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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___.
Commission file number 001-38356
VYNE THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 45-3757789
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

685 Route 202/206 N, Suite 301
Bridgewater, New Jersey 08807
(Address of principal executive offices including zip code)
(800) 775-7936
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.0001 |  | VYNE |  | The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer | ☐ |  | Accelerated filer | ☐
Non-accelerated filer | ☒ |  | Smaller reporting company | ☒
|  |  | Emerging growth company | ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 7, 2023, there were 3,279,971 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.

Table of contents
TABLE OF CONTENTS

|  | Page
Part I | Financial Information | 5
Item 1. | Unaudited Financial Statements | 5
| Unaudited Condensed Consolidated Balance Sheets | 5
| Unaudited Condensed Consolidated Statements Of Operations | 6
| Unaudited Condensed Consolidated Statements Of Changes In Mezzanine Equity and Stockholders' Equity | 7
| Unaudited Condensed Consolidated Statements Of Cash Flows | 9
| Notes to Unaudited Interim Condensed Consolidated Financial Statements | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 32
Item 4. | Controls and Procedures | 32
Part II | Other Information | 33
Item 1. | Legal Proceedings | 33
Item 1A. | Risk Factors | 33
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 33
Item 3. | Defaults Upon Senior Securities | 33
Item 4. | Mine Safety Disclosures | 33
Item 5. | Other Information | 34
Item 6. | Exhibits | 35
SIGNATURES | 37

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “if,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “until,” “will,” “would,” and similar expressions or variations.
The following factors, among others, including any described in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, could cause our future results to differ materially from those expressed in the forward-looking information:
•our ability to raise substantial additional financing to fund our operations and continue as a going concern;
•our ability to successfully execute our business strategy, including our ability to successfully develop our bromodomain and extra-terminal domain (“BET”) inhibitor platform for immuno-inflammatory conditions;
•our ability to enroll patients and successfully complete, and receive favorable results in, clinical trials for our product candidates;
•the timing of commencement of future preclinical studies and clinical trials;
•our pursuit of, and ability to successfully identify and execute, strategic transactions;
•estimates of our expenses, capital requirements, our needs for additional financing and our ability to obtain additional capital on acceptable terms or at all;
•the potential market size of treatments for any diseases and market adoption of our products, if approved or cleared for commercial use, by physicians and patients;
• risks and uncertainties arising out of the completed divestiture of our commercial business;
•disruptions related to macroeconomic conditions on our ability to initiate and retain patients in our clinical trials and progress preclinical studies and the ability of our suppliers to manufacture and provide materials for our product candidates;
•our ability to create or in-license intellectual property and the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and programs, including the projected terms of patent protection;
•the regulatory approval process for our product candidates, including any delay or failure in obtaining requisite approvals;
•developments and projections relating to our competitors and the markets in which we compete, including competing drugs and therapies, particularly if we are unable to receive exclusivity;
•our ability to comply with various regulations applicable to our business;
•our ability to successfully challenge intellectual property claimed by others or otherwise protect our intellectual property;
•our intentions and our ability to establish collaborations or obtain additional funding;
3

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•our ability to attract and retain key scientific or management personnel;
•our defense of any future litigation that may be initiated against us;
•our expectations regarding licensing, business transactions and strategic operations; and
•our future financial performance and liquidity.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in our Annual Report on Form 10-K as well as our other filings made with the Securities and Exchange Commission ("SEC"). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
SPECIAL NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, "VYNE," the "Company," "we," "us" and "our" refer to VYNE Therapeutics Inc. and its subsidiaries.
SPECIAL NOTE REGARDING TRADEMARKS
The trademarks and registered trademarks of VYNE Therapeutics Inc. and our subsidiaries referred to in this Quarterly Report on Form 10-Q include VYNE Therapeutics, InhiBET, our logo and our name and logo used together. Third-party product and company names mentioned herein may be the trademarks of their respective owners.
4

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PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
(Unaudited)

| June 30 |  | December 31
| 2023 |  | 2022
Assets |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 20,634 |  |  | $ | 30,908 |
Restricted cash | 67 |  |  | 67 |
Trade receivables, net of allowances | 234 |  |  | 173 |
Amount due from sale of MST Franchise | — |  |  | 5,000 |
Prepaid and other expenses | 2,024 |  |  | 2,127 |
Total Current Assets | 22,959 |  |  | 38,275 |
Non-current prepaid expenses and other assets | 2,000 |  |  | 2,483 |
Total Assets | $ | 24,959 |  |  | $ | 40,758 |
Liabilities, Mezzanine Equity and Stockholders’ Equity |  |  |
Current Liabilities: |  |  |
Trade payables | $ | 1,159 |  |  | $ | 2,386 |
Accrued expenses | 4,379 |  |  | 4,381 |
Employee related obligations | 836 |  |  | 2,372 |
Liability for employee severance benefits | — |  |  | 206 |
Total Current Liabilities | 6,374 |  |  | 9,345 |
Other liabilities | 1,313 |  |  | — |
Total Liabilities | 7,687 |  |  | 9,345 |
Commitments and Contingencies |  |  |
Mezzanine Equity: |  |  |
Convertible Preferred Stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2023 and December 31, 2022; Series A Preferred Stock: 0 and 3,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | — |  |  | 211 |
Stockholders' Equity: |  |  |
Common stock: $0.0001 par value; 150,000,000 shares authorized at June 30, 2023 and December 31, 2022; 3,282,479 and 3,229,704 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | — |  |  | — |
Additional paid-in capital | 695,836 |  |  | 693,937 |
Accumulated deficit | (678,564) |  |  | (662,735) |
Total Stockholders' Equity | 17,272 |  |  | 31,202 |
Total Liabilities, Mezzanine Equity and Stockholders’ Equity | $ | 24,959 |  |  | $ | 40,758 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
(Unaudited)

| Three Months Ended June 30 |  | Six Months Ended June 30
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenues |  |  |  |  |  |  |
Royalty revenues | $ | 135 |  |  | $ | 126 |  |  | $ | 234 |  |  | $ | 304 |
Total revenues | 135 |  |  | 126 |  |  | 234 |  |  | 304 |
Operating expenses: |  |  |  |  |  |  |
Research and development | 7,233 |  |  | 4,108 |  |  | 9,967 |  |  | 8,560 |
Selling, general and administrative | 3,220 |  |  | 4,305 |  |  | 6,460 |  |  | 8,722 |
Total operating expenses | 10,453 |  |  | 8,413 |  |  | 16,427 |  |  | 17,282 |
Operating loss | (10,318) |  |  | (8,287) |  |  | (16,193) |  |  | (16,978) |
Other income, net | 280 |  |  | 52 |  |  | 543 |  |  | 49 |
Loss from continuing operations before income taxes | (10,038) |  |  | (8,235) |  |  | (15,650) |  |  | (16,929) |
Income tax expense | — |  |  | — |  |  | — |  |  | — |
Loss from continuing operations | (10,038) |  |  | (8,235) |  |  | (15,650) |  |  | (16,929) |
(Loss) income from discontinued operations, net of income taxes | (20) |  |  | (241) |  |  | (30) |  |  | 13,123 |
Net loss | $ | (10,058) |  |  | $ | (8,476) |  |  | $ | (15,680) |  |  | $ | (3,806) |
Loss per share from continuing operations, basic and diluted | $ | (3.08) |  |  | $ | (2.56) |  |  | $ | (4.81) |  |  | $ | (5.38) |
(Loss) income per share from discontinued operations, basic and diluted | $ | (0.01) |  |  | $ | (0.07) |  |  | $ | (0.01) |  |  | $ | 4.17 |
Loss per share, basic and diluted | $ | (3.09) |  |  | $ | (2.63) |  |  | $ | (4.82) |  |  | $ | (1.21) |
Weighted average shares outstanding - basic and diluted | 3,274 |  |  | 3,218 |  |  | 3,265 |  |  | 3,148 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)

| Mezzanine Equity (Convertible Preferred Stock) |  | Common stock |  | Additional paid-in capital |  | Accumulated deficit |  |  |  | Total Stockholders' Equity
| Number of shares |  | Amounts |  | Number of Shares |  | Amounts |  | Amounts
BALANCE AT JANUARY 1, 2022 | — |  |  | $ | — |  |  | 2,976,541 |  |  | $ | 5 |  |  | $ | 688,156 |  |  | $ | (639,525) |  |  |  |  | $ | 48,636 |
CHANGES DURING THE PERIOD: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,806) |  |  |  |  | (3,806) |
Reclassification due to reverse stock split | — |  |  | — |  |  | — |  |  | (5) |  |  | 5 |  |  | — |  |  |  |  | — |
Vesting of restricted stock units, net of withholding tax and shares issued under employee stock purchase plan | — |  |  | — |  |  | 9,579 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 2,056 |  |  | — |  |  |  |  | 2,056 |
Issuance of commitment shares in March 2022 | — |  |  | — |  |  | 92,644 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Issuance of common stock under at-the-market offering, net of $135 in issuance costs | — |  |  | — |  |  | 143,770 |  |  | — |  |  | 1,471 |  |  | — |  |  |  |  | 1,471 |
BALANCE AT JUNE 30, 2022 | — |  |  | $ | — |  |  | 3,222,534 |  |  | $ | — |  |  | $ | 691,688 |  |  | $ | (643,331) |  |  |  |  | $ | 48,357 |
BALANCE AT JANUARY 1, 2023 | 3,000 |  |  | $ | 211 |  |  | 3,229,704 |  |  | $ | — |  |  | $ | 693,937 |  |  | $ | (662,735) |  |  |  |  | $ | 31,202 |
CHANGES DURING THE PERIOD: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (15,680) |  |  |  |  | (15,680) |
Vesting of restricted stock units, net of withholding tax and shares issued under employee stock purchase plan | — |  |  | — |  |  | 18,186 |  |  | — |  |  | 11 |  |  | — |  |  |  |  | 11 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 1,732 |  |  | — |  |  |  |  | 1,732 |
Redemption of convertible preferred stock | (3,000) |  |  | (211) |  |  | — |  |  | — |  |  | — |  |  | (149) |  |  |  |  | (149) |
Issuance of common stock under at-the-market offering, net of $5 in issuance costs | — |  |  | — |  |  | 34,589 |  |  | — |  |  | 156 |  |  | — |  |  |  |  | 156 |
BALANCE AT JUNE 30, 2023 | — |  |  | $ | — |  |  | 3,282,479 |  |  | $ | — |  |  | $ | 695,836 |  |  | $ | (678,564) |  |  |  |  | $ | 17,272 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)

| Mezzanine Equity (Convertible Preferred Stock) |  | Common stock |  | Additional paid-in capital |  | Accumulated deficit |  |  |  | Total Stockholders' Equity
| Number of shares |  | Amounts |  | Number of Shares |  | Amounts |  | Amounts
BALANCE AT APRIL 1, 2022 | — |  |  | $ | — |  |  | 3,217,138 |  |  | $ | — |  |  | $ | 690,586 |  |  | $ | (634,855) |  |  |  |  | $ | 55,731 |
CHANGES DURING THE PERIOD: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (8,476) |  |  |  |  | (8,476) |
Vesting of restricted stock units, net of withholding tax and shares issued under employee stock purchase plan | — |  |  | — |  |  | 5,396 |  |  | — |  |  | 25 |  |  | — |  |  |  |  | 25 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 1,163 |  |  | — |  |  |  |  | 1,163 |
Issuance of common stock under at-the-market offering, net of $184 issuance costs | — |  |  | — |  |  | — |  |  | — |  |  | (86) |  |  | — |  |  |  |  | (86) |
BALANCE AT JUNE 30, 2022 | — |  |  | $ | — |  |  | 3,222,534 |  |  | $ | — |  |  | $ | 691,688 |  |  | $ | (643,331) |  |  |  |  | $ | 48,357 |
BALANCE AT APRIL 1, 2023 | — |  |  | $ | — |  |  | 3,271,282 |  |  | $ | — |  |  | $ | 694,937 |  |  | $ | (668,506) |  |  |  |  | $ | 26,431 |
CHANGES DURING THE PERIOD: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10,058) |  |  |  |  | (10,058) |
Vesting of restricted stock units, net of withholding tax and shares issued under employee stock purchase plan | — |  |  | — |  |  | 11,197 |  |  | — |  |  | 23 |  |  | — |  |  |  |  | 23 |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 876 |  |  | — |  |  |  |  | 876 |
BALANCE AT JUNE 30, 2023 | — |  |  | $ | — |  |  | 3,282,479 |  |  | $ | — |  |  | $ | 695,836 |  |  | $ | (678,564) |  |  |  |  | $ | 17,272 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)

| Six Months Ended June 30
| 2023 |  | 2022
Cash Flows From Operating Activities: |  |  |
Net loss | $ | (15,680) |  |  | $ | (3,806) |
Adjustments required to reconcile net loss to net cash used in operating activities: |  |  |
Depreciation and amortization | — |  |  | 56 |
Changes in accrued liability for employee severance benefits, net of retirement fund profit | — |  |  | 50 |
Stock-based compensation | 1,732 |  |  | 2,056 |
Gain on the sale of the MST Franchise | — |  |  | (13,005) |
Changes in operating assets and liabilities: |  |  |
(Increase) decrease in trade receivables | (61) |  |  | 8,215 |
Decrease in inventory | — |  |  | 97 |
Decrease in prepaid expenses and other assets | 586 |  |  | 697 |
Decrease in trade payables, accrued expenses, employee related obligations, liability for employee severance benefits and other long term liabilities | (1,629) |  |  | (11,306) |
Decrease in operating lease liabilities | — |  |  | (318) |
Net cash used in operating activities | (15,052) |  |  | (17,264) |
Cash Flows From Investing Activities: |  |  |
Net proceeds from the sale of the MST Franchise | 5,000 |  |  | 15,752 |
Net cash provided by investing activities | 5,000 |  |  | 15,752 |
Cash Flows From Financing Activities: |  |  |
Proceeds related to issuance of common stock through offerings, net of issuance costs | 156 |  |  | 1,471 |
Redemption of convertible preferred stock | (360) |  |  | — |
Withholdings related to issuance of stock for stock-based compensation arrangements, net | (18) |  |  | — |
Net cash (used in) provided by financing activities | (222) |  |  | 1,471 |
Decrease in cash, cash equivalents and restricted cash | (10,274) |  |  | (41) |
Cash, cash equivalents and restricted cash at beginning of the period | 30,975 |  |  | 42,855 |
Cash, cash equivalents and restricted cash at end of the period | $ | 20,701 |  |  | $ | 42,814 |
Cash and cash equivalents | 20,634 |  |  | 42,814 |
Restricted cash | 67 |  |  | — |
Total cash, cash equivalents and restricted cash shown in statement of cash flows | $ | 20,701 |  |  | $ | 42,814 |
Supplementary information on investing and financing activities not involving cash flows: |  |  |
Issuance of vested shares under employee stock purchase plan | $ | 29 |  |  | $ | 23 |
Amount due from sale of MST Franchise | $ | — |  |  | $ | 5,000 |
Accretion of preferred stock | $ | 149 |  |  | $ | — |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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VYNE Therapeutics Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements
NOTE 1 - NATURE OF OPERATIONS
VYNE Therapeutics Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.
In August 2021, the Company entered into a transaction with Tay Therapeutics Limited (formerly known as In4Derm Limited, "Tay") providing the Company with exclusive worldwide rights to research, develop and commercialize products containing bromodomain and extra-terminal (“BET”) inhibitors for the treatment of any disease, disorder or condition in humans. Through the Company's access to this library of new chemical BET inhibitor compounds, the Company plans to develop product candidates for a diverse set of indications. Based on preclinical data generated to date, the Company has chosen to focus its initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.
The Company's lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure. To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models. The Company believes that these data suggest potential broad utility for VYN201 across multiple routes of administration. In November 2022, the Company initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo. In February 2023, the Company announced positive preliminary safety and tolerability data from the Phase 1a portion of the trial. In addition, in March 2023, the Company announced positive pharmacokinetic and hematology data from the Phase 1a trial. The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023. The Company expects to announce preliminary Phase 1b safety and efficacy data in the third quarter of 2023, followed by final results in October 2023.
The Company's second program is VYN202, an oral small molecule BD2-selective BET inhibitor. VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and has been designed to achieve class-leading selectivity (BD2 vs. BD1), maximum potency versus BD2 and optimal oral bioavailability. By maximizing BD2 selectivity, the Company believes VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity are common. IND-enabling studies for VYN202 are ongoing, and the Company anticipates filing an IND by year-end 2023.
The Company intends to actively evaluate and enter into strategic partnerships to advance its product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance the Company's molecules in therapeutic areas outside of its core focus in immunology. The Company believes selectively entering into collaborations has the potential to expand and accelerate the development of its programs and maximize the value of its pipeline.
In August 2021, the Company determined to dispose of its legacy commercial business and focus its strategy on the development of BET inhibitor product candidates through its licensing arrangements with Tay. For additional information regarding the sale of the Molecule Stabilizing Technology franchise, including AMZEEQ, ZILXI, and FCD105 (the “MST Franchise”) to Journey Medical Corporation ("Journey") in January 2022 and the Company's licensing arrangements with Tay, see "—Note 3 - Strategic Agreements."
The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.
Reverse stock split and recasting of per-share amounts
On February 8, 2023, the Company's board of directors approved a 1-for-18 reverse stock split of its outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:01 p.m. Eastern time. At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. 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
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Share Purchase Plan. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.
Unless noted, all common stock and per share amounts contained in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.
Liquidity and Capital Resources
Since inception, the Company has funded operations primarily through private and public placements of its equity, debt and warrants and through fees, cost reimbursements and payments received from its licensees. The Company commenced generating product revenues related to sales of AMZEEQ and ZILXI in January 2020 and October 2020, respectively. AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products. The Company has incurred losses and experienced negative operating cash flows since its inception and anticipates that it will continue to incur losses until such a time when its product candidates, if approved, are commercially successful, if at all. The Company will not generate any revenue from any current or future product candidates unless and until it obtains regulatory approval and commercializes such products. For the six months ended June 30, 2023, the Company incurred a net loss of $15.7 million and used $15.1 million of cash in operations.
As of June 30, 2023, the Company had cash and cash equivalents, and restricted cash of $20.7 million and an accumulated deficit of $678.6 million. The Company received a $5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise. The Company had no outstanding debt as of June 30, 2023.
In March 2022, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $30.0 million of shares of its common stock over the 36-month term of the Equity Purchase Agreement. The Company has not made any sales pursuant to the Equity Purchase Agreement to date.
As described above, the Company refocused its limited resources on its immuno-inflammatory pipeline. Continued research and development activities for these programs, including preclinical and clinical testing of the Company's product candidates, will require significant additional financing. The future viability of the Company and its ability to continue as a going concern is dependent on its ability to raise sufficient working capital through either debt or equity financings to fund its operations and successfully develop commercially viable product candidates. 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 its ability to continue as a going concern within one year after the date that its unaudited interim 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 Company's ability to raise additional capital to fund its operations and the development and results from clinical trials for the BET inhibitor programs. Based on its current plans and assumptions, the Company believes that absent sufficient proceeds received from financing transactions or business development transactions, the Company will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these unaudited interim condensed consolidated financial statements. This assumption does not include proceeds that can be drawn from Lincoln Park. Accordingly, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations and meaningfully advance the development of its product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement. The Company may also employ strategies to further extend its ability to fund its operations including: (1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize its product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing its resources on research and development programs it chooses to prioritize and reducing spending on other programs by delaying or discontinuing development. In addition, the amount of proceeds the Company may be able to raise pursuant to its existing shelf registration statement on Form S-3 may be limited. As of the filing of this Quarterly Report on Form 10-Q, the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of its common stock held by non-affiliates of the Company. Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling shares of its common stock using its Form S-3 until such time as its public float exceeds $75.0 million. These factors raise substantial doubt about the Company's ability to continue as a going concern. Failure to successfully receive additional financing will require the Company to delay,
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scale back or otherwise modify its business and its research and development activities and other operations. The accompanying unaudited interim condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a.Basis of Presentation
The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s unaudited condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Certain prior period amounts have been reclassified to conform to current year presentation.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 14, 2023.
The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the year ending December 31, 2023.
b.Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.
c.Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and reported amounts of income and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, product return and research and development accruals. Actual results could differ from the Company’s estimates.
d.Cash and cash equivalents
The Company considers cash equivalents to be all short-term, highly liquid investments, which include short-term bank deposits and money market funds with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. As of June 30, 2023 and December 31, 2022, the Company had approximately $14.4 million and $28.0 million, respectively, of cash equivalents classified as Level 1 financial instruments.
e.Revenue Recognition
The Company accounts for its revenue transactions under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.
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As a result of the disposition of the MST Franchise in January 2022, the Company no longer has any revenue generating products; however, it still receives certain royalty revenues (see Note 4 — Discontinued Operations).
Royalty Revenues and Collaboration Agreements
The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Royalties are recognized as the products are sold by the customer.
For collaboration agreements under ASC 606, the Company identifies the contract, identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied.
The Company identifies the performance obligations included within the agreement and evaluates which performance obligations are distinct. Upfront payments for licenses are evaluated to determine if the license is capable of being distinct from the obligations to participate on certain development and/or commercialization committees with the collaboration partners and supply manufactured drug product for clinical trials. For performance obligations that are satisfied over time, the Company utilizes the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company periodically reviews estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.
Milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive
event. Milestone payments are estimated and are included in the transaction price when the Company determines that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.
Product Revenues, net
The Company’s net product revenues were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020. The Company sold the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products. The following is a description of the Company's accounting policies related to the sales of AMZEEQ and ZILXI.
Product sales
The Company’s customers were a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies (together, the “customers”). These distributors would subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue was typically recognized when customers obtained control of the Company’s products, which occurred at a point in time, typically upon delivery of product to the customers. The Company evaluated the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company did not assess whether a contract had a significant financing component if the expectation was such that the period between the transfer of the promised goods to the customer and the receipt of payment would be less than one year. Standard credit terms did not exceed 75 days. The Company expensed incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales were included in selling, general and administrative expenses.
Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.
Product Sales Provisions
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Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to trade receivables, net on the unaudited condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the unaudited condensed consolidated balance sheet. The revenue reserve accrual was $1.9 million and $2.7 million as of June 30, 2023 and December 31, 2022, respectively and was reflected in accrued expenses in the unaudited condensed consolidated balance sheet. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.
Distribution Fees and Trade Discounts and Allowances
The Company paid fees for distribution services and for certain data that distributors provide to the Company and generally provided discounts on sales to its distributors for prompt payment. These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.
Rebates, Chargebacks and Other Discounts
Product sales made under managed-care and governmental pricing programs in the U.S. are subject to rebates. Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share. Chargebacks relate to contractual agreements to sell products to government agencies and other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers. The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.
Product Returns
Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after the expiration date. The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. T he information utilized to estimate the returns provision includes: (i) actual return history (ii) historical return industry information regarding rates for comparable pharmaceutical products and product portfolios, (iii) external data with respect to inventory levels in the wholesale distribution channel, (iv) external data with respect to prescription demand for products and (v) remaining shelf lives of products at the date of sale.
Contract Assets and Contract Liabilities
The Company did not have any contract assets (unbilled receivables) related to product sales as of June 30, 2023 or December 31, 2022, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract assets (unbilled receivables) related to its license revenues as of June 30, 2023 or December 31, 2022.
The Company did not have any contract liabilities as of June 30, 2023 or December 31, 2022, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers.
Sales Commissions
Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales commissions are included in discontinued operations.
f.Collaboration arrangements
The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the
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commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company will assess whether aspects of the arrangement between it and their collaboration partner are within the scope of other accounting literature.
g.Research and development costs
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of clinical trials, clinical trial supplies, salaries, stock-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred.
h.Allowance for doubtful accounts
An allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical bad debts experience and changes in customer payment patterns. Trade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain sales allowances and provisions for doubtful accounts. Provisions for doubtful accounts were not material as of June 30, 2023 or December 31, 2022.
i.Fair value measurement
Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.
j.Net loss per share
Net loss per share, basic and diluted, is computed on the basis of the net loss from continuing operations for the period divided by the weighted average number of common stock outstanding during the period. Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.
The following stock options, restricted stock units (“RSUs”) and warrants were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

| June 30
| 2023 |  | 2022
Outstanding stock options and RSUs | 280,134 |  |  | 325,937 |
Warrants | 27,509 |  |  | 27,509 |

k.Discontinued operations
The Company accounted for the sale of the MST Franchise in accordance with ASC 205, Discontinued Operations, and ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Company followed the held-for-sale criteria as defined in ASC 360 Property, Plant and Equipment and ASC 205. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are
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reclassified into separate line items in the unaudited condensed consolidated statements of operations. Assets and liabilities are also reclassified into separate line items on the related unaudited condensed consolidated balance sheets for the periods presented. Non-cash items presented in the statement of cash flows and related to discontinued operations are presented in Note 4 - Discontinued Operations. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.
Due to the sale of the MST Franchise during the first quarter of 2022, in accordance with ASC 205, the Company has classified the results of the MST Franchise as discontinued operations in its unaudited condensed consolidated statements of operations and cash flows for all periods presented, see Note 4, Discontinued Operations. All disposed assets and liabilities associated with the MST Franchise were therefore classified as assets and liabilities of discontinued operations in the Company's unaudited condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted.
l.Concentration of credit risks
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents, restricted cash and accounts receivables. The Company deposits cash and cash equivalents with highly rated financial institutions and, as a matter of policy, limits the amounts of credit exposure to any single financial institution. The Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments.
The Company received the $5.0 million deferred payment from Journey in January 2023. Existing royalty receivables relate to one customer, but do not present a credit risk due to immaterial nature. Restricted cash as of June 30, 2023 was $0.1 million which does not present a credit risk due to immaterial nature.
m.Comprehensive loss
For the three and six months ended June 30, 2023 and 2022, comprehensive loss was equal to the net loss as presented in the accompanying unaudited condensed consolidated statements of operations.
n.Newly issued and recently adopted accounting pronouncements
Recent Accounting Guidance Issued:
In June 2016, the FASB issued Accounting Standard Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company adopted ASU 2016-13 as of January 1, 2023 and there was no material impact on the unaudited condensed consolidated financial statements upon adoption.
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022.
In December 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" (ASU 2022-06), which provides extension of the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company is currently evaluating the impact of ASU 2020-04 and ASU 2022-06 on its unaudited condensed consolidated financial statements. Currently, the Company does not expect the adoption of the new standard to have a material impact to the unaudited condensed consolidated financial statements.
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In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the unaudited condensed consolidated financial statements upon adoption.
o.Employee Retention Tax Credit
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, providing numerous tax provisions and other stimulus measures, including employee retention tax credits (“ERTC”). The ERTC is a refundable tax credit against certain employment taxes for qualifying businesses retaining employees on their payroll during the COVID-19 pandemic and allows eligible employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees, initially from March 27, 2020 until June 30, 2021, and extended through September 30, 2021. During 2022, the Company filed with the Internal Revenue Service (IRS) credits totaling $1.3 million. During the first quarter of 2023, the Company received the full $1.3 million. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company accounts for the ERTC by analogy to International Accounting Standard, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). The ERTC filings remain open to examination by the IRS until April 2025, and as such the Company has recorded the $1.3 million received within other liabilities on the unaudited condensed consolidated balance sheet as of June 30, 2023 until such a time that the Company has reasonable assurance that the conditions associated with the grants have been met.
NOTE 3 - STRATEGIC AGREEMENTS
BET Inhibitor License Agreements
On August 12, 2021, the Company announced a transaction with Tay Therapeutics Limited (formerly known as In4Derm Limited), a company incorporated and registered in Scotland (“Tay”). Tay is a spin-out of the University of Dundee’s School of Life Sciences which has discovered and is developing proprietary BET inhibitors 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 Tay granted the Company an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds, which are new chemical entities for treatments in all fields for any disease, disorder or condition in humans. On August 6, 2021, the Company exercised its option with respect to certain of Tay's pan-BD Inhibitor Compounds ("Topical Option"). On August 9, 2021, the parties entered into a License Agreement (the "VYN201 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields. The Company paid a $1.0 million cash payment to Tay upon the execution of the Option Agreement and $0.5 million in connection with entering into the VYN201 License Agreement. These payments were recorded as a research and development expense in the period paid. Pursuant to the VYN201 License Agreement, the Company has agreed to make cash payments to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States of up to $15.75 million for all indications. Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. The VYN201 License Agreement provides for tiered royalty payments of up to 10% of annual net sales on the licensed product.
Under the terms of the Option Agreement, the Company's option with respect to selective BET inhibitor compounds ("Oral Option") was to expire upon the earlier of (i) 14 days following the delivery of an agreed data package and selection of a lead new chemical entity candidate by Tay or (ii) June 30, 2022 (the "Option Term"). On June 15, 2022, the parties entered into a Letter Agreement (the “Letter Agreement”) to extend the Option Term to February 28, 2023. Pursuant to the terms of the Letter Agreement, the Company paid $386,366 (£300,000) on June 28, 2022 to Tay to extend the Option Term. In addition, a second payment of $997,407 (£850,000) was paid to Tay pursuant to the terms of the Letter Agreement on August 29, 2022 following the discovery of potential preclinical candidates. Both payments were recorded as research and development expense. On February 27, 2023, the parties entered into a Letter Agreement (the "Second Letter Agreement") pursuant to which the Option Term was extended to April 30, 2023. As consideration for the extension of the Option Term, the Company paid Tay $250,000
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upon the execution of the Second Letter Agreement. Per the terms of the Second Letter Agreement, this fee was deducted from the upfront fee paid by the Company to Tay following the Company's exercise of the Oral Option, as described below.
On April 28, 2023, the Company exercised the Oral Option and the parties entered into a license agreement (the "VYN202 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s selective BET inhibitor compounds in all fields. The Company made a cash payment of $3.75 million to Tay in connection with entering into the VYN202 License Agreement. This payment was recorded as a research and development expense in the period paid. Pursuant to the terms of the VYN202 License Agreement, the Company has agreed to make cash payments to Tay of up to $43.75 million upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications. Tay is also entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. The VYN202 License Agreement provides for tiered royalty payments of up to 10% of annual net sales on the licensed product.
Sale of the MST Franchise
Beginning in the second quarter of 2021, the Company conducted a review of its commercial and research and development portfolio to determine how to optimally deploy capital and drive stockholder value. During the course of this review, the Company 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 during the commercial launches of both AMZEEQ and ZILXI, the payor landscape, as well as the costs to develop each of its pipeline products. During this process, the Company evaluated several strategic options including the acquisition of marketed assets, out-licensing its approved products outside of the United States, and possible partnering or co-development relationships with interested parties. Following its review, the Company determined to initiate a process to explore a possible sale or license of its topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s former 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.
On January 12, 2022, VYNE entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey pursuant to which the Company sold its MST Franchise to Journey. The assets include certain contracts, including the license agreement with Cutia Therapeutics (HK) Limited (“Cutia”), inventory and intellectual property related to the MST Franchise (together, the “Assets”). Pursuant to the Agreement, Journey assumed certain liabilities of the MST Franchise including, among others, those arising from VYNE’s patent infringement suit initiated against Padagis Israel Pharmaceuticals Ltd. There were no current or long-term liabilities recorded by the Company which were transferred to Journey.
Pursuant to the Purchase Agreement, the Company received an upfront payment of $20.0 million at the closing of the sale of the MST franchise and received an additional $5.0 million deferred payment from Journey in January 2023. The Company is also eligible to receive sales milestone payments of up to $450.0 million in the aggregate upon the achievement of specified levels of net sales on a product-by-product basis, beginning with annual net sales exceeding $100.0 million (with products covered in three categories (1) AMZEEQ (and certain modifications), (2) ZILXI (and certain modifications), and (3) FCD105 and other products covered by the patents being transferred, including certain modifications). In addition, the Company is entitled to receive certain payments from any licensing or sublicensing of the assets by Journey outside of the United States.
NOTE 4 – DISCONTINUED OPERATIONS
On January 12, 2022, the Company entered into the Purchase Agreement with Journey pursuant to which the Company sold its MST Franchise to Journey. The Company has determined that the sale of the MST Franchise represents a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations at March 31, 2022. Accordingly the MST Franchise is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations. Amounts applicable to prior years have been recast to conform to the discontinued operations presentation. The Company recognized a gain on the sale of the MST Franchise upon closing.
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The following table presents the combined results of discontinued operations of the MST Franchise:

|  | Three Months Ended June 30 |  | Six Months Ended June 30
(in thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Product sales, net |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 106 |
Cost of goods sold |  | — |  |  | — |  |  | — |  |  | 80 |
Operating expenses: |  |  |  |  |  |  |  |
Research and development |  | — |  |  | — |  |  | — |  |  | — |
Selling, general and administrative |  | 20 |  |  | 241 |  |  | 30 |  |  | (92) |
Total operating expenses |  | 20 |  |  | 241 |  |  | 30 |  |  | (92) |
(Loss) income from discontinued operations |  | (20) |  |  | (241) |  |  | (30) |  |  | 118 |
Gain on the sale of the MST Franchise |  | — |  |  | — |  |  | — |  |  | 13,005 |
(Loss) income from discontinued operations, before income taxes |  | (20) |  |  | (241) |  |  | (30) |  |  | 13,123 |
Income tax expense |  | — |  |  | — |  |  | — |  |  | — |
Net (loss) income from discontinued operations |  | $ | (20) |  |  | $ | (241) |  |  | $ | (30) |  |  | $ | 13,123 |

The following table presents non-cash items related to discontinued operations, which are included in the Company's unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2022. There were no non-cash items related to discontinued operations as of June 30, 2023.

(in thousands) |  |  | Six Months Ended June 30, 2022
Cash Flows From Operating Activities: |  |  |
Stock-based compensation (income) expense* |  |  | $ | (352) |
Gain on the sale of the MST Franchise |  |  | (13,005) |
Total non-cash items of discontinued operations |  |  | $ | (13,357) |
Supplemental disclosure of cash flow information: |  |  |
Amount due from sale of MST Franchise |  |  | $ | 5,000 |

*Income from stock-based compensation is related to forfeitures.
The following table presents the gain on the sale of the MST Franchise:

(in thousands) |  | Six Months Ended June 30, 2022
Cash proceeds |  | $ | 20,000 |
Proceeds paid in January 2023 |  | 5,000
|  | 25,000 |
Less transaction costs |  | (4,247)
Less carrying value of assets sold |  | (7,748)
Gain on sale, before income taxes |  | 13,005
Income tax expense |  | — |
Gain on sale net of tax |  | $ | 13,005 |

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the research and development, marketing, selling and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the MST Franchise.
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The milestone payments for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration. Contingent consideration has been accounted for as a gain contingency in accordance with ASC 450, Contingencies, and will be recognized in earnings in the period when realizable.
NOTE 5 – MEZZANINE EQUITY AND STOCKHOLDER CAPITAL
Preferred stock
As of June 30, 2023, the Company's Amended and Restated Certificate of Incorporation (as amended, the "Certificate of Incorporation") authorized the Company to issue 20,000,000 shares of preferred stock, par value $0.0001 per share. There were zero and 3,000 shares of Series A Convertible Preferred Stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
Shares of preferred stock may be issued from time to time in one or more series. The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's Board of Directors.
On November 11, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mutual Fund Series Trust, on behalf of AlphaCentric LifeSci Healthcare Fund (the “Purchaser”), pursuant to which the Company issued on November 14, 2022, in a private placement transaction, an aggregate of 3,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred”), for an aggregate subscription amount equal to $300,000. This transaction resulted in $89,000 of issuance costs and a net subscription of $211,000 as of December 31, 2022.
The Company determined that the Series A Preferred should be classified as Mezzanine Equity (temporary equity outside of permanent equity) and that the Series A Preferred more closely aligned with debt as the intent was for redemption by either the holder or issuer, most likely the issuer (the Company), due to the more favorable redemption terms.
The Purchase Agreement required that the Company convene, no later than January 31, 2023, an annual meeting or special meeting of stockholders for the purpose of presenting to the Company’s stockholders a proposal (the “Proposal”) to approve a reverse stock split of its outstanding common stock (the “Reverse Stock Split”), with the recommendation of the board of directors that the Proposal be approved, and that the Company use reasonable best efforts to obtain approval of the Proposal.
Additionally, the Purchase Agreement contained customary representations, warranties and agreements of the Company and the Purchaser, and customary indemnification rights and obligations of the parties. Pursuant to the Purchase Agreement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of Delaware on November 14, 2022 designating 3,000 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred with a par value of $0.0001 per share and establishing the rights, preferences and limitations of the Series A Preferred. The Certificate of Designation provided, among other things, that except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series A Preferred would have no voting rights (other than the right to vote as a class on certain matters as provided in the Certificate of Designation). However, pursuant to the Certificate of Designation, each share of Series A Preferred entitled the holder thereof (i) to vote on the Proposal and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Proposal, and (ii) to 1,000,000 votes per share of Series A Preferred on the Proposal and any such adjournment proposal. The Series A Preferred should, except as required by law, vote together with the common stock (and other issued and outstanding shares of preferred stock entitled to vote), as a single class; provided, however, that such shares of Series A Preferred should, to the extent cast on the Proposal or any such adjournment proposal, be automatically and without further action of the holders thereof voted in the same proportion as the shares of common stock (excluding abstentions and any shares of common stock that are not voted) and any other issued and outstanding shares of preferred stock of the Company entitled to vote (other than the Series A Preferred or shares of such other preferred stock, if any, not voted) are voted on the Proposal. In addition, the Series A Preferred were entitled to customary dividends and distributions when and if paid on shares of the common stock and were entitled to the voting rights discussed above. The Series A Preferred had preference over the common stock with respect to distribution of assets or available proceeds, as applicable, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any other deemed liquidation event.
The shares of Series A Preferred were convertible at the option of the holder, at a conversion price of $4.68 per share (as adjusted for the Reverse Stock Split), into shares of the Company’s common stock, at any time and from time to time from and after 15 business days following the earlier of (i) the date of the approval of the Proposal or (ii) the date the Company otherwise satisfies the Nasdaq listing requirements.
The Company had the right to redeem the Series A Preferred at any time during the 15 business days following the approval of the Proposal (the "Company Redemption Period") at 120% of the stated value. Each holder of Series A Preferred had the right
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to require the Company to redeem all or a portion of the Series A Preferred held by such holder following the expiration of the Company Redemption Period at 130% of the stated value. In addition, the Company would automatically redeem all of the Series A Preferred within five business days following a delisting event as specified in the Certificate of Designation at 130% of the stated value.
On January 17, 2023, the Company redeemed all outstanding shares of its Series A Preferred, for an aggregate of $360,000 paid to the Purchaser. The redemption payment represents 120% of the stated value of the Series A Preferred Stock pursuant to the Certificate of Designation.
On January 17, 2023, the Company filed a Certificate of Elimination (the “Certificate”) with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock. The Certificate (i) eliminated the previous designation of 3,000 shares of Series A Preferred Stock from the Company’s Amended and Restated Certificate of Incorporation, none of which were outstanding at the time of filing, and (ii) caused such shares of Series A Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock.
Common stock
Pursuant to the Certificate of Incorporation, the Company is authorized to issue 150,000,000 shares of common stock, par value $0.0001 per share. Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends on common stock.
On February 8, 2023, the Company's Board of Directors approved a 1-for-18 reverse stock split of the Company's outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:01 p.m. Eastern time. At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.
Unless noted, all common stock and per share amounts contained in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.
Issuance of common stock
On August 12, 2021, the Company entered into a Sales Agreement (the "2021 Sales Agreement") with Cantor Fitzgerald to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald will act as the Company's sales agent. Cantor Fitzgerald is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold under the 2021 Sales Agreement. During the six months ended June 30, 2022, the Company issued and sold 143,770 shares of common stock at a weighted average per share price of $11.16 pursuant to the 2021 Sales Agreement for $1.5 million in net proceeds. During the six months ended June 30, 2023, the Company issued and sold 34,589 shares of common stock at a weighted average per share price of $4.52 pursuant to the 2021 Sales Agreement for $0.2 million in net proceeds.
On March 15, 2022, the Company entered into the Equity Purchase Agreement with Lincoln Park which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park, at the Company's discretion, up to $30.0 million of shares of its common stock over the 36-month term of the Equity Purchase Agreement. Upon execution of the Equity Purchase Agreement, the Company issued 92,644 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Equity Purchase Agreement. The issuance of these shares were specific incremental costs directly attributable to the proposed offering. The commitment shares were valued at $0.9 million and recorded as an addition to equity for the issuance of common stock and treated as a reduction to equity as a cost of capital to be raised under the Equity Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s common stock. The Equity Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty. As of June 30, 2023, the Company has not sold any shares of its common stock to Lincoln Park under the Equity Purchase Agreement.
Warrants
As of June 30, 2023, the Company had equity-classified warrants to purchase an aggregate of 27,509 shares of the Company’s common stock outstanding, with an exercise price of $76.08. The exercise price will be adjusted in the event of issuances of
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common stock at a price lower than the exercise price of the warrants then in effect (the “Down Round Feature”). During the six months ended June 30, 2023 and 2022, the Down Round Feature was triggered due to the price per share received from the issuance of common stock. The Company calculated the value of the effect of Down Round Feature measured as the difference between the warrants’ fair value, using the Black-Scholes-Merton option-pricing model, before and after the Down Round Feature was triggered using the original exercise price and the new exercise price. The difference in fair value of the effect of the Down Round Feature was immaterial and had no impact on net loss (income) per share in the periods presented. The exercise price will continue to be adjusted in the event the Company issues additional shares of common stock below the current exercise price, in accordance with the terms of the warrants.
NOTE 6 – STOCK-BASED COMPENSATION
Equity incentive plans:
The Company maintains the 2019 Equity Incentive Plan (the “2019 Plan”) and 2018 Omnibus Incentive Plan (the "2018 Plan"). As of June 30, 2023, 67,920 shares remain issuable under the 2019 Plan and 63,833 shares remain issuable under the 2018 Plan. In January 2023, the number of shares reserved under the 2018 Plan automatically increased by 41,666 shares of common stock pursuant to the terms of the 2018 Plan.
Employee Share Purchase Plan:
The Company adopted Foamix's Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15% of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code.
As of June 30, 2023, 108,124 shares remain available for grant under the ESPP.
There were 8,339 shares of common stock purchased by employees pursuant to the ESPP during the six months ended June 30, 2023, and 3,704 shares of common stock purchased by employees during the six months ended June 30, 2022.
Options and RSUs granted to employees and directors:
There were no options or RSUs granted to employees and directors for the six months ended June 30, 2023.
During the six months ended June 30, 2022, the fair value of options and RSUs granted to employees and directors was $0.8 million.
The fair value of RSUs granted is based on the share price on the grant date.
The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on a combination of historical volatilities of companies in comparable stages as well as companies in the industry, by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The Company’s management uses the expected term of each option as its expected life. The expected term of the options granted represents the period of time that granted options are expected to remain outstanding.
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Stock-based compensation expenses:
The following table illustrates the effect of stock-based compensation on the unaudited condensed consolidated statements of operations:

| Three Months Ended June 30 |  | Six Months Ended June 30
(in thousands) | 2023 |  | 2022 |  | 2023 |  | 2022
Research and development expenses | $ | 138 |  |  | $ | 393 |  |  | $ | 182 |  |  | $ | 622 |
Selling, general and administrative | 738 |  |  | 770 |  |  | 1,550 |  |  | 1,786 |
Discontinued operations* | — |  |  | — |  |  | — |  |  | (352) |
Total | $ | 876 |  |  | $ | 1,163 |  |  | $ | 1,732 |  |  | $ | 2,056 |

*Income from stock-based compensation is related to forfeitures.
NOTE 7 – OPERATING LEASES
Operating lease agreements
As of June 30, 2023, the Company had operating leases for its principal executive office in Bridgewater, New Jersey.
On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (the “Lease Amendment”). The Lease Amendment included an extension of the lease period of the 10,000 square feet previously leased under the original agreement (the “Original Space”) and an addition of 4,639 square feet (the “Additional Space”). The Company entered the Additional Space following a period of preparation by the lessor completed during September 2019 (the “Commencement Date”). The term included in the Lease Amendment expired on September 30, 2022.
Pursuant to the Lease Amendment, the Company recognized an additional right of use asset and liability in the amount of $0.7 million. The Additional Space was considered a new lease agreement and was recognized as a right of use asset and liability, in the amount of $0.3 million, on the Commencement Date. The lease liability matured on September 30, 2022.
In November 2022, the Company transitioned to a smaller corporate headquarters and signed a Sublease Agreement (the “Sublease”) to sublease approximately 5,755 square feet of office space (the “Leased Premises”) in Bridgewater, New Jersey through September 30, 2023. In addition, the Company signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 2025. The Company will record a right of use asset and liability at the commencement date of the Master Lease. The Master Lease is expected to result in total lease payments of approximately $0.3 million.
The lease agreement for the office space in Israel was a one year lease that expired in December 2022. Given the short-term nature of the lease term, the Company did not recognize a right-of-use asset and liability.
As of June 30, 2022, the lease liabilities reflect a weighted average discount rate of 13.10% and a remaining weighted average lease term of 0.25 years as of June 30, 2022. There were no lease liabilities as of June 30, 2023.
The Company had a lien in the amount of $0.6 million related to a letter of credit on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements. In April 2022, the lien was released and the Company received the $0.6 million back due to the release.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Litigation and contingencies
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2023, there are no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the period ended June 30, 2023 and our Annual Report on Form 10-K for the year ended December 31, 2022. 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 our 1-for-18 reverse stock split, which was effected on February 10, 2023. Accordingly, all share amounts and per share amounts have been adjusted.
Company Overview
We are a clinical-stage biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.
In August 2021, we entered into a transaction with Tay Therapeutics Limited (formerly known as In4Derm Limited, “Tay”) providing us with exclusive worldwide rights to research, develop and commercialize products containing BET inhibitors for the treatment of any disease, disorder or condition in humans. Through our access to this library of new chemical BET inhibitor compounds, we plan to develop product candidates for a diverse set of indications. Based on preclinical data generated to date, we have chosen to focus our initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.
Our lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure. To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models. We believe that these data suggest potential broad utility for VYN201 across multiple routes of administration. In November 2022, we initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo. In February 2023, we announced positive preliminary safety and tolerability data from the Phase 1a portion of the trial. In addition, in March 2023, we announced positive pharmacokinetic and hematology data from the Phase 1a trial. The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023. We expect to announce preliminary Phase 1b safety and efficacy data in the third quarter of 2023, followed by final results in October 2023.
Our second program is VYN202, an oral small molecule BD2-selective BET inhibitor. VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and has been designed to achieve class-leading selectivity (BD2 vs. BD1), maximum potency versus BD2 and optimal oral bioavailability. By maximizing BD2 selectivity, we believe VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity is common. IND-enabling studies for VYN202 are ongoing, and we anticipate filing an IND by year-end 2023.
We intend to actively evaluate and enter into strategic partnerships to advance our product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance our molecules in therapeutic areas outside of our core focus in immunology. We believe selectively entering into collaborations has the potential to expand and accelerate the development of our programs and maximize the value of our pipeline.
Key Developments
Below is a summary of selected key developments affecting our business that have occurred since March 31, 2023:
•On April 19, 2023, we announced positive preclinical data for an inhaled formulation of VYN201 in an in vivo model of idiopathic pulmonary fibrosis.
•On April 28, 2023, we entered into a License Agreement (the “VYN202 License Agreement”) with Tay granting us a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s BD2-selective BET inhibitors in all fields.
•On May 1, 2023, we announced the selection of a development candidate for our oral BD2-selective BET inhibitor program, VYN202, for the treatment of immuno-inflammatory conditions.
Financial Overview
We have incurred net losses since our inception. Except from the first quarter of 2020 until January 2022, when we conducted commercial operations, our business activities have been primarily limited to developing product candidates, raising capital and
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performing research and development activities. As of June 30, 2023, we had an accumulated deficit of $678.6 million. We recorded a net loss of $15.7 million and net loss of $3.8 million for the six months ended June 30, 2023 and 2022, respectively.
Currently, our resources are focused on our immuno-inflammatory pipeline. Research and development activities for these programs, including preclinical and clinical testing of our product candidates, will require significant additional financing. Our future viability is dependent on our ability to successfully execute our business strategy and develop our product 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
Revenue generated during the periods presented is comprised of AMZEEQ and ZILXI product sales and royalty revenue.
AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively. We have not generated revenue from the sales of these products following January 12, 2022, the date we sold the MST Franchise to Journey. As a result of the disposition of these assets, product sales have been reclassified to discontinued operations for the three months ended March 31, 2022. 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.
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. Our rights to royalty payments from the sale of Finacea were not transferred in the sale of the MST Franchise.
Cost of Goods Sold
Cost of goods sold consists of direct and indirect costs to procure and manufacture AMZEEQ and ZILXI and primarily consist 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.
Prior to receiving FDA approval, these costs for AMZEEQ and ZILXI were expensed as research and development expenses. We began capitalizing inventory costs for AMZEEQ and ZILXI after receipt of FDA approval. As a result of the sale of the MST Franchise, cost of goods sold have been reclassified to discontinued operations for the three months ended March 31, 2022. See "Note 4—Discontinued Operations" in the unaudited condensed consolidated financial statements for cost of goods sold.
Operating Expenses
Research and Development Expenses
Our research and development expenses have primarily related to the development of FMX114, VYN201 and VYN202. We charge all research and development expenses to operations as they are incurred. Following the sale of the MST Franchise in January 2022, our research and development has been focused on our immuno-inflammatory pipeline, including VYN201, VYN202 and FMX114. As a result of the sale of the MST Franchise in January 2022, research and development expenses related to the MST Franchise have been reclassified to discontinued operations for all periods presented.
Research and development expenses consist primarily of:
•employee-related expenses, including salaries, benefits and related expenses, including stock-based compensation expenses, for researched and development personnel;
•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;
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•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.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist principally of:
•employee-related expenses, including salaries, benefits and related expenses, including stock-based compensation expenses;
•legal and professional fees for auditors and other consulting expenses; and
•facility, information technology and depreciation expenses.
As a result of the sale of the MST Franchise in January 2022, selling, general and administrative expenses related to the MST Franchise have been reclassified to discontinued operations for the three months ended March 31, 2022.
Other Income (Expense), net
Other income (expense), net primarily consists of interest earned on our cash and cash equivalents and foreign exchange rate gains and losses.
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 we generate adequate revenues for us to reach profitability. As of December 31, 2022, we had federal and state net operating loss carryforwards of $318.3 million and $90.4 million, respectively, of which $44.3 million and $89.0 million of these carryforwards will begin to expire starting in 2031 through 2040 for federal and state purposes, respectively. As of December 31, 2022, we had federal and state research and development tax credit carryforwards of $6.6 million and $1.2 million, respectively. The federal credits begin to expire in 2031 and the California research credits have no expiration dates. As of December 31, 2022, we had $274.0 million in federal and state NOLs with no limited period of use. There are no significant updates through June 30, 2023.
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, and as a result of the merger with Foamix Pharmaceuticals Ltd. 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.
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Results of Operations
Comparison of the Three-Month Periods Ended June 30, 2023 and 2022
Summary of Operations

| Three Months Ended June 30 |  | Increase/(Decrease) |  | Increase/(Decrease)
(in thousands, except %) | 2023 |  | 2022 |  | $ |  | %
Revenues |  |  |  |  |  |  |
Royalty revenues | $ | 135 |  |  | $ | 126 |  |  | $ | 9 |  |  | 7.1 | %
Total revenues | 135 |  |  | 126 |  |  | 9 |  |  | 7.1 | %
Operating expenses: |  |  |  |  |  |  |
Research and development | 7,233 |  |  | 4,108 |  |  | 3,125 |  |  | 76.1 | %
Selling, general and administrative | 3,220 |  |  | 4,305 |  |  | (1,085) |  |  | (25.2) | %
Total operating expenses | 10,453 |  |  | 8,413 |  |  | 2,040 |  |  | 24.2 | %
Operating loss | (10,318) |  |  | (8,287) |  |  | 2,031 |  |  | 24.5 | %
Other income, net | 280 |  |  | 52 |  |  | 228 |  |  | *
Loss from continuing operations before income taxes | (10,038) |  |  | (8,235) |  |  | 1,803 |  |  | 21.9 | %
Income tax expense | — |  |  | — |  |  | — |  |  | — | %
Loss from continuing operations | (10,038) |  |  | (8,235) |  |  | 1,803 |  |  | 21.9 | %
Loss from discontinued operations | (20) |  |  | (241) |  |  | (221) |  |  | (91.7) | %
Net loss | $ | (10,058) |  |  | $ | (8,476) |  |  | $ | 1,582 |  |  | 18.7 | %

* Percentage not meaningful.
Revenue
Revenues totaled $0.1 million for each of the three months ended June 30, 2023 and 2022, consisting of royalty revenue.
We divested our MST Franchise on January 12, 2022. As a result of the sale, we will not generate revenue from the sales of AMZEEQ or ZILXI following such date. Product revenues have been reclassified to discontinued operations for the three months ended June 30, 2022.
Research and Development Expenses
Our research and development expenses for the three months ended June 30, 2023 were $7.2 million, representing an increase of $3.1 million, or 76.1%, compared to $4.1 million for the three months ended June 30, 2022. The increase was primarily driven by increased expenses for VYN202 of $4.9 million, including a $3.8 million payment made in connection with entering into the VYN202 License Agreement. This increase was partially offset by lower employee-related expenses of $0.9 million and decreased spending for FMX114 of $0.8 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended June 30, 2023 were $3.2 million, representing a decrease of $1.1 million, or 25.2%, compared to $4.3 million for the three months ended June 30, 2022. The decrease was primarily driven by lower consulting and professional fees of $0.6 million and lower rent and corporate insurance costs of $0.5 million.
Other Income, net
Other income, net for the three months ended June 30, 2023 and June 30, 2022 was $0.3 million and 0.1 million, respectively, and related to interest income earned on cash and cash equivalents.
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Comparison of the Six-Month Periods Ended June 30, 2023 and 2022
Summary of Operations

| Six Months Ended June 30, |  | Increase/(Decrease) |  | Increase/(Decrease)
(in thousands, except %) | 2023 |  | 2022 |  | $ |  | %
Revenues |  |  |  |  |  |  |
Royalty revenues | $ | 234 |  |  | $ | 304 |  |  | $ | (70) |  |  | (23.0) | %
Total revenues | 234 |  |  | 304 |  |  | (70) |  |  | (23.0) | %
Operating expenses: |  |  |  |  |  |  |
Research and development | 9,967 |  |  | 8,560 |  |  | 1,407 |  |  | 16.4 | %
Selling, general and administrative | 6,460 |  |  | 8,722 |  |  | (2,262) |  |  | (25.9) | %
Total operating expenses | 16,427 |  |  | 17,282 |  |  | (855) |  |  | (4.9) | %
Operating loss | (16,193) |  |  | (16,978) |  |  | (785) |  |  | (4.6) | %
Other income, net | 543 |  |  | 49 |  |  | 494 |  |  | *
Loss from continuing operations before income taxes | (15,650) |  |  | (16,929) |  |  | (1,279) |  |  | (7.6) | %
Income tax expense | — |  |  | — |  |  | — |  |  | — | %
Loss from continuing operations | $ | (15,650) |  |  | $ | (16,929) |  |  | (1,279) |  |  | (7.6) | %
(Loss) income from discontinued operations | (30) |  |  | 13,123 |  |  | (13,153) |  |  | (100.2) | %
Net loss | $ | (15,680) |  |  | $ | (3,806) |  |  | $ | (11,874) |  |  | *

* Percentage not meaningful.
Revenue
Revenues totaled $0.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively, consisting of royalty revenue.
We divested our MST Franchise on January 12, 2022. As a result of the sale, we will not generate revenue from the sales of AMZEEQ or ZILXI following such date. Product revenues have been reclassified to discontinued operations for the six months ended June 30, 2022.
Research and Development Expenses
Our research and development expenses for the six months ended June 30, 2023 were $10.0 million, representing an increase of $1.4 million, or 16.4%, compared to $8.6 million for the six months ended June 30, 2022. The increase was primarily driven by increased expenses for VYN202 of $5.4 million, including $4.0 million paid in connection with entering into the VYN202 License Agreement. This increase was partially offset by lower employee-related expenses of $2.3 million and decreased spending for FMX114 of $1.5 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the six months ended June 30, 2023 were $6.5 million, representing a decrease of $2.3 million, or 25.9%, compared to $8.7 million for the six months ended June 30, 2022. The decrease was primarily driven by lower rent and corporate insurance costs of $0.8 million, decreased employee-related expenses of $0.7 million and lower consulting and professional fees of $0.5 million.
Other Income, net
Other income, net for the six months ended June 30, 2023 and June 30, 2022 was $0.5 million and $49 thousand, respectively. The other income was mainly related to interest income received.
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Liquidity and Capital Resources
Since inception, we have funded operations primarily through private and public placements of our equity, debt and warrants and through fees, cost reimbursements and payments received from our licensees. We commenced generating product revenues related to sales of AMZEEQ and ZILXI in January 2020 and October 2020, respectively. AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, we no longer generate revenue from the sale of these products. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our product candidates, if approved, are commercially successful, if at all. We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory approval and commercializes such products. For the six months ended June 30, 2023, we generated a net loss of $15.7 million and used $15.1 million of cash in operations.
As of June 30, 2023, we had cash and cash equivalents, and restricted cash of $20.7 million and an accumulated deficit of $678.6 million. We received the $5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise. We had no outstanding debt as of June 30, 2023. In addition, in March 2022, we entered into the Equity Purchase Agreement with Lincoln Park Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $30.0 million of shares of our common stock over the 36-month term of the Equity Purchase Agreement. As of June 30, 2023, no shares have been sold under the Equity Purchase Agreement.
As described above, following the sale of the MST Franchise, we refocused our limited resources on our immuno-inflammatory pipeline. Continued research and development activities for these programs, including preclinical and clinical testing of our product candidates, will require significant additional financing. Our future viability and our ability to continue as a going concern is dependent on our ability to raise sufficient working capital through either debt or equity financings to fund our operations and successfully develop commercially viable product candidates. There is no assurance that we 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), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our unaudited condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including our ability to raise additional capital to fund our operations and the development and results from clinical trials for the BET inhibitor programs. Based on our current plans and assumptions, we believe that absent sufficient proceeds received from equity transactions, financing transactions or business development transactions, we will not have sufficient cash and cash equivalents to fund our operations beyond one year from the issuance of the accompanying unaudited condensed consolidated financial statements. This assumption does not include proceeds that can be drawn from Lincoln Park under the Equity Purchase Agreement. Accordingly, we will, over the course of the next twelve months, require significant additional financing to continue our operations and meaningfully advance the development of our product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement. We may also employ strategies to further extend our ability to fund our operations including: (1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing our resources on research and development programs we choose to prioritize and reducing spending on other programs by delaying or discontinuing development. In addition, the amount of proceeds we may be able to raise pursuant to our existing shelf registration statement on Form S-3 may be limited. As of the filing of this Quarterly Report on Form 10-Q, we are subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of our common stock held by our non-affiliates. Therefore, we will be limited in the amount of proceeds we are able to raise by selling shares of our common stock using our Form S-3 until such time as our public float exceeds $75.0 million. These factors raise substantial doubt about our ability to continue as a going concern. Failure to successfully receive additional financing will require us to delay, scale back or otherwise modify our business and our research and development activities and other operations. The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.
Summary Statement of Cash Flows
The following table summarizes our statement of cash flows for the six months ended June 30, 2023 and 2022:
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| Six Months Ended June 30
(in thousands) | 2023 |  | 2022
Net cash (used in) / provided by: |  |  |
Operating activities | $ | (15,052) |  |  | $ | (17,264) |
Investing activities | $ | 5,000 |  |  | $ | 15,752 |
Financing activities | $ | (222) |  |  | $ | 1,471 |

Net Cash Used in Operating Activities
During the six months ended June 30, 2023, net cash used in operating activities was $15.1 million and primarily reflected our net loss of $15.7 million adjusted for the non-cash item of $1.7 million related to stock-based compensation expense. The remainder of the cash used in operations is driven by net change in assets and liabilities.
During the six months ended June 30, 2022, net cash used in operating activities was $17.3 million and primarily reflected our net loss of $3.8 million adjusted for the gain on the sale of the MST Franchise of $13.0 million and stock-based compensation of $2.1 million. The remainder of the cash used in operations is driven by net change in operating assets and liabilities.
Net Cash Provided by Investing Activities
During the six months ended June 30, 2023, net cash provided by investing activities was $5.0 million which represents the deferred payment received from Journey in January 2023.
During the six months ended June 30, 2022, net cash provided by investing activities was $15.8 million and was the result of net proceeds from the sale of the MST Franchise.
Net Cash (Used in) Provided by Financing Activities
During the six months ended June 30, 2023, net cash used in financing activities was $0.2 million and consisted primarily of $0.4 million paid for the redemption of convertible preferred stock, partially offset by $0.2 million of proceeds received related to the issuance of common stock in our at-the-market equity offering program.
During the six months ended June 30, 2022, net cash provided by financing activities was $1.5 million and was primarily attributable to the issuance of common stock.
Cash and Funding Sources
Our sources of funding in the six months ended June 30, 2023 totaled $5.2 million and consisted primarily of $5.0 million of net proceeds from the sale of the MST Franchise and $0.2 million of net proceeds from the issuance of common stock pursuant to our at-the-market offering facility.
Our sources of funding in the six months ended June 30, 2022 totaled $17.2 million and consisted primarily of $15.8 million of net proceeds from the sale of the MST Franchise and $1.5 million of net proceeds from the issuance of common stock pursuant to our at-the-market offering facility.
We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years.
Funding Requirements
Our present and future funding requirements will depend on many factors, including the following:
•costs associated with the research and development of product candidates;
•the time and costs involved in obtaining regulatory approval for our other pipeline product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates;
•terms and timing of any acquisitions, collaborations or other arrangements;
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•the number of potential new products we identify and decide to develop; and
•the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights.
Our operating plan may change as a result of many factors currently unknown to us, and any such change may affect our funding requirements. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.
For more information as to the risks associated with our future funding needs, see “Item 1A—Risk Factors” included herein and in our Annual Report on Form 10-K for the year ended December 31, 2022.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 14, 2023. There have been no material changes to these policies for the six months ended June 30, 2023.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Recently Issued and Adopted Accounting Pronouncements
See “Newly Issued and Recently Adopted Accounting Pronouncements” in Note 2, “Significant Accounting Policies” in the Notes to Unaudited Interim Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements not yet adopted, and their expected impact on our financial position and results of operations.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10 of Regulation S-K. As such, we are not required to provide the information set forth in this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to an issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the six months ended June 30, 2023 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
We may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2023, no claims or actions are pending against us that, in the opinion in management, are likely to have a material adverse effect on us.
1A. Risk Factors.
Information about our risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 14, 2023. As of June 30, 2023, there have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K and subsequent reports, except as set forth below.
Risks Related to our Liquidity
We will need substantial additional funding to fund our operations, and we may not be able to continue as a going concern if we are unable to do so. We could also be forced to delay, reduce or terminate our research and development activities which would have a material adverse effect on our financial condition.
Developing and commercializing biopharmaceutical products and conducting preclinical studies and clinical trials is an expensive and highly uncertain process that takes years to complete. As of June 30, 2023, we had approximately $20.7 million in cash, cash equivalents and restricted cash, as well as negative cash flows from operating activities. Based on our current operating plan, we do not have sufficient cash and cash equivalents to fund our anticipated level of operations as they become due during the twelve months following the date of issuance of the unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2023. Our estimates may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. The aforementioned factors raise substantial doubt about our ability to continue as a going concern. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further discussion regarding our liquidity. We may not be able to raise adequate proceeds from financing or business development transactions, and additional capital might not be available to us when we need it. We are unable to predict the impact of global economic market trends, and if economic conditions deteriorate, our business, results of operations and ability to raise needed capital could be materially and adversely affected. If we are unable to raise additional capital when needed due to the reasons listed above and/or lack of creditworthiness, bank failures (such as recent and potential future disruptions in access to bank deposits or lending commitments), or price decline in market investments, our long-term business plans may not be accomplished, and we may be forced to scale back our operations to conserve cash, cease, reduce, or delay operations, including our product candidate programs.
If we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted and the terms of any new debt securities or equity securities may have a preference over our common stock. In addition, if we issue warrants or preferred stock in connection with our financing activities, such securities may include terms that are unfavorable to our stockholders, including anti-dilution provisions and other preferences. In addition, any holders of preferred stock may receive preferential voting rights that are superior to the voting rights of holders of our common stock. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures or specified financial ratios, any of which could restrict our ability to operate our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Other Information.
None.
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Item 6. Exhibits.
The following documents are filed, or furnished as applicable, as part of this Quarterly Report on Form 10-Q:
Exhibit Index

Exhibit Number |  |  |  | Incorporated by Reference |  | Filed
| Exhibit Description |  | Form |  | Date |  | Number |  | Herewith
3.1(a) |  | Amended and Restated Certificate of Incorporation. |  | 10-K |  | 3/17/2022 |  | 3.1 |  |
3.1(b) |  | Certificate of Designation of Preferences, Rights, and Limitations of Series A Convertible Preferred Stock. |  | 10-Q |  | 11/14/2022 |  | 3.1(b) |  |
3.1(c) |  | Certificate of Elimination |  | 8-K |  | 1/17/2023 |  | 3.1 |  |
3.1(d) |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation. |  | 8-K |  | 2/10/2023 |  | 3.1 |  |
3.2 |  | Amended and Restated Bylaws. |  | 10-Q |  | 11/14/2022 |  | 3.2 |  |
10.1† |  | License Agreement, dated as of April 28, 2023, by and between VYNE Therapeutics Inc. and Tay Therapeutics Limited. |  |  |  |  |  |  |  | X
31.1 |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). |  |  |  |  |  |  |  | X
31.2 |  | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). |  |  |  |  |  |  |  | X
32.1* |  | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). |  |  |  |  |  |  |  | X
32.2* |  | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). |  |  |  |  |  |  |  | X
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |  |  |  |  |  |  |  | X
101.SCH |  | XBRL Taxonomy Extension Schema Document. |  |  |  |  |  |  |  | X
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document. |  |  |  |  |  |  |  | X
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document. |  |  |  |  |  |  |  | X
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document. |  |  |  |  |  |  |  | X

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101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document. |  |  |  |  |  |  |  | X
104 |  | The cover page of VYNE Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL (included within Exhibit 101 attachments). |  |  |  |  |  |  |  |

_______________________________________________________
* The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of VYNE Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
† Exhibits and schedules omitted pursuant to Item 601(a)(5) of Regulation S-K and portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 14, 2023

| VYNE Therapeutics Inc.
| By: | /s/ David Domzalski
|  | David Domzalski Director and Chief Executive Officer
|  | (Principal Executive Officer)
| By: | /s/ Tyler Zeronda
|  | Tyler Zeronda Chief Financial Officer
|  | (Principal Financial Officer and Principal Accounting Officer)

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