Yarrow Bioscience, Inc. 10-K

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA VYNE THERAPEUTICS INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2024 INDEX Page Report of Independent Registered Public Accounting Firm (Baker Tilly US, LLP, Tewksbury, MA, PCAOB ID 23 ) F-1 Consolidated Balance Sheets F- 2 Consolidated Statements of Operations and Comprehensive Loss F- 3 Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity F- 4 Consolidated Statements of Cash Flows F- 5 Notes to Consolidated Financial Statements F- 7 73 Table of Contents Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of VYNE Therapeutics Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of VYNE Therapeutics Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in mezzanine equity and shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Baker Tilly US, LLP We have served as the Company’s auditor since 2022. Tewksbury, Massachusetts March 6, 2025 F - 1 Table of Contents VYNE THERAPEUTICS INC. CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands) December 31 2024 2023 Assets Current Assets: Cash and cash equivalents $ 19,926 $ 30,620 Restricted cash — 54 Investment in marketable securities (Note 6) 41,590 62,633 Prepaid and other current assets 2,921 2,656 Total Current Assets 64,437 95,963 Non-current Assets: Property and equipment, net (Note 7) 113 — Operating lease right of use assets (Note 9) 93 207 Non-current prepaid expenses and other assets 2,262 1,515 Total Non-current Assets 2,468 1,722 Total Assets $ 66,905 $ 97,685 Liabilities and Shareholders’ Equity Current Liabilities: Trade payables $ 2,707 $ 1,659 Accrued expenses (Note 8) 9,272 4,119 Employee-related obligations 1,428 1,645 Operating lease liabilities (Note 9) 99 115 Other current liabilities 1,313 — Total Current Liabilities 14,819 7,538 Long-term Liabilities : Non-current operating lease liabilities (Note 9) — 99 Other liabilities — 1,313 Total Long-term Liabilities — 1,412 Total Liabilities 14,819 8,950 Commitments and Contingencies (Note 11) Shareholders' Equity: Preferred stock: $ 0.0001 par value; 20,000,000 shares authorized at December 31, 2024 and 2023; no shares issued and outstanding at December 31, 2024 and 2023 — — Common stock: $ 0.0001 par value; 150,000,000 shares authorized at December 31, 2024 and December 31, 2023; 14,830,013 and 14,098,888 shares issued and outstanding at December 31, 2024 and 2023, respectively 1 1 Additional paid-in capital 783,235 780,044 Accumulated other comprehensive income 20 26 Accumulated deficit ( 731,170 ) ( 691,336 ) Total Shareholders' Equity 52,086 88,735 Total Liabilities and Shareholders’ Equity $ 66,905 $ 97,685 The accompanying notes are an integral part of these consolidated financial statements. F - 2 Table of Contents VYNE THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (U.S. dollars in thousands, except per share data) Year ended December 31, 2024 2023 Revenues Royalty revenues $ 501 $ 424 Total revenues 501 424 Operating expenses Research and development 30,946 16,307 General and administrative 13,192 13,375 Total operating expenses 44,138 29,682 Operating loss ( 43,637 ) ( 29,258 ) Other income, net 3,834 1,386 Loss from continuing operations before income taxes ( 39,803 ) ( 27,872 ) Income tax expense 4 — Loss from continuing operations ( 39,807 ) ( 27,872 ) Loss from discontinued operations, net of income taxes ( 27 ) ( 580 ) Net loss $ ( 39,834 ) $ ( 28,452 ) Loss per share from continuing operations, basic and diluted $ ( 0.93 ) $ ( 2.72 ) Loss per share from discontinued operations, basic and diluted $ — $ ( 0.06 ) Loss per share, basic and diluted $ ( 0.93 ) $ ( 2.78 ) Weighted average shares outstanding - basic and diluted 42,589 10,273 Other comprehensive (loss) income: Unrealized (losses) gains on marketable securities, net of tax of $ 0 ( 6 ) 26 Total other comprehensive (loss) income ( 6 ) 26 Comprehensive loss $ ( 39,840 ) $ ( 28,426 ) The accompanying notes are an integral part of these consolidated financial statements. F - 3 Table of Contents VYNE THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY (U.S. dollars in thousands) Mezzanine Equity (Convertible Preferred Stock) Common stock Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total Shareholders' Equity Number of shares Amounts Number of shares Amounts Amounts BALANCE AT DECEMBER 31, 2022 3,000 $ 211 3,229,704 $ — $ 693,937 $ — $ ( 662,735 ) $ 31,202 CHANGES DURING 2023: Vesting of restricted stock units, net of withholding for tax, and shares issued under employee share purchase plan — — 50,214 — ( 18 ) — — ( 18 ) Share-based compensation — — — — 3,305 — — 3,305 Redemption of convertible preferred stock ( 3,000 ) ( 211 ) — — — — ( 149 ) ( 149 ) Issuance of common stock in at-the-market offering, net of $ 5 in issuance costs — — 34,589 — 156 — — 156 Issuance of common stock and pre-funded warrants in Private Placement, net of $ 5,486 in issuance costs — — 10,652,543 1 82,664 — — 82,665 Cashless exercise of pre-funded warrants — — 131,838 — — — — — Unrealized gains from marketable securities — — — — — 26 — 26 Net loss — — — — — — ( 28,452 ) ( 28,452 ) BALANCE AT DECEMBER 31, 2023 — $ — 14,098,888 $ 1 $ 780,044 $ 26 $ ( 691,336 ) $ 88,735 CHANGES DURING 2024: Vesting of restricted stock units, net of withholding for tax, and shares issued under employee share purchase plan — — 91,302 — ( 112 ) — — ( 112 ) Share-based compensation — — — — 3,303 — — 3,303 Cashless exercise of pre-funded warrants — — 639,823 — — — — — Unrealized losses from marketable securities — — — — — ( 6 ) — ( 6 ) Net loss — — — — — ( 39,834 ) ( 39,834 ) BALANCE AT DECEMBER 31, 2024 — $ — 14,830,013 $ 1 $ 783,235 $ 20 $ ( 731,170 ) $ 52,086 The accompanying notes are an integral part of these consolidated financial statements F - 4 Table of Contents VYNE THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Year ended December 31, 2024 2023 Cash Flows From Operating Activities: Net loss $ ( 39,834 ) $ ( 28,452 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 4 — Share-based compensation 3,303 3,305 Amortization of premium or discount on marketable securities ( 2,443 ) ( 255 ) Unrealized (losses) gains on cash equivalents ( 1 ) 1 Changes in operating assets and liabilities: Trade receivables, prepaid expenses and other current assets and operating lease right of use assets ( 899 ) 405 Trade payables, accrued expenses, employee related obligations and other long-term liabilities 6,012 ( 559 ) Operating lease liabilities ( 114 ) 214 Net cash used in operating activities ( 33,972 ) ( 25,341 ) Cash Flows From Investing Activities: Purchase of property and equipment ( 117 ) — Proceeds from the sale of the MST Franchise — 5,000 Proceeds from the sale and maturity of marketable securities 84,000 — Purchases of marketable securities ( 60,518 ) ( 62,354 ) Net cash provided by (used in) investing activities 23,365 ( 57,354 ) Cash Flows From Financing Activities: Proceeds related to the issuance of common shares and pre-funded warrants through private placement, net of issuance costs — 82,665 Proceeds related to the issuance of common shares through at-the-market offerings, net of issuance costs — 156 Redemption of convertible preferred stock — ( 360 ) Withholdings from exercise of options and issuance of shares for share-based compensation arrangements, net ( 141 ) ( 67 ) Net cash (used in) provided by financing activities ( 141 ) 82,394 Decrease in cash, cash equivalents and restricted cash ( 10,748 ) ( 301 ) Cash, cash equivalents and restricted cash at beginning of the year 30,674 30,975 Cash, cash equivalents and restricted cash at end of the year $ 19,926 $ 30,674 Cash and cash equivalents 19,926 30,620 Restricted cash — 54 Total cash, cash equivalents and restricted cash $ 19,926 $ 30,674 F - 5 Table of Contents VYNE THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Year ended December 31, 2024 2023 Supplementary information on investing and financing activities not involving cash flows: Accretion of preferred stock $ — $ 149 Issuance of vested shares under employee share purchase plan $ 30 $ 48 Additions to operating lease right of use assets $ — $ 207 Additions to operating lease liabilities $ — $ 214 The accompanying notes are an integral part of these consolidated financial statements. F - 6 Table of Contents VYNE THERAPEUTICS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 1 - NATURE OF OPERATIONS Company Overview VYNE Therapeutics Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on developing differentiated therapies to treat chronic inflammatory and immune-mediated conditions with high unmet need. The Company has exclusive worldwide rights to research, develop and commercialize products containing small molecule bromodomain and extra-terminal domain (“BET”) inhibitors for the treatment of any disease, disorder or condition in humans, which the Company licensed from Tay Therapeutics Ltd., formerly known as In4Derm Ltd ("Tay"). Through the Company’s access to this library of new small molecule BET inhibitors, which comprise the Company's InhiBET™ portfolio, the Company plans to develop product candidates for a diverse set of therapeutic indications. The Company has chosen to initially focus its development efforts with these molecules on immune-mediated inflammatory diseases, which are not being targeted by current BET inhibitors in development. The Company’s lead program is repibresib gel (also known as VYN201), a topically administered, small molecule 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, repibresib produced consistent reductions in pro-inflammatory and disease-related biomarkers and improvements in disease severity across a variety of inflammatory and fibrotic preclinical models. The Company is currently evaluating repibresib gel in a Phase 2b trial for the treatment of NSV. The Company’s second program is VYN202, an oral, small molecule BD2-selective BET inhibitor. VYN202 has been designed to achieve potential class-leading potency and selectivity for BD2 vs. BD1. By maximizing BD2 selectivity, the Company believes VYN202 has the potential to be a potent oral immunomodulator option for both acute control and chronic management of immune-mediated inflammatory conditions, without the hematologic and gastrointestinal adverse effects associated with earlier generation systemic pan-BD BET inhibitors that were being developed in oncologic settings. The Company has completed a Phase 1a single ascending dose/multiple ascending dose ("SAD/MAD") trial of VYN202 in healthy volunteers and announced positive data from this trial in December 2024. The Company initiated a Phase 1b trial in February 2025 in adult subjects with moderate-to-severe plaque psoriasis. The Company intends to advance its product candidates through further phases of clinical development toward regulatory approval. As part of the strategy to maximize the value of the pipeline, the Company may partner with larger pharmaceutical companies to expand and accelerate the development of programs and explore other indications and therapeutic areas outside of the core focus in immune-mediated diseases. For additional information regarding the sale of the Company's legacy commercial business (the "MST Franchise") to Journey Medical Corporation ("Journey") in January 2022 and the Company's licensing arrangements with Tay, see "Note 3—Strategic Agreements." The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment. Reverse stock split and recasting of per-share amounts On February 8, 2023, the Company's board of directors approved a 1-for-18 reverse stock split of its outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:01 p.m. Eastern time. At the effective time, every 18 issued and outstanding shares of the Company's 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 holder of 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 holder’s respective pro rata share of the total net proceeds from the Company’s transfer agent's sale of all fractional shares at the then-prevailing prices on the open market. 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. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged. Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-18 reverse stock split. F - 7 Table of Contents Securities Purchase Agreement On October 27, 2023, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional and other accredited investors (collectively, the “Purchasers”), pursu ant to which the Company agreed to sell and issue to the Purchasers in a private placement transaction (the “Private Placement”) (i) 10,652,543 shares of the Company’s 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, the Company received gross proceeds of $ 88.2 million from the Private Placement, before deducting fees to the placement agent and offering expenses payable by the Company. This transaction resulted in $ 5.5 million of issuance costs and net proceeds of $ 82.7 million as of December 31, 2023. Liquidity and Capital Resources As of December 31, 2024, the Company had cash, cash equivalents and marketable securities of $ 61.5 million and an accumulated deficit of $ 731.2 million. The Company had no outstanding debt as of December 31, 2024. For the year ended December 31, 2024, the Company incurred a net loss of $ 39.8 million and used $ 34.0 million of cash in operations. Other than in connection with its legacy commercial business that was sold in January 2022, the Company has funded its operations primarily through private and public placements of its equity, debt and warrants and through fees, cost reimbursements and payments received from its licensees. The Company has incurred losses and experienced negative operating cash flows since its inception and anticipates that it will continue to incur losses until such a time when its product candidates, if approved, are commercially successful, if at all. The Company will not generate any revenue from any current or future product candidates unless and until it obtains regulatory approval and commercializes such products. If the Company's available cash, cash equivalents and marketable securities are insufficient to satisfy its liquidity requirements, the Company may need to raise additional capital to fund its operations. No assurance can be given as to whether additional needed financing will be available on terms acceptable to the Company, if at all. If sufficient funds on acceptable terms are not available when needed, the Company may be required to suspend or forego certain planned activities. Failure to manage discretionary spending or raise additional financing, as needed, would adversely impact the Company’s ability to achieve its intended business objectives and have an adverse effect on its results of operations and future prospects. In addition, t he amount of proceeds the Company may be able to raise pursuant to its shelf registration statement on Form S-3 is limited. As of the filing of this Annual Report on Form 10-K, the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these rules, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of the Company's common stock held by its non-affiliates. Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling shares of common stock using its Form S-3 until such time as the Company's public float exceeds $ 75.0 million. In accordance with Accounting Standards Codification (“ASC”) Subtopic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that its audited consolidated financial statements are issued. As of the report date, the Company believes its existing cash, cash equivalents and marketable securities are sufficient to fund its operating and capital expenditure requirements for a period of at least 12 months from the date of issuance of these audited consolidated financial statements. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. Basis of presentation The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). b. Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation. F - 8 Table of Contents c. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant items subject to such estimates and assumptions include research and development accruals. Actual results could differ from the Company’s estimates. d. Cash and cash equivalents The Company considers cash equivalents to be all short-term, highly liquid investments, which include short-term bank deposits, treasury bills and money market funds with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. e. Restricted Cash As of December 31, 2024 and 2023, the Company had no and less than $ 0.1 million of restricted cash, respectively, representing bank guarantees. f. Marketable securities Marketable securities with original maturities of greater than three months and remaining maturities of less than one year from the balance sheet date are classified as short-term. Marketable securities with remaining maturities of greater than one year from the balance sheet date are classified as long-term. The Company classifies all marketable securities as available-for-sale debt securities. The Company’s marketable securities are measured and reported at fair value using either quoted prices in active markets for identical securities or quoted prices in markets that are not active for identical or similar securities. Unrealized gains and losses are reported as a separate component of shareholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses, if any, are included in other income, net within the consolidated statement of operations and comprehensive loss. g. Property and equipment Property and equipment are stated at cost, net of accumulated depreciation. The Company’s property and equipment are depreciated by the straight-line method on the basis of their estimated useful life. Estimated useful lives are as follows: Estimated Useful Life Office equipment 5 years h. Impairment of long-lived assets The Company tests long-lived assets for impair ment whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized. The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash flows (discounted cash flows), or some other fair value measure. i. Credit losses An allowance is maintained for potential credit losses in accordance with accounting standards update ("ASU") No. 2016-13. The Company evaluates its allowance based on expected losses rather than incurred losses, which is known as the current expected credit loss (“CECL”) model. The allowance is determined using the loss rate approach and is measured on a collective (pool) basis when similar risk characteristics exist. Where financial instruments do not share risk characteristics, they are evaluated on an individual basis. The allowance is based on relevant available information, from internal and external sources, F - 9 Table of Contents relating to past events, current conditions, and reasonable and supportable forecasts. T rade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain sales allowances and credit losses. Credit losses were not material for the years ended December 31, 2024 and 2023. j. Leases The Company's lease portfolio mainly consists of office space. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Operating lease assets represent the Company’s right to use an underlying asset for the lease term whereas lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. Operating lease expense is recognized on a straight-line basis over the expected lease term. k. Contingencies Certain conditions may exist as of the date of the consolidated financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees are disclosed. l. Share-based compensation The Company accounts for employees’ and directors’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period using the straight-line method. Forfeitures are recognized as they occur. Share-based payments related to the employee share purchase plan (“ESPP”) are recognized based on the fair value of each award estimated on the first day of the offering period and recognized as an expense over the offering period using the straight-line method. The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method. m. Revenue recognition The Company accounts for its revenue transactions under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies F - 10 Table of Contents the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied. Following the disposition of the MST Franchise in January 2022, the Company does not have any revenue generating products; however, the Company may receive royalty revenues from the sale of specified products (see "Note 4—Discontinued Operations"). Royalty Revenues and Collaboration Agreements The Company is entitled to royalty payments with respect to sales of Finacea foam. The Company previously licensed the rights to Finacea foam to LEO Pharma A/S ("LEO Pharma"). Finacea foam was not part of the MST Franchise that was sold in January 2022. Royalties are recognized as revenue when the product is sold by LEO Pharma. For the year ended December 31, 2024 and 2023, royalty revenues were $ 0.5 million and $ 0.4 million, respectively. For collaboration agreements under ASC 606, the Company identifies the contract, identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied. The Company identifies the performance obligations included within the agreement and evaluate which performance obligations are distinct. Upfront payments for licenses are evaluated to determine if the license is capable of being distinct from the obligations to participate on certain development and/or commercialization committees with the collaboration partners and supply manufactured drug product for clinical trials. For performance obligations that are satisfied over time, the Company utilizes the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company periodically reviews estimated periods of performance based on the progress under each arrangement and accounts for the impact of any changes in estimated periods of performance on a prospective basis. Milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive event. Milestone payments are estimated and are included in the transaction price when the Company determines that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods. Product Sales Provisions The Company's 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. The Company sold the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products. Provisions for distribution fees, trade discounts and chargebacks related to the sales of AMZEEQ and ZILXI are reflected as a reduction to trade receivables, net on the consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the consolidated balance sheet. The revenue reserve liability was $ 2.1 million and $ 2.3 million as of December 31, 2024 and 2023, respectively. Under the terms of the Asset Purchase Agreement, the Company retained and is responsible for historical liabilities of the commercial business operations based on events occurring prior to the sale other than those liabilities expressly assumed by Journey. Contract Assets and Contract Liabilities The Company did not have any contract assets (unbilled receivables) related to product sales as of December 31, 2024 or 2023, as customer invoicing generally occurred before or at the time of revenue recognition. Similarly, the Company did not have any contract assets (unbilled receivables) related to its royalty revenues as of December 31, 2024 or 2023. F - 11 Table of Contents The Company did not have any contract liabilities as of December 31, 2024 or 2023, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers. n. Collaboration arrangements The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company will assess whether aspects of the arrangement between it and their collaboration partner are within the scope of other accounting literature. o. Research and development expenses All expenses associated with research and development are expensed as incurred. Research and development expenses include expenses directly attributable to conducting the Company's research and development programs, including expenses incurred under arrangements with third parties, such as contract research organizations, contract development and manufacturing organizations and consultants as well as the cost of clinical trials, clinical trial supplies, salaries, share-based compensation expenses, payroll taxes and other employee benefits. Expenses are considered incurred based on the evaluation of the progress to completion of specific tasks under each contract using information and data provided by the service providers and vendors or the Company's estimate of the level of service that has been performed at each reporting date, whereas payments are dictated by the terms of each agreement, such as the successful enrollment of a certain number of patients, site initiation, and the completion of clinical trial milestones. As such, depending on the timing of the payment relative to the receipt of goods or services, management may record prepaid expenses, accrued expenses, or other assets. p. Fair value measurement Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value. q. Income taxes Deferred taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent F - 12 Table of Contents that it is more likely than not that the deferred taxes will not be realized in the foreseeable future. Given the Company’s losses, the Company has provided a full valuation allowance with respect to its deferred tax assets. Uncertainty in income tax The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement. r. Net loss per share Net loss per share, basic and diluted, is computed on the basis of the net loss from continuing operations for the period divided by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is based upon the weighted average number of shares of common stock and of common stock equivalents outstanding when dilutive. The Company has issued the Pre-Funded Warrants, which do not expire until they are exercised in full (see "Note 12— Mezzanine Equity and Shareholder's Equity"). Pursuant to the guidance of ASC 260-10, the Company concluded that because the equity-classified Pre-Funded Warrants were immediately exercisable for little or no cash consideration, due to the non-substantive exercise price, all of the necessary conditions for issuance of the underlying shares of common stock had been met when the Pre-Funded Warrants were issued. Therefore, the underlying shares of common stock should be included in the denominator for both the calculation of basic and diluted net loss per share of common stock for the year ended December 31, 2024. The following stock options, restricted stock units (“RSUs”) and warrants were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented: Year ended December 31, (in numbers of shares) 2024 2023 Outstanding stock options and RSUs 2,335,019 1,205,516 Warrants 27,509 27,509 s. Concentration of credit risks Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, restricted cash, marketable securities and accounts receivables. The Company deposits cash and cash equivalents with highly rated financial institutions and, as a matter of policy, limits the amounts of credit exposure to any single financial institution. In addition, all marketable securities carry a high credit rating or are government insured. The Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments. Existing royalty receivables relate to one customer, but do not present a credit risk due to their immaterial nature. There was no restricted cash as of December 31, 2024, thereby presenting no credit risk. t. Employee Retention Tax Credit In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, providing numerous tax provisions and other stimulus measures, including employee retention tax credits (“ERTC”). The ERTC was a refundable tax credit against certain employment taxes for qualifying businesses retaining employees on their payroll during the COVID-19 pandemic and allowed eligible employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they paid to employees, initially from March 27, 2020 until June 30, 2021, and extended through September 30, 2021. During 2022, the Company filed returns with the Internal Revenue Service (IRS) and claimed credits totaling $ 1.3 million. During the first quarter of 2023, the Company received the full $ 1.3 million. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the F - 13 Table of Contents Company has accounted for the ERTC by analogy to International Accounting Standard, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). The ERTC filings remain open to examination by the IRS until April 2025, and as such the Company has recorded the $ 1.3 million received within other current liabilities on the consolidated balance sheet as of December 31, 2024 until such a time that the Company has reasonable assurance that the conditions associated with the grants have been met. u. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding. For issued warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. Liability-classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component of other income, net in the statements of operations. As of December 31, 2024 and 2023, all of the Company's outstanding warrants were equity-classified warrants. v. Newly issued and recently adopted accounting pronouncements : Recent Accounting Guidance Issued In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable and marketable securities, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company adopted ASU 2016-13 effective January 1, 2023, and there was no material impact on the consolidated financial statements upon adoption. In December 2022, the FASB issued ASU No. 2022-06, " Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" (ASU 2022-06), which provides extension of the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company is currently evaluating the impact of ASU 2020-04 and ASU 2022-06 on its consolidated financial statements. Currently, the Company does not expect the adoption of the new standard to have a material impact to the consolidated financial statements. In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures" (ASU 2023-07), to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 31, 2024. The Company adopted the standard as of December 31, 2024. See Note 15 in the accompanying notes to the consolidated financial statement for further information. In December 2023, the FASB issued ASU No. 2023-09, " Income Taxes (Topic 740)—Improvements to Income Tax Disclosures " ("ASU 2023-09"), which is intended to enhance the transparency and decision usefulness of income tax disclosures. Public business entities are required to adopt this standard for annual fiscal periods beginning after December 31, 2024 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, "Comprehensive Income (Topic 220)—Disaggregation of Income Statement Expenses" ("ASU 2024-03"), to improve financial reporting by requiring disclosures in the notes to financial F - 14 Table of Contents statements about specific types of expenses included in the expense captions presented on the face of the statement of operations. The requirements of the ASU, as clarified by ASU 2025-01 issued in January 2025, are effective for annual reporting periods beginning after December 15, 2026 and for interim reporting periods beginning after December 15, 2027, with early adoption permitted. The requirements will be applied prospectively with the option for retrospective application. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements and related disclosures. NOTE 3 - STRATEGIC AGREEMENTS Agreements with Tay Therapeutics Evaluation and Option Agreement In April 2021, the Company entered into an Evaluation and Option Agreement (the “Option Agreement”) with Tay. Pursuant to the Option Agreement, Tay granted the Company 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, the Company 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 and select new chemical entity development candidate from its highly selective BET inhibitor compounds (the "Oral BETi Compounds"). The Company 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. Under the terms of the Option Agreement, the Company's option (the "Oral Option") with respect to the Oral BETi Compounds was to expire on June 30, 2022 (the "Option Term"), but in June 2022, the Company 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, the Company paid Tay $ 386,366 (£ 300,000 ) on June 28, 2022 to extend the Option Term. In addition, on August 29, 2022, the Company 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, the Company paid Tay $ 250,000 upon the execution of the Second Letter Agreement. Per the terms of the Second Letter Agreement, this fee was deducted from the upfront fee paid by the Company to Tay following the Company's exercise of the Oral Option, as described below. License for Locally Administered Pan-BD BET Inhibitor Program (Repibresib) On August 6, 2021, the Company exercised its option with respect to the repibresib program and, on August 9, 2021, the parties entered into a License Agreement (the “Repibresib License Agreement”) granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields. The Company has the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at its sole cost and discretion. The Company is required to use commercially reasonable efforts to develop and, if approved, commercialize such products. Pursuant to the Repibresib 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 Repibresib License Agreement, the Company 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. The Company made a $ 0.5 million cash payment to Tay in connection with entering into the Repibresib License Agreement. Pursuant to the Repibresib License Agreement, the Company has agreed to make cash payments to Tay of up to $ 15.75 million upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States for all indications, of whic h $ 1.8 million h as been paid or accrued through December 31, 2024. 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 the Company commercializes under the Repibresib License Agreement, the Company will pay tiered royalties to Tay on net sales of such licensed products by the Company, its affiliates, or sublicensees, of 5 %, 7.5 % and 10 % based on tiered annual net sales bands subject to specified reductions. The Company is 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. Pursuant to the Repibresib License Agreement, VYNE was granted a sublicense under certain intellectual property which was licensed to Tay by the University of Dundee (“Dundee”) pursuant to a certain license agreement between Tay and Dundee effective as of July 24, 2020 and amended and restated on October 8, 2021 (the “Head License”). On February 13, 2025, Tay and Dundee entered into an agreement for the termination of the Head License and assignment of such intellectual property from Dundee to Tay. Upon termination of the Head License, the Repibresib License Agreement was accordingly amended to reflect the assignment of the intellectual property to Tay upon its payment in full to Dundee. The amendment does not change any of Tay’s or VYNE’s rights or obligations under the Repibresib License Agreement, except that any references to the Head License were removed and any obligations owed by VYNE to Dundee with respect to repibresib are now owed to Tay. License for Selective BET Inhibitor Program (VYN202) On April 28, 2023, the Company exercised the Oral Option and entered into a license agreement (the "VYN202 License Agreement") with Tay granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s Oral BETi Compounds in all fields. The Company has the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at the sole cost and discretion of the Company, and shall use commercially reasonable efforts to develop and, if approved, commercialize such products. VYNE may sublicense its rights to a third party without Tay’s consent. Pursuant to the License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products. The Company made a cash payment of $ 3.75 million, after deducting the $ 250,000 paid 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, the Company 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, of which $ 1.3 million has been paid or accrued through December 31, 2024. 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 the Company commercializes under the VYN202 License Agreement, the Company will pay tiered royalties to Tay on net sales of such licensed products by the Company, its affiliates, or sublicensees, of 5 %, 7.5 % and 10 % based on tiered annual net sales bands subject to specified reductions. The Company is 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. Sale of the MST Franchise On January 12, 2022, VYNE entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey pursuant to which the Company sold its 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 Agreement, Journey assumed certain liabilities of the MST Franchise. There were no current or long-term liabilities recorded by the Company which were transferred to Journey. Pursuant to the Purchase Agreement, the Company received an upfront payment of $ 20.0 million at the closing of the sale of the MST franchise and received an additional $ 5.0 million deferred payment in January 2023. The Company is 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, the Company is entitled to receive certain payments from any licensing or sublicensing of the assets by Journey outside of the United States. F - 15 Table of Contents NOTE 4 – DISCONTINUED OPERATIONS The Company determined that the sale of the MST Franchise represented a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations. Accordingly the MST Franchise is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations . In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the MST Franchise. The negative product sales for the year ended December 31, 2023 was primarily attributable to a change in the product returns provision following the sale of the MST Franchise. The following table presents the combined results of discontinued operations of the MST Franchise: Year ended December 31, (in thousands) 2024 2023 Product sales, net $ — $ ( 525 ) Operating expenses: General and administrative 27 55 Total operating expenses 27 55 Loss from discontinued operations, before taxes ( 27 ) ( 580 ) Income tax expense — — Net loss from discontinued operations $ ( 27 ) $ ( 580 ) There were no non-cash items related to discontinued operations for the years ended December 31, 2024 and 2023. The milestone payments for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration. Contingent consideration has been accounted for as a gain contingency in accordance with ASC 450, Contingencies , and will be recognized in earnings in the period when realizable. NOTE 5 - FAIR VALUE MEASUREMENTS The Company’s financial assets that are measured at fair value as of December 31, 2024 and 2023 are classified in the tables below in one of the three categories described in "Note 2(p)—Fair value measurement" above: December 31, 2024 (in thousands) Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 19,926 $ — $ — $ 19,926 Marketable securities — 41,590 — 41,590 Total assets $ 19,926 $ 41,590 $ — $ 61,516 December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 20,353 $ 10,267 $ — $ 30,620 Marketable securities — 62,633 — 62,633 Total assets $ 20,353 $ 72,900 $ — $ 93,253 Other financial instruments consist of trade receivables, trade payables and accrued expenses. The fair value of these financial instruments approximates their carrying values due to their short-term nature. In determining the fair value of its Level 2 investments, the Company relied on quoted prices for identical securities in markets that are not active. These quoted prices were obtained by the Company with the assistance of a third-party pricing service based on available trade, bid and other observable market data for identical securities. F - 16 Table of Contents FOAMIX PHARMACEUTICALS LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (U.S. dollars in thousands, except share and per share amounts) NOTE 6 - MARKETABLE SECURITIES As of December 31, 2024 and 2023, marketable securities consisted of U.S. Government and agency debt securities as well as U.S. Treasury bills. The following tables sets forth the Company’s marketable securities: December 31, (in thousands) 2024 2023 U.S. Government and agency debt securities $ 10,572 $ 31,886 U.S. Treasury bills 31,018 30,747 Total $ 41,590 $ 62,633 As of December 31, 2024 and 2023, the amortized cost, gross unrealized gains, gross unrealized losses and fair value were as follows: December 31, 2024 (in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government and agency debt securities $ 10,568 $ 4 $ — $ 10,572 U.S. Treasury bills 31,002 16 — 31,018 Total $ 41,570 $ 20 $ — $ 41,590 December 31, 2023 (in thousands) Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value U.S. Government and agency debt securities $ 31,866 $ 30 $ ( 10 ) $ 31,886 U.S. Treasury bills 30,742 5 — 30,747 Total $ 62,608 $ 35 $ ( 10 ) $ 62,633 As of December 31, 2024 and 2023, $ 41.6 million and $ 62.6 million, respectively, of the marketable securities were in an unrealized gain position. The Company determined that unrealized gains and losses on marketable securities were primarily due to interest rate changes. No allowance for credit losses related to any of these securities was recorded for the years ended December 31, 2024 and 2023. All maturities are less than 12 months. NOTE 7 - PROPERTY AND EQUIPMENT The following table sets forth the Company's property and equipment, net as of December 31, 2024: December 31, (in thousands) 2024 Office equipment $ 117 Property and equipment 117 Less: Accumulated depreciation ( 4 ) Property and equipment, net $ 113 The Company had no property and equipment as of December 31, 2023. F - 17 Table of Contents Depreciation expense totaled $ 4 thousand and $ 0 for the years ended December 31, 2024 and 2023, respectively, which is included within general and administrative expenses on the consolidated statements of operations and comprehensive loss. NOTE 8 - ACCRUED EXPENSES Accrued expenses consisted of the following: December 31, (in thousands) 2024 2023 Product sales provisions (1) $ 2,107 $ 2,250 Research and development (2) 6,622 990 Professional services 491 648 Other 52 231 Total accrued expenses $ 9,272 $ 4,119 (1) Comprised primarily of liabilities related to product returns associated with the MST Franchise. (2) Comprised primarily of accruals related to fees for contract research organizations, investigative sites, and other service providers that assist in conducting preclinical research studies and clinical trials . NOTE 9 – OPERATING LEASE As of December 31, 2024, the Company had an operating lease for its principal executive office in Bridgewater, New Jersey. In November 2022, the Company 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. Following the termination of the Sublease, the Company signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises through September 30, 2025. The Company recorded a right of use asset of $ 0.2 million and liability of $ 0.3 million at the commencement date of the Master Lease on October 1, 2023. The components of lease expense are as follows: Year ended December 31, (in thousands) 2024 Year Ended 2023 Operating lease expense $ 126 $ 32 Short-term lease expense — 86 Variable lease expense 10 ( 16 ) Total lease expense $ 136 $ 102 Variable lease expense primarily consists of utility and other common area maintenance ("CAM") charges. For the year ended December 31, 2023 the variable lease expenses included a reversal of immaterial expense related to CAM charges. Lease expense is included within general and administrative expenses on the consolidated statements of operations and comprehensive loss. Supplemental operating cash flows information is as follows: Year ended December 31, (in thousands) 2024 Year Ended 2023 Operating leases $ 126 $ 25 F - 18 Table of Contents Supplemental consolidated balance sheet information related to leases is as follows: (in thousands) December 31, 2024 December 31, 2023 Operating lease right-of-use assets $ 93 $ 207 Operating lease liabilities $ 99 $ 214 Weighted average remaining lease term 0.75 1.75 Weighted average discount rate 8.00 % 8.00 % Maturities of lease liabilities as of December 31, 2024 are as follows: (in thousands) Year ended December 31, 2024 2025 $ 101 Total lease payments 101 Less imputed interest ( 2 ) Total lease liability 99 Total current operating lease liabilities $ 99 NOTE 10 - EMPLOYEE SAVINGS PLAN The Company makes retirement savings plans available to all of its employees and those of its subsidiary, which are intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401(k) Plans”). The Company made contributions to these 401(k) Plans during the years ended December 31, 2024 and 2023 of $ 0.1 million in each period. NOTE 11 – COMMITMENTS AND CONTINGENCIES Litigation and contingencies The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of December 31, 2024, there were no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company. NOTE 12 - MEZZANINE AND SHAREHOLDERS' EQUITY Preferred stock As of December 31, 2024, the Company's Amended and Restated Certificate of Incorporation (as amended, the "Certificate of Incorporation") authorized the Company to issue 20,000,000 shares of preferred stock, par value $ 0.0001 per share. There wer e no shares of preferred stock issued and outstanding as of December 31, 2024 and 2023. Shares of preferred stock may be issued from time to time in one or more series. The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's Board of Directors. On November 11, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mutual Fund Series Trust, on behalf of AlphaCentric LifeSci Healthcare Fund (“AlphaCentric”), pursuant to which the Company issued on November 14, 2022, in a private placement transaction, an aggregate of 3,000 shares of Series A Convertible Preferred Stock, par value $ 0.0001 per share (the “Series A Preferred”), for an aggregate subscription amount equal to $ 300,000 . This transaction resulted in $ 89,000 of issuance costs and net proceeds of $ 211,000 . The Company determined that the Series A Preferred should be classified as Mezzanine Equity (temporary equity outside of permanent equity), because the Series A Preferred more closely aligned with debt as the intent was for redemption by either the holder or the Company due to the favorable redemption terms. F - 19 Table of Contents The Purchase Agreement required that the Company convene a meeting of stockholders for the purpose of presenting a proposal (the “Proposal”) authorizing the Company's board of directors to approve a reverse stock split of its outstanding common stock, with the recommendation of the board of directors that the Proposal be approved, and that the Company use reasonable best efforts to obtain approval of the Proposal. The meeting was convened on January 12, 2023, and the Proposal was approved. Additionally, the Purchase Agreement contained customary representations, warranties and agreements of the Company and AlphaCentric, and customary indemnification rights and obligations of the parties. Pursuant to the Purchase Agreement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Co nvertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of Delaware on November 14, 2022 designating 3,000 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred with a par value of $ 0.0001 per share and establishing the rights, preferences and limitations of the Series A Preferred. The Certificate of Designation prov ided, among other things, that except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series A Preferred would have no voting rights (other than the right to vote as a class on certain matters as provided in the Certificate of Designation). However, pursuant to the Certificate of Designation, each share of Series A Preferred entitled the holder thereof (i) to vote on the Proposal and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Proposal, and (ii) to 1,000,000 votes per share of Series A Preferred on the Proposal and any such adjournment proposal. The Series A Preferred should, except as required by law, vote together with the common stock (and other issued and outstanding shares of preferred stock entitled to vote), as a single class; provided, however, that such shares of Series A Preferred should, to the extent cast on the Proposal or any such adjournment proposal, be automatically and without further action of the holders thereof voted in the same proportion as the shares of common stock (excluding abstentions and any shares of common stock that are not voted) and any other issued and outstanding shares of preferred stock of the Company entitled to vote (other than the Series A Preferred or shares of such other preferred stock, if any, not voted) are voted on the Proposal. In addition, the Series A Preferred were entitled to customary dividends and distributions when and if paid on shares of the common stock and were entitled to the voting rights discussed above. The Series A Preferred had preference over the common stock with respect to distribution of assets or available proceeds, as applicable, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any other deemed liquidation event. The shares of Series A Preferred were convertible at the option of the holder, at a conversion price of $ 4.68 per share (as adjusted for the reverse stock split), into shares of the Company’s common stock, at any time and from time to time from and after 15 business days following the earlier of (i) the date of the approval of the Proposal or (ii) the date the Company otherwise satisfied the Nasdaq listing requirements. The Company had the right to redeem the Series A Preferred at any time during the 15 business days following the approval of the Proposal (the "Company Redemption Period") at 120 % of the stated value. Each holder of Series A Preferred had the right to require the Company to redeem all or a portion of the Series A Preferred held by such holder following the expiration of the Company Redemption Period at 130 % of the stated value. In addition, the Company would automatically redeem all of the Series A Preferred within five business days following a delisting event as specified in the Certificate of Designation at 130 % of the stated value. On January 17, 2023, the Company redeemed all outstanding shares of its Series A Preferred, for an aggregate of $ 360,000 paid to AlphaCentric. The redemption payment represented 120 % of the stated value of the Series A Preferred Stock pursuant to the Certificate of Designation. On January 17, 2023, the Company filed a Certificate of Elimination (the “Certificate”) with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock. The Certificate (i) eliminated the previous designation of 3,000 shares of Series A Preferred Stock from the Company’s Amended and Restated Certificate of Incorporation, none of which were outstanding at the time of filing, and (ii) caused such shares of Series A Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock. Common stock Pursuant to the Certificate of Incorporation, the Company is authorized to issue 150,000,000 shares of common stock, par value $ 0.0001 per share. Each share of common stock is entitled to one v ote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends on common stock. F - 20 Table of Contents On February 8, 2023, the Company's Board of Directors approved a 1-for-18 reverse stock split of the Company's outstanding shares of common stock. The reverse stock split was effected on February 10, 2023. At the effective time, every 18 issued and outstanding shares of the Company's 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 holder of fractional shares was entitled to receive a cash payment (without interest or deduction) in an amount equal to such holder’s respective pro rata share of the total net proceeds from the Company’s transfer agent's sale of all fractional shares at the then-prevailing prices on the open market. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged. Unless noted, all common stock and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-18 reverse stock split. As of December 31, 2024, t he Company had reserved shares of common stock for future issuance as follows: (in numbers of shares) December 31, 2024 Shares underlying outstanding Pre-Funded Warrants 27,842,740 Common stock options outstanding (Note 13) 1,584,304 Shares available for future grant under 2023 Plan (Note 13) 1,574,557 Outstanding restricted stock units (Note 13) 750,715 Shares available for grant under the Employee Stock Purchase Plan (Note 13) 87,122 Shares underlying other outstanding warrants 27,509 Shares available for future grant under 2024 Inducement Plan (Note 13) 1 31,866,948 Issuances of common stock and warrants At-the-Market Equity Offering Program On August 12, 2021, the Company entered into a sales agreement (the "Cantor Sales Agreement") with Cantor Fitzgerald to sell shares of the Company's 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 would act as the Company's sales agent. Cantor Fitzgerald was entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold under the Cantor Sales Agreement. During the year ended December 31, 2023, the Company issued and sold 34,589 shares of common stock at a weighted average per share price of $ 4.66 pursuant to the Cantor Sales Agreement for $ 0.2 million in net proceeds. On February 27, 2024, the Company delivered notice to Cantor Fitzgerald to terminate the Cantor Sales Agreement. The Company cannot make any future sales of its common stock pursuant to the Cantor Sales Agreement. On March 1, 2024, the Company entered into a Sales Agreement (the “Cowen Sales Agreement”) with Cowen and Company, LLC, as sales agent (“Cowen”) under which the Company may offer and sell, from time to time at its sole discretion, shares of the Company's common stock through Cowen in an at-the-market offering having an aggregate offering price up to $ 50.0 million. Cowen is entitled to compensation for its services equal to 3.0 % of the gross proceeds of any shares of common stock sold under the Cowen Sales Agreement. The Company did not sell any shares of common stock under the Cowen Sales Agreement during the year ended December 31, 2024. Private Placement On October 27, 2023, the Company entered into the Securities Purchase Agreement, pursu ant to which the Company agreed to sell and issue to the Purchasers in the Private Placement (i) 10,652,543 shares of the Company’s 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 Stock Purchase Price was $ 2.245 per share 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, the Company received gross proceeds of $ 88.2 million from the Private Placement. This transaction resulted in $ 5.5 million of issuance costs and net proceeds of $ 82.7 million. F - 21 Table of Contents Pre-Funded Warrants The Pre-Funded Warr ants issued in the Private Placement will not expire until exercised in full. The Pre-Funded Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof immediately following such exercise would exceed a specified beneficial ownership limitation; provided, however, that a holder may increase or decrease the beneficial ownership limitation by giving 60 days’ notice to the Company, but not to exceed any percentage in excess of 19.99 %. As of December 31, 2023, 131,843 of Pre-Funded Warrants were exercised pursuant to a net exercise mechanism. During the year ended December 31, 2024, 639,854 of Pre-Funded Warrants were exercised pursuant to a net exercise mechanism. As of December 31, 2024, 27,842,740 Pre-Funded Warrants remained outstanding. Other Warrants As of December 31, 2024 and 2023, the Company had warrants to purchase an aggregate of 27,509 shares of the Company’s common stock outstanding, with exercise prices of $ 8.40 , and an expiration date of July 29, 2026. These warrants were issued by Foamix (as defined below) in connection with a financing in July 2019 and were subsequently assumed by the Company in connection with the Merger (as defined below). Pursuant to the warrant certificate, the exercise price of the warrant will be proportionally adjusted in the event that the Company issues common stock at a price per share less than the exercise price (the "Down Round Feature"). During the year ended December 31, 2023, the Down Round Feature was triggered due to the price per share received from the issuances of common stock. The Company calculated the value of the effect of Down Round Feature measured as the difference between the warrants’ fair value, using the Black-Scholes-Merton option-pricing model, before and after the Down Round Feature was triggered using the original exercise price and the new exercise price. The difference in fair value of the effect of the Down Round Feature was immaterial and had an immaterial impact on net loss per share in the period presented. The exercise price will continue to be adjusted in the event the Company issues additional shares of common stock below the then-current exercise price, in accordance with the terms of the warrants. The Pre-Funded Warrants and warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Pre-Funded Warrants and warrants do not provide any guarantee of value or return. NOTE 13 - SHARE-BASED COMPENSATION 2023 Equity Incentive Plan The Company maintains the 2023 Equity Incentive Plan (the "2023 Plan") and previously maintained the 2019 Equity Incentive Plan (the “2019 Plan”) and 2018 Omnibus Incentive Plan (the "2018 Plan"). Following stockholder approval during the year ended December 31, 2023, any shares then available for future grant under the 2019 Plan and 2018 Plan were allocated to the 2023 Plan and no further grants could be made under the 2018 Plan and the 2019 Plan. In December 2024, stockholders approved a proposal to amend the 2023 Plan to further increase shares available for grant under the 2023 Plan by 1,520,000 shares. As of December 31, 2024 , 1,574,557 shares remained issuable under the 2023 Plan. 2024 Inducement Plan On February 28, 2024, the Board approved the Company's 2024 Inducement Plan (the "Inducement Plan"). Pursuant to the Inducement Plan and Nasdaq Listing Rule 5635(c)(4), the Company is permitted to grant equity awards as an inducement material to an individual's entering into employment with the Company, subject to certain conditions ("Inducement Grants"). In November 2024, the Board reduced the number of shares available to be issued under the Inducement Plan to one share. As of December 31, 2024 , there was one share available for future Inducement Grants. 2019 Employee Share Purchase Plan The Company has adopted an Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85 % of the lesser of the F - 22 Table of Contents fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15 % of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code. As of December 31, 2024, 87,122 shares remained available for grant under the ESPP. During the years ended December 31, 2024 and 2023, 14,080 a nd 15,261 shares were purchased by employees pursuant to the ESPP, respectively. Options and Restricted Stock Units ("RSUs") granted to employees and directors For the years ended December 31, 2024 and 2023, the Company granted options and RSUs to employees and directors as follows: Year ended December 31, 2024 Award amount Exercise price range Vesting period Expiration Options 870,000 $ 1.96 - $ 2.40 1 year - 4 years 10 years RSUs 435,000 — 4 years — Year ended December 31, 2023 Award amount Exercise price range Vesting period Expiration Options 535,000 $ 2.70 1 year - 4 years 10 years RSUs 435,000 — 4 years — During the years ended December 31, 2024 and 2023, the fair value of options and RSUs granted to employees and directors was $ 2.6 million and $ 2.4 million, respectively. The fair value of RSUs granted is based on the share price on grant date. One share of common stock will be issued upon settlement of each RSU that vests. The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on a combination of historical volatilities of companies in comparable stages as well as companies in the industry, by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The Company’s management uses the expected term of each option as its expected life. The expected term of the options granted represents the period of time that granted options are expected to remain outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the contractual term. The Company used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. The underlying data used for computing the fair value of the options are as follows: Year ended December 31, 2024 2023 Exercise price $ 1.96 - $ 2.40 $ 2.70 Dividend yield — % — % Expected volatility 104.00 % - 105.73 % 104.42 % - 105.64 % Risk-free interest rate 3.95 % - 4.32 % 4.04 % Expected term 6 years 6 years F - 23 Table of Contents Modification of share-based compensation On November 10, 2019, Menlo Therapeutics Inc. ("Menlo") entered into a merger agreement (the "Merger Agreement") with Foamix Pharmaceuticals Ltd. ("Foamix") and Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo ("Merger Sub"). On March 9, 2020, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the "Merger"). The combined company changed its name to VYNE in September 2020. Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged for stock options and RSUs of Menlo’s common stock according to the exchange ratio set forth in the Merger Agreement. In addition, for each option and RSU the holder received a contingent stock right ("CSR"). This transaction was considered to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded immaterial incremental compensation expense. On April 6, 2020, pursuant to the terms of the agreement governing the CSRs, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective exchange ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation expense of $ 7 thousand and $ 46 thousand for the years ended December 31, 2024 and 2023, respectively. Summary of outstanding and exercisable options and RSUs The following table summarizes stock option activity for the year ended December 31, 2024: Number of options Weighted Average Exercise Price Outstanding at December 31, 2023 744,537 $ 40.65 Granted 870,000 2.27 Forfeited ( 25,572 ) 2.94 Expired ( 4,661 ) 222.61 Outstanding at December 31, 2024 1,584,304 $ 19.65 Exercisable at December 31, 2024 397,143 $ 70.32 The weighted average grant date fair value of options granted during the years ended December 31, 2024 and 2023 was $ 1.6 million and $ 1.2 million, respectively. The weighted average remaining contractual term of outstanding and exercisable options as of December 31, 2024 was 8.62 years and 7.06 years, respectively. Total unrecognized share-based compensation for options at December 31, 2024 was $ 1.9 million, which is expected to be recognized over a weighted average period of 2.76 years. The intrinsic value of outstanding and exercisable options was $ 1.3 million and $ 134 thousand, respectively, as of December 31, 2024. The following table summarizes RSU activity for the year ended December 31, 2024: Number of RSUs Weighted Average Grant Date Fair Value Outstanding at December 31, 2023 460,979 $ 4.99 Awarded 435,000 2.33 Vested ( 119,724 ) 9.76 Forfeited ( 25,540 ) 2.79 Outstanding at December 31, 2024 750,715 $ 2.77 The weighted average remaining contractual term of outstanding RSUs as of December 31, 2024 was 1.52 years. Total unrecognized compensation expense related to the unvested portion of the RSUs at December 31, 2024 was $ 1.8 million , which is expected to be recognized over a weighted average period of 3.11 years. F - 24 Table of Contents Share-based compensation expenses The following table illustrates the allocation of share-based compensation expense on the line items on the statements of operations and comprehensive loss: Year ended December 31, (in thousands) 2024 2023 Research and development $ 548 $ 534 General and administrative 2,755 2,771 Total $ 3,303 $ 3,305 NOTE 14 - INCOME TAX The loss before income taxes and the related tax (benefit) expense is as follows: Year ended December 31, (in thousands) 2024 2023 Income (loss) before income taxes: Domestic $ ( 39,830 ) $ ( 28,459 ) Foreign — 7 Total loss before taxes $ ( 39,830 ) $ ( 28,452 ) Current taxes: Federal $ — $ ( 123 ) State 4 2 Foreign — 121 Total current taxes $ 4 $ — A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows: Year ended December 31, 2024 2023 Federal income tax provision at statutory rate 21.00 % 21.00 % State income tax provision, net of federal benefit ( 0.01 ) % ( 0.01 ) % Permanent differences ( 0.06 ) % ( 0.57 ) % Change in valuation allowances ( 20.94 ) % ( 20.42 ) % Effective income tax rate ( 0.01 ) % — % The income tax expense for the years ended December 31, 2024 and 2023 differed from the amounts computed by applying the U.S. federal income tax rate of 21% to loss before tax expense as a result of nondeductible expenses, changes in state effective tax rates, foreign taxes, tax credits generated, true up of net operating loss carryforwards, and increase in the Company’s valuation allowance. The Company applies the elements of ASC 740-10 regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. Included in other liabilities on the consolidated balance sheets are the total amount of unrecognized tax benefits of approximately $ 2.6 million and $ 2.5 million as of December 31, 2024 and 2023, respectively, net of the federal benefit, which is offset by a valuation allowance. The Company’s policy is to recognize interest and penalties related to tax matters within the income tax provision. Tax years beginning in 2020 are generally subject to examination by taxing authorities, although net F - 25 Table of Contents operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used. The significant components of the Company's deferred tax assets and liabilities are as follows: December 31, (in thousands) 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 75,922 $ 72,508 Tax credit carryforwards 7,171 6,851 Section 174 expenses 14,720 7,775 Share-based compensation 2,217 1,988 Accrued expenses and other 649 651 Total gross deferred tax assets 100,679 89,773 Less: valuation allowance ( 100,679 ) ( 89,773 ) Net deferred tax assets $ — $ — Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forward losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is not likely, the Company recorded a full valuation allowance. At December 31, 2024 and 2023, the Company recorded a valuation allowance against its net deferred tax assets of $ 100.7 million and $ 89.8 million, respectively. The change in the valuation allowance during the years ended December 31, 2024 and 2023 was an increase of $ 10.9 million and $ 2.9 million, resp ectively. A valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards beco me deductible or are utilized. As of December 31, 2024, the Company had federal and state net operating loss carryforwards of $ 343.4 million and $ 53.6 million, respectively, of which $ 44.3 million will begin to expire in 2031 for federal and $ 53.6 million will begin to expire in 2040 for state purposes. As of December 31, 2024, the Company had federal research and development tax credit carryforwards of $ 7.2 million which will begin to expire in 2031. The Company has no state research and development tax credit carryforwards. As a result of U.S. tax reform legislation, federal net operating losses generated beginning in 2018 and subsequent years carryforward indefinitely, however, the Company has federal net operating losses that pre-date U.S. tax reform legislation which begin to expire in 2031 and federal credit carryforwards that begin to expire in 2031. State net operating loss carryforwards begin to expire in 2031, and the state credit carryforwards began to expire in 2031. Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has not completed a 382 study through December 31, 2024 , however, it may have experienced ownership changes in the past, including in connection with the Merger. In addition, the Private Placement likely resulted in an ownership change for purposes of Section 382 and therefore t he Company may be materially limited in the amount of NOL and R&D tax credit available for utilization in the future. The Company generated research and development tax credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, a partial reserve has been presented as an uncertain tax position which is offset against the gross research and development deferred tax asset. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance. Uncertain tax positions: ASC No. 740, Income Taxes, requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company. F - 26 Table of Contents The following table summarizes the activity of the Company's unrecognized tax benefits (in thousands): Balance at January 1, 2023 $ 2,854 Additions for prior year positions 19 Additions for current year positions 105 Reductions related to expiration of statute of limitations ( 520 ) Balance at December 31, 2023 $ 2,458 Reductions for prior year positions ( 3 ) Additions for current year positions 111 Balance at December 31, 2024 $ 2,566 NOTE 15 - SEGMENT INFORMATION The Company operates in one operating segment, and therefore one reportable segment, focused on the development of differentiated therapies to treat chronic inflammatory and immune-mediated conditions of high unmet need. This determination, that the Company operates as a single operating segment, is consistent with the financial information regularly reviewed by the Chief Operating Decision Maker (“CODM”) for purposes of evaluating performance, allocating resources, and planning and forecasting for future periods. The Company's Chief Executive Officer (“CEO”) is the CODM. The accounting policies for the single operating segment are the same as those described in “Note 2—Significant Accounting Policies.” The CODM uses net loss based on net loss that is reported on the consolidated statement of operations and comprehensive loss to allocate resources (including employees, property, and financial resources), predominantly during the annual budget and forecasting process. The Company’s CODM views specific program spend within research and development expenses as well as overall general and administrative expenses as significant segment expenses. As a pre-product revenue company, the CODM also considers budget versus actual results for expenses that are deemed significant and cash forecast models for assessing performance and to decide the level of investment in the Company’s operating and capital allocation activities. Further, the measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. All long-lived assets are held in the United States. All revenues are generated in the US. The following table presents segment revenue and significant expenses regularly reviewed by the CODM for the years ended December 31, 2024 and 2023 (in thousands): F - 27 Table of Contents Year ended December 31, 2024 2023 Royalty revenues $ 501 $ 424 Operating expenses Research and development: Repibresib (VYN201) 16,271 4,593 VYN202 11,262 8,770 Other segment items* 3,413 2,944 General and administrative 13,192 13,375 Total operating expenses 44,138 29,682 Operating loss ( 43,637 ) ( 29,258 ) Other income, net 3,834 1,386 Loss from continuing operations before income taxes ( 39,803 ) ( 27,872 ) Income tax expense 4 — Loss from continuing operations ( 39,807 ) ( 27,872 ) Loss from discontinued operations, net of income taxes ( 27 ) ( 580 ) Net loss $ ( 39,834 ) $ ( 28,452 ) *Other segment items relate to research and development expenses that cannot be directly allocated to one specific product candidate, such as employee-related expenses, consulting, quality control, regulatory, and general IP legal expenses. Accordingly, the Company manages its operations as a single operating and reportable segment, and the consolidated financial statements and notes thereto are presented as a single reportable segment. F - 28 Table of Contents ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.