VYNE Therapeutics (VYNE) - 2021 Q4 - Annual Report

PART I This section outlines the company's business, product pipeline, strategic initiatives, risk factors, and foundational corporate details ITEM 1. Business VYNE Therapeutics Inc. is a biopharmaceutical company focused on developing innovative therapies for immuno-inflammatory conditions. The company divested its commercial dermatology business in early 2022 to concentrate resources on its pipeline, which includes FMX114 for atopic dermatitis and BET inhibitor compounds (VYN201 and VYN202) for various immuno-inflammatory diseases. The strategy involves advancing these candidates, leveraging its InhiBET™ platform, and exploring strategic partnerships and acquisitions - VYNE Therapeutics is a biopharmaceutical company focused on developing proprietary, innovative, and differentiated therapies for immuno-inflammatory conditions[29] - The company divested its commercial dermatology business (AMZEEQ, ZILXI, FCD105) in January 2022 to refocus on its immuno-inflammatory pipeline[30][61] - Current pipeline includes FMX114 (Phase 2a for mild-to-moderate atopic dermatitis) and preclinical BET inhibitor candidates VYN201 and VYN202[29][32][36][60] - The company's strategy involves developing FMX114, establishing the InhiBET™ platform, maximizing pipeline value through partnerships, and expanding the portfolio via in-licensing or acquisitions[38][39][40][41] Overview VYNE Therapeutics develops immuno-inflammatory therapies, with FMX114 in Phase 2a and BET inhibitors in preclinical stages - VYNE Therapeutics is a biopharmaceutical company focused on developing proprietary, innovative, and differentiated therapies for immuno-inflammatory conditions[29] - The most advanced product candidate is FMX114, in Phase 2a for mild-to-moderate atopic dermatitis (AD)[29] - Preclinical development is underway for Bromodomain and Extra-Terminal Domain (BET) inhibitor compounds, with VYN201 as an initial candidate for locally administered pan-BET inhibition in various immuno-inflammatory diseases[29] - The company also seeks opportunistic transactions to enhance its pipeline and fund future growth[29] Immuno-Inflammatory Disease This section describes immuno-inflammatory diseases and the therapeutic approaches of FMX114 and InhiBET™ platform's BET inhibitors - Immuno-inflammatory diseases are immune system disorders caused by excessive activation or insufficient inhibition, often debilitating or life-threatening[31] - The therapeutic goal is to achieve a potent anti-inflammatory response with minimal systemic side effects[31] - FMX114 targets mild-to-moderate AD by combining tofacitinib (JAK inhibitor) and fingolimod (S1-P receptor modulator) to reduce inflammation and support skin barrier recovery[32] - The InhiBET™ platform, licensed from In4Derm, aims to develop BET inhibitor compounds for a broad range of immune system disorders by blocking pro-inflammatory cytokine transcription[33][34][35] - VYN201 is a first-in-class 'soft' pan-BD BET inhibitor designed for localized anti-inflammatory effects with rapid metabolic clearance[36] - The company holds an option to license selective bromodomain 2 BET inhibitors for oral administration (VYN202), which could offer convenient non-biologic treatment options[37] Our Strategy VYNE's strategy focuses on advancing FMX114, establishing the InhiBET™ platform, and expanding its portfolio via partnerships or acquisitions - Develop FMX114 as a potential first topical combination product for AD, with Phase 2a topline results expected in Q2 2022[38] - Establish the InhiBET™ BET inhibitor platform to discover and develop BET inhibitor product candidates for diverse indications and administration modes[39] - Maximize pipeline value through potential partnering activities, leveraging the broad utility of candidates like VYN201[40] - Expand the product candidate portfolio through in-licensing or acquisitions, focusing on disease rationale, regulatory approval likelihood, commercial viability, and intellectual property[41] Our Portfolio of Product Candidates This section details FMX114, VYN201, and VYN202, outlining their mechanisms, preclinical data, and immuno-inflammatory applications - FMX114 is a fixed combination of tofacitinib and fingolimod, designed to address inflammation and support skin barrier recovery in mild-to-moderate AD[42] - Preclinical data for FMX114 showed an 89% reduction in modified atopic dermatitis index score, comparable to triamcinolone 0.1% cream, with better tolerability (animal body weight gain)[43][44] - Phase 1b data for FMX114 indicated substantially lower systemic bioavailability of tofacitinib and undetectable fingolimod plasma concentrations compared to oral equivalents, supporting a favorable safety profile[44] - VYN201, a locally administered pan-BD BET inhibitor, demonstrated dose-dependent anti-inflammatory effects in a Th17 inflammation model, reducing cytokine expression and inflammation severity comparable to a super-potent steroid but with better tolerability[48][50][51][52][56] - VYN201 also showed improvements in reducing fibrotic tissue mass and accelerating skin repair in a fibrotic tissue model, with better aesthetic outcomes and good tolerability[54][57] - In a vitiligo model, VYN201 reduced pro-inflammatory biomarkers (MMP-9, soluble E-cadherin), minimized melanocyte loss, and upregulated the WNT signaling pathway, indicating potential for melanocyte regeneration[55][58][64] - VYN202 is a selective BD2 BET inhibitor program, currently in lead molecule selection, aiming for a more targeted anti-inflammatory effect with an improved benefit/risk profile for oral administration[60] Divestiture of Minocycline Business VYNE divested its MST franchise (AMZEEQ, ZILXI, FCD105) to Journey Medical Corporation for upfront, deferred, and potential milestone payments - On January 12, 2022, VYNE divested its Molecule Stabilizing Technology (MST) franchise, including AMZEEQ, ZILXI, and FCD105, to Journey Medical Corporation[61] - VYNE received an upfront payment of $20.0 million and is entitled to an additional $5.0 million on the one-year anniversary of the closing[61] - The company is also eligible for sales milestone payments up to $450.0 million and certain payments from Journey's licensing or sublicensing activities outside the U.S[61] - Journey assumed certain liabilities, including those from a patent infringement suit against Padagis Israel Pharmaceuticals Ltd[61] Manufacturing VYNE relies on third-party manufacturers for all raw materials and finished products, ensuring compliance with GLP and cGMP regulations - VYNE relies entirely on third-party manufacturers for raw materials, active ingredients, and finished products for preclinical research and clinical trials[63] - All contract manufacturing organizations (CMOs) are required to comply with FDA's Good Laboratory Practices (GLP) and current Good Manufacturing Practices (cGMP)[65] Development and License Agreements VYNE licensed BET inhibitor compounds from In4Derm for VYN201 and VYN202 programs, while continuing to receive royalties from LEO Pharma - VYNE entered an Evaluation and Option Agreement with In4Derm in April 2021, granting exclusive option rights to BET inhibitor compounds for human disease treatment[66] - In August 2021, VYNE exercised its option for the VYN201 program, securing an exclusive worldwide license for pan-BD BET inhibitor compounds[67] - The VYN201 license includes up to $15.75 million in clinical development and regulatory approval milestones, plus tiered royalties of 5-10% on net sales[68] - VYNE expects to exercise its option for the VYN202 selective BET inhibitor program by June 30, 2022, involving a $4.0 million payment and up to $43.75 million in milestones, plus tiered royalties[69] - VYNE continues to receive royalties from LEO Pharma A/S on net sales of Finacea® Foam, totaling $0.9 million in 2021[71] Additional Research and Development This section details the company's research and development expenses and reliance on third-party contractors for clinical and preclinical testing Research and Development Expenses | Year Ended December 31 | 2021 (Millions USD) | 2020 (Millions USD) | | :----------------------- | :------------------ | :------------------ | | Research and Development | $25.0 | $43.5 | - The company contracts with third parties (CROs, medical institutions, clinical investigators, laboratories) for clinical trials and preclinical testing[72] Intellectual Property VYNE protects its intellectual property through patents, trademarks, and trade secrets, with FMX114 and VYN201 patents expiring in the 2040s - VYNE protects its intellectual property through patents, trademarks, trade secrets, and contractual agreements[73] - Patent applications for FMX114 are expected to expire in 2040 and 2041, and for VYN201 in 2040 and 2042, if granted and maintained[74] - The company's legacy business includes granted patents worldwide related to pharmaceutical compositions and foam/gel-based technologies[75] - Patent terms are generally 20 years from filing, with potential extensions in the U.S. (patent term adjustment/extension) and EU (supplementary patent certificate)[76][77] Competition VYNE faces intense competition from pharmaceutical and biotechnology companies, which often have greater resources and faster regulatory approvals - VYNE faces intense competition from pharmaceutical and biotechnology companies, academic institutions, and government agencies[78] - Competitors for FMX114 in mild-to-moderate AD include topical therapies like Eucrisa (Pfizer), Opzelura (Incyte), and various steroids, as well as pipeline candidates like topical tapinarof and delgocitinib[80] - The immuno-inflammatory conditions market for VYN201 is highly competitive, with existing and future treatments[81] - Competitors often have greater financial resources and expertise, and faster regulatory approvals could establish strong market positions before VYNE's products[79][82] Government Regulation Drug development and commercialization are subject to extensive government regulations in the U.S. and internationally, covering approval, post-approval, pricing, and fraud laws - Drug development and commercialization are subject to extensive government regulation in the U.S. (FDA) and other jurisdictions[83][84] - The U.S. drug approval process involves preclinical studies (GLP), IND submission, clinical trials (GCP, IRB approval) in three phases (I, II, III), NDA submission, FDA review, manufacturing facility inspections (cGMP), and post-approval requirements[85][86][87][88][90][91][92][93][94] - Special FDA programs (Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review) can expedite development for serious conditions with unmet medical needs, but do not alter approval standards[95][96][97][98][99][100] - The Hatch-Waxman Act provides pathways for drug approval (505(b)(1) NDA, 505(j) ANDA, 505(b)(2) NDA) and includes provisions for patent listing (Orange Book) and market exclusivity (5-year NCE, 3-year for new clinical studies, pediatric exclusivity)[101][102][104][105][106][107][108][109][110][119][120][121] - Post-approval requirements include record-keeping, adverse event reporting, updated safety/efficacy information, compliance with promotion/advertising rules (e.g., no off-label promotion), Physician Payments Sunshine Act disclosures, and cGMP for manufacturing[111][112][113][114][115][116] - Foreign regulations, such as in the European Economic Area (EEA), also require Marketing Authorization (MA) and compliance with Pediatric Investigation Plans (PIPs), offering data and market exclusivity periods[122][123][124] - Pharmaceutical coverage, pricing, and reimbursement are subject to significant uncertainty and increasing pressure from third-party payors and government reforms (e.g., ACA, Medicaid drug rebate program), which can impact market access and profitability[126][127][128][129][130][131][132] - The company is subject to U.S. federal, state, local, and foreign healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Physician Payments Sunshine Act), with violations potentially leading to substantial penalties, reputational harm, and operational restrictions[133][134][135] Environmental, Health and Safety Matters VYNE is subject to extensive environmental, health, and safety regulations, primarily in Israel, with non-compliance risking fines and remediation costs - VYNE is subject to extensive environmental, health, and safety laws and regulations, primarily in Israel, governing chemical use, waste disposal, and contamination[136] - Non-compliance can lead to fines, sanctions, permit revocations, and liability for remediation costs, potentially impacting business and financial condition[137] - Changes in these laws or non-compliance by subcontractors could also adversely affect operations[138][139] Human Capital As of December 31, 2021, VYNE had 28 full-time employees, focusing on retention, growth, and development through competitive compensation and an inclusive culture - As of December 31, 2021, VYNE had 28 full-time employees (14 female, 14 male), with 14 primarily engaged in R&D[140] - The company emphasizes employee retention, growth, and development through competitive compensation and benefits, fostering a culture of communication, transparency, diversity, and inclusion[140][141] Financial and Segment Information VYNE operates as a single business segment, with all financial information integrated into the consolidated financial statements - VYNE operates its business as a single segment, with financial information included in the consolidated financial statements[142] Corporate Information VYNE Therapeutics Inc. was incorporated in October 2011, changed its name in 2020, and is an 'emerging growth' and 'smaller reporting' company - VYNE Therapeutics Inc. was incorporated in October 2011 as Tigercat Pharma, Inc., changing its name in September 2020 following the merger of Foamix Pharmaceuticals Ltd. and Menlo Therapeutics Inc[143] - The company is an 'emerging growth company' and 'smaller reporting company,' eligible for reduced disclosure requirements[144] ITEM 1A. Risk Factors This section outlines significant risks and uncertainties facing VYNE Therapeutics, categorized into development, business/financial operations, government regulation, intellectual property, and securities markets. Key risks include dependence on successful product candidate development, substantial funding needs, clinical trial delays, regulatory hurdles, intense competition, and potential intellectual property infringement. The company's status as an 'emerging growth company' and stock price volatility also present risks - The business success is highly dependent on the successful development of FMX114 and BET inhibitor product candidates, with significant risks of failure in early-stage programs[18][148][149] - Substantial additional funding is required for operations, raising substantial doubt about the company's ability to continue as a going concern, potentially forcing delays or termination of R&D activities[18][185] - Clinical trials are expensive, time-consuming, and uncertain, with potential for delays, failures to demonstrate safety/efficacy, or identification of serious adverse effects, which could prevent regulatory approval[18][150][151][152][155][156] - The company faces intense competition from larger, more resourced pharmaceutical and biotechnology companies, which could reduce commercial opportunities for its drug candidates[78][79][82] - Extensive government regulation, including healthcare fraud and abuse laws, pricing/reimbursement reforms, and manufacturing compliance, poses risks of substantial penalties, increased costs, and delays in product approval[83][135][222][231][243] - Inadequate intellectual property protection, potential infringement of third-party rights, and costly litigation could harm the company's competitive position and business[73][148][256][257][273][274][276] - The trading price of common stock is volatile, and failure to maintain Nasdaq listing requirements could lead to delisting, negatively impacting market liquidity and capital raising ability[300][302][303] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's previous filings - No unresolved staff comments were reported[332] ITEM 2. Properties VYNE Therapeutics maintains executive offices in Bridgewater, New Jersey, and office/laboratory facilities in Ness Ziona, Israel. The company believes its current facilities are adequate for present needs and that suitable additional spaces will be available for future growth - The company's executive offices are in Bridgewater, New Jersey (15,000 sq ft lease expiring August 31, 2022, with a 3-year extension option)[333] - Office and warehouse space in Israel (4,600 sq ft office, 3,500 sq ft warehouse) is leased until December 31, 2022[333] - Current facilities are deemed adequate, and additional spaces are expected to be available on commercially reasonable terms for future growth[334] ITEM 3. Legal Proceedings VYNE Therapeutics is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business. The company may periodically face litigation in the ordinary course of business - No current claims or actions pending against the company are likely to have a material adverse effect on its business[335] - The company may become involved in litigation or other legal proceedings in the ordinary course of business[335] ITEM 4. Mine Safety Disclosures This item is not applicable to VYNE Therapeutics Inc. as it is not involved in mining operations - This item is not applicable[336] PART II This section details the company's market for common equity, financial condition, operational results, and supplementary data ITEM 5. Market For Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities VYNE Therapeutics' common stock is listed on Nasdaq under the symbol 'VYNE'. A one-for-four reverse stock split was effected in February 2021. As of March 2, 2022, there were approximately 8 holders of record of the common stock - VYNE's common stock is listed on Nasdaq under the symbol 'VYNE'[338] - A one-for-four reverse stock split was effected on February 12, 2021, converting every four outstanding shares into one, with no fractional shares issued[338] - As of March 2, 2022, there were approximately 8 holders of record of the common stock[339] ITEM 6. [Reserved] This item is reserved and contains no information - This item is reserved[340] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of VYNE Therapeutics' financial condition and operational results, highlighting the strategic shift from a commercial dermatology business to a research and development focus on immuno-inflammatory conditions. It details the divestiture of the MST franchise, key financial developments, and the company's liquidity challenges, including substantial doubt about its ability to continue as a going concern without additional financing. The discussion also covers revenue, expenses, and critical accounting policies - VYNE Therapeutics transitioned from a commercial organization to an R&D-focused biopharmaceutical company, concentrating on immuno-inflammatory conditions[343][347] - The Molecule Stabilizing Technology (MST) franchise, including AMZEEQ and ZILXI, was divested to Journey Medical Corporation in January 2022 for $25.0 million upfront/deferred payments and up to $450.0 million in sales milestones[345][346] - The company streamlined operations, reducing its workforce from 106 to 28 employees in 2021, incurring a $1.6 million restructuring charge[347][348] Summary of Operations (Years Ended December 31) | Metric (in millions) | 2021 | 2020 | Variance (Millions) | Variance (%) | | :------------------- | :----- | :----- | :------------------ | :----------- | | Revenues | $14.8 | $21.0 | $(6.2) | (29.7)% | | Cost of goods sold | $3.3 | $1.4 | $2.0 | 140.5% | | R&D expenses | $25.0 | $43.5 | $(18.6) | (42.7)% | | SG&A expenses | $54.5 | $89.5 | $(35.1) | (39.2)% | | Operating Loss | $68.0 | $252.5 | $(184.5) | (73.1)% | | Net Loss | $73.3 | $255.5 | $(182.2) | (71.3)% | - The company incurred a net loss of $73.3 million in 2021 and used $56.4 million in operating cash flows, with cash and cash equivalents of $42.9 million as of December 31, 2021[380] - Substantial doubt exists about the company's ability to continue as a going concern without significant additional financing, which may be limited by 'baby shelf rules' for companies with public floats under $75 million[381][382][188] Company Overview VYNE Therapeutics focuses on immuno-inflammatory conditions, with FMX114 and VYN201 in development, having divested its commercial dermatology franchise - VYNE Therapeutics is a biopharmaceutical company focused on developing proprietary therapies for immuno-inflammatory conditions[343] - The company's most advanced product candidate is FMX114 (Phase 2a for mild-to-moderate AD), and it is in preclinical stages for BET inhibitor compounds (VYN201)[343] - A strategic review in H1 2021 led to the decision to divest the topical minocycline franchise (AMZEEQ, ZILXI, FCD105) and the underlying Molecule Stabilizing Technology platform[344] - The MST franchise was sold to Journey Medical Corporation on January 12, 2022, for an upfront payment of $20.0 million, a $5.0 million deferred payment, and up to $450.0 million in sales milestone payments[345][346] - The company reduced its workforce from 106 to 28 employees in 2021, incurring a $1.6 million restructuring charge[347][348] Key Developments Key developments include equity offerings, a reverse stock split, FMX114 and BET inhibitor program progress, debt prepayment, and a new equity purchase agreement - In January 2021, VYNE sold 2.78 million shares for $26.3 million net proceeds via an at-the-market offering and completed a registered direct offering of 5.27 million shares for $46.8 million net proceeds[349] - A one-for-four reverse stock split was effected on February 12, 2021, reducing authorized shares from 300 million to 75 million[349] - Development plans for FMX114 for mild-to-moderate AD were announced in March 2021, with Phase 1b/2a trial enrollment starting in October 2021 and positive Phase 1b safety data announced in January 2022[349] - The company prepaid its outstanding indebtedness of approximately $36.5 million in August 2021, terminating the credit agreement[349] - A licensing arrangement with In4Derm for novel BET inhibitor compounds was announced in August 2021, followed by positive preclinical data for VYN201 in Th17-mediated autoimmune diseases (October 2021) and vitiligo (March 2022)[349] - In March 2022, VYNE entered an Equity Purchase Agreement with Lincoln Park Capital Fund, LLC to sell up to $30.0 million of common stock over 36 months[353] Revenues Total revenues decreased in 2021 due to the absence of a 2020 license payment, despite increased product sales which will cease post-divestiture Revenue Breakdown (Years Ended December 31) | Revenue Type (in millions) | 2021 | 2020 | | :------------------------- | :---- | :----- | | Product sales, net | $13.8 | $10.2 | | License revenues | $0.0 | $10.0 | | Royalty revenues | $0.9 | $0.8 | | Total Revenues | $14.8 | $21.0 | - Product sales increased in 2021 due to AMZEEQ and ZILXI, but will cease after January 12, 2022, due to the MST franchise divestiture[352][370] - License revenue decreased significantly in 2021 due to a $10.0 million upfront payment received in 2020 from the Cutia License Agreement, which was assigned to Journey in 2022[354][371] - Royalty revenue from Finacea increased slightly to $0.9 million in 2021 and was not transferred in the MST franchise sale[353][369] Cost of Goods Sold Cost of goods sold increased in 2021 due to higher sales volume, decreasing gross margin, though prior expensed materials favorably impacted reported margins Cost of Goods Sold and Gross Margin (Years Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :---- | :---- | | Cost of Goods Sold | $3.3 | $1.4 | | Gross Margin % | 75.8% | 86.4% | - The increase in cost of goods sold in 2021 was primarily due to increased sales volume[372] - Gross margin was favorably impacted by product sales using materials expensed in prior periods (pre-FDA approval); if valued at cost, gross margin would have been 74.6% in 2021 and 82.5% in 2020[355][372] Operating Expenses Operating expenses significantly decreased in 2021, primarily due to the absence of 2020 impairments and remeasurement expenses, alongside R&D and SG&A cost reductions Operating Expenses (Years Ended December 31) | Expense Type (in millions) | 2021 | 2020 | Variance (Millions) | Variance (%) | | :------------------------- | :----- | :----- | :------------------ | :----------- | | Research and development | $25.0 | $43.5 | $(18.6) | (42.7)% | | Selling, general & admin. | $54.5 | $89.5 | $(35.1) | (39.2)% | | Goodwill & IPR&D impairments | $0.0 | $54.3 | $(54.3) | (100.0)% | | Contingent Stock Remeasurement | $0.0 | $84.7 | $(84.7) | (100.0)% | - R&D expenses decreased by $18.6 million in 2021, driven by lower employee-related expenses ($11.2 million) and reduced clinical/manufacturing costs ($11.8 million) from completed trials, partially offset by increased FMX114 and BET inhibitor costs ($6.5 million)[373] - SG&A expenses decreased by $35.1 million in 2021, primarily due to a $21.0 million reduction in employee-related expenses (including $8.2 million less stock-based compensation from CSR conversion) and $14.1 million lower corporate/professional costs following the shift to an R&D focus[374] - Goodwill and in-process R&D impairments of $54.3 million were recorded in 2020 due to failed serlopitant clinical trials; no impairments in 2021[375] - A $84.7 million Contingent Stock Right (CSR) remeasurement expense was recorded in 2020 due to serlopitant trial results; no such expense in 2021[376] Interest Expense Interest expense increased in 2021 due to debt prepayment penalties and write-offs, but no material interest expense is expected after debt repayment Interest Expense (Years Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :---- | :---- | | Interest Expense | $5.6 | $4.4 | - The increase in interest expense in 2021 was primarily due to a $1.4 million prepayment penalty and a $1.6 million write-off of deferred financing costs associated with the August 2021 debt prepayment[361][377] - No material interest expense is expected going forward due to the prepayment of outstanding indebtedness[361] Other Income, net Other expense (income), net shifted from income in 2020 to a slight expense in 2021, due to the absence of gains on derivative liabilities and marketable securities Other Expense (Income), Net (Years Ended December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :---- | :----- | | Other Expense (Income), net | $0.1 | $(1.1) | - Other expense (income), net shifted from income in 2020 to a slight expense in 2021, primarily due to the absence of gains on derivative liabilities and marketable securities in 2021[362][378] Income Taxes and Net Operating Loss Carryforwards VYNE has significant NOL and tax credit carryforwards, subject to annual limitations, and fully offset a large 2020 taxable gain with NOLs - VYNE has incurred significant net operating losses (NOLs) since inception and expects to continue doing so until product candidates achieve commercial success[363] NOL and Tax Credit Carryforwards (as of December 31, 2021) | Type | Amount (Millions USD) | | :-------------------- | :-------------------- | | Federal NOLs | $315.0 | | State NOLs | $105.6 | | Federal R&D Tax Credits | $6.7 | | State R&D Tax Credits | $1.2 | - NOLs and tax credit carryforwards are subject to annual limitations due to potential 'ownership changes' under Sections 382 and 383 of the Internal Revenue Code, which could limit future utilization[365] - In 2020, the liquidation of the Israeli subsidiary resulted in a $163.0 million taxable gain, fully offset by NOL carryforwards, incurring no income tax expense[364] Results of Operations for the Years Ended December 31, 2021 and December 31, 2020 The company saw a significant reduction in net and operating loss in 2021 versus 2020, primarily due to the absence of prior year impairment and remeasurement charges Summary of Operations (Years Ended December 31) | Metric (in millions) | 2021 | 2020 | Variance (Millions) | Variance (%) | | :------------------- | :----- | :----- | :------------------ | :----------- | | Revenues | $14.8 | $21.0 | $(6.2) | (29.7)% | | Cost of goods sold | $3.3 | $1.4 | $2.0 | 140.5% | | R&D expenses | $25.0 | $43.5 | $(18.6) | (42.7)% | | SG&A expenses | $54.5 | $89.5 | $(35.1) | (39.2)% | | Goodwill & IPR&D impairments | $0.0 | $54.3 | $(54.3) | (100.0)% | | Contingent Stock Remeasurement | $0.0 | $84.7 | $(84.7) | (100.0)% | | Operating Loss | $68.0 | $252.5 | $(184.5) | (73.1)% | | Interest expense | $5.6 | $4.4 | $1.2 | 27.8% | | Other expense (income), net | $0.1 | $(1.1) | $1.2 | (112.2)% | | Loss before income tax | $73.8 | $255.8 | $(182.0) | (71.1)% | | Taxes on income | $(0.4) | $(0.3) | $(0.2) | 73.6% | | Net Loss | $73.3 | $255.5 | $(182.2) | (71.3)% | - Total revenues decreased by $6.2 million (29.7%) in 2021, primarily due to the absence of a $10.0 million license revenue payment received in 2020, partially offset by increased product sales[369][371] - Cost of goods sold increased by $2.0 million (140.5%) in 2021 due to higher sales volume, while gross margin percentage decreased from 86.4% to 75.8%[372] - Operating expenses significantly decreased by $192.7 million (70.8%) in 2021, mainly due to the absence of goodwill/IPR&D impairments and CSR remeasurement expenses from 2020, and reductions in R&D and SG&A costs[368][373][374][375][376] - Net loss decreased by $182.2 million (71.3%) in 2021, primarily driven by the reduction in operating expenses[368] Liquidity VYNE has incurred losses and negative operating cash flows, and despite asset sales, substantial doubt exists about its going concern ability without additional financing - VYNE has funded operations through equity/debt placements and licensee payments, incurring losses and negative operating cash flows since inception[379] Cash and Cash Equivalents (as of December 31) | Metric (in millions) | 2021 | 2020 | | :------------------- | :---- | :---- | | Cash and cash equivalents | $42.9 | $57.6 | - The company used $56.4 million in cash from operations in 2021 and will no longer generate revenue from AMZEEQ/ZILXI sales after January 2022[380] - Receipt of $20.0 million from the MST franchise sale in January 2022 and an additional $5.0 million payment in January 2023 will provide some liquidity[380] - Substantial doubt exists about the company's ability to continue as a going concern beyond one year without significant additional financing, which is crucial for its R&D programs[381][382] Capital Resources VYNE's funding sources include equity, debt, and licensee payments; net cash used in operating activities decreased in 2021, while financing activities involved stock issuance and debt repayment - Primary funding sources include equity, debt, warrants, and licensee payments[383] Net Cash Flows (Years Ended December 31) | Activity (in thousands) | 2021 | 2020 | | :---------------------- | :-------- | :--------- | | Operating activities | $(56,367) | $(137,082) | | Investing activities | $1,027 | $89,107 | | Financing activities | $39,777 | $61,808 | - Net cash used in operating activities decreased in 2021 due to lower net loss and non-cash charges[385][386] - Net cash provided by investing activities in 2021 was $1.0 million from marketable securities sales, significantly lower than $89.1 million in 2020 (which included $38.6 million cash from merger)[387] - Net cash provided by financing activities in 2021 was $39.8 million, primarily from $76.0 million in common stock issuance offset by $36.4 million debt repayment[388] - Funding sources in 2021 totaled $76.0 million, including $29.2 million from at-the-market offerings and $46.8 million from a registered direct public offering[389][390][391] - Significant non-cancelable contractual obligations as of December 31, 2021, included lease commitments and $3.9 million in open purchase commitments[394] Off-Balance Sheet Arrangements As of December 31, 2021, VYNE Therapeutics had no off-balance sheet arrangements - As of December 31, 2021, VYNE Therapeutics had no off-balance sheet arrangements[398] Critical Accounting Policies and Significant Judgments and Estimates Financial statement preparation requires significant estimates for business combinations, asset impairments, and revenue recognition, with ongoing COVID-19 impact assessment - Preparation of financial statements requires significant estimates and assumptions, particularly for business combinations, goodwill/intangible asset impairments, and revenue recognition[399][400] - The COVID-19 pandemic has negatively impacted operations and requires ongoing assessment of accounting matters like doubtful accounts, inventory reserves, impairments, and revenue recognition[401] - Revenue recognition follows a five-step model (ASC 606), identifying performance obligations, determining transaction price, allocating to obligations, and recognizing revenue upon satisfaction[402][403][404][405] - Business acquisitions are accounted for using the acquisition method, recognizing acquired assets and liabilities at fair value, with IPR&D and goodwill recorded on the balance sheet[406][407][408][409] - Long-lived assets are reviewed for impairment indicators, and indefinite-lived intangible assets are tested annually; impairment losses are recognized when fair value is less than carrying value[411] Recently Issued Accounting Pronouncements The company is evaluating ASU 2020-4 and will adopt ASU 2016-13 in 2023, with no material impact expected, while ASU 2019-12 had no material impact in 2021 - The company is evaluating ASU 2020-4 (Reference Rate Reform) but does not expect a material impact[504] - As a smaller reporting company, VYNE will adopt ASU 2016-13 (Credit Losses) effective January 1, 2023, and does not anticipate a material impact[505][506] - ASU 2019-12 (Simplifying Income Taxes) became effective in Q1 2021 and did not have a material impact[507] ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' VYNE Therapeutics is not required to provide quantitative or qualitative disclosures about market risk - As a 'smaller reporting company,' VYNE Therapeutics is exempt from providing quantitative or qualitative disclosures about market risk[413] ITEM 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements of VYNE Therapeutics Inc. for the years ended December 31, 2021, and 2020, along with the independent registered public accounting firm's report. It includes the balance sheets, statements of operations, comprehensive loss, changes in shareholders' equity, cash flows, and detailed notes to the financial statements - The section includes the audited consolidated financial statements for the years ended December 31, 2021 and 2020[414][416][420] - PricewaterhouseCoopers LLP provided an unqualified opinion on the financial statements but highlighted substantial doubt about the company's ability to continue as a going concern[420][421] - Key financial statements presented are Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Loss, Consolidated Statements of Changes in Shareholders' Equity, and Consolidated Statements of Cash Flows[417] Financial Statements This sub-section refers to the primary audited consolidated financial statements included within the report - This sub-section refers to the main financial statements included in the report[414] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on 2021 and 2020 consolidated financial statements, noting substantial doubt about the company's going concern ability - PricewaterhouseCoopers LLP audited the consolidated financial statements for 2021 and 2020[420][425] - The auditor issued an unqualified opinion, stating the financial statements present fairly in all material respects[420] - The report highlights substantial doubt about the company's ability to continue as a going concern due to incurred losses and negative operating cash flows since inception[421] Consolidated Balance Sheets The consolidated balance sheets show decreased cash and total assets, reduced total liabilities from debt elimination, and increased shareholders' equity from 2020 to 2021 Consolidated Balance Sheet Highlights (as of December 31, in thousands USD) | Metric | 2021 | 2020 | | :--------------------- | :------ | :------ | | Cash and cash equivalents | $42,250 | $57,563 | | Total Current Assets | $63,186 | $87,259 | | Total Assets | $67,046 | $93,742 | | Total Current Liabilities | $18,410 | $21,765 | | Total Long-term Liabilities | $0 | $34,484 | | Total Liabilities | $18,410 | $56,249 | | Total Shareholders' Equity | $48,636 | $37,493 | - Cash and cash equivalents decreased by $15.3 million from 2020 to 2021[428] - Total assets decreased by $26.7 million, while total liabilities decreased significantly by $37.8 million, primarily due to the elimination of long-term debt[428] - Shareholders' equity increased by $11.1 million, reflecting changes in capital and accumulated deficit[428] Consolidated Statements of Operations The consolidated statements of operations show a significant net loss reduction from $255.6 million in 2020 to $73.3 million in 2021, due to the absence of prior year impairment and remeasurement charges Consolidated Statements of Operations Highlights (Years Ended December 31, in thousands USD) | Metric | 2021 | 2020 | | :--------------------- | :-------- | :--------- | | Total Revenues | $14,755 | $20,993 | | Cost of goods sold | $3,348 | $1,392 | | Research and development | $24,958 | $43,533 | | Selling, general and administrative | $54,481 | $89,543 | | Goodwill and IPR&D impairments | $0 | $54,345 | | Contingent Stock Remeasurement | $0 | $84,726 | | Operating Loss | $68,032 | $252,546 | | Net Loss | $73,329 | $255,568 | | Loss per share basic and diluted | $1.42 | $7.88 | - Net loss significantly decreased from $255.6 million in 2020 to $73.3 million in 2021, primarily due to the absence of large impairment and remeasurement charges from the prior year[430] - Loss per share improved from $7.88 in 2020 to $1.42 in 2021[430] Consolidated Statements of Comprehensive Loss Total comprehensive loss significantly reduced to $73.3 million in 2021 from $255.6 million in 2020, with other comprehensive loss being immaterial Consolidated Statements of Comprehensive Loss (Years Ended December 31, in thousands USD) | Metric | 2021 | 2020 | | :--------------------- | :-------- | :--------- | | Net Loss | $73,329 | $255,568 | | Total Other Comprehensive Loss | $0 | $5 | | Total Comprehensive Loss | $73,329 | $255,573 | - Total comprehensive loss for 2021 was $73.3 million, a significant reduction from $255.6 million in 2020[433] - Other comprehensive loss was immaterial in both years, with a small gain in 2020 from marketable securities[433] Consolidated Statements of Changes in Shareholders' Equity Total shareholders' equity increased by $11.1 million in 2021, driven by common stock issuance and stock-based compensation, partially offset by net loss Shareholders' Equity Changes (Years Ended December 31, in thousands USD, except share data) | Metric | 2021 | 2020 | | :--------------------- | :---------- | :---------- | | Common stock (shares) | 53,577,744 | 43,205,221 | | Common stock (amounts) | $5 | $4 | | Additional paid-in capital | $688,156 | $603,685 | | Accumulated deficit | $(639,525) | $(566,196) | | Total Shareholders' Equity | $48,636 | $37,493 | - Total shareholders' equity increased by $11.1 million in 2021, driven by $76.0 million from common stock issuance and $8.1 million in stock-based compensation, partially offset by a net loss of $73.3 million[436] - The number of common shares outstanding increased by over 10 million in 2021[436] Consolidated Statements of Cash Flows Net cash used in operating activities decreased in 2021, investing activities significantly reduced, and financing activities involved stock issuance and debt repayment, leading to an overall cash decrease Consolidated Statements of Cash Flows (Years Ended December 31, in thousands USD) | Activity | 2021 | 2020 | | :--------------------- | :---------- | :---------- | | Operating activities | $(56,367) | $(137,082) | | Investing activities | $1,027 | $89,107 | | Financing activities | $39,777 | $61,808 | | (Decrease) Increase in cash, cash equivalents and restricted cash | $(15,563) | $13,833 | | Cash, cash equivalents and restricted cash at end of year | $42,855 | $58,418 | - Net cash used in operating activities decreased by $80.7 million in 2021, primarily due to a lower net loss and reduced non-cash charges compared to 2020[438][385][386] - Net cash provided by investing activities decreased significantly in 2021, as 2020 included $38.6 million cash acquired through the merger[438][387] - Net cash provided by financing activities decreased in 2021, with $76.0 million from stock issuance offset by $36.4 million in debt repayment[438][388] - Overall cash, cash equivalents, and restricted cash decreased by $15.6 million in 2021[438] Notes to Consolidated Financial Statements These notes provide detailed explanations of the company's operations, accounting policies, business combinations, revenue recognition, debt, income taxes, and subsequent events - Note 1 details the company's nature of operations, strategic business review, sale of the MST Franchise, and liquidity concerns, including substantial doubt about going concern[444][445][446][447][448][449][450][451][452][458][459][460][461][462] - Note 2 outlines significant accounting policies, including basis of presentation, use of estimates (especially regarding COVID-19 impact), business acquisition accounting, foreign currency translation, consolidation principles, cash/marketable securities, inventory, property/equipment, impairment, goodwill, doubtful accounts, debt, leases, contingencies, and share-based compensation[463][464][465][466][467][468][469][470][471][472][473][474][475][476][477][478][479][480][481][482][483][484][485][486][487][488][489][490][491][492][493][494][495][496][497][498][499][500][501][502][503][504][505][506][507] - Note 3 details the March 2020 reverse merger with Menlo Therapeutics, the conversion of Contingent Stock Rights (CSRs), and the allocation of purchase price, including the full impairment of $4.5 million goodwill and $49.8 million IPR&D in 2020 due to failed serlopitant trials[508][509][510][511][512][513][514][515][516][517][518][519][520][521][522][523][524][525][526][527][528] - Note 4 explains revenue recognition policies for product sales (net of provisions like rebates, chargebacks, returns) and license revenues, noting the assignment of the Cutia license to Journey[530][531][532][533][534][535][536][537][538][539][540][541][542] - Note 13 details the prepayment and termination of the $35.0 million long-term debt in August 2021, including a $1.4 million prepayment fee and $1.6 million write-off of deferred financing costs[568][569][570][571][572][573][574][575] - Note 16 provides income tax details, including federal and state NOL carryforwards of $315.0 million and $105.6 million respectively, and a full valuation allowance against deferred tax assets[603][604][605][606][607][608][609][610][611][612][613] - Note 17 describes subsequent events, including the finalization of the MST Franchise sale, an estimated gain of $13.5-$14.5 million, and recent financing activities (sale of 2.47 million shares for $1.5 million and a $30.0 million Equity Purchase Agreement with Lincoln Park)[614][615][616][617][618][619][620] ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure were reported[622] ITEM 9A. Controls and Procedures Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2021, concluding they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the fourth quarter of 2021 - Disclosure controls and procedures were evaluated by management, including the CEO and CFO, and deemed effective at a reasonable assurance level as of December 31, 2021[623][624] - No material changes in internal control over financial reporting occurred during the fourth quarter ended December 31, 2021[625] - Management assessed the effectiveness of internal control over financial reporting using COSO criteria and concluded it was effective as of December 31, 2021[626][627][628] ITEM 9B. Other Information This item reports that there is no other information required to be disclosed - No other information is reported under this item[629] ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to VYNE Therapeutics Inc - This item is not applicable[631] PART III This section details corporate governance, executive compensation, security ownership, related party transactions, and auditor fees ITEM 10. Directors, Executive Officers and Corporate Governance This section provides information on VYNE Therapeutics' executive officers and Board of Directors, including their ages, positions, and professional backgrounds. It also details the company's corporate governance guidelines, board leadership structure (with a lead independent director), and the roles and composition of its Audit, Compensation, and Nominating and Corporate Governance Committees. Policies on stockholder communications, code of ethics, and prohibitions on margin accounts/hedging are also covered Executive Officers and Directors (as of December 31, 2021) | Name | Age | Position(s) | | :--------------- | :-- | :--------------------------------------------- | | David Domzalski | 55 | President, CEO, and Director | | Tyler Zeronda | 36 | Chief Financial Officer and Treasurer | | Iain Stuart, Ph.D. | 49 | Chief Scientific Officer | | Mutya Harsch | 47 | Chief Legal Officer, General Counsel, Secretary | | Sharon Barbari | 67 | Director (Audit, Comp, Nom/Corp Gov) | | Steven Basta | 56 | Director | | Anthony Bruno | 65 | Director (Comp, Nom/Corp Gov) | | Patrick LePore | 66 | Lead Independent Director (Audit, Nom/Corp Gov)| | Elisabeth Sandoval | 60 | Director (Audit, Comp) | - The Board has a lead independent director (Patrick LePore) to strengthen independence and governance[647][648] - The Board oversees risk assessment, with management discussing strategic and operational risks at regular meetings[649] - The Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are composed of independent directors[650][652][656][661] - The company has a Code of Business Conduct and Ethics applicable to all employees, officers, and directors, and prohibits margin accounts and hedging activities for company securities[667][668] ITEM 11. Executive Compensation This section details the compensation of VYNE Therapeutics' named executive officers (NEOs) and non-executive directors for 2021 and 2020. It includes base salaries, bonuses, and equity awards, highlighting the retention awards issued in September 2021 to incentivize employees during the strategic transition. Employment agreements with NEOs outline severance and change-of-control provisions. Director compensation includes annual cash retainers and equity grants, with adjustments made in 2021 Summary Compensation Table for NEOs (Years Ended December 31, in USD) | Name | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total Compensation ($) | | :-------------- | :--- | :--------- | :-------- | :--------------- | :--------