VYNE Therapeutics (VYNE) - 2022 Q1 - Quarterly Report

Forward-Looking Statements This section identifies forward-looking statements, outlines risk factors, and cautions against undue reliance, with no obligation to update unless legally required - This section identifies statements that could be deemed forward-looking, reflecting management's current beliefs and expectations regarding future events or financial performance[13] - It outlines various risk factors that could cause actual results to differ materially, including the ability to execute business strategy, secure financing, complete clinical trials, manage intellectual property, and navigate regulatory approvals and market competition[14][18] - The company cautions against undue reliance on these statements, which are based on beliefs and assumptions as of the report date, and assumes no obligation to update them unless required by law[17] Part I – Financial Information Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, cash flows, and detailed notes on operations, policies, discontinued operations, share capital, stock-based compensation, leases, and commitments Unaudited Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $50,495 | $42,250 | | Total Current Assets | $60,654 | $63,186 | | Total Assets | $64,319 | $67,046 | | Total Liabilities | $8,588 | $18,410 | | Total Stockholders' Equity | $55,731 | $48,636 | Unaudited Condensed Consolidated Statements Of Operations Details the company's financial performance, including revenues, expenses, operating loss, and net income (loss) for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Operations (Three months ended March 31, in thousands) | Metric | 2022 | 2021 | | :-------------------------------------------------- | :--- | :--- | | Total Revenues | $178 | $230 | | Total operating expenses | $8,869 | $9,987 | | Operating loss | $(8,691) | $(9,757) | | Loss from continuing operations | $(8,694) | $(10,876) | | Income (loss) from discontinued operations, net of income taxes | $13,364 | $(9,674) | | Net income (loss) | $4,670 | $(20,550) | | Loss per share from continuing operations, basic and diluted | $(0.16) | $(0.22) | | Income (loss) per share from discontinued operations, basic and diluted | $0.24 | $(0.20) | | Income (loss) per share basic and diluted | $0.08 | $(0.42) | | Weighted average shares outstanding - basic and diluted | 55,386 | 48,868 | Unaudited Condensed Consolidated Statements Of Changes In Stockholders' Equity Outlines changes in common stock, additional paid-in capital, and accumulated deficit, reflecting equity movements for the periods ended March 31, 2022 and 2021 Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) | Metric | Balance at Jan 1, 2021 | Changes during period (Q1 2021) | Balance at Mar 31, 2021 | Balance at Jan 1, 2022 | Changes during period (Q1 2022) | Balance at Mar 31, 2022 | | :--------------------- | :--------------------- | :------------------------------ | :---------------------- | :--------------------- | :------------------------------ | :---------------------- | | Common Stock (Shares) | 43,205,221 | 8,181,375 | 51,386,596 | 53,577,744 | 4,330,745 | 57,908,489 | | Common Stock (Amounts) | $4 | $1 | $5 | $5 | $1 | $6 | | Additional paid-in capital | $603,685 | $75,957 | $679,642 | $688,156 | $2,431 | $690,580 | | Accumulated deficit | $(566,196) | $(20,550) | $(586,746) | $(639,525) | $4,670 | $(634,855) | | Total Stockholders' Equity | $37,493 | $55,308 | $92,901 | $48,636 | $7,095 | $55,731 | - Net income of $4.67 million in Q1 2022 significantly improved the accumulated deficit compared to a net loss of $20.55 million in Q1 2021[26] Unaudited Condensed Consolidated Statements Of Cash Flows Provides a breakdown of cash flows from operating, investing, and financing activities, showing the overall change in cash for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (Three months ended March 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :---------------------------------------------------------------- | :--- | :--- | | Net income (loss) | $4,670 | $(20,550) | | Net cash used in operating activities | $(9,975) | $(12,551) | | Net cash provided by investing activities | $16,688 | $0 | | Net cash provided by financing activities | $1,532 | $73,503 | | Increase in cash, cash equivalents and restricted cash | $8,245 | $60,952 | | Cash, cash equivalents and restricted cash at end of the period | $51,100 | $119,371 | - Investing activities provided $16.69 million in Q1 2022, primarily from the sale of the MST Franchise, a significant increase from no investing activity in Q1 2021[29][132] - Financing activities decreased substantially from $73.50 million in Q1 2021 to $1.53 million in Q1 2022, reflecting lower proceeds from common stock issuances[29][133] Notes to Unaudited Interim Condensed Consolidated Financial Statements Provides detailed explanations of the company's operations, significant accounting policies, discontinued operations, share capital, stock-based compensation, operating leases, and commitments and contingencies - NOTE 1 - Nature of Operations: VYNE is a biopharmaceutical company focused on immuno-inflammatory conditions, with FMX114 in Phase 2a and preclinical BET inhibitor programs. The company divested its commercial MST Franchise in January 2022 to refocus on R&D, leading to workforce reduction and a strategic shift. The company's ability to continue as a going concern is dependent on raising additional capital[33][35][36][39][45][46] - NOTE 2 - Significant Accounting Policies: Financial statements are prepared under U.S. GAAP. Key policies include the use of estimates (R&D accruals, share-based compensation), no inventory post-MST sale, royalty-based revenue recognition, and classification of the MST Franchise as discontinued operations. The company is evaluating ASU 2020-04 and will adopt ASU 2016-13, with no material impact expected[47][50][52][53][64][66][67] - NOTE 3 – Discontinued Operations: The MST Franchise sale on January 12, 2022, resulted in a $13.01 million gain. The company received $20.0 million cash upfront and expects an additional $5.0 million in January 2023, plus up to $450.0 million in sales milestone payments. Product sales from discontinued operations were $0.11 million in Q1 2022, down from $3.89 million in Q1 2021[68][69][71][73] - NOTE 4 – Share Capital: As of March 31, 2022, there were 57,908,489 common shares outstanding. The company issued 2,587,855 common shares for $1.6 million net proceeds in Q1 2022 and entered an agreement with Lincoln Park Capital to sell up to $30.0 million of common stock, issuing 1,667,593 commitment shares[26][74][79][80] - NOTE 5 – Share Based Compensation: Total stock-based compensation expense was $0.89 million in Q1 2022, down from $2.44 million in Q1 2021. In Q1 2022, 774,503 options and 726,102 RSUs were granted[85][86] - NOTE 6 – Operating Leases: Operating leases for corporate offices in New Jersey and Israel expire in September and December 2022, respectively. $0.6 million in restricted cash secures lease agreements[87][88][90][91] - NOTE 7 – Commitments and Contingencies: No material adverse legal proceedings or claims are pending as of March 31, 2022[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting the strategic shift to focus on immuno-inflammatory R&D following the divestiture of the MST Franchise, and emphasizing the ongoing need for significant additional financing Company Overview Describes VYNE Therapeutics as a biopharmaceutical company focused on immuno-inflammatory conditions, detailing its strategic shift to R&D after divesting the MST Franchise and streamlining operations - VYNE Therapeutics is a biopharmaceutical company focused on developing therapies for immuno-inflammatory conditions, with FMX114 in Phase 2a and preclinical BET inhibitor programs[95] - Following a strategic review, the company divested its commercial MST Franchise (AMZEEQ, ZILXI, FCD105) to Journey Medical Corporation on January 12, 2022, to refocus resources on its immuno-inflammatory development programs[96][97] - The divestiture included an upfront payment of $20.0 million, an additional $5.0 million due in one year, and eligibility for up to $450.0 million in sales milestone payments[98] - The company streamlined operations and reduced its workforce from 106 (as of December 31, 2020) to 28 employees at the time of the MST Franchise sale[99] Key Developments Highlights significant events including the divestiture of the MST Franchise, positive preclinical and Phase 1b data for pipeline candidates, a Nasdaq non-compliance notification, and an equity purchase agreement - On January 12, 2022, the company divested the MST Franchise for $25.0 million ($20.0 million upfront, $5.0 million in one year) and up to $450.0 million in milestone payments[100] - Positive preclinical data for VYN201 in vitiligo (March 7, 2022) and rheumatoid arthritis (March 30, 2022) were announced[105] - Positive Phase 1b efficacy data for FMX114 in mild-to-moderate AD was announced on April 7, 2022, showing a statistically significant reduction in Atopic Dermatitis Severity Index score[105] - The company received a Nasdaq non-compliance notification on February 28, 2022, for failing to maintain a minimum bid price of $1.00, with 180 days to regain compliance[105] - An Equity Purchase Agreement with Lincoln Park Capital was entered on March 15, 2022, allowing the sale of up to $30.0 million of common stock over 36 months, with 1,667,593 commitment shares issued[105] Financial Overview Summarizes the company's financial position, including accumulated deficit, net income drivers, and the critical dependence on additional capital for future viability - The company has incurred net losses since inception, with an accumulated deficit of $634.9 million as of March 31, 2022[102] - Net income for the three months ended March 31, 2022, was $4.7 million, driven by a $13.0 million gain on the sale of the MST Franchise, offsetting an $8.7 million loss from continuing operations[102] - Future viability is dependent on successfully executing its business strategy, developing product candidates, and raising significant additional capital to finance operations[103] Components of Operating Results Explains the drivers of revenue, research and development expenses, selling, general and administrative expenses, interest expense, and net operating loss carryforwards following the strategic shift - Revenues are now primarily royalty-based ($0.2 million for Q1 2022 and Q1 2021), as product sales from AMZEEQ and ZILXI ceased after the MST Franchise sale on January 12, 2022, and are reclassified to discontinued operations[104][105][106][117] - Research and development expenses are focused on the BET inhibitor platform and FMX114, with all expenses charged as incurred[108] - Selling, general and administrative expenses related to the MST Franchise have been reclassified to discontinued operations. Remaining SG&A expenses decreased due to lower headcount and professional fees[109][119] - No interest expense was incurred in Q1 2022 due to the payment of all outstanding debt on August 11, 2021[111][120] - As of December 31, 2021, the company had federal and state net operating loss carryforwards of $315.0 million and $105.6 million, respectively, with $270.7 million having no limited period of use[113] Results of Operations Provides a comparative analysis of the company's financial performance for the three months ended March 31, 2022 and 2021, detailing changes in revenues, expenses, and net income (loss) Summary of Operations (Three months ended March 31, in thousands) | Metric | 2022 | 2021 | Variance | % Change | | :----------------------------------- | :--- | :--- | :------- | :------- | | Royalty revenues | $178 | $230 | $(52) | (22.6)% | | Total revenues | $178 | $230 | $(52) | (22.6)% | | Research and development | $4,452 | $4,255 | $197 | 4.6% | | Selling, general and administrative | $4,417 | $5,732 | $(1,315) | (22.9)% | | Total operating expenses | $8,869 | $9,987 | $(1,118) | (11.2)% | | Operating loss | $(8,691) | $(9,757) | $1,066 | (10.9)% | | Interest expense | $0 | $(1,062) | $1,062 | (100.0)% | | Loss from continuing operations | $(8,694) | $(10,876) | $2,182 | (20.1)% | | Income (loss) from discontinued operations | $13,364 | $(9,674) | $23,038 | (238.1)% | | Net income (loss) | $4,670 | $(20,550) | $25,220 | (122.7)% | - Research and development expenses increased by $0.2 million (4.6%) to $4.5 million, primarily due to increased expenditures for VYN201, partially offset by decreases in FMX114 and employee-related expenses[118] - Selling, general and administrative expenses decreased by $1.3 million (22.9%) to $4.4 million, mainly due to lower headcount and professional fees[119] Liquidity and Capital Resources Assesses the company's cash position, capital needs, and ability to fund operations, highlighting the impact of the MST Franchise sale and the ongoing requirement for significant additional financing - As of March 31, 2022, the company had $51.1 million in cash, cash equivalents, and restricted cash, and an accumulated deficit of $634.9 million[124] - The sale of the MST Franchise in January 2022 provided $20.0 million in proceeds, with an additional $5.0 million due in January 2023[124] - The company used $10.0 million in cash from operating activities in Q1 2022, while investing activities provided $16.7 million from the MST Franchise sale[129][130][132] - Substantial doubt exists about the company's ability to continue as a going concern beyond one year without significant additional financing, which is required for its immuno-inflammatory pipeline[126][127][158] - The company is subject to 'baby shelf rules' for its Form S-3, limiting primary public offerings to one-third of its non-affiliate public float until it exceeds $75.0 million[127][128] Critical Accounting Policies, Significant Judgments and Use of Estimates Discusses the critical accounting policies and significant judgments involved in preparing financial statements, particularly concerning revenue recognition and the accounting for discontinued operations - The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition and discontinued operations[139][141] - Revenue recognition follows ASC 606, involving a five-step model to identify performance obligations and recognize milestone payments when probable of not reversing[142][145] - The sale of the MST Franchise was accounted for as discontinued operations under ASC 205, reflecting a strategic shift with a major effect on the business[146][147] Off-Balance Sheet Arrangements States that the company has no off-balance sheet arrangements expected to materially affect its financial condition or operations - The company has no off-balance sheet arrangements that are expected to have a material current or future effect on its financial condition or operations[148] JOBS Act Accounting Election Confirms the company's irrevocable decision to opt out of the extended transition period for new or revised accounting standards under the JOBS Act - The company has irrevocably opted out of the extended transition period for complying with new or revised accounting standards under the JOBS Act[149] Recently Issued and Adopted Accounting Pronouncements Details the company's evaluation and expected adoption of new accounting standards, noting no material impact on its consolidated financial statements - The company is evaluating ASU 2020-04 (Reference Rate Reform) and will adopt ASU 2016-13 (Credit Losses) effective January 1, 2023, with neither expected to have a material impact on its consolidated financial statements[66][67][150] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, VYNE Therapeutics Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is therefore not required to provide market risk disclosures[152] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, and reported no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2022[153] - There were no material changes in internal control over financial reporting during the three months ended March 31, 2022[154] Part II – Other Information Item 1. Legal Proceedings As of March 31, 2022, the company has no pending legal proceedings or claims that management believes are likely to have a material adverse effect on its business - No claims or actions are pending against the company that are likely to have a material adverse effect as of March 31, 2022[156] Item 1A. Risk Factors The company's risk factors are primarily detailed in its Annual Report on Form 10-K, with no material changes as of March 31, 2022, except for heightened risks related to liquidity, raising substantial doubt about its ability to continue as a going concern - Information about risk factors is contained in Item 1A of the Annual Report on Form 10-K, with no material changes as of March 31, 2022, except for liquidity risks[157] - The company needs substantial additional funding to finance operations and may not be able to continue as a going concern if unable to do so, potentially forcing delays, reductions, or termination of R&D activities[158] - As of March 31, 2022, the company had approximately $51.1 million in cash, cash equivalents, and restricted cash, but does not have sufficient funds to cover operations beyond one year, raising substantial doubt about its going concern ability[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[159] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None to report[159] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[159] Item 5. Other Information There is no other information to report for the period - None to report[160] Item 6. Exhibits This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including key agreements such as the Asset Purchase Agreement with Journey Medical Corporation and the Equity Purchase Agreement with Lincoln Park Capital Fund, LLC, along with various certifications and XBRL documents - Key exhibits include the Asset Purchase Agreement (Journey Medical Corporation), Amended and Restated Certificate of Incorporation and Bylaws, and the Purchase Agreement and Registration Rights Agreement with Lincoln Park Capital Fund, LLC[161] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed[161] - XBRL Instance Document and Taxonomy Extension Documents are included[161] SIGNATURES The Quarterly Report on Form 10-Q is signed by David Domzalski, President and Chief Executive Officer, and Tyler Zeronda, Chief Financial Officer and Treasurer, on behalf of VYNE Therapeutics Inc. on May 12, 2022 - The report was signed by David Domzalski (President and CEO) and Tyler Zeronda (CFO and Treasurer) on May 12, 2022[168]