Yarrow Bioscience, Inc 10-Q for FY2021 Q1
Yarrow Bioscience, Inc. (YARW)
10-Q
2021-05-06
For: 2021-03-31
View Original
Added on
April 06, 2026
About this 10-Q
Yarrow Bioscience, Inc filed this 10-Q on May 6, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.12M
- up 135.4% from $1.75M a year earlier
- Net loss
- $20.55M
- compared with a net loss of $40.23M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
OR
FOR THE TRANSITION PERIOD FROM ___ TO ___.
Commission file number 001-38356
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices including zip code)
(800 ) 775-7936
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
☒ | Smaller reporting company | |||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of April 29, 2021, there were 51,386,596 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.
TABLE OF CONTENTS
Page | ||||||||
We own or have rights to various copyrights, trademarks, and trade names used in our business in the U.S. and/or other countries, including VYNE™, AMZEEQ®, ZILXI®, Molecule Stabilizing Technology (MST)™ and MST™. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” “until,” “if” and similar expressions or variations.
The following factors, among others, including any described in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, could cause our future results to differ materially from those expressed in the forward-looking information:
•our ability to successfully commercialize AMZEEQ and ZILXI and our other product candidates, if approved;
•disruptions related to COVID-19 or another pandemic, epidemic or outbreak of a contagious disease, on the ability of our suppliers to manufacture and provide materials for our products and product candidates, initiating and retaining patients in our clinical trials, distribution of our products and business sales execution, operating results, liquidity and financial condition;
•the regulatory approval process for our product candidates, including any delay or failure in obtaining requisite approvals;
•the potential market size of treatments for any diseases and market adoption of our products, if approved or cleared for commercial use, by physicians and patients;
•the timing, cost or other aspects of the commercialization of AMZEEQ, ZILXI and our product candidates, if approved;
•our ability to achieve favorable pricing for AMZEEQ, ZILXI and our product candidates, if approved;
•third-party payor reimbursement for AMZEEQ, ZILXI and any future products;
•developments and projections relating to our competitors and our industry, including competing drugs and therapies, particularly if we are unable to receive exclusivity;
•risks related to our indebtedness, including our ability to comply with the covenants in our loan documents;
•the timing of commencement of future non-clinical studies and clinical trials;
•our ability to successfully complete, and receive favorable results in, clinical trials for our product candidates;
•our intentions and our ability to establish collaborations or obtain additional funding;
•the timing or likelihood of regulatory filings and approvals or clearances for our product candidates;
•our ability to comply with various regulations applicable to our business;
•our expectations regarding the commercial supply of AMZEEQ, ZILXI and our product candidates;
•our ability to create intellectual property and the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected terms of patent protection;
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•the timing, costs or results of litigation, including litigation to protect our intellectual property, including our ability to successfully challenge intellectual property claimed by others;
•estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital on acceptable terms or at all;
•our ability to attract and retain key scientific or management personnel;
•our defense of current and any future litigation that may be initiated against us;
•our expectations regarding licensing, business transactions and strategic operations; and
•our future financial performance and liquidity.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in our Annual Report on Form 10-K as well as our other filings made with the Securities and Exchange Commission ("SEC"). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
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PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
(Unaudited)
| March 31 | December 31 | ||||||||||
| 2021 | 2020 | ||||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Investment in marketable securities (Note 6) | |||||||||||
| Trade receivables, net of allowances | |||||||||||
| Prepaid and other assets | |||||||||||
| Inventory (Note 7) | |||||||||||
| Total Current Assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets (Note 10) | |||||||||||
| Prepaid and other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and shareholders’ equity | |||||||||||
| Current Liabilities: | |||||||||||
| Trade payables | $ | $ | |||||||||
| Accrued expenses (Note 4) | |||||||||||
| Employee related obligations | |||||||||||
| Operating lease liabilities (Note 10) | |||||||||||
| Other | |||||||||||
| Total Current Liabilities | |||||||||||
| Liability for employee severance benefits | |||||||||||
| Operating lease liabilities (Note 10) | |||||||||||
| Long-term debt (Note 8) | |||||||||||
| Other liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Commitments and Contingencies (Note 11) | |||||||||||
| Shareholders' Equity: | |||||||||||
Preferred stock: $ | |||||||||||
Common stock: $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total Shareholders' Equity | |||||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
(Unaudited)
| Three months ended March 31 | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Revenues (Note 4) | |||||||||||||||||||||||
| Product sales | $ | $ | |||||||||||||||||||||
| Royalty revenues | |||||||||||||||||||||||
| Total Revenues | |||||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Operating Loss | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other expense (income), net | ( | ||||||||||||||||||||||
| Loss Before Income Tax | |||||||||||||||||||||||
| Income tax (benefit) expense | |||||||||||||||||||||||
| Net Loss | $ | $ | |||||||||||||||||||||
| Loss per share basic and diluted | $ | $ | |||||||||||||||||||||
| Weighted average shares outstanding - basic and diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars in thousands)
(Unaudited)
| Three months ended March 31 | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net Loss | $ | $ | |||||||||||||||||||||
| Other Comprehensive Loss: | |||||||||||||||||||||||
| Net unrealized losses from marketable securities | |||||||||||||||||||||||
| Losses on marketable securities reclassified into net loss | |||||||||||||||||||||||
| Total Other Comprehensive Loss | |||||||||||||||||||||||
| Total Comprehensive Loss | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)
Common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive Income (loss) | Total | |||||||||||||||||||||||||||||||
Number of Shares | Amounts | Amounts | |||||||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2020 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
CHANGES DURING THE PERIOD: | |||||||||||||||||||||||||||||||||||
| Comprehensive (loss) income | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Deemed dividend to warrants holders due to warrant modifications | — | — | ( | — | |||||||||||||||||||||||||||||||
| Classification of stock awards to derivative liability | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of stock related to merger | — | — | |||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| BALANCE AT JANUARY 1, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
CHANGES DURING THE PERIOD: | |||||||||||||||||||||||||||||||||||
Comprehensive loss | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Exercise of options and vesting of restricted stock units | — | — | — | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Issuance of common stock under at-the-market offering, net of $ | — | — | |||||||||||||||||||||||||||||||||
Issuance of common stock through a registered direct offering, net of $ | — | — | |||||||||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2021 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
| Three months ended March 31 | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash Flows From Operating Activities: | |||||||||||
| Net Loss | $ | $ | |||||||||
Adjustments required to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Changes in marketable securities and bank deposits, net | ( | ||||||||||
| Changes in accrued liability for employee severance benefits, net of retirement fund profit | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Non-cash finance income, net | ( | ( | |||||||||
| Changes in operating assets and liabilities, net of effects of businesses acquired: | |||||||||||
| Decrease (increase) in trade receivables, prepaid and other assets | ( | ||||||||||
| Decrease (increase) in other non-current assets | ( | ||||||||||
| Increase in accounts payable and accruals | |||||||||||
| Increase in inventory | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash Flows From Investing Activities: | |||||||||||
| Purchase of fixed assets | ( | ||||||||||
| Cash acquired through merger | |||||||||||
| Proceeds from sale and maturity of marketable securities | |||||||||||
| Net cash provided by investing activities | |||||||||||
| Cash Flows From Financing Activities: | |||||||||||
| Proceeds related to issuance of common shares through offerings, net of issuance costs | |||||||||||
| Proceeds related to issuance of stock for stock-based compensation arrangements, net | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Increase in cash, cash equivalents and restricted cash | |||||||||||
| Effect of exchange rate on cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | $ | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash shown in statement of cash flows | $ | $ | |||||||||
| Supplementary information on investing and financing activities not involving cash flows: | |||||||||||
| Cashless exercise of warrants and restricted stock units | * | * | |||||||||
| Issuance of shares under employee stock purchase plan | $ | $ | |||||||||
| Additions to operating lease right of use assets | $ | $ | |||||||||
| Additions to operating lease liabilities | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest received | $ | $ | |||||||||
| Interest paid | $ | $ | |||||||||
| Fair value of assets acquired | $ | $ | |||||||||
| Less liabilities assumed | |||||||||||
| Net acquired (See “Note 3- Business combination”) | |||||||||||
| Less cash acquired | |||||||||||
| Merger net of cash acquired | $ | $ | |||||||||
*Represents an amount less than one thousand
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE Therapeutics Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
NOTE 1 - NATURE OF OPERATIONS
VYNE Therapeutics Inc. (formerly known as Menlo Therapeutics Inc. ("Menlo"), "VYNE" or the "Company") is a specialty pharmaceutical company focused on developing and commercializing proprietary, innovative and differentiated therapies in dermatology and other therapeutic areas. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.
Reverse Merger
On November 10, 2019, Menlo, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).
For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.
Reverse stock split and recasting of per-share amounts
On February 10, 2021, the Company's Board of Directors approved a one-for-four reverse stock split of its outstanding shares of common stock. The reverse stock split was effected on February 12, 2021, at 5:00 p.m. Eastern time. At the effective time, every four issued and outstanding shares of 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 stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company's transfer agent in an amount equal to such stockholder's respective pro rata shares of the total net proceeds from the Company's transfer agent sale of all fractional shares at the then-prevailing prices on the open market. In connection with the reverse stock split, the number of authorized shares of the Company's common stock was also reduced on a one-for-four basis, from 300 million shares to 75 million shares. The par value of each share of common stock remained unchanged. A proportionate adjustment was also made to the maximum number of shares issuable under the Company's 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.
Unless otherwise noted, all common shares and per share amounts contained in the unaudited interim condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.
Products, Product Candidates and Licenses
In January 2020, the Company launched AMZEEQ® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the U.S. Food and Drug Administration (the "FDA") approved ZILXI® (minocycline) topical foam, 1.5% ("ZILXI"), for the treatment of inflammatory lesions of rosacea in adults. ZILXI became available in pharmacies nationwide in October 2020. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.
AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)™ that is also being used in the development of the Company’s product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company held an end-of-Phase II meeting with the FDA in the fourth quarter of 2020 and may commence a Phase III program in the next 12 to 18 months based upon the Company's results of operations, which depend on numerous factors, including the COVID-19 pandemic and recent payor formulary decisions. In addition, the Company recently announced a development program for FMX114, which is a
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combination topical gel for the potential treatment of mild-to-moderate atopic dermatitis. The Company plans to conduct a Phase 2a proof-of-concept study for FMX114 in the third quarter of 2021.
Additionally, the Company was developing serlopitant, a small molecule inhibitor of the neurokinin 1 receptor, or NK1-R, given as a once-daily, oral tablet, for the treatment of pruritus, or itch, associated with various conditions including prurigo nodularis, or PN. On April 6, 2020, the Company announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN, studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. The Company does not currently intend to further pursue the development of serlopitant. As a result, in the second quarter of 2020, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets in its unaudited condensed consolidated statement of operations and comprehensive loss. See "Note 3 - Business Combination" for more information.
The Company is actively pursuing opportunities to out-license its products and product candidates to third parties for development and commercialization outside the United States and entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”) in April 2020. See "Note 4 - Revenue Recognition." The Company has also licensed certain technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining the Company’s foam technology with the licensee’s proprietary drugs.
Liquidity and Capital Resources
The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the three months ended March 31, 2021, the Company incurred a net loss of $20.6 million and used $12.6 million of cash in operations. As of March 31, 2021, the Company had cash, cash equivalents, restricted cash and investments of $120.4 million and an accumulated deficit of $586.7 million. The Company's outstanding debt at March 31, 2021 was $35.0 million.
If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.
As a result of recent unfavorable payor formulary decisions, coupled with continued uncertainties surrounding the impact of COVID-19, the Company’s current projections indicate that it may not be in compliance with certain revenue covenants in each of the subsequent periods of 2021. The Company believes that its existing cash, cash equivalents and investments as of March 31, 2021 and projected cash flows from revenues will provide sufficient resources to fund its current ongoing needs, including all potential debt obligations, for at least the next twelve months from the issuance of these financial statements. Additionally, the Company is monitoring its results of operations in light of recent unfavorable payor formulary decisions and the continued impact of the COVID-19 pandemic. However, the amounts and timing of the Company's actual expenditures may vary significantly depending on numerous factors, including the impact of COVID-19 pandemic, the Company's ability to successfully commercialize AMZEEQ and ZILXI, the Company’s ability to satisfy the minimum net revenue covenants in the Amended and Restated Credit Agreement (See “Note 8 - Long-Term Debt” for additional information), and any unforeseen cash needs. In addition, the Company may seek to restructure its current debt arrangements, obtain additional financing and reduce discretionary spending in order to achieve its longer-term strategic plans. There is no assurance the Company will be successful in restructuring its debt arrangements, obtaining additional financing on acceptable terms or in implementing these other other actions.
The COVID-19 pandemic and government measures taken in response to the pandemic have had a significant impact on the Company's operations. Access to healthcare providers has been limited, which has dampened sales and negatively impacted the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. On August 5, 2020, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement following an assessment of the impact of the pandemic on the Company's revenue. See "Note 8 - Long-Term Debt." Access to healthcare providers has remained limited through the first quarter of 2021. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases and the vaccination effort. If the activities of the Company's sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, the Company may continue to generate less revenue
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a.Basis of Presentation
The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Certain prior period amounts have been reclassified to conform to current year presentation.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 4, 2021.
The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.
b.Principles of Consolidation
c.Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.
The COVID-19 pandemic and government measures taken in response to the pandemic have had a significant impact on the Company's operations. Access to healthcare providers has been limited, which has dampened sales and negatively impacted the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. Access to healthcare providers has remained limited through the first quarter of 2021. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases and the vaccination effort. If the activities of the Company's sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, the Company may continue to generate less revenue than expected, which would have a material adverse effect on its financial results and liquidity as well as hinder its ability to satisfy certain covenants contained in the Amended and Restated Credit Agreement. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. In 2020, the Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
d.Business Acquisition
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accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.
Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses. The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.
When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:
•Income approach, which is based on the present value of a future stream of net cash flows.
•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.
Our fair value methodologies depend on the following types of inputs:
•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).
•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).
A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
Asset Impairment
The Company reviews all of its long-lived assets for impairment indicators throughout the year. Impairment testing is performed for indefinite-lived intangible assets annually (or sooner if warranted) and for all other long-lived assets whenever impairment indicators are present. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.
e.Revenue Recognition
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The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies (together, the “customers”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. The Company evaluates the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.
The Company’s net product revenues through March 31, 2021 were primarily 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. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.
On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for our minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. The Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognized the revenues from the upfront license fee when the license was transferred to the licensee and the licensee was able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.
f.Allowance for credit losses
g.Derivative instruments
h.Fair value measurement
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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.
i.Loss per share
Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.
The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:
a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement
b.The number of common outstanding common stock outstanding from the merge date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.
The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):
| Three months ended March 31 | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Outstanding stock options, RSUs and shares under the ESPP | |||||||||||||||||||||||
Warrants | |||||||||||||||||||||||
In addition to the above, the CSR was excluded from the calculation of the 2020 diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective exchange ratio (the "Exchange Ratio") in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.
j.Newly issued and recently adopted accounting pronouncements
Recent Accounting Guidance Issued:
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which clarifies and simplifies certain aspects of the accounting for income taxes. The standard is effective for years beginning after December 15, 2020, and interim periods beginning after December 15, 2020. This guidance became effective during the first quarter of 2021. The adoption of the new standard did not have a material impact to the Company's consolidated financial statements.
In March 2020, the FASB issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted
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accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-4 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update 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, 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 Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.
NOTE 3 – BUSINESS COMBINATION
On November 10, 2019, Menlo entered into the Merger Agreement with Foamix, and Merger Sub, a direct and wholly-owned Israeli subsidiary of Menlo. On March 9, 2020, the Merger was completed and Foamix is now a wholly-owned subsidiary of the Company.
On the Effective Date, each ordinary share of Foamix was exchanged for 0.5924 shares of common stock of Menlo. In addition, on the Effective Date, Foamix shareholders received one contingent stock right (a “CSR”) for each Foamix ordinary share held by them. The CSRs were issued pursuant to the Contingent Stock Rights Agreement (the “CSR Agreement”), dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of prurigo nodularis (the “Phase III PN Trials”).
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 additional 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. The CSR conversion resulted in the issuance and delivery of 74,544,413 additional shares of Menlo common stock underlying the CSRs, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021. Following the conversion of the CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders owned approximately 82 % and 18 % of post-Merger Menlo, respectively, each calculated on a fully diluted basis.
For accounting purposes, the Merger is treated as a “reverse acquisition” under U.S. GAAP and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods.
Under reverse acquisition accounting, the U.S. dollar amount for common stock in the financial statements is based on the value and number of shares issued by Menlo (reflecting the legal structure of Menlo as the legal acquirer) on the Merger date plus subsequent shares issued by the Company. The amounts in additional paid-in capital represent that of Foamix and include the fair value of shares deemed for accounting purposes to have been issued by Foamix on the merger date and the fair value of the Menlo equity awards included in the purchase price calculation. The Foamix additional paid-in capital was also adjusted for the difference between the number of common stock and the historical number of shares of Foamix’s ordinary shares.
During the three months ended March 31, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the condensed consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date.
Purchase Price
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| (in thousands) | Total | ||||
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders | $ | ||||
Deemed (for accounting purposes only) conversion of Menlo equity awards | |||||
Total consideration* | $ | ||||
* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.
Based on Foamix’s closing share price of $2.99 as of March 9, 2020, the Merger Consideration under reverse acquisition accounting was approximately $131.1 million, consisting of $123.8 million for the deemed (for accounting purposes only) issuance of 41.4 million Foamix shares assuming that no upwards adjustment was made to the Exchange Ratio relating to the CSR, and $7.3 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the Foamix closing share price of $2.99 as of March 9, 2020 as an input to the Black Scholes valuation model to determine the fair value of the options.
Purchase Price Allocation
The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:
| (in thousands) | March 9, 2020 | ||||
Cash and cash equivalents | $ | ||||
Investment in marketable securities | |||||
Prepaid expenses and other current assets | |||||
In-process research and development | |||||
Goodwill | |||||
Total assets | |||||
Current liabilities | ( | ||||
Total liabilities | ( | ||||
| Purchase price* | $ | ||||
* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.
Goodwill
Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually. None of the Goodwill recognized is expected to be deductible for income tax purposes. The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:
| (in thousands) | March 9, 2020 | ||||
| Purchase price | $ | ||||
| Less: fair value of net assets acquired, including other identifiable intangibles | ( | ||||
| Goodwill | $ | ||||
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.5 million related to
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goodwill in its unaudited condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. There were no
In-Process Research and Development (“IPR&D")
The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:
| (in thousands) | ||||||||
Intangible asset | Estimated Fair Value | |||||||
Acquired indefinite life intangible assets* | $ | |||||||
Fair value of identified intangible assets | $ | |||||||
The fair value of IPR&D has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place.
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $49.8 million related to the IPR&D asset in its unaudited condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. There were no
CSR
The CSR was issued pursuant to the CSR Agreement, dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s Phase III PN Trials. The Company recognized a liability of $19.6 million in the unaudited condensed consolidated balance sheet as of March 9, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 additional 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. The CSR conversion resulted in the issuance and delivery of 74,544,413 additional shares of Menlo common stock underlying the CSRs, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021. Following the conversion of the CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders own approximately 82 % and 18 % of post-Merger Menlo, respectively, each calculated on a fully diluted basis. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020 and increased the awards available for grant under the Company's equity plan.
The contingent consideration associated with the CSR was recognized and measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5. An acquirer's obligation to pay contingent consideration should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity, ASC 815 Derivatives and Hedging, and other applicable U.S. GAAP. The contingent consideration associated with the CSR was initially measured at fair value and will subsequently be measured at fair value at each reporting date. The CSR was classified as a liability, as it is settled by issuing a variable number of the Company's common stock. On April 6, 2020, the Company recorded $84.7 million of expense in its
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unaudited condensed consolidated statements of operations and comprehensive loss to remeasure the CSR liability in its consolidated balance sheet to its fair value of $104.4 million (calculated based on 74,544,413 shares issued, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021, and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.
Pro Forma
The actual Menlo net loss included in the Company’s condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2020 (for the period from the March 9, 2020, the Effective Date, through March 31, 2020, which are not indicative of the results to be expected for a full year) and the supplemental unaudited pro forma revenue and net loss of the combined entity had the acquisition been completed on January 1, 2019 are as follows:
Actual Menlo results of operations included in the condensed consolidated statement of operation for the three months ended March 31, 2020:
| (in thousands) | Three months ended March 31, 2020 | ||||||||||
| (Unaudited) | |||||||||||
Revenues | $ | ||||||||||
| Loss attributable to Menlo | $ | ||||||||||
| Three months ended March 31, 2020 | |||||||||||||||||||||||
| (in thousands, except per share data) | (Unaudited) | ||||||||||||||||||||||
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS: | |||||||||||||||||||||||
Revenues | $ | ||||||||||||||||||||||
Net loss | $ | ||||||||||||||||||||||
Loss per share - basic and diluted | $ | ||||||||||||||||||||||
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows: | |||||||||||||||||||||||
Transaction costs | $ | ( | |||||||||||||||||||||
Acceleration of stock based compensation | ( | ||||||||||||||||||||||
Total Adjustments | $ | ( | |||||||||||||||||||||
These unaudited pro forma condensed consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the Merger.
NOTE 4 – REVENUE RECOGNITION
Product Sales
Product revenues for the three months ended March 31, 2021 were primarily generated from sales of AMZEEQ which was commercially launched in the United States in January 2020. ZILXI became available in pharmacies nationwide on October 1, 2020. The Company’s customers include a limited number of national and select regional distributors and certain independent and specialty pharmacies who purchase products directly from the Company. These distributors subsequently resell the product, primarily to retail pharmacies. These retail pharmacies along with the specialty pharmacies dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. For the three months ended March 31, 2021, there were four major customers that each accounted for more than 10% of total product revenues and, as a group, represented 75 % of total product revenues. For the three months ended March 31, 2020, there were three major customers that each accounted for more than 10% of total product revenues and as a group, represented 100 % of total product revenues.
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Product Sales Provisions
Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, described below. The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its customers less provisions for (i) trade discounts and allowances, such as distributor fees and discounts for prompt payment, (ii) estimated rebates to third-party payers, patient co-pay assistance programs, chargebacks and other discount programs and (iii) reserves for expected product returns.
Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to trade receivables, net on the condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the condensed consolidated balance sheet. Provisions for revenue reserves described below reduced product revenues by $15.6 million and $8.2 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The revenue reserve accrual at March 31, 2021 and December 31, 2020 was $8.1 million and $5.8 million, respectively, reflected in accrued expense in the consolidated balance sheet.
Distribution Fees and Trade Discounts and Allowances: The Company pays fees for distribution services and for certain data that distributors provide to the Company and generally provides discounts on sales to its distributors for prompt payment. These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.
Rebates, Chargebacks and Other Discounts: Product sales made under managed-care and governmental pricing programs in the U.S. are subject to rebates. Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share. Chargebacks relate to contractual agreements to sell products to government agencies and other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers. The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.
Product Returns: Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date. The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The information utilized to estimate the returns provision includes: (i) historical industry information regarding rates for comparable pharmaceutical products and product portfolios, (ii) external data with respect to inventory levels in the wholesale distribution channel, (iii) external data with respect to prescription demand for products and (iv) remaining shelf lives of products at the date of sale. The Company estimates that approximately 2 % to 3 % of product will be returned.
License Revenues
On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. Outside of the license transferred, the Company does not have any additional performance obligations under the arrangement. In exchange for the license, the Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The license is considered functional IP as the licensee is able to use and benefit from the license without the continued involvement of the Company. There was no 1.0 million payment due upon receipt of marketing approval
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for the licensed product as such amount is constrained under the variable consideration guidance under ASC 606, Revenue from Contracts with Customers.
Contract Assets and Contract Liabilities
The Company did not have any contract assets (unbilled receivables) related to product sales as of March 31, 2021 and December 31, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract assets (unbilled receivables) related to its license revenues as of March 31, 2021 and December 31, 2020.
The Company did not have any contract liabilities as of March 31, 2021 and December 31, 2020, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers.
Sales Commissions
Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales commissions are included in selling, general and administrative expenses.
Financing Component
The Company has elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Standard credit terms do not exceed 75 days.
Royalty Revenues
The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Revenues in the amount of $0.2 million were recorded during the three months ended March 31, 2021. There was no royalty revenue for the three months ending March 31, 2020.
NOTE 5 - FAIR VALUE MEASUREMENT
The Company’s assets and liabilities that are measured at fair value as of March 31, 2021 and December 31, 2020, are classified in the tables below in one of the three categories described in "Note 2 - Fair value measurement" above:
| March 31, 2021 | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | |||||||||||||||||||
Foreign exchange risk management
Occasionally, the Company purchases and writes non-functional currency options in order to hedge the currency exposure on the Company’s cash flow. The currency hedged items are denominated in New Israeli Shekels (“NIS”). The purchasing and writing of options is part of a comprehensive currency hedging strategy with respect to salary and rent expenses denominated in NIS. These transactions are at zero cost for periods of up to one year . The counterparties to the derivatives are major banks in Israel. As of March 31, 2021 and December 31, 2020, there were no
As of March 31, 2021, the Company has a lien in the amount of $0.3 million on the Company’s checking account, in respect of bank guarantees granted in order to secure the hedging transactions.
NOTE 6 - MARKETABLE SECURITIES
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Equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through other expense (income), net in the condensed consolidated statements of operations.
The following table sets forth the Company’s marketable securities:
| March 31 | December 31 | ||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Israeli mutual funds | $ | $ | |||||||||
As of March 31, 2021 and December 31, 2020 there were no
The Company has considered factors regarding other than temporary impaired securities and determined that there are no
During the three months ended March 31, 2021 there were no aggregate proceeds received upon sale and maturity of marketable securities. During the three months ended March 31, 2020 the Company received aggregate proceeds of $15.3 million, upon sale and maturity of marketable securities.
NOTE 7 – INVENTORY
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. The Company commenced capitalizing inventory for AMZEEQ and ZILXI upon FDA approval in October 2019 and May 2020, respectively. The Company periodically reviews its inventory levels and, if necessary, writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no
The following table sets forth the Company’s inventory:
| March 31 | December 31 | ||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
NOTE 8 - LONG-TERM DEBT
On July 29, 2019, Foamix entered into a Credit Agreement (the "Credit Agreement") to secure up to $50 million from two lenders, one of which is a significant stockholder of the Company and is considered a related party, and a Securities Purchase Agreement with one of the lenders for gross proceeds of approximately $14 million, before deducting offering expenses (see “Note 9- Share Capital” for more information). On March 9, 2020, the Company entered into an Amended and Restated Credit Agreement and Guaranty (the “Amended and Restated Credit Agreement”), whereby the Company has guaranteed the indebtedness obligations of the borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. As of March 31, 2021 and December 31, 2020, $35.0 15.0
The term loans available under the Amended and Restated Credit Agreement are comprised as follows: (a) $15 million that was funded on July 29, 2019 (the “Tranche 1 Loan”), (b) $20 million that was funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to $15 million that was available prior to September 30, 2020 (the “Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the Company’s NDA for AMZEEQ and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining arrangements with a third party for the commercial supply and manufacture of AMZEEQ. The Company did not incur the Tranche 3 Loan. Subject to any acceleration as provided in the Amended and
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Restated Credit Agreement, including upon an event of default (as defined in the Amended and Restated Credit Agreement), the loans will mature on July 29, 2024 and bear interest equal to the sum of (A) 8.25 % (subject to increase in accordance with the terms of the Amended and Restated Credit Agreement) plus (B) the greater of (x) the one-month LIBOR as of the second business day immediately preceding the first day of the calendar month or the date of borrowing (if such loan is not outstanding as of the first day of the calendar month), as applicable, and (y) 2.75 %. A fee in an amount equal to 1.0 % of the aggregate principal amount of all loans made on any given borrowing date shall be payable to the lenders.
The Amended and Restated Credit Agreement contains certain financial covenants, including that the Company maintain a minimum aggregate compensating cash balance of $2.5 million.
In addition, the parties entered into Amendment No. 1 to Amended and Restated Credit Agreement (the "Amendment") on August 5, 2020. The Amendment revised certain revenue covenants that took effect December 31, 2020. The Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment. For fiscal year 2021, the covenants require net product revenue of $10.5 million, $16.4 million, $25.8 million and $34.9 million for each of the quarters ending March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021, respectively. Subsequent to 2021, the covenants range from $43.5 million for the fiscal quarter ending March 31, 2022 to $97.0 million for the fiscal quarter ending June 30, 2024.
As of March 31, 2021, the Company is in compliance with all covenants, including maintaining a minimum aggregate compensating cash balance as mentioned above. The Company is monitoring its results of operations in light of recent unfavorable payor formulary decisions and the impact of the COVID-19 pandemic, specifically as it relates to the Company's ability to satisfy the minimum net revenue covenant in the Amended and Restated Credit Agreement as noted above. In the event where the Company fails to observe or perform any of the financial covenants, and absent a waiver from the lenders, the lenders may, by notice to the Company, declare the loans then outstanding to be due and payable in whole, together with accrued interest and a Prepayment Premium (as defined in the Amended and Restated Credit Agreement, ranging from 0 % to 8 %). The Company may seek to restructure its debt arrangement, obtain a waiver from the lenders or amend such covenants in the the future, but there is no assurance that the Company will be able to do so on favorable terms or at all. The Company believes it will have sufficient liquidity in the form of cash, cash equivalents and investments to repay the lender in the event of a default.
Under the Amended and Restated Credit Agreement, there are no required payments of principal amounts until July 2023. Afterwards, the Company will pay 1.5 % of the aggregate principal amount each month. The outstanding amount will be paid in full in July 2024.
In addition, on July 29, 2019, the lenders under the Credit Agreement were issued warrants to purchase up to an aggregate of 1,100,000 of Foamix ordinary shares, at an exercise price of $2.09 per share (the “Warrants”), which represented the five-day volume weighted average price of the Foamix ordinary shares as of the trading day immediately prior to the issuance of the Warrants. In connection with the completion of the Merger, the exchange ratio was applied to the Warrants such that they became exercisable for 651,640 shares of the Company’s common stock, and the exercise price was adjusted to $3.53 . Following the Phase 3 PN Trial results, the Warrants were further adjusted for the CSR and reverse stock split and they are currently exercisable for 495,165 shares of our common stock with an exercise price of $4.64 per share. Payment of the exercise price will be made, at the option of the holder, either in cash or as a reduction of common stock issuable upon exercise of the Warrant, with an aggregate fair value equal to the aggregate exercise price ("cashless exercise"), or any combination of the foregoing. The Warrants are exercisable pursuant to the terms, and subject to the conditions, thereof and expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants' expiration date, if in the money. The Warrants issued were classified as equity in accordance with ASC 815-40. Proceeds received under the Tranche 1 Loan were allocated to the Warrants and the Tranche 1 Loan on a relative fair value basis.
The Company incurred offering expenses of $1.1 million in connection with transactions contemplated by the Credit Agreement and the Securities Purchase Agreement, which were allocated to the Warrants, shares and debt consistently with the allocation of proceeds. The Company incurred additional expenses in the amount of $0.3 million from the borrowing of Tranche 2 Loan, allocated only to the debt.
Debt issuance costs are recorded on the consolidated balance sheet as a reduction of liabilities.
Amounts allocated to the debt, net of issuance cost, are subsequently recognized at amortized cost using the effective interest method.
The fair value of the debt as of March 31, 2021 was $36.5 million and is categorized as Level 3. The valuation was performed by applying the income approach, under which the contractual present value method was used. The estimation of risk adjusted
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NOTE 9 – SHARE CAPITAL
Preferred stock
As of March 31, 2021, the Company's Certificate of Incorporation, as amended, authorizes the Company to issue 20,000,000 shares of preferred stock, par value $0.0001 per share. There were no
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.
Common stock
The number of shares of common stock authorized under the Company's Amended and Restated Certificate of Incorporation was proportionately reduced in connection with the Company's one-for-four reverse stock split. Accordingly, the Company is authorized to issue 75,000,000 shares of common stock, par value $0.0001 per share.
Each share of common stock is entitled to one vote. 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.
Issuance of stock
On February 1, 2019, the Company entered into a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co., or 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 will act as our sales agent. The issuance and sale of shares of common stock by us pursuant to the Sales Agreement are deemed an "at-the-market" offering under the Securities Act. Cantor Fitzgerald is 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 Sales Agreement. From January 1, 2021 through January 25, 2021, the Company issued and sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 pursuant to the Sales Agreement for $26.3 million in net proceeds. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.
On January 26, 2021, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale of an aggregate of 5,274,261 shares of common stock of the Company, at a purchase price of $9.48 per share in a registered direct offering. The offering was completed on January 28, 2021 and the Company received approximately $46.8 million in net proceeds, after deducting placement agent fees and other offering expenses.
On June 9, 2020, the Company completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $7.40 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.
Pursuant to the completion of the merger, on March 9, 2020, the Company issued 36,550,335 shares to Foamix shareholders. On April 6, 2020, pursuant to the terms of the CSR Agreement, the Company issued 74,544,413 shares to Foamix shareholders, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021.
Warrants
In connection with entering into the Credit Agreement on July 29, 2019, Foamix issued to the lenders Warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, later exchanged to Warrants to purchase up to 1,980,660 shares of Menlo’s common stock, adjusted retrospectively to 495,165 shares of common stock upon the reverse stock split effective February 12, 2021. Upon the closing of the Merger, each Warrant received one CSR as described in Note 3- Business Combinations. The Warrants were exercisable immediately following the closing of the Credit Agreement, subject to the terms of the warrant, and
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are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants’ expiration date, if in the money.
The exchange of Warrants from Foamix warrants to Menlo warrants and the additional CSR was accounted for as a modification, by analogy, from the modification’s guidance under ASC 260-10-S99-2. The Company assessed the significance of the modification of the Warrants by comparing the fair value of the Warrants immediately before and after the amendments. In its assessment, it also considered additional qualitative factors. The Company concluded that the change of terms was not significant. Therefore, the incremental fair value, in the amount of $41,000 , of the modified Warrants over the original ones (as of modification date) was recognized in retained earnings as a deemed dividend to the Warrants holders in the three months ended March 31, 2020.
Share-based compensation
Equity incentive plans:
Upon closing of the Merger, the Company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of March 31, 2021, 866,404 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan") in January 2018. In January 2020, the number of shares reserved under the 2018 Plan automatically increased by 750,000 shares of common stock pursuant to the terms thereof. As of March 31, 2021, 269,776 shares remain issuable under the 2018 Plan.
Employee Share Purchase Plan:
Upon closing of the Merger, the Company adopted Foamix’s 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 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 March 31, 2021, 2,304,097 shares remain available for grant under the ESPP.
There were no shares of common stock purchased by employees pursuant to the ESPP during the three months ended March 31, 2021. During the three months ended March 31, 2020, 61,031 Foamix ordinary shares were purchased by Foamix employees pursuant to the ESPP prior to the Merger. Such shares were later exchanged for 36,155 shares of the Company's common stock and one CSR in the Merger, adjusted retrospectively to 9,038 shares of common stock and one CSR upon the reverse stock split effective February 12, 2021.
Options and RSUs granted to employees and directors:
In the three months ended March 31, 2021 and 2020, the Company granted options and RSU as follows:
| Three months ended March 31, 2021 | |||||||||||||||||||||||
| Award amount* | Exercise price range* | Vesting period | Expiration | ||||||||||||||||||||
| Employees and Directors: | |||||||||||||||||||||||
| Options | $ | ||||||||||||||||||||||
| RSUs | — | — | |||||||||||||||||||||
| Three months ended March 31, 2020 | |||||||||||||||||||||||
| Award amount* | Exercise price range* | Vesting period | Expiration | ||||||||||||||||||||
| Employees and Directors: | |||||||||||||||||||||||
| Options | $ | ||||||||||||||||||||||
| RSUs | — | — | |||||||||||||||||||||
* All amounts and exercise prices for pre-Merger grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.
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The fair value of options and RSUs granted to employees and directors during the three months ended March 31, 2021, and the three months ended March 31, 2020 was $7.5 million and $4.3 million, respectively.
The fair value of RSUs granted is based on the share price on the grant date.
The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:
| Three months ended March 31 | |||||||||||
| 2021 | 2020 | ||||||||||
| Dividend yield | % | % | |||||||||
| Expected volatility | |||||||||||
| Risk-free interest rate | |||||||||||
| Expected term | |||||||||||
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. In addition, for each option and RSU the holder received a CSR as described in Note 3- Business Combination. This transaction was considered by the company 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 for the three months ended March 31, 2020. As described in Note 3 - Business Combination, on April 6, 2020, pursuant to the terms of the CSR Agreement, 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. The conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $0.8 million for the three months ended March 31, 2021. As of March 31, 2021 there is $2.6 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 2 years.
Awards granted to holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the unaudited condensed consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $0.4 million for the three months ended March 31, 2020. There was no incremental compensation expense for the three months ended March 31, 2021. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that study MTI-105 and study MTI-106 did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, 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. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital.
Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan.
The following table illustrates the effect of share-based compensation on the statements of operations:
Three months ended March 31 | |||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | |||||||||||||||||||||
| Research and development expenses | $ | $ | |||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
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NOTE 10 – OPERATING LEASE
Operating lease agreements
The Company has operating leases for corporate offices and vehicles. The properties primarily relate to the Company’s principal executive office in Bridgewater, New Jersey and office space in Israel.
On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (the “Lease Amendment”). The Lease Amendment includes an extension of the lease period of the 10,000 square feet previously leased under the original agreement (the “Original Space”) and an addition of 4,639 square feet (the “Additional Space”). The Company entered the Additional Space following a period of preparation by the lessor completed during September 2019 (the “Commencement Date”). The Lease Amendment is due to expire on August 31, 2022.
Pursuant to the Lease Amendment, the Company recognized an additional right of use asset and liability in the amount of $0.7 million. The Additional Space was considered a new lease agreement and was recognized as a right of use asset and liability, in the amount of $0.3 million, on the Commencement Date.
The lease agreement for the office space in Israel is a one year lease that expires in December 2021. Given the short-term nature of the lease term, the Company did not recognize a right-of-use asset and liability.
Additionally, the Company entered into operating lease agreements in connection with the leasing of vehicles. The lease periods are generally for three years .
Maturities of lease liabilities are as follows:
| (in thousands) | |||||
| 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| Total lease payments | |||||
| Less imputed interest | |||||
| Total lease liability | $ | ||||
As of March 31, 2021, the Company had a lien in the amount of $0.6 million on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020. In this Quarterly Report on Form 10-Q, unless otherwise indicated, all references to the “Company,” “we,” “us” and “our” or similar terms refer to VYNE Therapeutics Inc. The disclosure set forth in this section reflects the Company's 1-for-4 reverse stock split, which was effected on February 12, 2021. Accordingly, all share amounts and per share amounts have been adjusted.
Company Overview
We are a specialty pharmaceutical company focused on developing proprietary, innovative and differentiated therapies in dermatology and beyond. Our products, AMZEEQ® (minocycline) topical foam, 4% (“AMZEEQ”) for the treatment of inflammatory lesions of moderate-to-severe acne vulgaris in adults and patients 9 years of age and older, and ZILXI® (minocycline) topical foam, 1.5% (“ZILXI”) for the treatment of inflammatory lesions of rosacea in adults, are the first topical minocycline products to be approved by the FDA. AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively, and serve as a springboard for commercializing additional innovative products. Our product pipeline includes FCD105 (minocycline 3% and adapalene 0.3%) ("FCD105"), our proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris. FCD105 is a Phase 3-ready asset that we believe has the potential to be a best-in-class treatment for patients with acne. We may commence a Phase 3 program in the next twelve to eighteen months based upon our results of operations, which depend on numerous factors, including the impact of the COVID-19 pandemic and recent payor formulary decisions. In addition, we recently announced a development program for FMX114, which is a combination topical gel for the potential treatment of mild-to-moderate atopic dermatitis. We plan to initiate a Phase 2a proof-of-concept study for FMX114 in the third quarter of 2021 and anticipate topline results prior to the end of 2021.
AMZEEQ and ZILXI utilize our proprietary Molecule Stabilizing Technology (MST)™ delivery system that is also being used to develop FCD105. Our MST™ proprietary foam platform is designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient ("API") that was previously available only in oral form despite its prevalent use in dermatology. In addition to the MST platform, we have a number of proprietary delivery platforms in development that enable topical delivery of other APIs, each having unique pharmacological features and characteristics designed to keep the API stable when delivered and directed to the target site. We believe our MST vehicles and other topical delivery platforms may offer significant advantages over alternative delivery options and are suitable for multiple application sites across a range of conditions.
Key Developments
Below is a summary of selected key developments affecting our business that have occurred since December 31, 2020:
•From January 1, 2021 through January 25, 2021, the Company issued and sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds pursuant to a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor Fitzgerald") through an at-the-market equity offering program under which Cantor Fitzgerald acted as our sales agent. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.
•On January 21, 2021, the Company announced the execution of a contract with CVS Caremark ("Caremark"), one of the largest pharmacy benefit managers in the U.S., with respect to AMZEEQ and ZILXI. In late March 2021, Caremark informed the Company that it decided to not include these products, and other new branded comparator drugs, on its national formulary for 2021. Certain custom plans under the Caremark umbrella have decided to add the Company's drugs to their respective formularies. This could have an unfavorable pricing impact in the future.
•On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share. The net proceeds of the offering were approximately $46.7 million, after deducting placement agent fees and other offering expenses.
•On February 1, 2021, we announced that the FDA approved a label update for AMZEEQ, including new information indicating the low propensity of Propionibacterium acnes (more commonly known as P. acnes) to develop resistance to minocycline.
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•On February 10, 2021, our Board of Directors approved a one-for-four reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 12, 2021 at 5:00 p.m. Eastern time. At the effective time, every four issued and outstanding shares of our common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata share of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. In connection with the reverse stock split, the number of authorized shares of our common stock was also reduced on a one-for-four basis, from 300 million to 75 million. The par value of each share of common stock remained unchanged. A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.
•On March 1, 2021, we announced development plans for FMX114 for the potential treatment of mild-to-moderate atopic dermatitis. FMX114 is a fixed combination of tofacitinib, which is a pan-Janus kinase (JAK) inhibitor, and fingolimod, a sphingosine 1-phosphate receptor modulator. FMX114 attempts to address both the source and cause of inflammation in atopic dermatitis and support skin barrier recovery.
Financial Overview
Our cash, cash equivalents, restricted cash and investments totaled $120.4 million as of March 31, 2021. We believe that our cash and cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through December 31, 2022. However, the Company may seek additional financing in order to achieve its longer-term strategic plans. See “—Liquidity and Capital Resources” below.
We have incurred net losses since our inception. Until the first quarter of 2020, when we commenced commercial operations, our business activities were primarily limited to developing product candidates, raising capital and performing research and development activities. As of March 31, 2021, we had an accumulated deficit of $586.7 million. We recorded net losses of $20.6 million and $40.2 million for the three months ended March 31, 2021 and 2020, respectively.
Our capital resources and business efforts are largely focused on activities relating to the commercialization of AMZEEQ and ZILXI and advancing our product candidates and pipeline. We expect to continue to incur operating losses until our products generate adequate commercial revenue to reach profitability. If we do not successfully commercialize AMZEEQ, ZILXI or any current or future product candidates, if approved, we may be unable to generate adequate product revenues to achieve such profitability. We may be required to obtain further funding through debt or equity offerings or other sources. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts. Additionally, we are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may have an adverse impact on our commercial prospects and projected cash position.
Components of Operating Results
Revenues
Our revenue during the periods presented has been comprised of AMZEEQ and ZILXI product sales and collaboration revenue.
We received FDA approval for AMZEEQ on October 18, 2019 and launched AMZEEQ in the United States in January 2020. We commercially launched ZILXI on October 1, 2020. We have generated product revenue of $3.9 million for the three months ended March 31, 2021. We will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval. Our ability to generate revenues from sales will depend on the successful commercialization of our drug products AMZEEQ and ZILXI and any other product candidates that receive marketing approval.
Historically, we have generated revenues under development and license agreements including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to Leo Pharma A/S ("LEO"). In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to the suspension of the manufacturing of Finacea by LEO, following inadequate supply of quality-compliant batches of the API used in such product. In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sale in the United States. In the three months ended March 31, 2021 we received royalties of $0.2 million.
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We may become entitled to additional contingent payments in the future, subject to achievement of the applicable clinical results by our other licensees. However, in light of the current phase of development and associated milestone schedules under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized.
Additionally, on April 23, 2020, we entered into a licensing agreement with Cutia for AMZEEQ as well as certain of our other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. We will supply the finished licensed products to Cutia for clinical and commercial use. We received an upfront cash payment of $10 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 30, 2020) and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. We will also receive royalties on net sales of any licensed products pursuant to the agreement. There was no license revenue for the three months ended March 31, 2021.
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2021 and 2020 were approximately $0.6 million and $0.3 million, respectively.
Our gross margin percentage of 85% was favorably impacted during the three months ended March 31, 2021 and March 31, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the three months ended March 31, 2021 and March 31, 2020 was valued at cost, our gross margin for the period then ended would have been 81% and 79%, respectively.
Cost of goods sold expenses consist primarily of:
◦third party expenses incurred in manufacturing product for sale;
◦transportation costs incurred in shipping manufacturing materials between third parties; and
◦other costs associated with delivery and manufacturing of product.
Operating Expenses
Research and Development Expenses
Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI, serlopitant, FCD105 and FMX 114. Our total research and development expenses for the three months ended March 31, 2021 and 2020 were approximately $6.3 million and $16.0 million, respectively. We charge all research and development expenses to operations as they are incurred.
Research and development expenses consist primarily of:
•employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;
◦expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies;
◦expenses incurred to acquire, develop and manufacture clinical trial materials;
◦facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs;
◦costs associated with the creation, development and protection of intellectual property;
◦other costs associated with preclinical and clinical activities and regulatory operations; and
•materials and manufacturing costs related to commercial production prior to FDA approval.
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Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended March 31, 2021 and 2020 were approximately $16.6 million and $25.4 million, respectively.
Our selling, general and administrative expenses consist principally of:
•employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;
•costs associated with selling, marketing and shipping and handling costs;
•legal and professional fees for auditors and other consulting expenses; and
•facility, information technology and depreciation expenses.
Interest Expense
Interest expense primarily consists of interest expense on our long-term debt.
Other Expense, net
Other Expense, net primarily consists of gains from interest earned from our bank deposits, financial income on our marketable securities and a revaluation of our derivative liability.
Income Taxes and Net Operating Loss Carryforwards
We have incurred significant net operating losses (“NOLs”) since our inception. We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any other product, if approved in the future, generates adequate revenues for us to reach profitability. As of December 31, 2020, we had federal and state net operating loss carryforwards of $243.2 million and $66.3 million, respectively, of which $44.3 million and $66.3 million of these carryforwards will begin to expire in 2031 for federal and state purposes, respectively. As of December 31, 2020, we had federal and state research and development tax credit carryforwards of $6.6 million and $1.2 million, respectively. The federal credits begin to expire in 2031 and the California research credits have no expiration dates. As of December 31, 2020, the company had $198.9 million in federal and state NOLs with no limited period of use. There are no significant updates through March 31, 2021.
NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. State NOLs and tax credit carryforwards may be subject to similar limitations under state laws. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Sections 382 or 383. We may have experienced ownership changes in the past, including in connection to our initial public offering (“IPO”), and as a result of the Merger and/or subsequent shifts in our stock ownership, some of which may be outside of our control. As a result, even if we earn net taxable income, our ability to use the NOL and tax credit carryforwards may be materially limited, which could harm our future operating results by effectively increasing our future tax obligations.
Results of Operations
Comparison of the Three-Month Periods Ended March 31, 2021 and 2020
Revenue
Revenues totaled $4.1 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, our revenue consisted of $3.9 million of product sales, and $0.2 million of royalty revenue. For the three months ended March 31, 2020, revenues consisted solely of $1.8 million of product sales.
The increase in product sales is due to the ZILXI product launch in October 2020 and an increase in demand for AMZEEQ.
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The COVID-19 pandemic and government measures taken in response to the pandemic have had a significant impact on our operations. Access to healthcare providers has been limited, which has dampened sales and negatively impacted the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. Access to healthcare providers has remained limited through the first quarter of 2021. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases and the vaccination effort. If the activities of our sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, we may continue to generate less revenue than expected, which would have a material adverse effect on our financial results and liquidity as well as hinder our ability to satisfy certain covenants contained in the Amended and Restated Credit Agreement.
Cost of Goods Sold
Cost of goods sold was $0.6 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively. The increase in cost of goods sold is primarily due to an increase in sales volume.
Our gross margin percentage of 85% for both the three months ended March 31, 2021 and March 31, 2020 was favorably impacted by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the three months ended March 31, 2021 and March 31, 2020 was valued at cost, our gross margin for the period then ended would have been 81% and 79%, respectively.
Research and Development Expenses
Our research and development expenses for the three months ended March 31, 2021 were $6.3 million, representing a decrease of $9.6 million, or 60.3%, compared to $16.0 million for the three months ended March 31, 2020. Employee-related expenses decreased $5.2 million primarily due to severance costs incurred in 2020 due to the Merger. Clinical trial and manufacturing expenses decreased with the completion of FCD 105 and serlopitant clinical trials and the product launches of AMZEEQ and ZILXI during 2020.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended March 31, 2021 were $16.6 million, representing a decrease of $8.8 million, or 34.6%, compared to $25.4 million for the three months ended March 31, 2020. Employee-related expenses decreased by $6.1 million primarily due to severance costs incurred in 2020 due to the Merger. Professional services spend decreased as these expenses were incurred in 2020 as a result of the Merger.
Interest Expense
Interest expense for the three months ended March 31, 2021 and March 31, 2020 was $1.1 million.
Other Expense (Income), net
Other expense (income), net for the three months ended March 31, 2021 was $0.1 million of expense as compared with $0.7 million of income for the three months ended March 31, 2020.
Income Taxes
There was no income tax (benefit) expense for the three months ended March 31, 2021 and March 31, 2020.
Liquidity and Capital Resources
Since inception, we have funded operations primarily through private and public placements of our equity, debt, warrants and through fees, cost reimbursements and royalties received from our licensees. We commenced generating product revenues related to sales of AMZEEQ in the first quarter of 2020. ZILXI became available in pharmacies nationwide on October 1, 2020. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our product and product candidates, if approved, are commercially successful, if at all. We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products.
As of March 31, 2021, we had cash, cash equivalents, restricted cash and investments of $120.4 million. Our cash, cash equivalents, restricted cash and investments are held in money market accounts and marketable securities.
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VYNE Pharmaceuticals Inc., a Delaware corporation and a subsidiary of the Company (the “Borrower”), Foamix and the Company, each as a guarantor, the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent for the lenders, entered into an Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020 (the “Credit Agreement”). We have guaranteed the indebtedness obligation of the Borrower under the Credit Agreement and in connection with the Credit Agreement also granted a first priority security interest in substantially all of our assets for the benefit of the lenders. The Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $50.0 million, and as of March 31, 2021, approximately $35.0 million was drawn under the Credit Agreement. We did not, and do not expect to, incur the remaining $15.0 million under the Credit Agreement.
Prior to the Merger, the Company was focused on the development and commercialization of serlopitant for pruritic conditions. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ and its other topical minocycline product candidates. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.
As a result of recent unfavorable payor formulary decisions, coupled with continued uncertainties surrounding the impact of COVID-19, the Company’s current projections indicate that it may not be in compliance with certain revenue covenants in each of the subsequent periods of 2021. The Company believes that its existing cash, cash equivalents and investments as of March 31, 2021 and projected cash flows from revenues will provide sufficient resources to fund its current ongoing needs, including all potential debt obligations, for at least the next twelve months from the issuance of these financial statements. However, the Company may seek additional financing in order to achieve its longer-term strategic plans. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. See "Note 1 - Nature of Operations."
The COVID-19 pandemic and government measures taken in response to the pandemic have had a significant impact on the Company's operations. Access to healthcare providers has been limited, which has dampened sales and negatively impacted the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. On August 5, 2020, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement following an assessment of the impact of the pandemic on the Company's revenue. See "Note 8 - Long-Term Debt." Access to healthcare providers has remained limited through the first quarter of 2021. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases and the vaccination effort. If the activities of the Company's sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, the Company may continue to generate less revenue than expected, which would have a material adverse effect on its financial results and liquidity as well as hinder its ability to satisfy certain covenants contained in the Amended and Restated Credit Agreement.
Summary Statement of Cash Flows
The following table summarizes our statement of cash flows for the three months ended March 31, 2021 and 2020:
| Three months ended March 31 | |||||||||||
| 2021 | 2020 | ||||||||||
| (in thousands of U.S. dollars) | |||||||||||
| Net cash (used in) / provided by: | |||||||||||
| Operating activities | $ | (12,551) | $ | (52,211) | |||||||
| Investing activities | — | 65,980 | |||||||||
| Financing activities | $ | 73,503 | $ | 140 | |||||||
Cash Used in Operating Activities
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization and share-based compensation.
Net cash used in operating activities was $12.6 million in the three months ended March 31, 2021, compared to $52.2 million in the three months ended March 31, 2020. The decrease was attributable primarily to increases in revenues with the launch of AMZEEQ and ZILXI in January 2020 and October 2020, respectively, as well as decreased costs associated with the Merger.
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Cash Used in (Provided by) Investing Activities
There was no net cash used in (provided by) investing activities in the three months ended March 31, 2021, compared to $66.0 million of net cash provided by investing activities in the three months ended March 31, 2020. The change was primarily attributable to the cash acquired through the Merger and a decrease in investments in bank deposits and marketable securities in the three months ended March 31, 2020.
Cash Provided by Financing Activities
There was $73.5 million provided by financing activities in the three months ended March 31, 2021, compared to $0.1 million in the three months ended March 31, 2020. The increase was attributable to proceeds from the offering of common stock in January 2021, along with the exercise of options and issuance of shares under our equity incentive plan.
Cash and Funding Sources
Our sources of liquidity in the three months ended March 31, 2021 consisted primarily of proceeds from the issuance of common stock under the at-the-market offering and the registered direct offering in January 2021 and sales of AMZEEQ and ZILXI.
Our sources of liquidity in the three months ended March 31, 2020 consisted primarily of cash and investments acquired in the Merger.
We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years other than our commitments under the Amended and Restated Credit Agreement.
Funding Requirements
Our present and future funding requirements will depend on many factors, including, inter alia:
•the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our drug products AMZEEQ and ZILXI and any other pipeline product that is commercialized;
•selling, marketing and patent-related activities undertaken in connection with the commercialization of AMZEEQ, ZILXI and any other product candidates, as well as costs involved in the development of an effective sales and marketing organization;
•the progress, timing and completion of preclinical testing and clinical trials for pipeline product candidates, including FCD105 and FMX114;
•the time and costs involved in obtaining regulatory approval for our other pipeline product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates;
•the efforts necessary to institute post-approval regulatory compliance requirements for AMZEEQ and ZILXI;
•the number of potential new products we identify and decide to develop; and
•the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights.
Our operating plan may change as a result of many factors currently unknown to us, and any such change may affect our funding requirements. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as
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well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 4, 2021.
While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results. These policies relate to the more significant areas involving management’s judgments and estimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
COVID-19
The COVID-19 pandemic and government measures taken in response to the pandemic have had a significant impact on the Company's operations. Access to healthcare providers has been limited, which dampened sales and negatively impacted the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. Access to healthcare providers has remained limited through the first quarter of 2021. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases and the vaccination effort. If the activities of the Company's sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, the Company may continue to generate less revenue than expected, which would have a material adverse effect on its financial results and liquidity as well as hinder its ability to satisfy certain covenants contained in the Amended and Restated Credit Agreement. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. In 2020, the Company recorded impairments of goodwill and certain indefinite-lived intangibles; however, these impairments were unrelated to the impact of COVID-19 (See “Note 3 – Business Combination” for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
Revenue Recognition
We record revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For the Collaboration Agreement under ASC 606, we identify the performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is satisfied.
We identify 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, we utilize the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. We periodically review our estimated periods of performance based on the progress under each arrangement and account 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 included in the transaction price when we determine that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.
Business Acquisition
Our financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired
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and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.
Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
We are required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, we use fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.
When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:
•Income approach, which is based on the present value of a future stream of net cash flows.
•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.
Our fair value methodologies depend on the following types of inputs:
•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).
•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).
A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
Asset Impairment
We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Indemnification
As permitted under Delaware law and in accordance with our bylaws, we are required to indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with our directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of March 31, 2021 and December 31, 2020.
JOBS Act Accounting Election
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The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Recently Issued and Adopted Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2, “Significant Accounting Policies” in the Notes to Unaudited Interim Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements not yet adopted, and their expected impact on our financial position and results of operations.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10 of Regulation S-K. As such, we are not required to provide the information set forth in this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2021 our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the three months ended March 31, 2021 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of March 31, 2021, no claims or actions are pending against the Company that, in the opinion in management, are likely to have a material adverse effect on the Company.
1A. Risk Factors.
Information about our risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 4, 2021. As of March 31, 2021 there have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
The following documents are filed, or furnished as applicable, as part of this Quarterly Report on Form 10-Q:
Exhibit Index
| Exhibit Number | Incorporated by Reference | Filed | ||||||||||||||||||||||||||||||
| Exhibit Description | Form | Date | Number | Herewith | ||||||||||||||||||||||||||||
| 3.1 | 10-K | 3/4/2021 | 3.1 | |||||||||||||||||||||||||||||
| 3.2 | 8-K | 9/08/2020 | 3.2 | |||||||||||||||||||||||||||||
| 10.1 | X | |||||||||||||||||||||||||||||||
| 10.2 | X | |||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||
| 32.1* | X | |||||||||||||||||||||||||||||||
| 32.2* | X | |||||||||||||||||||||||||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | X | ||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||||||||||||||||||||||
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||||||||||||||||||||||
| 104 | The cover page of VYNE Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (included within Exhibit 101 attachments). | |||||||||||||||||||||||||||||||
_______________________________________________________
* The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of VYNE Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 6, 2021
| VYNE Therapeutics Inc. | ||||||||
| By: | /s/ David Domzalski | |||||||
David Domzalski President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ Andrew Saik | |||||||
Andrew Saik Chief Financial Officer and Treasurer | ||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||
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Exhibit 10.1
April 7, 2021,
Dear Andrew:
This letter (the “Offer Letter”) contains the terms and conditions of your employment with VYNE Pharmaceuticals Inc. (the “Company”), a subsidiary of VYNE Therapeutics Inc. (“VYNE”), effective as of April 7, 2021 (the “Effective Date”). The Company, together with its ultimate parent
and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.”
Your employment pursuant to this Offer Letter will commence as of the Effective Date and the terms and conditions of this Offer Letter shall be effective as of the Effective Date. Unless stated otherwise herein, this Offer Letter will supersede any prior offer letters between you and the Company or any of its affiliates, including the letter dated March 17, 2020 and any amendments thereto (together, the “Previous Offer Letter”). You may be interchangeably referred to as “you” or “the Executive” within this Offer Letter. Additionally, where the context permits, references to “the Company” shall include the Company, its subsidiaries and affiliates and any successor thereto.
Brief Description of Role and Reporting Structure:
We are pleased to offer you the position of VYNE’s Chief Financial Officer (“CFO”) and Treasurer, reporting to VYNE’s Chief Executive Officer, David Domzalski.
As the CFO, you will work closely with the CEO and leadership team to craft the long-term financing and corporate development strategy and play an important role in guiding the Group Companies in its next growth phase. The CFO will be a partner to the CEO in communicating the Group Companies’ strategy to VYNE’s board of directors (the “Board”), investors and other stakeholders. The CFO will execute the financial strategy by assessing and leading the execution of all capital raising for the Group Companies and will provide financial and business expertise in assessing and crafting the financial structures of licensing and strategic partnerships/collaborations.
The CFO will be the most senior executive responsible for overseeing and directing the financial, investor relations, supply chain and IT functions of the Company. The CFO will be relied upon as a financial thought leader in the Group Companies’ business and as such, be a trusted sounding board to the CEO and leadership team. You will play a critical role in the Group Companies’ strategic positioning and will lead the finance, investor relations, supply chain and IT organizations to ensure they can meet the future needs and direction of the Group Companies.
The CFO will approach the role as a strategic one as well as hands-on to ensure the organizations they oversee constantly seek improvement, with a balance of superior technical, operational and leadership skills. As the CFO you must be a strong communicator, collaborator and able to fit in with an entrepreneurial environment that is dynamic and results oriented.
Major Responsibilities:
Strategic and Tactical Business Growth and Development – work with CEO and leadership team to develop and execute strategic plans aimed at improving long-term stockholder value, including the evaluation of strategic and corporate alliances.
Exhibit 10.1
Financing and Fund Raising – assess, prepare and implement programs to ensure the Group Companies are appropriately financed including public offerings, debt and non-dilutive partnerships and alliances.
Financial, Tax, and Risk Management – ensure the Group Companies’ financial reporting is in accordance with GAAP and other US regulatory and advisory organizations. Lead the Group Companies’ annual budget and forecasting process and present and recommend the budget and forecasts to the Board for approval; prudently manage the Group Companies’ resources within the budgeted guidelines.
Leadership – proactively advise the CEO and the Board of key financial issues: and identify and promote changes that will keep the finance and other organizations aligned with the Group Companies’ mission, goals and objectives.
Board of Directors – prepare well thought-through and supported analyses and recommendations to the Board on the Group Companies’ financial matters; work with Board committees as needed.
General Management – build and oversee the operations of the Finance and Accounting, IT, Supply Chain and Investor Relations organizations.
Policies and Procedures – develop and implement major policies and procedures to ensure the Group Companies are prepared for commercialization and the associated growth in size and complexity of the organization.
Investor and Public Relations – regularly interface with investors and bankers to ensure the Group Companies’ milestones and financial outlook are properly communicated; develop communication plan and corporate messaging for all quarterly calls, capital financings and non-deal road shows; establish and maintain strong relationships with financial institutions that align with the Group Companies’ strategic financing objectives.
Communication Skills – ensure CEO, the leadership team, the Board and their staff have sufficient and up-to-date information in order to make effective decisions and perform their duties appropriately.
Corporate Culture – foster a goal oriented corporate culture that recognizes employees as critical to the success of the business.
Compensation
You will be paid a base salary at an annual rate of $410,500, payable in accordance with the Company’s payroll policies, less applicable deductions and employment taxes. Currently, the Company’s regular pay period is bi-monthly (the 15th and 30th of each month).
You will be eligible to receive a cash bonus of up to 50% of your base salary based on achievement of milestones and targets set by the CEO, under the framework of the applicable bonus plan of the Company for the relevant year.
The payment and grant of the cash bonus, if awarded, shall be made no later than March 15th of the calendar year following the year to which the performance relates, upon evaluation of your performance and the achievement of milestones and targets set for the performance year, and in accordance with the then-current general bonus plan. You must be employed by the Company on the bonus payment date to be eligible to receive the bonus.
Exhibit 10.1
You will be eligible to receive annual equity grants to acquire common stock in VYNE with a per share exercise price for the options equal to the fair market value of one share of VYNE common stock on the grant date. The annualequity grants are expected to be granted in March and will vest over a period of four years following the last day of the calendar quarter in which the grant was made as follows: 25% on the first anniversary of the vesting commencement date and 6.25% on the last day of each subsequent calendar quarter, subject to your continued employment with VYNE or one of its subsidiaries through the applicable vesting date. Please note that such vesting period does not amount to an undertaking of the Company or VYNE to employ you for any given period. The 2021 equity grants shall be subject to the execution of a share award agreement with VYNE and the terms and conditions of VYNE's 2019 Equity Incentive Plan, or VYNE's 2018 Omnibus Equity Incentive Plan, in each case, as may be amended or amended and restated from time to time.
Consistent with its policies as established from time to time, the Company will also cover all expenses directly related to your job performance, in accordance with the Company’s policies as in effect from time to time.
You will be entitled to four (4) weeks of paid vacation. These vacation days accrue ratably over the calendar year and may not be carried forward from year to year or paid out at the termination of employment, except as described below or if your state laws mandate this payout. You will be entitled to participate in the Company’s healthcare plan, then in effect, or, at the Company’s election, the Company may direct you to purchase an individual plan providing equivalent coverage and will reimburse you for all premium payments under such individual plan, upon proof of payment. All matters of eligibility under the Company’s plans will be determined solely by the carriers providing such insurance. You will continue to be eligible to participate in the Company’s 401(k) plan.
The Company will also recognize certain holidays. These dates are communicated each year by the Company and may change based upon business needs.
Termination of Employment
Your employment with the Company is at-will and may be terminated by either you or the Company at any time, with or without reason.
In the event of a termination for Cause (as defined on Appendix A) by the Company, your employment will end immediately and the Company and its subsidiaries and affiliates will have no further liability towards you except for payment of (1) any earned but unpaid base salary, (2) any incurred but unreimbursed business expenses and (3) any accrued but unused vacation days that exist as of the date of your termination of employment to the extent mandated by state law (together, the “Accrued Benefits”).
In the event of your death or the termination of your employment as a result of your disability (as determined by the Company in good faith), the Company will have no further liability to you except for payment of the Accrued Benefits through the date of your death or the first day of your disability.
You shall have the right to resign at any time by giving the Company thirty (30) days’ notice of the termination date, subject to the Company’s right, at its election, to reduce the duration of the notice period upon notice to you, in which case the last day of the reduced notice period shall constitute
Exhibit 10.1
your employment termination date. The Company shall not have any further liability to you except for payment of all Accrued Benefits due through the date of termination unless such resignation is for Good Reason which shall be governed by the provisions below.
The Company may terminate your employment without Cause upon thirty (30) days’ notice, during which notice period you will receive your full compensation and benefits.
If your employment is terminated without Cause or you resign for Good Reason, subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment (the “Non-CIC Severance Payment”) in accordance with the terms set forth on Appendix A to this Offer Letter (the “Severance Policy”) based on your then-current position as set forth and (ii) if you qualify for and timely elect continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination as set forth in the Severance Policy, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s obligations under this clause (ii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.
Notwithstanding the above, if you experience a Qualifying Termination within the twelve (12) month period after a Change in Control (a “Qualifying Change in Control Termination”), subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment in accordance with the Severance Policy as applicable for a termination of employment that occurs following a change in control (the “CIC Severance Payment” and, together with the Non-CIC Severance Payment, the “Severance Payment”), (ii) a cash payment equal to your target annual bonus for the year of termination multiplied by a fraction, the numerator of which is the number of days you were employed with the Company during the calendar year in which the date of termination occurs, and the denominator of which is 365 (the “Pro-rated Bonus”) and (iii) if you qualify for and timely elect continuation coverage under COBRA, continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination as set forth in the Severance Policy, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s obligations under this clause (iii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate
Exhibit 10.1
for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.
Furthermore, notwithstanding the terms of the Company equity incentive plan under which your equity awards are granted or any applicable award agreements, in the event of a Qualifying Change in Control Termination, all of your outstanding, unvested Company employee stock options and unvested restricted stock units, if any, shall become fully vested and any restrictions thereon shall lapse.
For the purpose of this Offer Letter, “Good Reason” means: (i) a material reduction in your base salary; (ii) a material reduction in your target annual bonus opportunity; (iii) a relocation of your principal place of employment by more than twenty-five (25) miles provided that such relocation increases your daily commute; or (iv) an adverse change in your position, including title, reporting relationship(s), authority, duties or responsibilities; all of the above without your consent. You must provide notice of the existence of the Good Reason condition within thirty (30) days of the date you learn of the condition, and the Company shall have a period of thirty (30) days during which it may remedy the condition, and in case of full remedy such condition shall not be deemed to constitute Good Reason hereunder.
For purposes of this Offer Letter, “Change in Control” shall have the meaning set forth in the Company’s 2019 Equity Plan. For the avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected primarily for the purpose of changing the domicile of the Company.
Timing of Payment
The applicable Severance Payment and the Pro-rated Bonus (in the event of a Qualifying Change in Control Termination) will be paid in a lump sum within sixty (60) days following the date of your termination of employment subject to the provisions of Appendix A and as set forth below.
The payments and benefits under this Offer Letter are intended to qualify for exemptions from the application of Section 409A of the Internal Revenue Code (“Section 409A”), and this Offer Letter will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Offer Letter (and any definitions hereunder) will be construed in a manner that complies with Section 409A to the extent necessary to avoid adverse taxation under Section 409A. Notwithstanding anything to the contrary herein, to the extent required to comply with Section 409A, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Offer Letter providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A. Your right to receive any installment payments will be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Offer Letter, if you are deemed by the Company at the time of your separation from service to be a “specified employee” for purposes of Section 409A, and if any of the payments upon separation from service set forth herein and/or under any other agreement with the Company are deemed to be “deferred compensation,” then, to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Section 409A and the related adverse taxation under Section 409A, such payments shall not be provided to you prior to the earliest
Exhibit 10.1
of (i) the expiration of the six-month period measured from the date of separation from service, (ii) the date of your death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation. With respect to payments to be made upon execution of an effective release, if the release revocation period spans two calendar years, payments will be made in the second of the two calendar years to the extent necessary to avoid adverse taxation under Section 409A.
Miscellaneous
You represent that (i) there is no legal restriction and/or contractual restriction prohibiting you from entering into an employment relationship with the Company, (ii) that by doing so you are not violating any third party’s rights, including any undertaking entered into with any former employer, and (iii) that you know that the Company is employing you based upon this statement.
A dispute under this Offer Letter shall be heard and governed by the procedural and substantive laws of the State of New Jersey or of your primary workplace. By signing this offer Letter you and the Company agree to WAIVE ANY RIGHT TO A JURY TRIAL for any disputes arising out of this offer letter.
This Offer Letter constitutes and expresses the entire agreement of the parties hereto with reference to any of the matters or things herein provided for or herein before discussed or mentioned with reference to your employment, and it cancels and replaces any and all prior understandings and agreements between you and the Company, except the Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement attached hereto as Appendix B. All other promises, representations, collateral agreements and understandings not expressly incorporated in this Offer Letter are hereby superseded by this Offer Letter.
The Company may withhold from any amounts payable under this Offer Letter all federal, state, city or other taxes as it is required to withhold pursuant to any applicable law, regulation or ruling. Notwithstanding any other provision of this Offer Letter, the Company shall not be obligated to guarantee any particular tax result for you with respect to any payment provided to you hereunder, and you shall be responsible for any taxes imposed on you with respect to any such payment.
Without derogating from the above, you will be required to abide by the Company’s policies, rules and procedures, as may be in effect from time to time, at the Company’s sole discretion, and that may be modified or changed as circumstances warrant.
Prior to your commencement of work, you will be required to sign a Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement, which is attached hereto as Appendix B. You will be bound by the terms of the document.
Exhibit 10.1
We are pleased to present this Offer Letter to you. Please sign below to indicate your acceptance of this employment offer on the basis of the foregoing terms.Sincerely,
/s/David Domzalski
Chief Executive Officer
I hereby confirm that I have carefully read and understood this offer of employment and I have accepted it and entered into it of my own free will.
/s/ Andrew Saik_______________
Andrew Saik
Exhibit 10.1
Appendix A
SEVERANCE POLICY
Provision | CEO | SVP+ | VP | |||||||||||
Non-CIC Severance | Non CIC-Severance Trigger | A termination of employment (i) by the Company and its subsidiaries without “Cause” or (ii) by the employee for “Good Reason” (each, a “Qualifying Termination).* | ||||||||||||
| Cash Severance | 1.0x base salary** | 0.75x base salary** | 0.5x base salary** | |||||||||||
| Benefits | 12 months benefits continuation | 9 months benefits continuation | 6 months benefits continuation | |||||||||||
| Equity Treatment | Full vesting acceleration of time-based awards | As provided in the applicable equity plan and award agreement | ||||||||||||
CIC Severance | Protection Period | 12 months following a Change in Control*** | ||||||||||||
| CIC Severance Trigger | Double trigger (i.e., a Qualifying Termination during the Protection Period) | |||||||||||||
| Cash Severance | 1.5x (salary + target bonus), plus pro-rata target bonus** | 1.0x (salary + target bonus), plus pro-rata target bonus** | 0.5x (salary + target bonus), plus pro-rata target bonus** | |||||||||||
| Benefits | 18 months benefits continuation | 12 months benefits continuation | 6 months benefits continuation | |||||||||||
| Equity Treatment | Double trigger full vesting acceleration of time-based awards | |||||||||||||
| Excise Tax | Best net provision | |||||||||||||
*“Cause” shall have the meaning set forth in the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and “Good Reason” shall have the meaning set forth in the Offer Letter.
**Amounts shall be paid in a cash lump sum within 60 days following the date of termination; provided that, if (i) the employee was party to an employment agreement or other plan, agreement or arrangement with the Company or any of its subsidiaries or affiliates prior to the effective date of this severance policy that provided for severance payments and benefits upon a termination of employment (each such employment agreement or other plan, agreement or arrangement, a “Prior Agreement”) and (ii) the payments and benefits provided pursuant to this severance policy are determined to be “deferred compensation” for purposes of Section 409A of the Internal Revenue Code or any successor provision thereto (the “Code”), then, to the extent necessary to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the payments and benefits
Exhibit 10.1
provided pursuant to this severance policy shall be paid at the same time(s) and in the same form(s) provided in the Prior Agreement, at all times, in accordance with Section 409A of the Code.
***”Change in Control” shall have the meaning set forth in the 2019 Plan. For the avoidance of doubt, the consummation of the merger contemplated by that certain Agreement and Plan of Merger by and among the Company, Foamix Pharmaceuticals Ltd. and Giants Merger Subsidiary Ltd., dated as of November 10, 2019 (as amended), shall not constitute a Change in Control for purposes of this severance policy.
Exhibit 10.1
Appendix B
Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement
This Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement (“Agreement”), is made and entered into by and between, VYNE Pharmaceuticals Inc. (the “Company”) and [EXECUTIVE] (“you” and “your”). The Company, together with its ultimate parent and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.”
The parties hereby agree to the following in exchange for your employment with the Company:
(a)Non-Competition. You recognize that your knowledge of the Confidential Information (as defined below) and trade secrets of the Group Companies and your role in the Group Companies’ business may allow you to compete or to assist a third party to compete unfairly with the Group Companies.
(i)During the term of this Agreement, and for a period of 12 months following the termination of your employment with any member of the Group Companies (the “Restricted Period”), you agree that you shall not, without the prior consent of the Company and its ultimate parent, directly or indirectly, as an employee, executive, agent, principal, partner, stockholder, officer, director, consultant, independent contractor, advisor, investor or any other representative, work with or without compensation in any business that develops or commercializes foam or topical tetracycline antibiotics or is otherwise directly competitive with, the business of the Group Companies (i.e., any compound that is the same or substantially similar to a compound being developed or sold by any member of the Group Companies) (each, a “Competitive Business”) within the same geographic territory in which you operated during your last year of employment with any member of the Group Companies.
(ii)Necessary and Reasonable. You acknowledge that this non-compete provision is necessary and reasonable to protect Group Companies’ business interests. You further acknowledge that the Group Companies would suffer irreparable harm and other damage in the event of a breach of this provision. You agree that the term, scope and geographic area of the covenants contained herein are reasonable. However, if any court of competent jurisdiction determines that this covenant is unenforceable as to the term, scope or geographic area then this covenant nevertheless shall be enforceable by such court as to such shorter term, such lesser scope or within such lesser geographic area as the court determines to be reasonable and enforceable.
(b)Non-Solicitation. You will not, in any manner whatsoever, directly or indirectly, without the prior written consent of the Company and its ultimate parent, at any time during the Restricted Period:
(i) induce or endeavor to induce (A) any employee of any member of the Group Companies to leave employment with any member of the Group Companies, or (B) any consultant or contractor of any member of the Group Companies to terminate its relationship as such with any member of the Group Companies during any period of time that the business services
Exhibit 10.1
provided, directly or indirectly, by such consultant or contractor are exclusively or primarily being provided to any member of the Group Companies, provided that this clause shall not preclude customary non-targeted recruiting efforts or general solicitations that are not specifically directed to, but which may have the effect of causing an employee, consultant or contractor to leave the employment or arrangement with any member of the Group Companies; or
(ii) employ or attempt to employ or assist any individual or other entity to employ any employee of any member of the Group Companies or to retain any consultant or contractor during any period of time that the business services provided, directly or indirectly, by such consultant or contractor are exclusively or primarily being provided to any member of the Group Companies, provided, that this clause shall not preclude an employer of yours from offering employment or consulting or contracting services to anyone without your direct or indirect assistance
(c)Confidentiality. You acknowledge that by reason of your employment with any member of the Group Companies, you have had access to Confidential Information and trade secrets of the Group Companies, and that such Confidential Information and trade secrets are essential components of the business of the Group Companies, and are proprietary and would be of great value and benefit to competitors of the Group Companies. “Confidential Information” is to be broadly defined and includes anything respecting the Company and its affiliates or their respective businesses, customers, supplier or operations, and which is not made readily available to the general public. You agree that both during and after your employment with any member of the Group Companies, you will not disclose to any individual or other entity, except in the proper course of your employment with any member of the Group Companies, or use for your own purposes or for purposes other than those of any member of the Group Companies, any Confidential Information or trade secrets of any member of the Group Companies acquired by you. You agree that at all times after your employment with any member of the Group Companies, you will hold in trust, keep confidential, and not publish, disclose or otherwise disseminate to any third party or make any use of the Confidential Information of any member of the Group Companies except for the benefit of the Group Companies and in the course of employment with any member of the Group Companies. You further agree not to cause the transmission, removal or transport of Confidential Information from the Group Companies’ place of business (principal, remote or otherwise), whether by hard or electronic copy, without prior written approval of the Company and its ultimate parent, except for the benefit of the Group Companies and in the course of your employment relationship with any member of the Group Companies. You acknowledge that you are aware that the unauthorized disclosure of Confidential Information of any member of the Group Companies may be highly prejudicial to the Group Companies’ interests, an invasion of privacy and an improper disclosure of proprietary information. You agree, promptly and without request, to deliver to and inform the Company and its ultimate parent of all documents and data pertaining to your services to the any member of the Group Companies and the Confidential Information of the Group Companies, whether prepared by you or otherwise coming into your possession or control. You will not retain any written or other tangible material containing any information concerning or disclosing any of the Confidential Information of any member of the Group Companies, including but not limited to any electronically stored data.
(i)If information enters the public domain, except as a result of a breach of this Section (c) by you or a breach of another confidentiality agreement to which any member of the Group Companies is a party, the information will not be deemed Confidential Information, or a trade secret protected by this Section (c). If you are compelled by law to disclose Confidential Information or
Exhibit 10.1
trade secrets of any member of the Group Companies, pursuant to subpoena, an order from a court of competent jurisdiction, or other applicable legal authority, you may disclose such Confidential Information or trade secrets to the extent so required, but you will, if possible, (i) provide reasonable advance notice of the subpoena, court order, or legal authority to the Company and its ultimate parent, and (ii) afford the Group Companies the reasonable opportunity to take legal action to contest, challenge, narrow or otherwise limit or condition the disclosure.
(ii)Sanctions for Unauthorized Taking of Confidential Information. You recognize that the unauthorized taking of the Group Companies’ Confidential Information could result in civil liability and that willful misappropriation may result in an award against you for damages and attorney’s fees and costs in collecting such damages. The unauthorized taking of trade secrets is a crime and may be punishable by imprisonment, or a fine, or both, and/or may result in civil liability, including, where applicable, punitive or similar damages, under applicable federal and state trade secret laws.
(iii)Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 ("DTSA"). Notwithstanding any other provision of this Agreement:
(A)You will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that: (1) is made: in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(B) If you file a lawsuit for retaliation by any member of the Group Companies for reporting a suspected violation of law, you may disclose the Group Companies’ trade secrets to your attorney and use the trade secret information in the court proceeding if you: (1) file any document containing the trade secret under seal; and (2) do not disclose the trade secret, except pursuant to court order.
(d)Intellectual Property.
(i) You have attached hereto as Exhibit 1, a list describing all inventions, original works of authorship, developments, improvements, copyrights and patents that were made or developed by you prior to the date you sign this Agreement, that belong to you. If such list is not attached or is left blank, you represent that no such inventions exist.
(ii) You agree that all ideas, techniques, inventions, systems, business and marketing plans, projections and analyses, discoveries, technical information, programs, prototypes, copyrightable works of authorship, including without limitation software code, and similar developments, improvements or creations developed, conceived, created, discovered, made, or written by you in the course of or as the result, directly or indirectly, of the performance of your employment with any member of the Group Companies (hereinafter called "Developments"), and all related intellectual property rights, including but not limited to, writings and other works of authorship, United States and foreign patents, mask works, copyright and trademark registrations and other forms of intellectual property protection, shall
Exhibit 10.1
be and remain the property of the Group Companies. You further agree to assign (or cause to be assigned) and do hereby assign fully to the Group Companies all such Developments and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. In the event copyrightable works do not fall within the theory of works made for hire, you agree to assign, and do hereby assign, all rights, title and interest therein, without further consideration, to the Group Companies. You, insofar as you have the right to do so, agree that you will execute or cause to be executed such United States and foreign patents, mask works, copyright and trademark registrations and other documents and agreements and take such other action as may be desirable in the opinion of the Group Companies to enable intellectual property, copyright and other forms of protection for Developments to be obtained, maintained, renewed, preserved and protected throughout the world by or on behalf of the Group Companies.
(iii) If any member of the Group Companies is unable, after exercising reasonable efforts, to secure your signature on any application for patent, copyright, analogous registration, or other documents regarding any legal protection regarding Developments or other works and inventions, whether because of your physical or mental incapacity or for any other reason, you hereby irrevocably designate and appoint the Group Companies and their duly authorized officers and agents as your agent and attorney-in-fact to act for and on your behalf and to execute and file any such application or applications or other documents and to do all other lawfully permitted acts to further the prosecution and issuance of such patent, copyright or trademark registrations or any other legal protection thereon with the same legal force and effect as if executed by you.
(iv) Incorporation into Company Products. You agree that if in the course of your employment with any member of the Group Companies, you incorporate into any invention, service, or product any invention, improvement, Development, concept, discovery or other proprietary information owned by you or in which you have an interest, (i) you will inform the Company and its ultimate parent, in writing, before incorporating such invention, improvement, development, concept, discovery or other proprietary information into any invention, Service, or Development; and (ii) the Group Companies are hereby granted and will have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such item as part of or in connection with such invention, services, or Development. You will not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any invention without the Company's and its ultimate parent’s prior written permission.
(v) Subsequent Use Restrictions. During the course of employment and during the Restricted Period, you agree to promptly notify the Company and its ultimate parent of any inventions you develop that are based on, relate to or are a derivative of Developments or Confidential Information. You agree that any invention or work involving you after the separation of your employment shall be deemed to result from access to the Company’s Developments or Confidential Information (including without limitation patentable inventions and copyrightable works) if such invention or work: (i) arose from your work with any member of the Group Companies; or (ii) is related to the business of the Group Companies and is made, created, used, sold, exploited or reduced to practice, or an application for patent, trademark, copyright or other proprietary protection is filed by you and/or with your significant aid by a third party, within the Restricted Period.
Exhibit 10.1
(e)Disclosure of New Employment. In light of your obligations under this Agreement, you agree to disclose the name of any future employer to the Company and its ultimate parent in writing (even if you intend to be self-employed), along with your future business contact information, including name and full address of the new employer. Where necessary to protect the Group Companies’ interests, any member of the Group Companies may notify any future or prospective employer of the existence of this Agreement and/or the terms and conditions of your employment with any member of the Group Companies. This obligation shall continue until the end of the time periods under the Non-Competition and Non-Solicitation provisions above.
(f)Cooperation. You shall provide reasonable cooperation in connection with any legal action or proceeding (or any appeal from any action or proceeding) which relates to events during your employment hereunder. The Company shall reimburse you for your reasonable travel expenses incurred in connection with the foregoing, in accordance with the Company’s policies and subject to the delivery of reasonable support for such expenses.
(g) Restrictions Reasonable. You confirm that all restrictions and covenants in this Agreement are reasonable and valid, and waive all objections to and defenses to the strict enforcement thereof.
(h)Survival of Restrictions. This Agreement shall survive the termination of the Offer Letter between you and the Company and the termination of your employment with any member of the Group Companies, whether such termination is voluntary or involuntary, and regardless of the reason(s) for such termination.
(i)Remedies. In the event of breach or threatened breach by you of any provision of this Agreement, any member of the Group Companies shall be entitled to (i) injunctive relief by temporary restraining order, preliminary injunction, and/or permanent injunction, (ii) recovery of the attorneys’ fees and costs incurred by any member of the Group Companies in obtaining such relief, and (iii) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which any member of the Group Companies may incur as a result of said breach or threatened breach. Injunctive relief shall not be the exclusive relief and may be in addition to any other relief to which any member of the Group Companies would otherwise be entitled. The existence of any cause of action by you against the Company shall not constitute a defense to enforcement of the restrictions on you created by this Agreement. If you fail to comply with this Agreement during the Restricted Period, the time period for that the Restricted Period will be extended by one day for each day that you are found to have violated this Agreement, up to a maximum extension of twelve (12) months. In the event that a court finds the restrictions on you in this Agreement are unenforceable as written, then the parties shall consent to the reformation of the Agreement to make it enforceable to protect the interests of the Group Companies to the maximum extent legally allowed.
(j)Parties Benefited; Assignments. This Agreement shall inure to the benefit of the Group Companies’ owners, successors, assigns and affiliates, and may be assigned to and enforced by any of the foregoing. Neither this Agreement nor any rights or obligations hereunder may be assigned by you.
Exhibit 10.1
(k)Notices. Any notice required or permitted by this Agreement shall be in writing sent by personal delivery, or by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to you at your last known address, or to such other address or addressees as any party may from time to time specify in writing. Notices shall be deemed given when received.
(l)Governing Law, Jurisdiction and Venue. This Agreement and any issues arising from it or regarding its provisions shall be governed by and construed in accordance with the substantive and procedural laws of the state of your primary workplace without reference to such jurisdiction’s choice of law rules.
(m)Severability. The provisions of this Agreement are severable so that in the event any provision(s) in this Agreement is held to be illegal or unenforceable by any court or agency of competent jurisdiction, or by operation of any applicable law, the remaining terms of this Agreement shall remain valid and in full force and effect. Further, such court or agency shall modify the offending provision to conform to the most expansive permissible reading under the law to protect the interests of the Group Companies.
(n)No Waiver. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
(o) Comprehension; Consultation with Counsel. You acknowledge having read and understood this Agreement and further acknowledge being hereby advised, by this paragraph, to consult independent legal counsel. Accordingly, you acknowledge that you are voluntarily entering into this Agreement of your own volition and not under duress.
(p)Waiver of Jury Trial.
YOU AND THE GROUP COMPANIES KNOWINGLY AND WILLINGLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Exhibit 10.1
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THIS AGREEMENT, THAT THEY HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL IF THEY SO CHOSE, AND THAT THEY ENTER INTO THIS AGREEMENT FREELY AND VOLUNTARILY.
/s/ Andrew Saik
Andrew Saik
April 7, 2021
Date
VYNE Pharmaceuticals Inc.
By:_/s/ David Domzalski
David Domzalski, Chief Executive Officer
April 7, 2021
Date
Exhibit 10.2
April 7, 2021
Dear Mutya,
This letter (the “Offer Letter”) contains the terms and conditions of your employment with VYNE Pharmaceuticals Inc. (the “Company”), a subsidiary of VYNE Therapeutics Inc. (“VYNE”), effective as of April 7, 2021 (the “Effective Date”). The Company, together with its ultimate parent
and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.”
Your employment pursuant to this Offer Letter will commence as of the Effective Date and the terms and conditions of this Offer Letter shall be effective as of the Effective Date. Unless stated otherwise herein, this Offer Letter will supersede any prior offer letters between you and the Company or any of its affiliates, including the letters dated November 1, 2017 and May 6, 2019 and any amendments thereto (together, the “Previous Offer Letter”). You may be interchangeably referred to as “you” or “the Executive” within this Offer Letter. Additionally, where the context permits, references to “the Company” shall include the Company, its subsidiaries and affiliates and any successor thereto.
Brief Description of Role, Reporting Structure and Major Responsibilities:
We are pleased to offer you the position of VYNE’s Chief Legal Officer, General Counsel and Corporate Secretary. You will report to VYNE’s Chief Executive Officer, David Domzalski.
Your responsibilities will include, inter alia,
1.Serve as the lead attorney for the Group Companies, providing overall strategic direction, department design, and implementation of all corporate legal functions/matters related to the Group Companies including:
a.Review, negotiate and draft day-to-day contracts and agreements as needed on behalf of the Group Companies and with associated partners/vendors.
b.Assist in the drafting and filing of the Group Companies’ annual, quarterly and periodic SEC filings.
c.Provide direct oversight for all corporate, commercial and regulatory compliance, employment law, product liability and litigation.
d.Identify and manage outside counsel(s) as needed.
2.Provide strategic support and legal guidance on corporate development, business development and M&A activities.
a.Assist CEO and CFO in establishing strategy.
b.Work with leadership team in identification and prioritization of targets and serve as primary lead in due diligence activities.
c.Assist in the negotiations, drafting and management of in-licensing / out-licensing transactions.
Exhibit 10.2
3.Participate in Board of Director meetings/calls and provide legal support as customary in gathering, maintaining and distributing all necessary documents/minutes associated with such events.
Compensation
You will be paid a base salary at an annual rate of $405,935, payable in accordance with the Company’s payroll policies, less applicable deductions and employment taxes. Currently, the Company’s regular pay period is bi-monthly (the 15th and 30th of each month).
You will be eligible to receive a cash bonus of up to 40% of your base salary based on achievement of milestones and targets set by the CEO, under the framework of the applicable bonus plan of the Company for the relevant year.
The payment and grant of the cash bonus, if awarded, shall be made no later than March 15th of the calendar year following the year to which the performance relates, upon evaluation of your performance and the achievement of milestones and targets set for the performance year, and in accordance with the then-current general bonus plan. You must be employed by the Company on the bonus payment date to be eligible to receive the bonus.
You will receive annual equity awards to acquire common stock in VYNE with a per share exercise price for the options equal to the fair market value of one share of VYNE common stock on the grant date. The annual equity grants are expected to be granted in March and will vest over a period of four years following the last day of the calendar quarter in which the grant was made as follows: 25% on the first anniversary of the vesting commencement date and 6.25% on the last day of each subsequent calendar quarter, subject to your continued employment with VYNE or one of its subsidiaries through the applicable vesting date. Please note that such vesting period does not amount to an undertaking of the Company or VYNE to employ you for any given period. The equity grants shall be subject to the execution of a share award agreement with VYNE and the terms and conditions of VYNE's 2019 Equity Incentive Plan, or VYNE's 2018 Omnibus Equity Incentive Plan, in each case, as may be amended or amended and restated from time to time.
Consistent with its policies as established from time to time, the Company will also cover all expenses directly related to your job performance, in accordance with the Company’s policies as in effect from time to time.
You will be entitled to four (4) weeks of paid vacation. These vacation days accrue ratably over the calendar year and may not be carried forward from year to year or paid out at the termination of employment, except as described below or if your state laws mandate this payout. You will be entitled to participate in the Company’s healthcare plan, then in effect, or, at the Company’s election, the Company may direct you to purchase an individual plan providing equivalent coverage and will reimburse you for all premium payments under such individual plan, upon proof of payment. All matters of eligibility under the Company’s plans will be determined solely by the carriers providing such insurance. You will continue to be eligible to participate in the Company’s 401(k) plan.
The Company will also recognize certain holidays. These dates are communicated each year by the Company and may change based upon business needs.
Exhibit 10.2
Termination of Employment
Your employment with the Company is at-will and may be terminated by either you or the Company at any time, with or without reason.
In the event of a termination for Cause (as defined on Appendix A) by the Company, your employment will end immediately without notice and the Company and its subsidiaries and affiliates will have no further liability towards you except for payment of (1) any earned but unpaid base salary, (2) any incurred but unreimbursed business expenses and (3) any accrued but unused vacation days that exist as of the date of your termination of employment to the extent mandated by state law (together, the “Accrued Benefits”).
In the event of your death or the termination of your employment as a result of your disability (as determined by the Company in good faith), the Company will have no further liability to you except for payment of the Accrued Benefits through the date of your death or the first day of your disability.
You shall have the right to resign at any time by giving the Company thirty (30) days’ notice of the termination date, subject to the Company’s right, at its election, to reduce the duration of the notice period upon notice to you, in which case the last day of the reduced notice period shall constitute your employment termination date. The Company shall not have any further liability to you except for payment of all Accrued Benefits due through the date of termination unless such resignation is for Good Reason which shall be governed by the provisions below.
The Company may terminate your employment without Cause upon thirty (30) days’ notice, during which notice period you will receive your full compensation and benefits.
If your employment is terminated without Cause or you resign for Good Reason, subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment (the “Non-CIC Severance Payment”) equal to the better of (A) three (3) months salary plus one (1) month for every full year of your employment by a Group Company (up to a maximum of twelve (12) months) or (B) a severance payment in accordance with the terms set forth on Appendix A to this Offer Letter (the “Severance Policy”) based on your then-current position as set forth therein and (ii) if you qualify for and timely elect continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination that corresponds to your severance payment, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s obligations under this clause (ii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.
Exhibit 10.2
Notwithstanding the above, if you experience a Qualifying Termination within the twelve (12) month period after a Change in Control (a “Qualifying Change in Control Termination”), subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment (the “CIC Severance Payment” and, together with the Non-CIC Severance Payment, the “Severance Payment”) in accordance with the Severance Policy as applicable for a termination of employment that occurs following a change in control, (ii) a cash payment equal to your target annual bonus for the year of termination multiplied by a fraction, the numerator of which is the number of days you were employed with the Company during the calendar year in which the date of termination occurs, and the denominator of which is 365 (the “Pro-rated Bonus”) and (iii) if you qualify for and timely elect continuation coverage under COBRA, continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination as set forth in the Severance Policy, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s obligations under this clause (iii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.
Furthermore, notwithstanding the terms of the Company equity incentive plan under which your equity awards are granted or any applicable award agreements, in the event of a Qualifying Change in Control Termination, all of your outstanding, unvested Company employee stock options and unvested restricted stock units, if any, shall become fully vested and any restrictions thereon shall lapse.
For the purpose of this Offer Letter, “Good Reason” means: (i) a material reduction in your base salary; (ii) a material reduction in your target annual bonus opportunity; (iii) a relocation of your principal place of employment by more than twenty-five (25) miles provided that such relocation increases your daily commute; or (iv) an adverse change in your position, including title, reporting relationship(s), authority, duties or responsibilities; all of the above without your consent. You must provide notice of the existence of the Good Reason condition within thirty (30) days of the date you learn of the condition, and the Company shall have a period of thirty (30) days during which it may remedy the condition, and in case of full remedy such condition shall not be deemed to constitute Good Reason hereunder.
For purposes of this Offer Letter, “Change in Control” shall have the meaning set forth in the Company’s 2019 Equity Plan. For the avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected primarily for the purpose of changing the domicile of the Company.
Timing of Payment
Exhibit 10.2
The applicable Severance Payment and the Pro-rated Bonus (in the event of a Qualifying Change in Control Termination) will be paid in a lump sum within sixty (60) days following the date of your termination of employment subject to the provisions of Appendix A and as set forth below.
The payments and benefits under this Offer Letter are intended to qualify for exemptions from the application of Section 409A of the Internal Revenue Code (“Section 409A”), and this Offer Letter will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Offer Letter (and any definitions hereunder) will be construed in a manner that complies with Section 409A to the extent necessary to avoid adverse taxation under Section 409A. Notwithstanding anything to the contrary herein, to the extent required to comply with Section 409A, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Offer Letter providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A. Your right to receive any installment payments will be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Offer Letter, if you are deemed by the Company at the time of your separation from service to be a “specified employee” for purposes of Section 409A, and if any of the payments upon separation from service set forth herein and/or under any other agreement with the Company are deemed to be “deferred compensation,” then, to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Section 409A and the related adverse taxation under Section 409A, such payments shall not be provided to you prior to the earliest of (i) the expiration of the six-month period measured from the date of separation from service, (ii) the date of your death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation. With respect to payments to be made upon execution of an effective release, if the release revocation period spans two calendar years, payments will be made in the second of the two calendar years to the extent necessary to avoid adverse taxation under Section 409A.
Miscellaneous
You represent that (i) there is no legal restriction and/or contractual restriction prohibiting you from entering into an employment relationship with the Company, (ii) that by doing so you are not violating any third party’s rights, including any undertaking entered into with any former employer, and (iii) that you know that the Company is employing you based upon this statement.
A dispute under this Offer Letter shall be heard and governed by the procedural and substantive laws of the State of New Jersey or of your primary workplace. By signing this offer Letter you and the Company agree to WAIVE ANY RIGHT TO A JURY TRIAL for any disputes arising out of this offer letter.
This Offer Letter constitutes and expresses the entire agreement of the parties hereto with reference to any of the matters or things herein provided for or herein before discussed or mentioned with reference to your employment, and it cancels and replaces any and all prior understandings and agreements between you and the Company, except the Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement attached hereto as Appendix B. All other promises, representations, collateral agreements and understandings not expressly incorporated in this Offer Letter are hereby superseded by this Offer Letter.
Exhibit 10.2
The Company may withhold from any amounts payable under this Offer Letter all federal, state, city or other taxes as it is required to withhold pursuant to any applicable law, regulation or ruling. Notwithstanding any other provision of this Offer Letter, the Company shall not be obligated to guarantee any particular tax result for you with respect to any payment provided to you hereunder, and you shall be responsible for any taxes imposed on you with respect to any such payment.
Without derogating from the above, you will be required to abide by the Company’s policies, rules and procedures, as may be in effect from time to time, at the Company’s sole discretion, and that may be modified or changed as circumstances warrant.
Prior to your commencement of work, you will be required to sign a Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement, which is attached hereto as Appendix B. You will be bound by the terms of the document.
We are pleased to present this Offer Letter to you. Please sign below to indicate your acceptance of this employment offer on the basis of the foregoing terms.
Sincerely,
/s/ David Domzalski
Chief Executive Officer
I hereby confirm that I have carefully read and understood this offer of employment and I have accepted it and entered into it of my own free will.
/s/ Mutya Harsch_______________
Mutya Harsch
Exhibit 10.2
Appendix A
SEVERANCE POLICY
Provision | CEO | SVP+ | VP | |||||||||||
Non-CIC Severance | Non CIC-Severance Trigger | A termination of employment (i) by the Company and its subsidiaries without “Cause” or (ii) by the employee for “Good Reason” (each, a “Qualifying Termination).* | ||||||||||||
| Cash Severance | 1.0x base salary** | 0.75x base salary** | 0.5x base salary** | |||||||||||
| Benefits | 12 months benefits continuation | 9 months benefits continuation | 6 months benefits continuation | |||||||||||
| Equity Treatment | Full vesting acceleration of time-based awards | As provided in the applicable equity plan and award agreement | ||||||||||||
CIC Severance | Protection Period | 12 months following a Change in Control*** | ||||||||||||
| CIC Severance Trigger | Double trigger (i.e., a Qualifying Termination during the Protection Period) | |||||||||||||
| Cash Severance | 1.5x (salary + target bonus), plus pro-rata target bonus** | 1.0x (salary + target bonus), plus pro-rata target bonus** | 0.5x (salary + target bonus), plus pro-rata target bonus** | |||||||||||
| Benefits | 18 months benefits continuation | 12 months benefits continuation | 6 months benefits continuation | |||||||||||
| Equity Treatment | Double trigger full vesting acceleration of time-based awards | |||||||||||||
| Excise Tax | Best net provision | |||||||||||||
*“Cause” shall have the meaning set forth in the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and “Good Reason” shall have the meaning set forth in the Offer Letter.
**Amounts shall be paid in a cash lump sum within 60 days following the date of termination; provided that, if (i) the employee was party to an employment agreement or other plan, agreement or arrangement with the Company or any of its subsidiaries or affiliates prior to the effective date of this severance policy that provided for severance payments and benefits upon a termination of employment (each such employment agreement or other plan, agreement or arrangement, a “Prior Agreement”) and (ii) the payments and benefits provided pursuant to this severance policy are determined to be “deferred compensation” for purposes of Section 409A of the Internal Revenue Code or any successor provision thereto (the “Code”), then, to the extent necessary to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the payments and benefits
Exhibit 10.2
provided pursuant to this severance policy shall be paid at the same time(s) and in the same form(s) provided in the Prior Agreement, at all times, in accordance with Section 409A of the Code.
***”Change in Control” shall have the meaning set forth in the 2019 Plan. For the avoidance of doubt, the consummation of the merger contemplated by that certain Agreement and Plan of Merger by and mong the Company, Foamix Pharmaceuticals Ltd. And Giants Merger Subsidiary Ltd., dated as of November 10, 2019 (as amended), shall not constitute a Change in Control for purposes of this severance policy.
Exhibit 10.2
Appendix B
Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement
This Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement (“Agreement”), is made and entered into by and between, VYNE Pharmaceuticals Inc. (the “Company”) and Mutya Harsch (“you” and “your”). The Company, together with its ultimate parent
and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.”
The parties hereby agree to the following in exchange for your employment with the Company:
(a)Non-Competition. You recognize that your knowledge of the Confidential Information (as defined below) and trade secrets of the Group Companies and your role in the Group Companies’ business may allow you to compete or to assist a third party to compete unfairly with the Group Companies.
(i)During the term of this Agreement, and for a period of 12 months following the termination of your employment with any member of the Group Companies (the “Restricted Period”), you agree that you shall not, without the prior consent of the Company and its ultimate parent, directly or indirectly, as an employee, executive, agent, principal, partner, stockholder, officer, director, consultant, independent contractor, advisor, investor or any other representative, work with or without compensation in any business that develops or commercializes foam or topical tetracycline antibiotics or is otherwise directly competitive with, the business of the Group Companies (i.e., any compound that is the same or substantially similar to a compound being developed or sold by any member of the Group Companies) (each, a “Competitive Business”) within the same geographic territory in which you operated during your last year of employment with any member of the Group Companies.
(ii)Necessary and Reasonable. You acknowledge that this non-compete provision is necessary and reasonable to protect Group Companies’ business interests. You further acknowledge that the Group Companies would suffer irreparable harm and other damage in the event of a breach of this provision. You agree that the term, scope and geographic area of the covenants contained herein are reasonable. However, if any court of competent jurisdiction determines that this covenant is unenforceable as to the term, scope or geographic area then this covenant nevertheless shall be enforceable by such court as to such shorter term, such lesser scope or within such lesser geographic area as the court determines to be reasonable and enforceable.
(b)Non-Solicitation. You will not, in any manner whatsoever, directly or indirectly, without the prior written consent of the Company and its ultimate parent, at any time during the Restricted Period:
(i) induce or endeavor to induce (A) any employee of any member of the Group Companies to leave employment with any member of the Group Companies, or (B) any consultant or contractor of any member of the Group Companies to terminate its relationship as such with any member of the Group Companies during any period of time that the business services provided, directly or indirectly, by such consultant or contractor are exclusively or primarily
Exhibit 10.2
being provided to any member of the Group Companies, provided that this clause shall not preclude customary non-targeted recruiting efforts or general solicitations that are not specifically directed to, but which may have the effect of causing an employee, consultant or contractor to leave the employment or arrangement with any member of the Group Companies; or
(ii) employ or attempt to employ or assist any individual or other entity to employ any employee of any member of the Group Companies or to retain any consultant or contractor during any period of time that the business services provided, directly or indirectly, by such consultant or contractor are exclusively or primarily being provided to any member of the Group Companies, provided, that this clause shall not preclude an employer of yours from offering employment or consulting or contracting services to anyone without your direct or indirect assistance
(c)Confidentiality. You acknowledge that by reason of your employment with any member of the Group Companies, you have had access to Confidential Information and trade secrets of the Group Companies, and that such Confidential Information and trade secrets are essential components of the business of the Group Companies, and are proprietary and would be of great value and benefit to competitors of the Group Companies. “Confidential Information” is to be broadly defined and includes anything respecting the Company and its affiliates or their respective businesses, customers, supplier or operations, and which is not made readily available to the general public. You agree that both during and after your employment with any member of the Group Companies, you will not disclose to any individual or other entity, except in the proper course of your employment with any member of the Group Companies, or use for your own purposes or for purposes other than those of any member of the Group Companies, any Confidential Information or trade secrets of any member of the Group Companies acquired by you. You agree that at all times after your employment with any member of the Group Companies, you will hold in trust, keep confidential, and not publish, disclose or otherwise disseminate to any third party or make any use of the Confidential Information of any member of the Group Companies except for the benefit of the Group Companies and in the course of employment with any member of the Group Companies. You further agree not to cause the transmission, removal or transport of Confidential Information from the Group Companies’ place of business (principal, remote or otherwise), whether by hard or electronic copy, without prior written approval of the Company and its ultimate parent, except for the benefit of the Group Companies and in the course of your employment relationship with any member of the Group Companies. You acknowledge that you are aware that the unauthorized disclosure of Confidential Information of any member of the Group Companies may be highly prejudicial to the Group Companies’ interests, an invasion of privacy and an improper disclosure of proprietary information. You agree, promptly and without request, to deliver to and inform the Company and its ultimate parent of all documents and data pertaining to your services to the any member of the Group Companies and the Confidential Information of the Group Companies, whether prepared by you or otherwise coming into your possession or control. You will not retain any written or other tangible material containing any information concerning or disclosing any of the Confidential Information of any member of the Group Companies, including but not limited to any electronically stored data.
(i)If information enters the public domain, except as a result of a breach of this Section (c) by you or a breach of another confidentiality agreement to which any member of the Group Companies is a party, the information will not be deemed Confidential Information, or a trade secret protected by this Section (c). If you are compelled by law to disclose Confidential Information or trade secrets of any member of the Group Companies, pursuant to subpoena, an order from a court of
Exhibit 10.2
competent jurisdiction, or other applicable legal authority, you may disclose such Confidential Information or trade secrets to the extent so required, but you will, if possible, (i) provide reasonable advance notice of the subpoena, court order, or legal authority to the Company and its ultimate parent, and (ii) afford the Group Companies the reasonable opportunity to take legal action to contest, challenge, narrow or otherwise limit or condition the disclosure.
(ii)Sanctions for Unauthorized Taking of Confidential Information. You recognize that the unauthorized taking of the Group Companies’ Confidential Information could result in civil liability and that willful misappropriation may result in an award against you for damages and attorney’s fees and costs in collecting such damages. The unauthorized taking of trade secrets is a crime and may be punishable by imprisonment, or a fine, or both, and/or may result in civil liability, including, where applicable, punitive or similar damages, under applicable federal and state trade secret laws.
(iii)Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 ("DTSA"). Notwithstanding any other provision of this Agreement:
(A)You will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that: (1) is made: in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
(B) If you file a lawsuit for retaliation by any member of the Group Companies for reporting a suspected violation of law, you may disclose the Group Companies’ trade secrets to your attorney and use the trade secret information in the court proceeding if you: (1) file any document containing the trade secret under seal; and (2) do not disclose the trade secret, except pursuant to court order.
(d)Intellectual Property.
(i) You have attached hereto as Exhibit 1, a list describing all inventions, original works of authorship, developments, improvements, copyrights and patents that were made or developed by you prior to the date you sign this Agreement, that belong to you. If such list is not attached or is left blank, you represent that no such inventions exist.
(ii) You agree that all ideas, techniques, inventions, systems, business and marketing plans, projections and analyses, discoveries, technical information, programs, prototypes, copyrightable works of authorship, including without limitation software code, and similar developments, improvements or creations developed, conceived, created, discovered, made, or written by you in the course of or as the result, directly or indirectly, of the performance of your employment with any member of the Group Companies (hereinafter called "Developments"), and all related intellectual property rights, including but not limited to, writings and other works of authorship, United States and foreign patents, mask works, copyright and trademark registrations and other forms of intellectual property protection, shall be and remain the property of the Group Companies. You further agree to assign (or cause to
Exhibit 10.2
be assigned) and do hereby assign fully to the Group Companies all such Developments and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. In the event copyrightable works do not fall within the theory of works made for hire, you agree to assign, and do hereby assign, all rights, title and interest therein, without further consideration, to the Group Companies. You, insofar as you have the right to do so, agree that you will execute or cause to be executed such United States and foreign patents, mask works, copyright and trademark registrations and other documents and agreements and take such other action as may be desirable in the opinion of the Group Companies to enable intellectual property, copyright and other forms of protection for Developments to be obtained, maintained, renewed, preserved and protected throughout the world by or on behalf of the Group Companies.
(iii) If any member of the Group Companies is unable, after exercising reasonable efforts, to secure your signature on any application for patent, copyright, analogous registration, or other documents regarding any legal protection regarding Developments or other works and inventions, whether because of your physical or mental incapacity or for any other reason, you hereby irrevocably designate and appoint the Group Companies and their duly authorized officers and agents as your agent and attorney-in-fact to act for and on your behalf and to execute and file any such application or applications or other documents and to do all other lawfully permitted acts to further the prosecution and issuance of such patent, copyright or trademark registrations or any other legal protection thereon with the same legal force and effect as if executed by you.
(iv) Incorporation into Company Products. You agree that if in the course of your employment with any member of the Group Companies, you incorporate into any invention, service, or product any invention, improvement, Development, concept, discovery or other proprietary information owned by you or in which you have an interest, (i) you will inform the Company and its ultimate parent, in writing, before incorporating such invention, improvement, development, concept, discovery or other proprietary information into any invention, Service, or Development; and (ii) the Group Companies are hereby granted and will have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such item as part of or in connection with such invention, services, or Development. You will not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any invention without the Company's and its ultimate parent’s prior written permission.
(v) Subsequent Use Restrictions. During the course of employment and during the Restricted Period, you agree to promptly notify the Company and its ultimate parent of any inventions you develop that are based on, relate to or are a derivative of Developments or Confidential Information. You agree that any invention or work involving you after the separation of your employment shall be deemed to result from access to the Company’s Developments or Confidential Information (including without limitation patentable inventions and copyrightable works) if such invention or work: (i) arose from your work with any member of the Group Companies; or (ii) is related to the business of the Group Companies and is made, created, used, sold, exploited or reduced to practice, or an application for patent, trademark, copyright or other proprietary protection is filed by you and/or with your significant aid by a third party, within the Restricted Period.
Exhibit 10.2
(e)Disclosure of New Employment. In light of your obligations under this Agreement, you agree to disclose the name of any future employer to the Company and its ultimate parent in writing (even if you intend to be self-employed), along with your future business contact information, including name and full address of the new employer. Where necessary to protect the Group Companies’ interests, any member of the Group Companies may notify any future or prospective employer of the existence of this Agreement and/or the terms and conditions of your employment with any member of the Group Companies. This obligation shall continue until the end of the time periods under the Non-Competition and Non-Solicitation provisions above.
(f)Cooperation. You shall provide reasonable cooperation in connection with any legal action or proceeding (or any appeal from any action or proceeding) which relates to events during your employment hereunder. The Company shall reimburse you for your reasonable travel expenses incurred in connection with the foregoing, in accordance with the Company’s policies and subject to the delivery of reasonable support for such expenses.
(g) Restrictions Reasonable. You confirm that all restrictions and covenants in this Agreement are reasonable and valid, and waive all objections to and defenses to the strict enforcement thereof.
(h)Survival of Restrictions. This Agreement shall survive the termination of the Offer Letter between you and the Company and the termination of your employment with any member of the Group Companies, whether such termination is voluntary or involuntary, and regardless of the reason(s) for such termination.
(i)Remedies. In the event of breach or threatened breach by you of any provision of this Agreement, any member of the Group Companies shall be entitled to (i) injunctive relief by temporary restraining order, preliminary injunction, and/or permanent injunction, (ii) recovery of the attorneys’ fees and costs incurred by any member of the Group Companies in obtaining such relief, and (iii) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which any member of the Group Companies may incur as a result of said breach or threatened breach. Injunctive relief shall not be the exclusive relief and may be in addition to any other relief to which any member of the Group Companies would otherwise be entitled. The existence of any cause of action by you against the Company shall not constitute a defense to enforcement of the restrictions on you created by this Agreement. If you fail to comply with this Agreement during the Restricted Period, the time period for that the Restricted Period will be extended by one day for each day that you are found to have violated this Agreement, up to a maximum extension of twelve (12) months. In the event that a court finds the restrictions on you in this Agreement are unenforceable as written, then the parties shall consent to the reformation of the Agreement to make it enforceable to protect the interests of the Group Companies to the maximum extent legally allowed.
(j)Parties Benefited; Assignments. This Agreement shall inure to the benefit of the Group Companies’ owners, successors, assigns and affiliates, and may be assigned to and enforced by any of the foregoing. Neither this Agreement nor any rights or obligations hereunder may be assigned by you.
Exhibit 10.2
(k)Notices. Any notice required or permitted by this Agreement shall be in writing sent by personal delivery, or by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to you at your last known address, or to such other address or addressees as any party may from time to time specify in writing. Notices shall be deemed given when received.
(l)Governing Law, Jurisdiction and Venue. This Agreement and any issues arising from it or regarding its provisions shall be governed by and construed in accordance with the substantive and procedural laws of the state of your primary workplace without reference to such jurisdiction’s choice of law rules.
(m)Severability. The provisions of this Agreement are severable so that in the event any provision(s) in this Agreement is held to be illegal or unenforceable by any court or agency of competent jurisdiction, or by operation of any applicable law, the remaining terms of this Agreement shall remain valid and in full force and effect. Further, such court or agency shall modify the offending provision to conform to the most expansive permissible reading under the law to protect the interests of the Group Companies.
(n)No Waiver. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
(o) Comprehension; Consultation with Counsel. You acknowledge having read and understood this Agreement and further acknowledge being hereby advised, by this paragraph, to consult independent legal counsel. Accordingly, you acknowledge that you are voluntarily entering into this Agreement of your own volition and not under duress.
(p)Waiver of Jury Trial.
YOU AND THE GROUP COMPANIES KNOWINGLY AND WILLINGLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Exhibit 10.2
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THIS AGREEMENT, THAT THEY HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL IF THEY SO CHOSE, AND THAT THEY ENTER INTO THIS AGREEMENT FREELY AND VOLUNTARILY.
/s/ Mutya Harsch
Mutya Harsch
April 7, 2021
Date
VYNE Pharmaceuticals Inc.
By: /s/ David Domzalski
David Domzalski, Chief Executive Officer
April 7, 2021
Date
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, David Domzalski, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of VYNE Therapeutics Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 6, 2021 | By: | /s/ David Domzalski | ||||||
| David Domzalski Principal Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Andrew Saik, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of VYNE Therapeutics Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 6, 2021 | By: | /s/ Andrew Saik | ||||||
| Andrew Saik Principal Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of VYNE Therapeutics Inc. (the “Company”), for the quarterly period ended March 31, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, David Domzalski, President and Chief Executive Officer and principal executive officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 6, 2021 | By: | /s/ David Domzalski | ||||||
| David Domzalski Principal Executive Officer | ||||||||
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of VYNE Therapeutics Inc. (the “Company”), for the quarterly period ended March 31, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Andrew Saik, Chief Financial Officer, Treasurer and principal financial officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 6, 2021 | By: | /s/ Andrew Saik | ||||||
| Andrew Saik Principal Financial Officer | ||||||||
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.