to the U.S.

parent company and we recognized a $163.0 million taxable gain for Israeli income tax purposes.

However, the taxable gain was fully offset by net operating loss carryforwards, resulting in no income tax expense to the Company.

As of December 31, 2022,we had $274.0 million in federal and state NOLs with no limited period of use.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended.

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Summary of Operations

Year Ended December 31,

(in millions, except %) 2021 2020 Variance

Revenues $ 14.8 $ 21.0 $ (6.2) (29.7) %

Cost of goods sold 3.3 1.4 2.0 140.5 %

Year Ended December 31, Increase/(Decrease) Increase/(Decrease)

(in thousands, except %) 2022 2021 $ %

Royalty revenues $ 477 $ 931 $ (454) (48.8) %

Total revenues 477 $ 931 (454) (48.8) %

Operating Expenses

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

Selling, general and administrative expenses 54.5 89.5 (35.1) (39.2) %

Goodwill and in-process research & development impairments — 54.3 (54.3) (100.0) %

CSR Remeasurement — 84.7 (84.7) (100.0) %

Research and development 18,385 19,543 (1,158) (5.9) %

Selling, general and administrative 16,387 20,299 (3,912) (19.3) %

Total operating expenses 34,772 39,842 (5,070) (12.7) %

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Interest expense — (5,610) (5,610) (100.0) %

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 %

Other income (expense), net 363 (135) 498 368.9 %

Loss from continuing operations before income taxes (33,932) (44,656) (10,724) (24.0) %

Income tax expense (benefit) 13 (448) (461) (102.9) %

Loss from continuing operations (33,945) (44,208) (10,263) (23.2) %

Income (loss) from discontinued operations, net of income taxes 10,735 (29,121) 39,856 136.9 %

Net loss (23,210) (73,329) (50,119) (68.3) %

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, 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.

Revenues totaled $0.5 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, consisting of royalty revenue.

We divested our MST Franchise 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 $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%.

Product revenues have been reclassified to discontinued operations for all periods presented.

Research and development expenses

Our research and development expenses for the year ended December 31, 2022 were $18.4 million, representing a decrease of $1.2 million, or 5.9%, compared to $19.5 million for the year ended December 31, 2021.

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.

The decrease was primarily due to lower employee-related expenses of $2.1 million, a decrease of $2.4 million in expenses for FMX114 and a decrease of $0.9 million in expenses for other R&D related activities.

These decreases described above were partially offset by an increase of $2.8 million in expenses for VYN201 and the option extension fee for the VYN202 program totaling $1.4 million.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended December 31, 2022 were $16.4 million, representing a decrease of $3.9 million, or 19.3%, compared to $20.3 million for the year ended December 31, 2021.

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

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 in the year ended December 31, 2020.

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

The decrease was primarily due to lower employee-related expenses of $2.1 million and a decrease of $1.8 million in expenses for consulting and professional fees.

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 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.

As a result of the prepayment of our indebtedness outstanding under the Amended and Restated Credit Agreement in August 2021, we did not incur interest expense for the year ended December 31, 2022.

During the year ended December 31, 2021, interest expense totaled $5.6 million and primarily consisted of $2.6 million of interest expense associated with our

indebtedness outstanding under the Amended and Restated Credit Agreement and also included prepayment penalties of $1.4 million and write off of deferred financing costs of $1.6 million.

Other Income (Expense), net

Other income for the year ended December 31, 2022 was $0.4 million, representing an increase of $0.5 million, or 368.9%, compared to $0.1 million of other expense for the year ended December 31, 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.

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.

AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, we no longer generate 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.

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, 2022, we incurred a net loss of $23.2 million and used $29.2 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.

The net loss was comprised of $10.7 million of income from discontinued operations and $33.9 million loss from continuing operations.

As of December 31, 2022, we had cash and cash equivalents, and restricted cash of $31.0 million and an accumulated deficit of $662.7 million.

We received the $5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise.

We had no outstanding debt as of December 31, 2022.

In addition, in March 2022, we entered into the Equity Purchase Agreement with Lincoln Park Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $30.0 million of shares of our common stock over the 36-month term of the Equity Purchase Agreement.

As of December 31, 2022, no shares have been sold under the Equity Purchase Agreement.

As described above, following the sale of the MST Franchise, we refocused our limited resources on our immuno-inflammatory pipeline.

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

Our future viability and our ability to continue as a going concern is dependent on our ability to raise sufficient working capital through either debt or equity financings to fund our operations and successfully develop commercially viable product candidates.

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

The accompanying audited consolidated financial statements have been prepared assuming 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 and the development and results from clinical trials for the BET inhibitor programs.

This assumption does not include proceeds that can be drawn from Lincoln Park under the Equity Purchase Agreement.

Accordingly, we will, over the course of the next twelve months, require significant additional financing to continue our operations and meaningfully advance the development of our product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement.

We may also employ strategies to further extend our ability to fund our operations including:

(1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing our resources on research and development programs we choose to prioritize and reducing spending on other programs by delaying or discontinuing development.

In addition, the amount of proceeds we may be able to raise pursuant to our existing shelf registration statement on Form S-3 may be limited.

As of the filing of this Annual Report on Form 10-K, we are subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of our common stock held by our non-affiliates.

Therefore, we will be limited in the amount of proceeds we are able to raise by selling shares of our common stock using our Form S-3 until such time as our public float exceeds $75 million.

These factors 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—Risks Related to our Financial Position and Need for Capital—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 consolidated 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 the sale of our products, fees, cost reimbursements and payments received from our licensees.

In January 2022, we sold our MST Franchise, which resulted in an upfront payment of $20.0 million at the close of the sale and deferred payment of $5.0 million in January 2023.

The following table summarizes our statement of cash flows for the years ended December 31, 2022 and 2021:

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Net cash used in operating activities

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.

During the year ended December 31, 2022, net cash used in operating activities was $29.2 million and primarily reflected our net loss of $23.2 million adjusted for the gain on the sale of the MST Franchise of $12.9 million and non-cash items of $4.7 million related to stock-based compensation expense, depreciation and amortization, and loss from sale and disposal of property and fixed assets.

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

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, partially offset by non-cash charges and non-cash finance expense of $10.8 million related to stock-based compensation expense, depreciation and amortization and $1.4 million in debt prepayment premium.

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

Net cash provided by investing activities

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.

During the year ended December 31, 2022, net cash provided by investing activities was $15.7 million and was the result of net proceeds from the disposition of the MST Franchise.

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

Net cash provided by financing activities

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.

During the year ended December 31, 2022, net cash provided by financing activities was $1.7 million and was primarily attributable to the issuance of common stock and convertible preferred stock.

Cash and Funding Sources

Our sources of funding in the year ended December 31, 2022 totaled $17.3 million and consisted primarily of $15.7 million net proceeds from the sale of the MST Franchise and $1.5 million net proceeds from the issuance of common stock pursuant to our at-the-market offering facility.

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.

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.

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, 2021 consisted of:

• Obligations under lease commitments (see Note 10)

• Open purchase commitments of $3.9 million

Lease Commitments:

In November 2022, we transitioned to a smaller corporate headquarters and signed a Sublease Agreement (the “Sublease”) to sublease approximately 5,755 square feet of office space (the “Leased Premises”) in Bridgewater, New Jersey through September 30, 2023.

In addition, we signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 2025.

We expect to incur $0.1 million of rent expense in 2023 relating to the sublease.

The future minimum lease payments for the Master Lease total approximately $0.3 million through September 30, 2025.

R&D Commitments:

We enter into contracts in the normal course of business with CROs, contract manufacturing organizations and other service providers for clinical trials, preclinical studies and testing, manufacturing and other services and products for operating purposes.

These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

Funding Requirements

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;

Our present and future funding requirements will depend on many factors, including the following:

• costs associated with the research and development of product 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;

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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 impact on worldwide macroeconomic conditions;

the speed of the anticipated recovery;

and governmental and business reactions to the pandemic.

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’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 collaboration agreements under ASC 606we identify the contract, 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.

Royalty Revenues and Collaboration Agreements

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

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Milestone payments are estimated and included in the transaction price when we determine that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

Business Acquisition

Our financial statements include the operations of an acquired business after the completion of the acquisition.

We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill is recorded on the balance sheet.

Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

We are required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.

For example, we use fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.

We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market.

The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:

• Income approach, which is based on the present value of a future stream of net cash flows.

• Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

• Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

• Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

• Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

• Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

We review all of our long-lived assets for impairment indicators throughout the year.

We perform impairment testing for indefinite-lived intangible assets annually and for all other long-lived assets whenever impairment indicators are present.

When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Product sales, Product Sales Provisions and Product Returns

As a result of the disposition of the MST Franchise in January 2022, we no longer have any revenue generating products.

See Note 4, “Discontinued Operations.” Our net product revenues were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020.

Our customers were a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies (together, the “customers”).

Net product revenue was typically recognized when customers obtained control our products, which occurred at a point in time, typically upon delivery of product to the customers.

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives.

These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Actual amounts may ultimately differ from these estimates.

If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date.

We estimate the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized.

T he information utilized to estimate the returns provision includes:

(i) actual return history (ii) historical return industry information regarding rates for comparable pharmaceutical products and product portfolios , (iii) external data with respect to inventory levels in the wholesale distribution channel, (iv) external data with respect to prescription demand for products and (v) remaining shelf lives of products at the date of sale.

Discontinued Operations

We accounted for the sale of the MST Franchise in accordance with Accounting Standards Codification, ASC, 205 Discontinued Operations and Accounting Standards Update, ASU, No.

2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity .

We followed the held-for-sale criteria as defined in ASC 360 and ASC 205.

ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations.

In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the consolidated statements of operations.

Assets and liabilities are also reclassified into separate line items on the related consolidated balance sheets for the periods presented.

ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations.

ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.

Due to the sale of the MST Franchise during the first quarter of 2022, in accordance with ASC 205, Discontinued Operations , we have classified the results of the oncology business as discontinued operations in our consolidated statements of operations and cash flows for all periods presented, see Note 4, Discontinued Operations in the consolidated financial statements.

All disposed assets and liabilities associated with our MST Franchise were therefore classified as assets and liabilities of discontinued operations in our consolidated balance sheets for the periods presented.

All amounts included in the notes to the consolidated financial statements relate to continuing operations unless otherwise noted.

Recently Issued Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis