You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020. In this Quarterly Report on Form 10-Q, unless otherwise indicated, all references to the "Company," "we," "us" and "our" or similar terms refer to VYNE Therapeutics Inc. The disclosure set forth in this section reflects the Company's 1-for-4 reverse stock split, which was effected on February 12, 2021. Accordingly, all share amounts and per share amounts have been adjusted. Company Overview

Beginning in the second quarter of 2021, we conducted a review of our commercial and research and development portfolio to determine how to optimally deploy capital and drive shareholder value. During the course of this review, we carefully considered the revenues received from the commercialization of AMZEEQ and ZILXI and the associated costs to drive those revenues, the protracted negative impact of the COVID-19 pandemic over the past 18 months during the commercial launches of both AMZEEQ and ZILXI, the current payor landscape, as well as the costs to develop each of our pipeline products. During this process, we evaluated several strategic options, including the acquisition of marketed assets, out-licensing our approved products outside of the United States, and possible partnering or co-development relationships with interested parties. Following our review, we have determined to initiate a process to explore a possible sale or license of our topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company's Phase 3 proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris) and the underlying Molecule Stabilizing Technology platform.

By leveraging our drug development and clinical development capabilities and strong network of discovery and preclinical science partners, we will transition our strategic focus to develop therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. We expect to continue to invest in FMX114 for the treatment of mild to moderate atopic dermatitis and anticipate the first patient in our Phase 2a proof-of-concept study will be enrolled in the third quarter of 2021. We expect results from this study by the end of 2021. In addition, on August 12, 2021, we announced a transaction with In4Derm Limited, a company incorporated and registered in Scotland ("In4Derm"). In4Derm is a spin-out of the University of Dundee's School of Life Sciences which has discovered and is developing proprietary Bromodomain and Extra-Terminal Domain Inhibitors ("BETi") for the treatment of immunology and oncology conditions. On April 30, 2021, the parties entered into an Evaluation and Option Agreement (the "Option Agreement") pursuant to which In4Derm granted us an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing In4Derm's BETi compounds, which are new chemical entities, in both topical (the "Topical BETi Option") and oral (the "Oral BETi Option") treatments in all fields for any disease, disorder or condition in humans. On August 6, 2021, we exercised the Topical BETi Option and the parties entered into a License Agreement granting VYNE a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of In4Derm's BETi compounds identified to be suitable for topical administration in all fields. We paid a $1.0 million cash payment to In4Derm upon the execution of the Option Agreement and $0.5 million in connection with the exercise of the Topical BETi Option. Pursuant to the License Agreement, we have agreed to make cash payments to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the U.S. of up to $15.75 million for all indications. In addition, we currently expect to exercise the Oral BETi Option following the selection of a lead candidate for the program. Upon exercise of the exclusive Oral BETi Option, the parties will sign a license agreement (the "Oral License Agreement"), and we will pay In4Derm a $4.0 million cash payment. The Oral License Agreement will include cash payments of up to $43.75 million payable to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the U.S. for all indications. The license agreements also provide for tiered royalty payments of up to 10% of net annual sales across licensed BETi products by VYNE. In4Derm is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The initial BETi candidates that we plan to develop are VYN201 and VYN202. VYN201 is a pan-bromodomain or pan-BD BET inhibitor. It is a first-in-class "soft" pan-BD BET inhibitor that is designed to mitigate systemic drug exposure and will be developed for topical applications. We intend to progress VYN201 into rare, neutrophilic, dermatological indications where there is significant unmet need due to a lack of indicated treatment options. We plan to enter this program into the clinic in 2022 after the prerequisite non-clinical safety assessments have been completed.

The second candidate, VYN202, is an orally-delivered, first-in-class BET inhibitor that is highly selective for Bromodomain 2 ("BD2"). Recent research has suggested that the majority of pro-inflammatory signaling via BET protein action is via interactions with BD2. By selectively inhibiting BD2, we believe VYN202 could have a more targeted anti-inflammatory effect with an improved benefit/risk profile. We view VYN202 as having significant potential as a novel, oral treatment for major


                                       31

--------------------------------------------------------------------------------

Table of contents immuno-inflammatory indications. Following the exercise of the Oral BETi Option, we intend to commence a IND-enabling non-clinical safety program for VYN202 and enter the clinic in 2022.



As we transition from a commercial organization to one focused on research and
development, we intend to streamline operations by eliminating the vast majority
of planned expenditures supporting our commercial operations. Furthermore, we
intend to reduce our workforce by terminating approximately 70 employees, which
we expect to be completed by December 31, 2021. We expect to incur a one-time
charge in the range of approximately $1.5 million to $2.0 million, excluding
non-cash charges, in connection with this restructuring plan, consisting
primarily of employee termination costs, including severance and other benefits.
This charge is expected to be incurred during the quarter ending September 30,
2021 with related cash payments expected to be substantially paid out by
December 31, 2021.
Key Developments
Below is a summary of selected key developments affecting our business that have
occurred since December 31, 2020:
•From January 1, 2021 through January 25, 2021, the Company issued and sold
2,778,012 shares of common stock at a weighted average price per share of $9.76
for $26.3 million in net proceeds pursuant to a Sales Agreement (the "Sales
Agreement") with Cantor Fitzgerald & Co. ("Cantor Fitzgerald") through an
at-the-market equity offering program under which Cantor Fitzgerald acted as our
sales agent. Effective as of January 25, 2021, the Company terminated the Sales
Agreement and will not make any additional sales thereunder.
•On January 21, 2021, the Company announced the execution of a contract with CVS
Caremark ("Caremark"), one of the largest pharmacy benefit managers in the U.S.,
with respect to AMZEEQ and ZILXI. In late March 2021, Caremark informed the
Company that it decided to not include these products, and other new branded
comparator drugs, on its national formulary for 2021. Certain custom plans under
the Caremark umbrella have decided to add the Company's drugs to their
respective formularies. This could have an unfavorable pricing impact in the
future.
•On January 28, 2021, the Company completed a registered direct offering of
5,274,261 shares of common stock at a price of $9.48 per share. The net proceeds
of the offering were approximately $46.7 million, after deducting placement
agent fees and other offering expenses.
•On February 1, 2021, we announced that the FDA approved a label update for
AMZEEQ, including new information indicating the low propensity of
Propionibacterium acnes (more commonly known as P. acnes) to develop resistance
to minocycline.
•On February 10, 2021, our Board of Directors approved a one-for-four reverse
stock split of our outstanding shares of common stock. The reverse stock split
was effected on February 12, 2021 at 5:00 p.m. Eastern time. At the effective
time, every four issued and outstanding shares of our common stock were
converted into one share of common stock. No fractional shares were issued in
connection with the reverse stock split, and in lieu thereof, each stockholder
holding fractional shares was entitled to receive a cash payment (without
interest or deduction) from the Company's transfer agent in an amount equal to
such stockholder's respective pro rata share of the total net proceeds from the
Company's transfer agent sale of all fractional shares at the then-prevailing
prices on the open market. In connection with the reverse stock split, the
number of authorized shares of our common stock was also reduced on a
one-for-four basis, from 300 million to 75 million. The par value of each share
of common stock remained unchanged. A proportionate adjustment was also made to
the maximum number of shares issuable under the Company's 2019 Equity Incentive
Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.
•On March 1, 2021, we announced development plans for FMX114 for the potential
treatment of mild-to-moderate atopic dermatitis. FMX114 is a fixed combination
of tofacitinib, which is a pan-Janus kinase (JAK) inhibitor, and fingolimod, a
sphingosine 1-phosphate receptor modulator. FMX114 attempts to address both the
source and cause of inflammation in atopic dermatitis and support skin barrier
recovery.
•Tyler Zeronda was appointed as our interim Chief Financial Officer and
Treasurer, effective as of June 18, 2021, following the resignation of Andrew
Saik.
•On July 19, 2021, the Company amended its Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
75,000,000 to 150,000,000 shares. The increase in the number of authorized
shares was approved by the holders of a majority of the outstanding shares of
common stock at the Company's annual meeting of stockholders held on July 19,
2021.
                                       32

--------------------------------------------------------------------------------


  Table of contents
•On August 9, 2021, we initiated a patent infringement suit against Padagis
Israel Pharmaceuticals Ltd. (f/k/a Perrigo Israel Pharmaceuticals Ltd.
("Padagis")) in the United States District Court for the District of Delaware
arising from Padagis's ANDA filing with the FDA. The patent infringement suit
asserts each of the patents related to AMZEEQ listed in the Orange Book (the
"Listed Patents"). As a result, under applicable law, the FDA cannot grant final
approval to Padagis's ANDA before December 30, 2023, or a court decision in
Padagis's favor. VYNE is seeking, among other relief, an order that the
effective date of any FDA approval of Padagis's ANDA be no earlier than the
expiration of the Listed Patents, the latest of which expires on September 8,
2037, and such further and other relief as the court may deem appropriate.
•On August 11, 2021, the Company prepaid its outstanding indebtedness in
addition to a 4% prepayment fee and accrued but unpaid interest. Following the
prepayment, the Amended and Restated Credit Agreement has been terminated and
the security interests thereunder will be terminated. See "Part I-Item 1.
Unaudited Condensed Consolidated Financial Statements-Note 8. Debt."
•On August 12, 2021, we announced a licensing arrangement with In4Derm, giving
us access to their library of novel BETi compounds. See "-Company Overview."
•On August 12, 2021, we announced that we have initiated a process to explore a
sale or license of our topical minocycline franchise. In addition, we will
refocus our resources on our immuno-inflammatory development programs, including
the compounds that we licensed from In4Derm. See "-Company Overview."
Financial Overview
We have incurred net losses since our inception. Until the first quarter of
2020, when we commenced commercial operations, our business activities were
primarily limited to developing product candidates, raising capital and
performing research and development activities. As of June 30, 2021, we had an
accumulated deficit of $606.7 million. We recorded net losses of $19.9 million
and $167.4 million for the three months ended June 30, 2021 and 2020,
respectively.
Our capital resources and business efforts have largely been focused on
activities relating to the commercialization of AMZEEQ and ZILXI and advancing
our product candidates and pipeline. As discussed above, we completed a
strategic review of our business and have determined to explore a possible sale
or license of our minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the
underlying MST platform. We will refocus our resources on our
immuno-inflammatory pipeline and expect to support the continued development of
FMX114 and the BETi research and development programs. Research and development
activities for these programs, including preclinical and clinical testing of the
Company's drug candidates, will require significant additional financing. The
future viability of the Company is dependent on our ability to successfully
execute our business strategy and develop our drug candidates and raise
additional capital to finance operations. Our failure to raise capital as and
when needed could have a negative impact on our financial condition and ability
to pursue our business strategies.
Components of Operating Results
Revenues
Our revenue during the periods presented has been comprised of AMZEEQ and ZILXI
product sales and collaboration revenue.
We received FDA approval for AMZEEQ on October 18, 2019 and launched AMZEEQ in
the United States in January 2020. We commercially launched ZILXI on October 1,
2020. We have generated product revenue of $7.9 million for the six months ended
June 30, 2021. We will not commercially launch our other product candidates in
the United States or generate any revenues from sales of any of our product
candidates unless and until we obtain marketing approval. Our ability to
generate revenues from sales will depend on the successful commercialization of
our drug products AMZEEQ and ZILXI and any other product candidates that receive
marketing approval.
Historically, we have generated revenues under development and license
agreements including royalty payments in relation to Finacea, the prescription
foam product that we developed in collaboration with Bayer, which later assigned
it to Leo Pharma A/S ("LEO"). In the three months ended March 31, 2020, we did
not receive or become entitled to any royalty payments due to the suspension of
the manufacturing of Finacea by LEO, following inadequate supply of
quality-compliant batches of the API used in such product. In April 2020, LEO
informed us that it had reestablished the supply of Finacea foam and resumed
commercial sale in the United States. In the six months ended June 30, 2021 we
received royalties of $0.5 million.
                                       33

--------------------------------------------------------------------------------


  Table of contents
We may become entitled to additional contingent payments in the future, subject
to achievement of the applicable clinical results by our other licensees.
However, in light of the current phase of development and associated milestone
schedules under these agreements, we do not expect to receive significant
payments in the near term, if at all. We are also entitled to additional
royalties from net sales or net profits generated by other products to be
developed under these agreements, if they are successfully commercialized.
Additionally, on April 23, 2020, we entered into a licensing agreement with
Cutia for AMZEEQ as well as certain of our other topical minocycline product
candidates, once approved, on an exclusive basis in Greater China. Under the
terms of the agreement, Cutia will have an exclusive license to obtain
regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in
the U.S., FCD105 in the Greater China territory. We will supply the finished
licensed products to Cutia for clinical and commercial use. We received an
upfront cash payment of $10.0 million in 2020 ($6.0 million received in the
three months ended June 30, 2020 and $4.0 million received in the three months
ended September 30, 2020) and will be eligible to receive an additional $1
million payment upon the receipt of marketing approval in China of the first
licensed product. We will also receive royalties on net sales of any licensed
products pursuant to the agreement. There was no license revenue for the six
months ended June 30, 2021.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2021 and 2020 were
approximately $1.4 million and $0.5 million, respectively.
Our gross margin percentage of 82% and 85% was favorably impacted during the six
months ended June 30, 2021 and June 30, 2020, respectively, by product sales
with certain materials produced prior to FDA approval and therefore expensed in
prior periods. If inventory sold during the six months ended June 30, 2021 and
June 30, 2020 was valued at cost, our gross margin for the period then ended
would have been 80% and 80%, respectively.
Cost of goods sold expenses consist primarily of:
•third party expenses incurred in manufacturing product for sale;
•transportation costs incurred in shipping manufacturing materials between third
parties; and
•other costs associated with delivery and manufacturing of product.
Operating Expenses
Research and Development Expenses
Our research and development expenses to date relate primarily to the
development of AMZEEQ, ZILXI, serlopitant, FCD105 and FMX114. Our total research
and development expenses for the six months ended June 30, 2021 and 2020 were
approximately $12.7 million and $29.1 million, respectively. We charge all
research and development expenses to operations as they are incurred.
Research and development expenses consist primarily of:
•employee-related expenses, including salaries, benefits and related expenses,
including share-based compensation expenses;
•expenses incurred under agreements with third parties, including
subcontractors, suppliers and consultants that conduct regulatory activities,
clinical trials and preclinical studies;
•expenses incurred to acquire, develop and manufacture clinical trial materials;
•facilities, depreciation and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities, insurance, and other operating
costs;
•costs associated with the creation, development and protection of intellectual
property;
•other costs associated with preclinical and clinical activities and regulatory
operations; and
•materials and manufacturing costs related to commercial production prior to FDA
approval.
                                       34

--------------------------------------------------------------------------------


  Table of contents
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the six months ended
June 30, 2021 and 2020 were approximately $32.5 million and $51.9 million,
respectively.
Our selling, general and administrative expenses consist principally of:
•employee-related expenses, including salaries, benefits and related expenses,
including share-based compensation expenses;
•costs associated with selling, marketing and shipping and handling costs;
•legal and professional fees for auditors and other consulting expenses; and
•facility, information technology and depreciation expenses.
Interest Expense
Interest expense primarily consists of interest expense on our long-term debt.
Other Expense, net
Other Expense, net primarily consists of gains from interest earned from our
bank deposits, financial income on our marketable securities and a revaluation
of our derivative liability.
Income Taxes and Net Operating Loss Carryforwards
We have incurred significant net operating losses ("NOLs") since our inception.
We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any
other product, if approved in the future, generates adequate revenues for us to
reach profitability. As of December 31, 2020, we had federal and state net
operating loss carryforwards of $243.2 million and $66.3 million, respectively,
of which $44.3 million and $66.3 million of these carryforwards will begin to
expire in 2031 for federal and state purposes, respectively. As of December 31,
2020, we had federal and state research and development tax credit carryforwards
of $6.2 million and $1.2 million, respectively. The federal credits begin to
expire in 2031 and the California research credits have no expiration dates. As
of December 31, 2020, the company had $198.9 million in federal and state NOLs
with no limited period of use. There are no significant updates through June 30,
2021.
NOLs and tax credit carryforwards are subject to review and possible adjustment
by the Internal Revenue Service and may become subject to an annual limitation
in the event of certain cumulative changes in the ownership interest of
significant stockholders over a three-year period in excess of 50%, as defined
under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended.
This could limit the amount of tax attributes that can be utilized annually to
offset future taxable income or tax liabilities. The amount of the annual
limitation is determined based on the value of our company immediately prior to
the ownership change. Subsequent ownership changes may further affect the
limitation in future years. State NOLs and tax credit carryforwards may be
subject to similar limitations under state laws. We have not determined if we
have experienced Section 382 ownership changes in the past and if a portion of
our net operating loss and tax credit carryforwards are subject to an annual
limitation under Sections 382 or 383. We may have experienced ownership changes
in the past, including in connection to our initial public offering ("IPO"), and
as a result of the Merger and/or subsequent shifts in our stock ownership, some
of which may be outside of our control. As a result, even if we earn net taxable
income, our ability to use the NOL and tax credit carryforwards may be
materially limited, which could harm our future operating results by effectively
increasing our future tax obligations.
Results of Operations
Comparison of the Three-Month Periods Ended June 30, 2021 and 2020
Revenue
Revenues totaled $4.3 million and $11.7 million for the three months ended
June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021,
our revenue consisted of $4.0 million of product sales and $0.3 million of
royalty revenue. For the three months ended June 30, 2020, revenues consisted of
$1.5 million of product sales, $0.2 million of royalty revenue and $10.0 million
of license revenue.
                                       35

--------------------------------------------------------------------------------


  Table of contents
The increase in product sales is due to the ZILXI product launch in October 2020
and an increase in demand for AMZEEQ. The decrease in license revenue for the
three months ended June 30, 2021 as compared to license revenue for the three
months ended June 30, 2020 is due to the upfront cash payment received in 2020
under the licensing agreement with Cutia for the sale and marketing of our
topical minocycline products in China.
The COVID-19 pandemic and government measures taken in response to the pandemic
have had a negative impact on our operations. Access to healthcare providers has
been limited through the second quarter of 2021, which has negatively impacted
sales and the Company's ability to execute its commercial strategy with respect
to AMZEEQ and ZILXI. The length of time and extent to which the COVID-19
pandemic will directly or indirectly impact the Company's business, results of
operations and financial condition and liquidity will depend on future
developments that are highly uncertain, subject to change and will continue to
evolve with geographical re-openings, surges in cases, the development of new
strains and the vaccination effort
Cost of Goods Sold
Cost of goods sold was $0.8 million and $0.2 million for the three months ended
June 30, 2021 and 2020, respectively. The increase in cost of goods sold is
primarily due to an increase in sales volume.
Our gross margin percentage was 80% for the three months ended June 30, 2021.
Our gross margin percentage of 85% for the three months ended June 30, 2020 was
favorably impacted by product sales with certain materials produced prior to FDA
approval and therefore expensed in prior periods. If inventory sold during the
three months ended June 30, 2020 was valued at cost, our gross margin for the
period then ended would have been 80%.
Research and Development Expenses
Our research and development expenses for the three months ended June 30, 2021
were $6.4 million, representing a decrease of $6.7 million, or 51.1%, compared
to $13.1 million for the three months ended June 30, 2020. Employee-related
expenses decreased $4.6 million primarily due to severance costs incurred in
2020 due to the Merger, including stock based compensation. Clinical trial and
manufacturing expenses decreased with the completion of FCD105 and serlopitant
clinical trials and the product launches of AMZEEQ and ZILXI during 2020.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended
June 30, 2021 were $15.8 million, representing a decrease of $10.6 million, or
40.2%, compared to $26.5 million for the three months ended June 30, 2020.
Employee-related expenses decreased by $8.5 million primarily due to severance
costs incurred in 2020 due to the Merger. Professional services spend decreased
as these expenses were incurred in 2020 as a result of the Merger.
Interest Expense
Interest expense for the three months ended June 30, 2021 and June 30, 2020 was
$1.1 million.
Other Expense (Income), net
Other expense (income), net for the three months ended June 30, 2021 was $0.1
million of expense as compared with $0.5 million of income for the three months
ended June 30, 2020.
Income Taxes
During the three months ended June 30, 2021 there was no income tax expense.
Income tax benefit for the three months ended June 30, 2020 was $0.3 million.
Comparison of the Six-Month Periods Ended June 30, 2021 and 2020
Revenue
Revenues totaled $8.4 million and $13.4 million for the six months ended
June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021,
our revenue consisted of $7.9 million of product sales and $0.5 million of
royalty revenue. For the six months ended June 30, 2020, revenues consisted of
$3.2 million of product sales, $0.2 million of royalty revenue and $10.0 million
of license revenue.
The increase in product sales is due to the ZILXI product launch in October 2020
and an increase in demand for AMZEEQ. The decrease in license revenue for the
six months ended June 30, 2021 as compared to license revenue for the six months
ended
                                       36

--------------------------------------------------------------------------------


  Table of contents
June 30, 2020 is due to the upfront cash payment received in 2020 under the
licensing agreement with Cutia for the sale and marketing of our topical
minocycline products in China.
Cost of Goods Sold
Cost of goods sold was $1.4 million and $0.5 million for the six months ended
June 30, 2021 and 2020, respectively. The increase in cost of goods sold is
primarily due to an increase in sales volume.
Our gross margin percentage of 82% and 85% for the six months ended June 30,
2021 and June 30, 2020, respectively, was favorably impacted by product sales
with certain materials produced prior to FDA approval and therefore expensed in
prior periods. If inventory sold during the six months ended June 30, 2021 and
June 30, 2020 was valued at cost, our gross margin for the period then ended
would have been 80% and 80%, respectively.
Research and Development Expenses
Our research and development expenses for the six months ended June 30, 2021
were $12.7 million, representing a decrease of $16.3 million, or 56.2%, compared
to $29.1 million for the six months ended June 30, 2020. Employee-related
expenses decreased $9.6 million primarily due to severance costs incurred in
2020 due to the Merger including stock based compensation. Clinical trial and
manufacturing expenses decreased with the completion of FCD105 and serlopitant
clinical trials and the product launches of AMZEEQ and ZILXI during 2020.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the six months ended
June 30, 2021 were $32.5 million, representing a decrease of $19.4 million, or
37.4%, compared to $51.9 million for the six months ended June 30, 2020.
Employee-related expenses decreased by $13.6 million primarily due to severance
costs incurred in 2020 due to the Merger, including stock based compensation.
Professional services spend decreased as these expenses were incurred in 2020 as
a result of the Merger.
Interest Expense
Interest expense for the six months ended June 30, 2021 and June 30, 2020 was
$2.1 million.
Other Expense (Income), net
Other expense (income), net for the six months ended June 30, 2021 was $0.1
million of expense as compared with $1.3 million of income for the six months
ended June 30, 2020. Other income decreased primarily due to a decrease in gains
on derivative liabilities.
Income Taxes
During the six months ended June 30, 2021 there was no income tax expense.
Income tax benefit for the six months ended June 30, 2020 was $0.3 million.
Liquidity and Capital Resources

The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company also launched ZILXI in the United States in October 2020 and commenced generating revenues in the fourth quarter of 2020. The Company's activities prior to the commercial launches of AMZEEQ and ZILXI had primarily consisted of raising capital, developing product candidates, and performing research and development activities. Since inception, the Company has incurred recurring losses and negative cash flows from operations. As of June 30, 2021, we had cash, cash equivalents, restricted cash and investments of $104.0 million. The outstanding debt under our Amended and Restated Credit Agreement at June 30, 2021 was $35.0 million. On August 11, 2021, we prepaid the entirety of our outstanding indebtedness, including a prepayment premium and accrued but unpaid interest, for a total amount of approximately $36.5 million. The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. In addition, the commercial launches of both AMZEEQ and ZILXI have been negatively impacted by unfavorable payor decisions in March 2021 on product pricing. These conditions have impaired our ability to generate revenue consistent with internal forecasts, which has had a negative impact on our financial condition and liquidity. The Company and its lenders discussed revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the


                                       37

--------------------------------------------------------------------------------

Table of contents Company's strategic transition discussed above. Following such discussions, the Company determined to prepay its outstanding indebtedness in addition to a 4% prepayment fee and accrued but unpaid interest in the total amount of approximately $36.5 million on August 11, 2021. Following the prepayment, the Amended and Restated Credit Agreement has been terminated and the security interests thereunder will be terminated. See "Part I-Item 1. Unaudited Condensed Consolidated Financial Statements-Note 1. Nature of Operations-Liquidity and Capital Resources and -Note 8. Debt."

As discussed above, the Company completed a strategic review of its business and has determined to initiate a process to explore a sale or license of its minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform. The Company will refocus its resources on its immuno-inflammatory pipeline and intends to support the FMX114 and the BETi development programs. Research and development activities for these programs, including preclinical and clinical testing of the Company's drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully pivot to its research and development business strategy and develop commercially viable drug candidates and raise additional capital to finance its operations. The Company's ability to continue as a going concern is contingent on its ability to sell or license its minocycline franchise, develop future commercially viable products and/or to raise sufficient working capital through either debt or equity financing. There is no assurance the Company will be able to achieve these objectives under acceptable terms or at all.



In accordance with Accounting Standards Update ("ASU") 2014-15, Disclosure of
Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic
205-40), the Company has evaluated whether there are conditions and events,
considered in the aggregate, that raise substantial doubt about the Company's
ability to continue as a going concern within one year after the date that its
unaudited condensed consolidated financial statements are issued. The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern and
contemplate the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company's ability to continue as a going concern
is expected to be impacted by the outcome of the plans outlined above, including
the successful sale or license of its minocycline franchise, positive results
from clinical trials for FMX114, and the successful development and positive
results from clinical trials for the BETi programs. The Company will not have
sufficient cash and cash equivalents to fund its operations beyond one year from
the issuance of its June 30, 2021 financial statements. Based on its plans to
conduct a Phase 2b clinical trial for FMX114 (assuming positive results in the
Phase 2a study) and progress both the topical and oral BETi programs into the
clinic in 2022, the Company currently believes it has sufficient cash and cash
equivalents to fund its operations through the end of the second quarter of
2022. This assumes that operating expenses will be significantly reduced in
connection with the disposition of the minocycline franchise and projected
clinical trial costs. This excludes potential proceeds received from a sale or
license of the minocycline franchise, business development transactions or
financing transactions which are all beyond the Company's control. As such, the
Company will, over the course of the next twelve months, require significant
additional financing to continue its operations. Each of these factors are
subject to uncertainty, and therefore, raise substantial doubt about the
Company's ability to continue as a going concern. Failure to successfully
complete a sale or license of the minocycline franchise, develop the noted
assets, and receive additional financing will require the Company to delay,
scale back or otherwise modify its business and its research and development
activities and other operations.
Summary Statement of Cash Flows
The following table summarizes our statement of cash flows for the six months
ended June 30, 2021 and 2020:

© Edgar Online, source Glimpses