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Item 7. Management’s Discussion and Analysis

2024-03-01 compared with 2023-03-14 · 129 added, 155 removed, 135 unchanged (68% of the section changed)

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this report.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.

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.

Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled “Item 1A.

Risk Factors”.

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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.

Based on 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-BD BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure.

In preclinical testing, VYN201 produced consistent reductions in pro-inflammatory and disease-related biomarkers and improvements in disease severity across a variety of inflammatory and fibrotic models.

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

In the first quarter of 2023, we announced positive preliminary safety and tolerability, pharmacokinetic and hematology 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 on October 30, 2023, we announced positive data from the Phase 1b trial, in which significant clinical improvement in F-VASI was observed in the 1% and 2% dose cohorts after 16 weeks of treatment.

We have initiated Phase 2b preparatory activities and expect to advance VYN201 into a longer duration Phase 2b trial to evaluate optimal dosing and peak efficacy in patients with active or stable nonsegmental vitiligo in the second quarter of 2024 with top line results from the 24-week double-blind portion of the trial anticipated in mid-2025.

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

VYN202 has been designed to achieve potential 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.

We submitted an IND for VYN202 to the FDA in December 2023.

We recently received correspondence from the FDA informing us that our Phase 1a clinical trial is on hold and requesting that we submit data from an additional nonclinical study.

We recently completed the additional nonclinical study which achieved preliminary results consistent with our expectations at the outset of the study.

We plan to submit the requested nonclinical information to the FDA by the end of the first quarter of 2024 and, if cleared by the FDA, expect to initiate our Phase 1a single ascending dose/multiple ascending dose trial in healthy volunteers in the second quarter of 2024, with top line results anticipated in the second half of 2024.

If the Phase 1a portion of the trial is successfully completed, we plan to initiate Phase 1b trials in subjects with moderate-to-severe plaque psoriasis and moderate-to-severe adult-onset rheumatoid arthritis, with top line results anticipated in the second half of 2025.

We intend to advance our product candidates through clinical development toward regulatory approval.

As part of our strategy to maximize the value of our pipeline, we may partner with larger pharmaceutical companies to expand and accelerate the development of our programs and explore therapeutic areas outside of our core focus in immunology.

Sale of Legacy Commercial Business

In January 2022, we entered into an Asset Purchase Agreement with Journey Medical Corporation ("Journey") pursuant to which we sold our Molecule Stabilizing Technology franchise, including our former products AMZEEQ, ZILXI, and FCD105, referred to collectively as the MST Franchise, to Journey.

The assets included certain contracts, including license agreements, inventory and intellectual property related to the MST Franchise.

We have classified the results of the MST Franchise as discontinued operations in our consolidated statements of operations and cash flows for all periods presented in this Annual Report on Form 10-K.

We received an upfront payment of $20.0 million at the closing of the sale of the MST franchise and an additional $5.0 million deferred payment in January 2023.

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, as well as certain payments from any licensing or sublicensing of the purchased assets by Journey outside of the United States.

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.

Uncertainty in the global economy presents significant risks to our business.

We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including inflation, interest rates, financial market volatility and uncertainty, the impact of war or military conflict, including the wars in Ukraine and the Middle East, rising tensions between China and Taiwan and the response thereto, public health pandemics, and supply chain disruptions.

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.

As of the filing date of this Annual Report on Form 10-K, 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.

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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.

Evaluation and Option Agreement

In April 2021, we entered into the Option Agreement with Tay granting 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.

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.

Under the terms of the Option Agreement, the Oral Option was to expire on June 30, 2022 (the "Option Term"), but in June 2022, we and Tay entered into a Letter Agreement (the “Letter Agreement”) to extend the Option Term to February 28, 2023.

Pursuant to the terms of the Letter Agreement, we paid Tay $386,366 (£300,000) on June 28, 2022 to extend the Option Term.

In addition, on August 29, 2022, we made a second payment to Tay of $997,407 (£850,000) pursuant to the terms of the Letter Agreement following the discovery of potential Oral BETi Compounds for further development.

Both payments were recorded as research and development expense.

On February 27, 2023, the parties entered into an additional Letter Agreement (the "Second Letter Agreement") pursuant to which the Option Term was extended to April 30, 2023.

As consideration for the extension of the Option Term, we paid Tay $250,000 upon the execution of the Second Letter Agreement.

Per the terms of the Second Letter Agreement, this fee was to be deducted from the upfront fee paid by us to Tay following our exercise of the Oral Option, as described below.

License for Locally Administered Pan-BD BET Inhibitor Program (VYN201)

In August 2021, we exercised our option with respect to the VYN201 program and entered into the VYN201 License Agreement granting us a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields.

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.

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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.

We made a $0.5 million cash payment to Tay in 2021 in connection with entering into the VYN201 License Agreement.

Pursuant to the VYN201 License Agreement, we 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 milestone payments upon the achievement of regulatory approvals in certain non-U.S.

jurisdictions.

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.

We are obligated to pay royalties until the latest 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.

License for Selective BET Inhibitor Program (VYN202)

On April 28, 2023, we exercised the Oral Option with respect to the VYN202 program and entered into the VYN202 License Agreement with Tay granting us a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s Oral BETi Compounds in all fields.

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, and shall use commercially reasonable efforts to develop and, if approved, commercialize such products.

We may sublicense our rights to a third party without Tay’s consent.

Pursuant to the VYN202 License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products.

We made a cash payment of $3.75 million, after deducting the $250,000 fee paid to extend the Option Term in February 2023, to Tay in connection with entering into the VYN202 License Agreement.

This payment was recorded as a research and development expense in the period paid.

Pursuant to the terms of the VYN202 License Agreement, we agreed to make cash payments to Tay of up to $43.75 million 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 is entitled to additional milestone payments upon the achievement of regulatory approvals in certain non-U.S.

jurisdictions.

In addition, with respect to any products we commercialize under the VYN202 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 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.

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

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;

◦ transportation costs incurred in shipping manufacturing materials between third parties;

◦ 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.

Historically, we have generated revenues under development and license agreements, including royalty payments from sales of Finacea foam.

We previously licensed the rights to Finacea to LEO Pharma A/S ("LEO Pharma").

This license was not part of the sale of our commercial business to Journey.

Royalty revenues for the years ended December 31, 2023 and 2022 were $0.4 million and $0.5 million, respectively, from LEO Pharma in connection with sales of Finacea.

Operating Expenses

Research and development expenses

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

Our research and development expenses relate primarily to the development of VYN201 and VYN202, as well as FMX114, a product candidate which we are no longer actively developing.

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 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, 2023 and 2022 were $16.3 million and $18.4 million, respectively.

Research and development expenses consist primarily of:

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

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

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

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• materials and manufacturing costs related to commercial production prior to FDA approval.

Selling, general and administrative expenses

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:

General and administrative expenses

Our general and administrative expenses for the years ended December 31, 2023 and 2022 were $13.4 million and $16.4 million, respectively.

Our general and administrative expenses consist principally of:

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

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• 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

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.

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.

Other Income, net

Other income, net primarily consists of interest earned on our cash and cash equivalents and marketable securities as well as foreign exchange rate gains and losses.

Income Taxes and Net Operating Loss Carryforwards

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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.

As of December 31, 2022, we had federal and state research and development tax credit carryforwards of $6.6 million and $1.2 million, respectively.

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

As of December 31, 2023, we had federal and state net operating loss carryforwards of $331.1 million and $41.7 million, respectively, of which $44.3 million will begin to expire in 2031 for federal and $21.3 million will begin to expire in 2040 for state purposes.

As of December 31, 2023, we had federal research and development tax credit carryforwards of $6.9 million which will begin to expire in 2031.

We have no state research and development tax credit carryforwards.

As of December 31, 2023, we had $307.2 million in federal and state NOLs with no limited period of use.

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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.

We may have experienced ownership changes in the past, including in connection to our initial public offering (“IPO”), and as a result of the Merger and/or subsequent shifts in our stock ownership, some of which may be outside of our control.

We have not completed a 382 study through December 31, 2023, however, w e may have experienced ownership changes in the past, including in connection with the 2020 merger between Menlo Therapeutics (our predecessor company) and Foamix Pharmaceuticals Ltd.

Our private placement transaction in November 2023 also likely resulted in an ownership change for purposes of Section 382.

We may experience ownership changes in the future as a result of the subsequent shifts in our stock ownership, some of which may be outside of our control.

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 Years Ended December 31, 2023 and December 31, 2022

Summary of Operations

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

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Research and development 16,307 18,385 (2,078) (11.3) %

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

General and administrative 13,375 16,387 (3,012) (18.4) %

Total operating expenses 29,682 34,772 (5,090) (14.6) %

Operating loss (29,258) (34,295) (5,037) (14.7) %

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

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

Other income, net 1,386 363 1,023 281.8 %

Loss from continuing operations before income taxes (27,872) (33,932) (6,060) (17.9) %

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

Income tax expense — 13 (13) *

Loss from continuing operations (27,872) (33,945) (6,073) (17.9) %

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Net loss (28,452) (23,210) 5,242 22.6 %

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.

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

*percentage not meaningful

Revenues totaled $0.4 million and $0.5 million for the years ended December 31, 2023 and 2022, respectively, consisting of royalty revenue from our royalty agreement with LEO Pharma.

Research and development expenses

Our research and development expenses for the year ended December 31, 2023 were $16.3 million, representing a decrease of $2.1 million, or 11.3%, compared to $18.4 million for the year ended December 31, 2022.

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 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

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 no longer generate revenue from the sale of these products.

The decrease was primarily due to lower employee-related expenses of $3.8 million and decreased spending for FMX114 and VYN201 of $2.7 million and $2.2 million, respectively .

The decrease was partially offset by increased expenses for VYN202 of $6.7 million, including $4.0 million paid in connection with entering into the VYN202 License Agreement.

General and administrative expenses

Our general and administrative expenses for the year ended December 31, 2023 were $13.4 million, representing a decrease of $3.0 million, or 18.4%, compared to $16.4 million for the year ended December 31, 2022.

The decrease was primarily driven by lower rent and corporate insurance costs of $1.6 million and decreased consulting and professional fees of $1.1 million.

Other Income, net

Other income, net for the years ended December 31, 2023 and December 31, 2022 was $1.4 million and $0.4 million, respectively, primarily related to interest income earned on cash, cash equivalents and marketable securities.

Income (loss) from discontinued operations, net of income taxes

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 MST Franchise as discontinued operations in our consolidated statements of operations for all periods presented.

See "Note 4, Discontinued Operations" in the consolidated financial statements.

Liquidity and Capital Resources

As of December 31, 2023, we had cash, cash equivalents, restricted cash and marketable securities of $93.3 million and an accumulated deficit of $691.3 million.

We had no outstanding debt as of December 31, 2023.

For the year ended December 31, 2023, we incurred a net loss of $28.5 million and used $25.3 million of cash in operations.

The net loss was comprised of a $27.9 million loss from continuing operations and a $0.6 million loss from discontinued operations.

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

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.

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 consolidated financial statements are issued.

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.

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 the accompanying audited consolidated financial statements.

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:

On October 27, 2023, we entered into a securities purchase agreement with certain institutional and other accredited investors (collectively, the “Purchasers”), pursuant to which we agreed to sell and issue to the Purchasers in a private placement transaction (the “Private Placement”) (i) 10,652,543 shares of our common stock and (ii) with respect to certain Purchasers, pre-funded warrants to purchase 28,614,437 shares of common stock in lieu of shares (the “Pre-Funded Warrants”).

The purchase price per share of common stock was $2.245 per share (the “Stock Purchase Price”) and the purchase price for the Pre-Funded Warrants was the Stock Purchase Price minus $0.0001 per Pre-Funded Warrant.

On November 1, 2023, we received gross proceeds of $88.2 million from the Private Placement, before deducting fees to the placement agent and offering expenses payable by us.

Net proceeds, after deducting those fees and expenses, were $82.7 million.

If our available cash, cash equivalents, restricted cash and marketable securities are insufficient to satisfy our liquidity requirements, we may need to raise additional capital to fund our operations.

No assurance can be given as to whether additional needed financing will be available on terms acceptable to us, if at all.

If sufficient funds on acceptable terms are not available when needed, we may be required to suspend or forego certain planned activities.

Failure to manage discretionary spending or raise additional financing, as needed, would adversely impact our ability to achieve our intended business objectives and have an adverse effect on our results of operations and future prospects.

We believe our existing cash, cash equivalents, restricted cash and marketable securities are sufficient to fund our operating and capital expenditure requirements for a period of at least 12 months from the date of issuance of the audited consolidated financial statements included in this Annual Report on Form 10-K.

The following table summarizes our cash flows for the years ended December 31, 2023 and 2022:

Year Ended December 31,

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Net cash used in operating activities

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.

During the year ended December 31, 2023, net cash used in operating activities was $25.3 million and primarily reflected our net loss of $28.5 million adjusted for non-cash items of $3.1 million primarily related to stock-based compensation expense.

The remainder of the cash used in operations was driven by net changes in assets and liabilities.

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 loss from sale and disposal of property and fixed assets.

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

Net cash provided by investing activities

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.

During the year ended December 31, 2023, net cash used in investing activities was driven by the purchase of marketable securities of $62.4 million following the receipt of proceeds from the Private Placement, partially offset by the receipt of the deferred payment from Journey in January 2023 of $5.0 million in connection with the sale of the MST Franchise.

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

Net cash provided by financing activities

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.

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.

During the year ended December 31, 2023, net cash provided by financing activities was $82.4 million and consisted primarily of net proceeds of $82.7 million from the Private Placement and $0.2 million of proceeds received from sales of common stock under our at-the-market equity offering program, partially offset by $0.4 million paid for the redemption of previously outstanding convertible preferred 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 under our at-the-market equity offering program and the issuance of the convertible preferred stock that was subsequently redeemed.

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.

Our sources of funding in the year ended December 31, 2023 totaled $87.8 million and consisted primarily of $82.7 million in net proceeds from the Private Placement, $5.0 million in proceeds from the deferred payment from the sale of the MST Franchise and $0.2 million in net proceeds from the issuance of common stock pursuant to our at-the-market offering program.

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

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

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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.

We signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 202 5.

We have aggregate operating lease obligations of $0.2 million through that date.

R&D Commitments:

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Funding Requirements

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

Our present and future funding requirements will depend on a number of factors, including the following:

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

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As of December 31, 2023, we did not have any off-balance sheet arrangements.

Cybersecurity

For a description of the risks from cybersecurity threats that may materially affect us and how they may do so, see our risk factors under Part 1.

Risk Factors in this Annual Report on Form 10-K, including "If our information technology systems or those third parties upon which we rely or our data, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits and other adverse consequences.”

Critical Accounting Policies and Significant Judgments and Estimates

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To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

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.

While our significant accounting policies are more fully described in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to assist stockholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations.

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.

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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:

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

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

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

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

We estimated the amount of product that would be returned and deducted these estimated amounts from gross revenue at the time the revenue was recognized.

T he information utilized to estimate the returns provision included:

(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.

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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.

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 MST Franchise 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.

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Recently Issued Accounting Pronouncements

Certain recently issued accounting pronouncements are discussed in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in “Financial Statements and Supplementary Data” of this Annual Report.

Certain recently issued accounting pronouncements are discussed in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in this Annual Report on Form 10-K.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

VYNE THERAPEUTICS INC.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis