VYNE Therapeutics (VYNE) - 2023 Q3 - Quarterly Report

Part I - Financial Information Item 1. Unaudited Condensed Consolidated Financial Statements Presents VYNE Therapeutics Inc.'s unaudited condensed consolidated financial statements and detailed explanatory notes Unaudited Condensed Consolidated Balance Sheets | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $15,448 | $30,908 | | Total Current Assets | $17,511 | $38,275 | | Total Assets | $19,267 | $40,758 | | Total Current Liabilities | $6,449 | $9,345 | | Total Liabilities | $7,762 | $9,345 | | Total Stockholders' Equity | $11,505 | $31,202 | - The company's cash and cash equivalents decreased by approximately 50% from $30.9 million at December 31, 2022, to $15.4 million at September 30, 2023. Total assets decreased by over 50% from $40.7 million to $19.2 million, while total liabilities decreased from $9.3 million to $7.7 million. Stockholders' equity also saw a significant reduction from $31.2 million to $11.5 million[23] Unaudited Condensed Consolidated Statements Of Operations | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $114 | $167 | $348 | $471 | | Operating expenses | $6,348 | $9,500 | $22,774 | $26,782 | | Operating loss | $(6,234) | $(9,333) | $(22,426) | $(26,311) | | Net loss | $(6,584) | $(9,459) | $(22,264) | $(13,265) | | Loss per share (basic and diluted) | $(2.01) | $(2.94) | $(6.82) | $(4.18) | - For the three months ended September 30, 2023, total revenues decreased by 31.7% YoY, while operating expenses decreased by 33.2% YoY, leading to a 33.2% reduction in operating loss. However, net loss decreased by 30.4% YoY. For the nine months ended September 30, 2023, total revenues decreased by 26.1% YoY, operating expenses decreased by 15.0% YoY, and operating loss decreased by 14.8% YoY. Net loss significantly increased by 67.8% YoY, primarily due to a gain on the sale of the MST Franchise in the prior year's discontinued operations[25][164][169] Unaudited Condensed Consolidated Statements Of Changes In Mezzanine Equity and Stockholders' Equity | Metric (in thousands) | Balance at Jan 1, 2023 | Net Loss | Stock-based Compensation | Redemption of Preferred Stock | Issuance of Common Stock | Balance at Sep 30, 2023 | | :-------------------- | :--------------------- | :------- | :----------------------- | :---------------------------- | :----------------------- | :---------------------- | | Mezzanine Equity | $211 | — | — | $(211) | — | $0 | | Additional Paid-in Capital | $693,937 | — | $2,595 | — | $156 | $696,653 | | Accumulated Deficit | $(662,735) | $(22,264) | — | $(149) | — | $(685,148) | | Total Stockholders' Equity | $31,202 | $(22,264) | $2,595 | $(149) | $156 | $11,505 | - The company's total stockholders' equity decreased significantly from $31.2 million at January 1, 2023, to $11.5 million at September 30, 2023, primarily due to a net loss of $22.3 million and the redemption of convertible preferred stock. Mezzanine equity was eliminated through redemption during the period[29] Unaudited Condensed Consolidated Statements Of Cash Flows | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(20,204) | $(24,389) | | Net cash provided by investing activities | $5,000 | $15,666 | | Net cash (used in) provided by financing activities | $(269) | $1,445 | | Decrease in cash, cash equivalents and restricted cash | $(15,473) | $(7,278) | | Cash, cash equivalents and restricted cash at end of period | $15,502 | $35,577 | - Net cash used in operating activities decreased from $24.4 million in 2022 to $20.2 million in 2023. Net cash provided by investing activities significantly decreased from $15.7 million in 2022 to $5.0 million in 2023, primarily due to lower proceeds from the sale of the MST Franchise. Financing activities shifted from providing $1.4 million in cash in 2022 to using $(0.3) million in 2023, mainly due to the redemption of convertible preferred stock[36][179][182][183] Notes to Unaudited Interim Condensed Consolidated Financial Statements NOTE 1 - Nature of Operations VYNE Therapeutics is a clinical-stage biopharmaceutical company developing immuno-inflammatory therapies via its BET inhibitor platform - VYNE Therapeutics is a clinical-stage biopharmaceutical company focused on immuno-inflammatory conditions, leveraging its BET inhibitor platform[40][41] - VYN201, a topical pan-BD BET inhibitor for nonsegmental vitiligo, showed significant clinical improvement in F-VASI in Phase 1b (1% and 2% cohorts) after 16 weeks of treatment, with Phase 2b preparatory activities initiated for H1 2024[42][145][148] - VYN202, an oral BD2-selective BET inhibitor, is in preclinical development for immuno-inflammatory indications, with an IND submission expected by year-end 2023 and Phase 1a trial commencement in Q1 2024, followed by Phase 1b trials in psoriasis and rheumatoid arthritis in H2 2024[43][146] - The company completed a 1-for-18 reverse stock split on February 10, 2023, to adjust its outstanding common stock[46][119] NOTE 2 - Significant Accounting Policies Outlines significant accounting policies for interim financial statements, covering presentation, revenue recognition, R&D costs, and recent accounting pronouncements - The company's financial statements are prepared in accordance with U.S. GAAP for interim periods, with certain information condensed or omitted compared to annual reports[52] - Revenue recognition follows ASC Topic 606, with royalty revenues recognized as products are sold by the customer. Following the MST Franchise disposition, the company no longer generates product sales revenue[57][58][59] - Research and development costs are expensed as incurred, including clinical trial expenses, salaries, and consulting fees[76] - The company adopted ASU 2016-13 (Credit Losses) as of January 1, 2023, with no material impact, and is evaluating ASU 2020-04/2022-06 (Reference Rate Reform), not expecting a material impact[90][92] NOTE 3 - Strategic Agreements Details strategic agreements, including exclusive worldwide licenses for BET inhibitor compounds (VYN201, VYN202) and the MST Franchise sale - VYNE holds exclusive worldwide rights to Tay Therapeutics' BET inhibitor compounds for immuno-inflammatory conditions, covering both pan-BD (VYN201) and selective (VYN202) inhibitors[94][96] - The VYN201 License Agreement includes potential clinical development and regulatory approval milestones of up to $15.75 million and tiered royalty payments up to 10% of annual net sales[94] - The VYN202 License Agreement, exercised in April 2023, involves a $3.75 million cash payment and potential milestones up to $43.75 million, plus tiered royalties up to 10% of annual net sales[96][97] - The MST Franchise was sold to Journey Medical Corporation in January 2022 for an upfront payment of $20.0 million and a $5.0 million deferred payment received in January 2023, with eligibility for up to $450.0 million in sales milestone payments[98][100] NOTE 4 – Discontinued Operations Provides financial details of the MST Franchise, classified as discontinued operations after its January 2022 sale, including combined results - The sale of the MST Franchise in January 2022 was classified as discontinued operations due to its strategic shift and major effect on the business[101] | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Product sales, net | $(498) | $0 | $(498) | $106 | | (Loss) income from discontinued operations | $(513) | $(117) | $(544) | $1 | | Gain on the sale of the MST Franchise | $0 | $(87) | $0 | $12,918 | | Net (loss) income from discontinued operations | $(513) | $(204) | $(544) | $12,919 | - The company recognized a gain of $12.9 million on the sale of the MST Franchise for the nine months ended September 30, 2022, which significantly impacted the net income from discontinued operations in that period[103][105] NOTE 5 – Mezzanine Equity and Stockholder Capital Details preferred and common stock activities, including Series A Preferred Stock redemption, a reverse stock split, common stock issuances, and a November 2023 private placement - The company redeemed all outstanding Series A Convertible Preferred Stock on January 17, 2023, for $360 thousand, eliminating mezzanine equity[116][117] - A 1-for-18 reverse stock split was effected on February 10, 2023, impacting common stock and per-share amounts retroactively[119][120] - In the nine months ended September 30, 2023, the company issued 34,589 shares of common stock through an at-the-market offering for $0.2 million in net proceeds[121] - On November 1, 2023, the company completed a private placement of common stock and pre-funded warrants, generating $88.2 million in gross proceeds[123][138] NOTE 6 – Stock-Based Compensation Outlines equity incentive plans and ESPP, detailing shares and stock-based compensation expenses across R&D and SG&A categories | Expense Category (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $207 | $355 | $399 | $977 | | Selling, general and administrative | $656 | $819 | $2,196 | $2,605 | | Total Stock-based Compensation | $863 | $1,174 | $2,595 | $3,230 | - Total stock-based compensation expenses decreased by 26.5% for the three months ended September 30, 2023, and by 19.6% for the nine months ended September 30, 2023, compared to the respective prior periods[130] NOTE 7 – Operating Leases Describes operating lease agreements, including the transition to a smaller corporate headquarters and a new Master Lease - The company transitioned to a smaller corporate headquarters in November 2022 and signed a Master Lease for approximately 5,755 square feet of office space in Bridgewater, New Jersey, through September 30, 2025[134] - The Master Lease is expected to result in total lease payments of approximately $0.3 million[134] NOTE 8 – Commitments and Contingencies As of September 30, 2023, no pending legal proceedings or claims are likely to have a material adverse effect on the company - As of September 30, 2023, there are no pending legal proceedings or claims against the company that are likely to have a material adverse effect[136] NOTE 9 – Subsequent Events Details a significant subsequent event: a November 1, 2023, private placement generating $88.2 million in gross proceeds from common stock and pre-funded warrants - On November 1, 2023, the company completed a private placement, raising $88.2 million in gross proceeds from the sale of 10,652,543 shares of common stock and 28,614,437 pre-funded warrants[138] - The pre-funded warrants have an exercise price of $0.0001 per share and do not expire until exercised in full, subject to beneficial ownership limitations[139] - A Registration Rights Agreement was entered into, requiring the company to register the resale of the common stock and underlying warrant shares with the SEC[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting the strategic shift to a clinical-stage biopharmaceutical company, key program developments, and liquidity Company Overview VYNE Therapeutics is a clinical-stage biopharmaceutical company developing innovative immuno-inflammatory therapies, with VYN201 and VYN202 as lead programs - VYNE Therapeutics is a clinical-stage biopharmaceutical company focused on developing proprietary therapies for immuno-inflammatory conditions[143] - The company holds exclusive worldwide rights to BET inhibitors from Tay Therapeutics, with initial focus on immuno-inflammatory diseases[144] - VYN201, a topical pan-BD BET inhibitor, demonstrated significant clinical improvement in facial vitiligo (F-VASI) in Phase 1b, with Phase 2b expected in H1 2024[145] - VYN202, an oral BD2-selective BET inhibitor, is in preclinical development, with an IND submission planned by year-end 2023 and Phase 1a trial initiation in Q1 2024[146] Key Developments Key developments include positive Phase 1b data for VYN201, positive preclinical data for VYN202, and an $88.2 million private placement - Positive Phase 1b data for topical VYN201 in nonsegmental vitiligo showed a statistically significant dose-dependent reduction in F-VASI score, with mean percentage reductions of 30.2% (1.0% cohort) and 39.0% (2.0% cohort) after 16 weeks[148] - Positive preclinical data for oral VYN202 in psoriasis and rheumatoid arthritis models demonstrated significant inhibition of inflammatory biomarkers and resolution of disease signs/symptoms[156] - The company plans to submit an IND for VYN202 by year-end 2023, commence Phase 1a in Q1 2024, and initiate Phase 1b trials in moderate-to-severe plaque psoriasis and rheumatoid arthritis in H2 2024[156] - A private placement transaction closed on November 1, 2023, raising $88.2 million in gross proceeds from the sale of common stock and pre-funded warrants[156] Financial Overview The company has an accumulated deficit of $685.1 million and a net loss of $22.3 million for the nine months ended September 30, 2023, with future viability dependent on strategy and financing - The company has an accumulated deficit of $685.1 million as of September 30, 2023[150] - Net loss for the nine months ended September 30, 2023, was $22.3 million, compared to $13.3 million for the same period in 2022[150] - Future viability is dependent on successfully executing the business strategy, developing product candidates, and raising additional capital to finance operations[151] Components of Operating Results Breaks down operating results into revenues (royalty-based), cost of goods sold, and operating expenses, noting continued net operating losses and significant carryforwards - Revenues are primarily from royalty payments related to Finacea, as product sales from AMZEEQ and ZILXI ceased after the MST Franchise sale in January 2022[152][153][154] - Research and development expenses are now focused on the immuno-inflammatory pipeline, specifically VYN201 and VYN202, with all such costs expensed as incurred[158] - The company had federal and state net operating loss carryforwards of $318.3 million and $90.4 million, respectively, as of December 31, 2022, subject to potential Section 382 limitations[161][163] Revenues - Revenue is now solely comprised of royalty revenue, as product sales from AMZEEQ and ZILXI ceased after the MST Franchise sale in January 2022[152][153][154] Cost of Goods Sold - Cost of goods sold, previously related to AMZEEQ and ZILXI, has been reclassified to discontinued operations following the MST Franchise sale[155] Operating Expenses - Operating expenses include research and development (R&D) and selling, general and administrative (SG&A) costs[156][159] Research and Development Expenses - R&D expenses are primarily related to the development of VYN201 and VYN202, expensed as incurred, and include employee-related costs, third-party agreements, clinical trial materials, and intellectual property costs[158][162] Selling, General and Administrative Expenses - SG&A expenses include employee-related costs, legal and professional fees, and facility/IT expenses[162] Other Income (Expense), net - Other income (expense), net, primarily consists of interest earned on cash and cash equivalents and foreign exchange gains/losses[160] Income Taxes and Net Operating Loss Carryforwards - The company has significant federal and state net operating loss (NOL) carryforwards of $318.3 million and $90.4 million, respectively, as of December 31, 2022, which may be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code[161][163] Results of Operations Compares financial performance for the three and nine months ended September 30, 2023, versus 2022, highlighting changes in revenues, operating expenses, and other income Comparison of the Three-Month Periods Ended September 30, 2023 and 2022 | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Royalty revenues | $114 | $167 | $(53) | (31.7)% | | R&D expenses | $3,318 | $5,546 | $(2,228) | (40.2)% | | SG&A expenses | $3,030 | $3,954 | $(924) | (23.4)% | | Operating loss | $(6,234) | $(9,333) | $(3,099) | (33.2)% | | Net loss | $(6,584) | $(9,459) | $(2,875) | (30.4)% | - Research and development expenses decreased by $2.2 million (40.2%) due to reduced spending on FMX114 and VYN201, and lower employee-related expenses, partially offset by increased VYN202 spend[166] - Selling, general and administrative expenses decreased by $0.9 million (23.4%) primarily due to lower corporate insurance costs and reduced consulting and professional fees[167] Comparison of the Nine-Month Periods Ended September 30, 2023 and 2022 | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | :--------- | | Royalty revenues | $348 | $471 | $(123) | (26.1)% | | R&D expenses | $13,284 | $14,106 | $(822) | (5.8)% |\n| SG&A expenses | $9,490 | $12,676 | $(3,186) | (25.1)% | | Operating loss | $(22,426) | $(26,311) | $(3,885) | (14.8)% | | Net loss | $(22,264) | $(13,265) | $(8,999) | (67.8)% | - Research and development expenses decreased by $0.8 million (5.8%) due to lower employee-related expenses and reduced spending on FMX114 and VYN201, partially offset by a $5.6 million increase for VYN202, including a $4.0 million license payment[171] - Selling, general and administrative expenses decreased by $3.2 million (25.1%) driven by lower rent, corporate insurance, employee-related expenses, and consulting fees[172] - Other income, net, increased significantly from $0.1 million to $0.7 million, primarily due to higher interest income on cash and cash equivalents[174] Liquidity and Capital Resources Historically funded by equity, debt, and licensee payments, the company faces continuous losses and negative cash flows, with $15.5 million cash and $685.1 million accumulated deficit - As of September 30, 2023, the company had $15.5 million in cash and cash equivalents and restricted cash, and an accumulated deficit of $685.1 million[176] - Net cash used in operating activities was $20.2 million for the nine months ended September 30, 2023[175][180] - A private placement completed on November 1, 2023, generated $88.2 million in gross proceeds, which, combined with existing cash, is believed to be sufficient to fund operations for over 12 months[176][178] - Future funding requirements are substantial and depend on the costs of R&D, regulatory approvals, acquisitions, and intellectual property protection[187] Summary Statement of Cash Flows | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(20,204) | $(24,389) | | Investing activities | $5,000 | $15,666 | | Financing activities | $(269) | $1,445 | Net Cash Used in Operating Activities - Net cash used in operating activities was $20.2 million for the nine months ended September 30, 2023, primarily reflecting the net loss of $22.3 million, adjusted for non-cash stock-based compensation[180] Net Cash Provided by Investing Activities - Net cash provided by investing activities was $5.0 million for the nine months ended September 30, 2023, representing the deferred payment received from the MST Franchise sale[182] Net Cash (Used in) Provided by Financing Activities - Net cash used in financing activities was $0.3 million for the nine months ended September 30, 2023, mainly due to the $0.4 million redemption of convertible preferred stock, partially offset by $0.2 million from common stock issuance[183] Cash and Funding Sources - Total funding sources for the nine months ended September 30, 2023, were $5.2 million, primarily from the MST Franchise sale proceeds ($5.0 million) and common stock issuance ($0.2 million)[185] Funding Requirements - Future funding requirements are dependent on R&D costs, regulatory approval timelines, potential acquisitions/collaborations, new product identification, and intellectual property costs[187] Critical Accounting Policies, Significant Judgments and Use of Estimates Reiterates that financial statements are prepared using U.S. GAAP, requiring estimates, with no material changes to critical accounting policies since the 2022 Annual Report - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts[189] - No material changes to critical accounting policies have occurred for the nine months ended September 30, 2023, compared to the Annual Report on Form 10-K[191] Off-Balance Sheet Arrangements The company is not party to any off-balance sheet arrangements likely to have a material current or future effect on its financial condition or results - The company is not party to any off-balance sheet arrangements that are likely to have a material current or future effect on its financial condition or results[192] JOBS Act Accounting Election As an 'emerging growth company,' the company irrevocably opted out of the JOBS Act's extended transition period for new accounting standards, complying as required when adopted - As an 'emerging growth company,' the company has irrevocably opted out of the extended transition period under the JOBS Act for new accounting standards[193] Recently Issued and Adopted Accounting Pronouncements Refers to Note 2 for details on recently issued and adopted accounting pronouncements and their expected impact on financial position and results of operations - Refer to Note 2 for details on recently issued and adopted accounting pronouncements and their expected impact[194] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, VYNE Therapeutics Inc. is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, VYNE Therapeutics Inc. is exempt from providing quantitative and qualitative disclosures about market risk[196] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were evaluated as effective at a reasonable assurance level as of September 30, 2023[198] - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2023[199] Part II - Other Information Item 1. Legal Proceedings As of September 30, 2023, no pending legal proceedings or claims are likely to have a material adverse effect on the company - No pending legal proceedings or claims are likely to have a material adverse effect on the company as of September 30, 2023[201] Item 1A. Risk Factors No material changes to risk factors have occurred since the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to disclose for the period - No unregistered sales of equity securities or use of proceeds to report[203] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to disclose for the period - No defaults upon senior securities to report[204] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[204] Item 5. Other Information No other information to disclose for the period - No other information to report[205] Item 6. Exhibits Lists all exhibits filed or furnished as part of this Quarterly Report on Form 10-Q, including corporate governance documents and certifications - The exhibit index includes corporate governance documents (Certificate of Incorporation, Bylaws), CEO and CFO certifications, and XBRL instance and taxonomy documents[207] Signatures Signatures Contains required signatures for the Quarterly Report on Form 10-Q, affirming submission by VYNE Therapeutics Inc.'s CEO and CFO - The report is duly signed by David Domzalski, Director and Chief Executive Officer, and Tyler Zeronda, Chief Financial Officer, on November 13, 2023[213]