ITEM 7 - 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 financial statements and the notes thereto included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled “Item 1A-Risk Factors”.

The Merger was accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements are deemed those of the predecessor entity and, accordingly, the historical financial statements presented herein are those of Foamix.

Company Overview

We are a specialty pharmaceutical company focused on developing proprietary, innovative and differentiated therapies in dermatology and beyond. Our products, AMZEEQ for the treatment of inflammatory lesions of moderate-to-severe acne vulgaris in adults and patients 9 years of age and older, and ZILXI for the treatment of inflammatory lesions of rosacea in adults, are the first topical minocycline products to be approved by the FDA. AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively, and serve as a springboard for commercializing additional innovative products. In addition, our product pipeline includes FCD105 (minocycline 3% and adapalene 0.3%), our proprietary novel topical combination foam formulation of minocycline and adapalene for the treatment of moderate-to-severe acne vulgaris. FCD105 is a Phase 3-ready asset that we believe has the potential to be a best-in-class treatment for patients with acne. In addition, we recently announced a development program for FMX114, which is a combination topical gel for the potential treatment of mild-to-moderate atopic dermatitis. We plan to conduct a Phase 2a proof-of-concept study for FMX114 in the third quarter of 2021.

AMZEEQ and ZILXI utilize our proprietary Molecule Stabilizing Technology (MST)TM platform that is also being used to develop FCD105. Our MSTTM proprietary foam platform is designed to optimize the topical delivery of minocycline, an active pharmaceutical ingredient, or API, that was previously available only in oral form despite its prevalent use in dermatology. In addition to the MST platform, we have a number of proprietary delivery platforms in development that enable topical delivery of other APIs, each having unique pharmacological features and characteristics designed to keep the API stable when delivered and directed to the target site. We believe our MST vehicle and other topical delivery platforms may offer significant advantages over alternative delivery options and are suitable for multiple application sites across a range of conditions.

Key Developments

Below is a summary of selected key developments affecting our business that have occurred since December 31, 2019:

•On November 10, 2019, Menlo, Foamix and Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo (“Merger Sub”), entered into the Merger Agreement. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020. Foamix was deemed the “accounting acquirer” in the Merger and the Merger was accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements are deemed those of the predecessor entity.

•On March 9, 2020, we entered into an Amended and Restated Credit Agreement and Guaranty, whereby we have guaranteed the indebtedness obligation of our subsidiary borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. $35.0 million was outstanding under the Amended and Restated Credit Agreement as of December 31, 2020, with no availability for additional borrowings. On August 5, 2020, the parties amended the minimum net revenue covenant contained in the Amended and Restated Credit Agreement and Guaranty following an assessment of the impact of the COVID-19 pandemic on the Company's business.

•On March 24, 2020, we announced that Andrew Saik joined the Company as our Chief Financial Officer and Treasurer.

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•On April 2, 2020, we announced that we entered into a settlement and license agreement to resolve the remaining pending patent litigation involving Finacea foam.

•In April 2020, LEO remedied the supply chain issues related to Finacea and resumed commercial sales.

•On April 6, 2020, we announced top line results from the Phase III PN Trials for serlopitant. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. We currently do not intend to further pursue the development of serlopitant internally. As such, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets of $49.8 million and $4.5 million, respectively, in its consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

•On April 23, 2020, we announced that we entered into the Cutia License Agreement with respect to our minocycline products and product candidate, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved, FCD105 in the Greater China territory. We will supply the finished licensed products to Cutia for clinical and commercial use. We received an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. We will also receive royalties on net sales of any licensed products.

•The COVID-19 pandemic has directly impacted our business operations. There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will continue to impact our patients, employees, suppliers, vendors, business partners and distribution channels. Our product sales, particularly during the second and fourth quarters of 2020, were negatively impacted by the pandemic due to a surge in reported cases and restrictions adopted in response thereto. However, we are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to numerous uncertainties, including duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development and distribution of effective treatments or vaccines, and the resumption of widespread economic activity. A further-extended duration of the pandemic could continue to have a material adverse effect on our product sales for AMZEEQ and ZILXI. In addition, any prolonged material disruption of the Company’s employees, suppliers, manufacturing, or customers could further materially negatively impact our consolidated financial position, consolidated results of operations and consolidated cash flows. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.

•On May 28, 2020, the FDA approved ZILXI for the treatment of inflammatory lesions of rosacea in adults. ZILXI is the first minocycline product of any kind to be approved by the FDA for use in rosacea. ZILXI became available in pharmacies nationwide on October 1, 2020.

•On June 2, 2020, we announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. Study FX2016-40 enrolled 447 patients in the United States who were randomized to either FCD105 foam, 3% minocycline foam, 0.3% adapalene foam, or vehicle foam. The Company anticipates commencing a Phase III program for FCD105 in 2021.

•On June 9, 2020, we completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $7.40 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses. The number of shares sold and purchase price have been adjusted to reflect the Company's 1-for-4 reverse stock split. See below for additional discussion about the reverse stock split.

•On September 4, 2020, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to change our corporate name to “VYNE Therapeutics Inc.”

•Effective as of September 10, 2020, Mr. Patrick G. LePore joined our Board. Mr. LePore has more than 40 years of experience in the pharmaceutical industry, in both private and public sectors, and with board and operational experience in each. He previously served as Chairman, Chief Executive Officer and President of Par Pharmaceutical Companies, Inc.

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•On October 1, 2020, ZILXI became available in pharmacies nationwide, and on October 7, 2020, we announced that Express Scripts, one of the nation’s leading pharmacy benefit managers (PBMs), has elected to cover ZILXI on Express Scripts’ National Preferred, Flex, and Basic commercial formularies, representing millions of additional covered lives in the U.S. that follow these formularies.

•During the fourth quarter of 2020, the Company expanded its distribution model with respect to AMZEEQ and ZILXI to include independent and specialty pharmacies in an effort to further reduce barriers for patients to initiate and maintain therapy.

•VYNE was added to the Nasdaq Biotechnology Index effective as of December 21, 2020.

•During the three months ended December 31, 2020, the Company issued and sold 1,175,000 shares of common stock at a weighted average price per share of $7.00 for $8.0 million in net proceeds pursuant to a Sales Agreement with Cantor Fitzgerald & Co. ("Cantor Fitzgerald") through an at-the-market equity offering program under which Cantor Fitzgerald acted as our sale agent. In addition, from January 1, 2021 through January 25, 2021, the Company issued and sold an additional 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder. The number of shares sold and purchase prices have been adjusted to reflect the Company's 1-for-4 reverse stock split. See below for additional discussion about the reverse stock split.

•On January 21, 2021, the Company announced the execution of a contract with one of the largest pharmacy benefit managers in the U.S. with respect to AMZEEQ and ZILXI.

•On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share. The net proceeds of the offering were approximately $46.7 million, after deducting placement agent fees and other offering expenses. The number of shares sold and purchase price have been adjusted to reflect the Company's 1-for-4 reverse stock split. See below for additional discussion about the reverse stock split.

•On February 1, 2021, we announced that the FDA approved a label update for AMZEEQ, including new information indicating the low propensity of Propionibacterium acnes (more commonly known as P. acnes) to develop resistance to minocycline.

•On February 10, 2021, our Board of Directors approved a one-for-four reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 12, 2021 at 5:00 p.m. Eastern time. At the effective time, every four issued and outstanding shares of our common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata 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. In connection with the reverse stock split, the number of authorized shares of our common stock was also reduced on a one-for-four basis, from 300 million to 75 million. The par value of each share of common stock remained unchanged. A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

•On March 1, 2021, we announced development plans for FMX114 for the potential treatment of mild-to-moderate atopic dermatitis. FMX114 is a fixed combination of tofacitinib, which is a pan-Janus kinase (JAK) inhibitor, and fingolimod, a sphingosine 1-phosphate receptor modulator. FMX114 attempts to address both the source and cause of inflammation in atopic dermatitis and support skin barrier recovery.

Revenues

Our revenue during the periods presented has been primarily comprised of AMZEEQ and ZILXI product sales and collaboration and license revenue.

During 2019, we were engaged in pre-launch sales and marketing planning activities and other pre-commercialization efforts in order to support the commercialization of AMZEEQ in the United States. AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively. We have generated product revenue of $10.2 million for the year ended December 31, 2020. We will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval. Our ability to generate

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revenues from sales will depend on the successful commercialization of AMZEEQ and ZILXI and any other product candidates that receive marketing approval.

Historically, we have generated revenues under development and license agreements including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to LEO. In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to the ongoing suspension of the manufacturing of Finacea by LEO, following inadequate supply of quality-compliant batches of the API used in such product. In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sale in the United States. In the year ended December 31, 2020 we received royalties of $0.8 million.

We may become entitled to additional contingent payments in the future, subject to achievement of the applicable clinical results by our other licensees. However, in light of the current phase of development and associated milestone schedules under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized.

Additionally, as described in “Key Developments,” on April 23, 2020, we announced that we entered into a licensing agreement with Cutia for our other topical minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. We will supply the finished licensed products to Cutia for clinical and commercial use. We received an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. We will also receive royalties on net sales of any licensed products pursuant to the agreement. In the year ended December 31, 2020, we recognized license revenue of $10.0 million.

Cost of Goods Sold

Cost of goods sold was $1.4 million for the year ended December 31, 2020. There was no cost of goods sold in the year ended December 31, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 86% was favorably impacted during the year ended December 31, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the year ended December 31, 2020 was valued at cost, our gross margin for the period then ended would have been 83%.

Cost of goods sold expenses consist primarily of:

◦third party expenses incurred in manufacturing product for sale;

◦transportation costs incurred in shipping manufacturing materials between third parties; and

◦other costs associated with delivery and manufacturing of product.

Operating Expenses

Research and development expenses

Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI and FCD105. Our total research and development expenses for the year ended December 31, 2020 and 2019 were approximately $43.5 million and $51.2 million, respectively. We charge all research and development expenses to operations as they are incurred.

Research and development expenses consist primarily of:

•employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses;

•expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies;

•expenses incurred to acquire, develop and manufacture clinical trial materials;

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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 for the year ended December 31, 2020 and 2019 were approximately $89.5 million and $45.1 million, respectively. This increase was primarily associated with the expansion of our employee base, including sales force, to support the growth of our operations, severance expenses for Menlo employees, stock based compensation awards, merger expenses and sales and marketing expenses incurred in connection with the commercialization of AMZEEQ and ZILXI.

Our selling, general and administrative expenses consist principally of:

•employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;

•costs associated with selling, marketing and shipping and handling costs;

•legal and professional fees for auditors and other consulting expenses; and

•facility, information technology and depreciation expenses.

Interest Expense

Interest expense primarily consists of interest expense on our long-term debt.

Other Income, net

Other Income, net primarily consists of gains from interest earned from our bank deposits, financial income on our marketable securities and a revaluation of our derivative liability.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception. We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any other product, if approved in the future, generates adequate revenues for us to reach profitability. As of December 31, 2020, we had federal and state net operating loss carryforwards of $243.2 million and $66.3 million, respectively, of which $44.3 million and $66.3 million of these carryforwards will begin to expire starting in 2031 through 2040 for federal and state purposes, respectively. As of December 31, 2020, 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, 2020, the Company had $198.9 million in federal and state NOLs with no limited period of use.

In December 2020, the Company began liquidation proceedings of its Israeli subsidiary, VYNE Pharmaceuticals Ltd., to align with its business strategy. As a result thereof, the Company's intellectual property was assigned to the U.S. parent company and we recognized a $163.0 million taxable gain for Israeli income tax purposes. However, the taxable gain was fully offset by net operating loss carryforwards, resulting in no income tax expense to the Company.

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

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carryforwards may be subject to similar limitations under state laws. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Sections 382 or 383. We may have experienced ownership changes in the past, including in connection to our initial public offering (“IPO”), and as a result of the Merger and/or subsequent shifts in our stock ownership, some of which may be outside of our control. As a result, even if we earn net taxable income, our ability to use the NOL and tax credit carryforwards may be materially limited, which could harm our future operating results by effectively increasing our future tax obligations.

Results of Operations for the Year Ended December 31, 2020 and December 31, 2019

Summary of Operations

Year Ended December 31,

(in millions, except %) 2020 2019 Variance

Research and development expenses 43.5 51.2 (7.7) (15.0) %

Selling, general and administrative expenses 89.5 45.1 44.4 98.5 %

Goodwill and in-process research & development impairments 54.3 — 54.3 100.0 %

Revenues

Revenues totaled $21.0 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, our revenue consisted of $10.2 million of product sales, primarily associated with AMZEEQ and ZILXI, which were launched in January 2020 and October 2020, respectively, $10.0 million of license revenue, and $0.8 million of royalty revenue. For the year ended December 31, 2019, revenues consisted solely of royalty revenues.

The increase in license revenue for the year ended December 31, 2020 as compared to license revenue for the year ended December 31, 2019 is due to the upfront payment received under the Cutia License Agreement for the marketing and sale of our topical minocycline products in Greater China.

Circumstances surrounding the COVID-19 pandemic have negatively impacted our ability to execute our commercial strategy with respect to AMZEEQ and ZILXI. For example, our product sales, particularly during the second and fourth quarters of 2020, were negatively impacted by restrictions put in place in response to the pandemic. Specifically, many healthcare providers suspended access to their office for pharmaceutical sales representatives. In addition, many patients have chosen not to visit or contact their healthcare providers which has limited new patient access and conversion.The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, virus waves and the distribution of vaccines and treatment options. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ and ZILXI.

Cost of Goods Sold

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Research and development expenses

Our research and development expenses for the year ended December 31, 2020 were $43.5 million, representing a decrease of $7.7 million, or 15.0%, compared to $51.2 million for the year ended December 31, 2019. Clinical and manufacturing expense for AMZEEQ and ZILXI decreased as both products were commercialized in 2020. Clinical trials for FCD105 concluded in April 2020 resulting in a decrease in expense during the second half of the year. This was offset by an increase in clinical costs related to serlopitant and employee-related expenses of $12.4 million, including $3.8 million related to severance expenses payable to our former employees, and stock based compensation of $3.1 million.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended December 31, 2020 were $89.5 million, representing an increase of $44.4 million, or 98%, compared to $45.1 million for the year ended December 31, 2019. Employee-related expenses increased primarily due to the expansion of our employee base, including sales force to support the growth of our operations. As result of the merger, we incurred $4.7 million of severance expense, $7.7 million of additional selling, general and administrative expenses, and $9.9 million of stock based compensation. Sales and marketing expenses increased due to the commercialization of AMZEEQ and ZILXI.

Goodwill and in-process research & development impairments

Goodwill and in-process research & development impairments for the year ended December 31, 2020 were $54.3 million. There were no impairments for the year ended December 31, 2019. In the year ended December 31, 2020, we recorded impairments of $4.5 million for Goodwill and $49.8 million for in process research and development due to the failed clinical trials for serlopitant for the treatment of pruritus associated with prurigo nodularis.

CSR Remeasurement

Contingent Stock Right Remeasurement for the year ended December 31, 2020 was $84.7 million. For the year ended December 31, 2020 we incurred $84.7 million of expense due to the remeasurement of the CSR to fair value which was driven by the result of the Phase III PN Trials. At the time of the merger transaction with Foamix, we entered into a contingent stock right agreement that called for the issuance of additional shares of our common stock to legacy Foamix shareholders upon negative data from the Phase III PN Trials. Since the trials did not meet the milestones outlined per the agreement, the contingent stock rights were remeasured, resulting in an expense of $84.7 million for the year ended December 31, 2020.

Interest Expense

Interest expense for the year ended December 31, 2020 was $4.4 million, representing an increase of $3.5 million, or 377%, compared to $0.9 million for the year ended December 31, 2019. The increase was primarily attributable to an increase in the average long-term debt outstanding during the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the Company entering into a credit agreement in July 2019.

Other Income, net

Other Income, net for the year ended December 31, 2020 was $1.1 million, representing a decrease of $0.3 million, or 23%, compared to $1.4 million for the year ended December 31, 2019. Other Income, net decreased primarily due to a $1.0 million decrease in gains from marketable securities, a $0.5 million decrease in interest on bank deposits offset by $1.0 million of gains on derivative liabilities.

Taxes on income

Our tax benefit for the year ended December 31, 2020 was $0.3 million, representing an increase of $0.1 million, or 47%, compared to $0.2 million for the year ended December 31, 2019.

Liquidity

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. 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 products and product candidates, if approved, are commercially successful, if at all. We will not generate any

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revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products.

VYNE Pharmaceuticals Inc., a Delaware corporation (the “Borrower”), VYNE Pharmaceuticals Ltd. and the Company, each as a guarantor, the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent for the lenders, entered into an Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020 (as amended, the “Amended and Restated Credit Agreement”). We have guaranteed the indebtedness obligation of the Borrower under the Amended and Restated Credit Agreement and also granted a first priority security interest in substantially all of our assets for the benefit of the lenders. As of December 31, 2020, approximately $35.0 million was drawn under the Amended and Restated Credit Agreement with no availability for additional borrowings thereunder.

In addition, the parties entered into Amendment No. 1 to Amended and Restated Credit Agreement (the "Amendment") on August 5, 2020. The Amendment provided for a covenant "holiday" with respect to the minimum net revenue covenant such that the compliance with such covenant commenced with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024.

We have incurred significant transaction-related expenses in connection with negotiating and completing the Merger. Transaction-related expenses, which include legal, accounting and financial advisor fees and other service provider costs, were approximately $21.8 million. We incurred $11.7 million of these costs during the year ended December 31, 2020 in our statements of operations and comprehensive loss, and we do not expect to incur any additional significant costs relating to the Merger in future periods.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant for pruritic conditions. Following the receipt of the results of the Phase III PN Trials and the impact of the COVID-19 pandemic, the Company revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other product candidates. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

As of December 31, 2020, we had cash, cash equivalents, restricted cash and investments of $59.4 million. Our cash, cash equivalents and investments are held in money market accounts and marketable securities. We believe that our existing cash and investments as of December 31, 2020, the net proceeds received from the registered direct offering and the “at-the-market” offerings in January 2021 of $73.0 million and projected cash flows from revenues will provide sufficient resources for our operating expense and capital requirements through the end of 2022. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the impact of the COVID-19 pandemic, our ability to successfully commercialize AMZEEQ and ZILXI, and any unforeseen cash needs. In addition, the Company may seek additional financing in order to achieve its longer-term strategic plans.

The COVID-19 pandemic has had a significant impact, both direct and indirect, on global businesses and commerce, including our own operations. For example, our product sales for AMZEEQ and ZILXI have been negatively impacted by office closures as a result of the pandemic. Even as our customers’ offices began to reopen, our access to healthcare providers remained limited which dampened sales and negatively impacted our ability to execute our commercial strategy with respect to AMZEEQ and similarly impacted sales of ZILXI, which we launched on October 1, 2020. The future progression of the outbreak and its effects on our business and operations are uncertain. Many patients have chosen not to visit or contact their healthcare providers regarding their skin conditions, which has limited new patient access and conversion. In response to the outbreak, we have taken certain steps to safeguard our employees, healthcare professionals and our other partners. For example, beginning in the first quarter of 2020, our sales force and marketing team were removed from the field and adopted remote and virtual sales activities, including tele-detailing, web-based speaker programs and virtual product education sessions, as needed, in order to meet patients’ needs. In addition, there was a surge in COVID-19 cases in the fourth quarter of 2020 that prompted several regions to re-institute restrictions, which continued to negatively impact our sales force’s ability to access healthcare providers. No assurance can be made that remote sales tactics will be as effective as those used prior to the outbreak of COVID-19. If the activities of our sales force continue to be disrupted due to the pandemic or patients elect not to visit their healthcare providers during the pandemic, we may continue to generate less revenue than expected, which would have a material adverse effect on our financial results and liquidity as well as hinder our ability to satisfy certain covenants contained in our Amended and Restated Credit Agreement. The future progression of the outbreak and its effects on our business and operations are uncertain.

Capital Resources

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Overview

To date, we have financed our operations primarily through private and public placements of our common stock, debt and warrants and through fees, cost reimbursements and payments received from our licensees.

Cash flows

The following table summarizes our statement of cash flows for the years ended December 31, 2020 and 2019:

Year Ended December 31,

Net cash (used in) / provided by: (in thousands)

Net cash used in operating activities

Net cash used in operating activities was $137.1 million in the year ended December 31, 2020, compared to $73.4 million in the year ended December 31, 2019. The increase of $63.7 million in the net cash used in operating activities in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to the growth in operations and the Merger.

Net cash provided by investing activities

Net cash provided by investing activities was $89.1 million in the year ended December 31, 2020, compared to $41.9 million used inin the year ended December 31, 2019. The increase of $47.2 million in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to the cash acquired through the Merger partially offset by a decrease in investments in bank deposits and marketable securities.

Net cash provided by financing activities

Net cash provided by financing activities was $61.8 million in the year ended December 31, 2020, compared to $48.0 million in the year ended December 31, 2019. The increase of $13.9 million in net cash provided by financing activities in the year ended December 31, 2020 compared to the year ended December 31, 2019 was attributable primarily to an increase in share offerings in the year ended December 31, 2020.

Cash and funding sources

The table below summarizes our main sources of financing for the years ended December 31, 2020 and 2019:

(in thousands of U.S. dollars)

__________________________

(1) Net of issuance costs.

Our sources of funding in the year ended December 31, 2020 totaled $100.3 million and consisted primarily of $38.6 million cash and investments acquired in the Merger, $53.6 million proceeds from an underwritten public offering of common stock completed in June 2020, and $8.0 million proceeds from our at-the-market program during the fourth quarter of 2020.

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Our sources of financing in the year ended December 31, 2019 totaled $49.6 million and consisted primarily of $33.9 million of net proceeds from the first two tranches of the Term Loan and $13.7 million of net proceeds from the registered offering under the Purchase Agreement.

From January 1, 2021 through January 25, 2021, the Company issued and sold an additional 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds, as adjusted for the Company's 1-for-4 reverse stock split, in "at-the-market" offerings pursuant to the Sales Agreement. On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share for $46.7 million in net proceeds, as adjusted for the Company's 1-for-4 reverse stock split.

We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years other than our commitments under the Amended and Restated Credit Agreement.

ContractualObligations

Our significant non-cancelable contractual obligations as of December 31, 2020 are summarized in the following table:

Payments due by period

Total Less than 1 year 1-3 years 3-5 years More than 5 years Other

(in thousands of U.S. dollars)

Operating lease obligations(1) $ 1,825 $ 913 $ 912 $ — $ — $ —

Liability for employee severance benefits(3) 312 — — — — 312

_______________________________

(1) Operating lease obligations consist of lease of our facilities and lease of vehicles.

(2 )As of December 31, 2020, there was $35 million outstanding under our Amended and Restated Credit Agreement, which matures on July 29, 2024 and bears interest of 8.25% plus the greater of the one-month LIBOR and 2.75%. Refer to Note 12 to our consolidated financial statements included elsewhere in this report for further information.

(3) The liability is considered long term, however we cannot estimate the exact period in which they will be paid.

(4) Purchase obligations primarily include non-cancelable commitments under our contract manufacturing agreements.

Funding requirements

Our present and future funding requirements will depend on many factors, including, inter alia:

•the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our drug products AMZEEQ and ZILXI and any other pipeline product that is commercialized;

•selling, marketing and patent-related activities undertaken in connection with the commercialization of AMZEEQ, ZILXI and any other product candidates, as well as costs involved in the development of an effective sales and marketing organization;

•the progress, timing and completion of preclinical testing and clinical trials for pipeline product candidates, including FCD105 and FMX114;

•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;

•the efforts necessary to institute post-approval regulatory compliance requirements for AMZEEQ and ZILXI;

•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.

Our capital expenditures for 2020 and 2019 amounted to $0.1 million and $1.1 million, respectively. During 2019, these expenditures were primarily related to laboratory equipment, computers and leasehold improvements.

For more information as to the risks associated with our future funding needs, see “Item 1A - Risk Factors—Risks Related to Our Business and Industry—We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts” included herein.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Significant Judgments and Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

While our significant accounting policies are more fully described in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in “Financial Statements and Supplementary Data” of this Annual Report, we believe that the following accounting policies are the most critical to assist shareholders and investors reading the consolidated financial statements in fully understanding and evaluating our financial condition and results of operations. These policies relate to the more significant areas involving management’s judgments and estimates and that require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

COVID-19

The extent to which the COVID-19 pandemic continues to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of the pandemic; the extent to which patients and our sales representatives are able to access healthcare provider offices; the impact on worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. The Company's product sales for 2020, particularly during the second and fourth quarters, were negatively impacted by office closures and our sales force's limited ability to access healthcare providers. No assurance can be given that such office closures will not occur again in future periods, and if such closures do occur, or any other circumstance arises such that patients or our sales representatives are restricted in their ability to connect with healthcare providers, our product sales would be negatively impacted. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangibles; however, these impairments were unrelated to the impact of COVID-19 (See “Note 3 – Business Combination” for more information). The Company’s future

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assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Revenue Recognition

We record revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For the Collaboration Agreement under ASC 606, we identify the performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is satisfied.

We identify the performance obligations included within the agreement and evaluate 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, we utilize the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. We periodically review our 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 included in the transaction price when we determine that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

Business Acquisition

Our financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill is recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

We are required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, we use fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses. We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

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A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Recently Issued Accounting Pronouncements

Certain recently issued accounting pronouncements are discussed in Note 2, “Significant Accounting Policies,” to the consolidated financial statements included in “Financial Statements and Supplementary Data” of this Annual Report.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide quantitative or qualitative disclosures about market risk.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

VYNE THERAPEUTICS INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

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VYNE THERAPEUTICS INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

INDEX

Page

Report of Independent Registered Public Accounting Firm F-1

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-5

Consolidated Statements of Comprehensive Loss F-6

Statements of Changes in Shareholders’ Equity F-7

Consolidated Statements of Cash Flows F-8

Notes to Consolidated Financial Statements F-10

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of VYNE Therapeutics Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of VYNE Therapeutics Inc. and its subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, of comprehensive loss, of changes in shareholders' equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

March 4, 2021

We have served as the Company’s auditor since 2020.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the board of directors of VYNE Therapeutics Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of VYNE Therapeutics Inc. (formerly known as Foamix Pharmaceuticals Ltd.) and its subsidiary (the “Company”) as of December 31, 2019, and the related consolidatedstatements of operations, comprehensive loss, changes in shareholders' equity and cash flowsfor each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2p to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Kesselman & Kesselman

Certified Public Accountants (Isr.)

A member firm of PricewaterhouseCoopers International Limited

Tel-Aviv, Israel

We served as the Company's auditor from 2006 to 2020.

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VYNE THERAPEUTICS INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

December 31

Assets

Current Assets:

Short term bank deposits — 12,102

Investment in marketable securities (Note 6) 1,027 16,246

Restricted investment in marketable securities (Note 6) — 434

Trade receivable, net of allowances 15,819 135

Non-current Assets:

Property and equipment, net (Note 8) 555 2,885

Operating lease right of use assets (Note 9) 1,583 1,694

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

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VYNE THERAPEUTICS INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

December 31

Liabilities and shareholders’ equity

Current Liabilities:

Operating lease liabilities (Note 9) 757 1,092

Long-term Liabilities:

Liability for employee severance benefits 312 424

Operating lease liabilities (Note 9) 853 653

Commitments and Contingencies (Note 11) — —

Shareholders' Equity:

Accumulated other comprehensive income — 5

Total Liabilities and Shareholders’ Equity $ 93,742 $ 81,159

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

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

Year ended December 31

Revenues (Note 4)

Product sales, net $ 10,202 $ — $ —

License revenues 10,000 — —

Other revenues — — 62

Cost of goods sold 1,392 — —

Operating Expenses:

Goodwill and in-process research & development impairments 54,345 — —

Contingent Stock Remeasurement 84,726 — —

Weighted average shares outstanding - basic and diluted 32,418 8,485 6,466

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

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars in thousands)

Year ended December 31

Other Comprehensive Loss (Income):

Net unrealized gains from marketable securities (1) (47) (59)

Gains (losses) on marketable securities reclassified into net loss 6 2 (5)

Net unrealized losses (gains) on derivative financial instruments — (3) 74

Losses on derivative financial instruments reclassified into net loss — — (60)

Total Other Comprehensive Loss (Income) 5 (48) (50)

The accompanying notes are an integral part of these consolidated financial statements

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. dollars in thousands, except share data)

Number of shares Amounts Amounts

Impact of initial adoption of new accounting standards — — — 35 (35) —

Exercise of options and restricted share units (Note 13) 46,510 — 47 — — 47

Share-based compensation (Note 13) — — 5,320 — — 5,320

Share-based compensation (Note 13) — — 4,895 — — 4,895

Stock-based compensation — $ — $ 18,100 $ — $ — $ 18,100

The accompanying notes are an integral part of these consolidated financial statements

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

Year ended December 31

Cash Flows From Operating Activities:

Goodwill and in-process research & development impairments 54,345 — —

Contingent stock right remeasurement 84,726 — —

Loss from sale and disposal of fixed assets 2,101 18 44

Changes in marketable securities and bank deposits, net (142) (357) 201

Increase in other non-current assets (4,171) (131) (14)

(Decrease) increase in accounts payable and accruals (12,975) 18,053 238

Increase (decrease) in other liabilities 1 (258) (274)

Cash Flows From Investing Activities:

Proceeds from sale of fixed assets — 40 10

Investment in marketable securities — (44,964) (77,652)

Cash acquired through merger 38,641 — —

Cash Flows From Financing Activities:

Proceeds from exercise of warrants — — 840

Withholding tax from net exercise of restricted share units (141) (32) —

Effect of exchange rate on cash, cash equivalents and restricted cash 1 41 (43)

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

Year ended December 31

Cashless exercise of warrants and restricted share units * 11 11

Issuance of shares under employee share purchase plan 387 284 —

Additions to operating lease right of use assets 1,350 1,175 —

Additions to operating lease liabilities 1,350 1,175 —

Supplemental disclosure of cash flow information:

Cash paid for taxes — — 587

Fair value of assets acquired $ 117,270 $ — $ —

Less liabilities assumed 5,827 — —

Net acquired (See “Note 3- Business combination”) 111,443 — —

Less cash acquired 38,641 — —

Merger net of cash acquired $ 72,802 $ — $ —

* Represents an amount less than $1.

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

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VYNE THERAPEUTICS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(U.S. dollars in thousands, except share and per share amounts)

NOTE 1 - NATURE OF OPERATIONS

On September 4, 2020, the Company changed its corporate name from "Menlo Therapeutics Inc." ("Menlo") to “VYNE Therapeutics Inc.” (the “Company,” “VYNE” or the “combined company”) and changed its ticker symbol on the Nasdaq Global Select Market from "MNLO" to "VYNE." VYNE is a specialty pharmaceutical company focused on developing and commercializing proprietary, innovative and differentiated therapies in dermatology and beyond. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.

Reverse Merger

On November 10, 2019, Menlo, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.

Reverse stock split and recasting of per-share amounts

On February 10, 2021, our Board of Directors approved a one-for-four reverse stock split of our outstanding shares of common stock. The reverse stock split was effected on February 12, 2021 at 5:00 p.m. Eastern time. At the effective time, every four issued and outstanding shares of our common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata 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. In connection with the reverse stock split, the number of authorized shares of our common stock was also reduced on a one-for-four basis, from 300 million shares to 75 million shares. The par value of each share of common stock remained unchanged. A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1-for-4 reverse stock split.

Products, Product Candidates and Licenses

Prior to the Merger, in January 2020, Foamix launched AMZEEQ® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the U.S. Food and Drug Administration (the "FDA") approved ZILXITM (minocycline) topical foam, 1.5% (formerly FMX103, "ZILXI"), for the treatment of inflammatory lesions of rosacea in adults. ZILXI became available in pharmacies nationwide in October 2020. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.

AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)TM platform that is also being used in the development of the Company’s product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company held an end-of-Phase II meeting with the FDA in the fourth quarter of 2020 and anticipates commencing a Phase III program in 2021.

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Additionally, the Company was developing serlopitant, a small molecule inhibitor of the neurokinin 1 receptor, or NK1-R, given as a once-daily, oral tablet, for the treatment of pruritus, or itch, associated with various conditions including prurigo nodularis, or PN. On April 6, 2020, the Company announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN, studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. The Company does not currently intend to further pursue the development of serlopitant. As a result, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets in its consolidated statement of operations and comprehensive loss. See "Note 3 - Business Combination" for more information.

The Company is actively pursuing opportunities to out-license its products and product candidates to third parties for development and commercialization outside the United States, and entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”) in April 2020. See "Note 4 - Revenue Recognition." The Company has also licensed certain technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining the Company’s foam technology with the licensee’s proprietary drugs.

Liquidity and Capital Resources

The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the year ended December 31, 2020, the Company incurred a net loss of $255.6 million and used $137.1 million of cash in operations. As of December 31, 2020, the Company had cash, cash equivalents, restricted cash and investments of $59.4 million and an accumulated deficit of $566.2 million.

If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its current product candidates. The Company does not currently intend to further pursue the development of serlopitant. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

From January 1, 2021 through January 25, 2021, the Company sold 2,778,012 shares of common stock in "at-the-market" offerings pursuant to the Sales Agreement. The Company received approximately $26.3 million in net proceeds from the sales. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any further sales thereunder. In addition, on January 26, 2021, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale of an aggregate of 5,274,261 shares of common stock of the Company, at a purchase price of $9.48 per share in a registered direct offering. The offering was completed on January 28, 2021 and the Company received approximately $46.7 million in net proceeds, after deducting placement agent fees and other offering expenses.

The Company believes that its existing cash and investments as of December 31, 2020, the net proceeds received from the registered direct offering and the "at-the-market" offerings and projected cash flows from revenues will provide sufficient resources for its operating expense and capital requirements through the end of 2022. However, the amounts and timing of the Company's actual expenditures may vary significantly depending on numerous factors, including the impact of the COVID-19 pandemic, the Company's ability to successfully commercialize AMZEEQ and ZILXI, and any unforeseen cash needs. In addition, the Company may seek additional financing in order to achieve its longer-term strategic plans.

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which dampened sales and negatively impacted our ability to execute our commercial strategy with respect to AMZEEQ and similarly impacted sales of ZILXI, which we launched on October 1, 2020. The future progression of the outbreak and its effects on our business and operations are uncertain. Many patients have chosen not to visit or contact their healthcare providers regarding their skin conditions, which has limited new patient access and conversion. In response to the outbreak, we have taken certain steps to safeguard our employees, healthcare professionals and our other partners. For example, beginning in the first quarter of 2020, our sales force and marketing team were removed from the field and adopted remote and virtual sales activities, including tele-detailing, web-based speaker programs and virtual product education sessions, as needed, in order to meet patients’ needs. In addition, there was a surge in COVID-19 cases in the fourth quarter of 2020 that prompted several regions to re-institute restrictions, which continued to negatively impact our sales force’s ability to access healthcare providers. No assurance can be made that remote sales tactics will be as effective as those used prior to the outbreak of COVID-19. If the activities of our sales force continue to be disrupted or patients elect not to visit their healthcare providers during the pandemic, we may continue to generate less revenue than expected which would have a material adverse effect on our financial results and liquidity as well as hinder our ability to satisfy the minimum revenue covenant contained in our Amended and Restated Credit Agreement, which was amended in August 2020 following an assessment of the impact of the COVID-19 pandemic on our business operations (see "Note 12 - Long-Term Debt" for more information). The future progression of the outbreak and its effects on our business and operations are uncertain.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

a.Basis of presentation

The Company’s financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Certain prior period amounts have been reclassified to conform to current year presentation.

b.Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from those estimates. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.

The extent to which the COVID-19 pandemic continues to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of the pandemic; the extent to which patients and our sales representatives are able to access healthcare provider offices; the impact on worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. The Company's product sales for 2020, particularly during the second and fourth quarters, were negatively impacted by office closures. No assurance can be given that such office closures will not occur again in future periods, and if such closures do occur, or any other circumstance arises such that patients or our sales representatives are restricted in their ability to connect with healthcare providers, our product sales would be negatively impacted. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

c.Business Acquisition

The Company’s consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting, which requires, among

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other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting. For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses. The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

d.Foreign Currency Translation

Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-dollar transactions and other items in the statements of operations (indicated below), the following exchange rates are used: (i) for transactions - exchange rates at transaction dates or average rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization, etc.) - historical exchange rates. Currency transaction gains and losses are presented in financial income or expenses, as appropriate.

e.Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.

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f.Cash and cash equivalents

The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits 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.

g.Bank deposits

Bank deposits with original maturity dates of more than three months but at balance sheet date are less than one year are included in short-term deposits. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates.

h.Marketable securities

Marketable debt securities:

Marketable debt securities are classified as available for sale and are recorded at fair value. Management determines the appropriate classification of its investments in securities at the time of purchase. Classifications of debt securities in the balance sheet are determined based on the maturity date of the securities.

Dividend and interest income, including amortization of the premium and discount arising at acquisition, as well as realized gains and losses, are included in other income, net.

Unrealized gains, net of taxes, are reflected in other comprehensive income (loss). Unrealized losses considered to be temporary are reflected in other comprehensive income (loss); unrealized losses that are considered to be other-than-temporary are charged to income as an impairment charge. Realized gains and losses are included in other income, net.

Other-than-temporary impairment has occurred if the Company does not expect to recover the entire amortized cost basis of the debt security. If the Company does not intend to sell the impaired debt security, and it is not more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis, the amount of the other-than-temporary impairment is recognized in earnings, recorded in other income, net, is limited to the portion attributed to credit loss. The remaining portion of the other-than-temporary impairment related to other factors is recognized in other comprehensive income or loss.

Marketable equity securities:

The Company’s marketable equity securities are recorded at fair market value and, beginning January 1, 2018, following the adoption of ASU No. 2016-1, Financial Instruments—Overall (Subtopic 825-10), unrealized gains and losses are included in other income, net in the consolidated statements of operations.

i.Derivatives and Hedging

The Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheet at their respective fair values. All gains and losses associated with derivatives are reported as a other income net in the accompanying consolidated statements of operations. As of December 31, 2020, the Company had no derivative instruments.

j.Inventory

Prior to the date the Company obtains regulatory approval for its product candidates, inventory costs related to commercial production are expensed as research and development expense. Once regulatory approval is obtained, the Company capitalizes such costs as inventory. Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out (“FIFO”) method. The Company periodically reviews its inventory levels and writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold.

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k.Property and equipment

1)Property and equipment are stated at cost, net of accumulated depreciation and amortization.

2)The Company’s property and equipment are depreciated by the straight-line method on the basis of their estimated useful life.

Annual rates of depreciation are as follows:

Estimated Useful Life

Computers 3 - 7 years

Laboratory equipment 5 - 14 years

Office furniture and equipment 7 - 14 years

Vehicles 7 years

Leasehold improvements are amortized by the straight-line method over the expected lease term, which is shorter than the estimated useful life of the improvements.

l.Impairment of long-lived assets

The Company tests long-lived assets for impairment whenever events or circumstances present an indication of impairment. If the sum of expected future cash flows (undiscounted and without interest charges) of the assets is less than the carrying amount of such assets, an impairment loss would be recognized. The assets would be written down to their estimated fair values, calculated based on the present value of expected future cash flows (discounted cash flows), or some other fair value measure.

For the years ended December 31, 2020, 2019 and 2018, the Company did not recognize an impairment loss for its long-lived assets.

m.Goodwill and other indefinite lived intangible assets

The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of the end of the fiscal year or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions market participants would use in making their estimates of fair value. In 2020, the Company recorded full impairment charges related to its $4.5 million of goodwill and $49.8 million of IPR&D (See "Note 3 - Business Combination" for more information).

n.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 for the years ended December 31, 2020, 2019 and 2018.

o.Debt

Debt discounts created as a result of the allocation of proceeds received from a debt issuance to warrants issued are amortized to interest expense under the effective interest method over the life of the recognized debt liability.

Debt issuance costs include the costs of debt financings undertaken by the Company, including legal fees and other direct costs of the financing. Debt issuance costs related to a recognized debt liability are presented on the consolidated balance sheet as a direct deduction from the carrying amount of the debt liability and are amortized to interest expense over the term of the related debt, using the effective interest method.

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p.Leases

The Company adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company recognizes the lease payments in the consolidated statements of operations on a straight-line basis over the lease period. The Company elected the short-term lease recognition exemption for all leases with a term shorter than 12 months.

q.Contingencies

Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

Management applies the guidance in ASC 450-20-25 when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material are disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantees are disclosed.

r.Share-based compensation

The Company accounts for employees’ and directors’ share-based payment awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period using the straight-line method. Forfeitures are recognized as they occur.

Share-based payments related to the employee share purchase plan (“ESPP”) are recognized based on the fair value of each award estimated on the first day of the offering period and recognized as an expense over the offering period using the straight-line method.

The Company elected to recognize compensation costs for awards conditioned only on continued service that have a graded vesting schedule using the straight-line method based on the multiple-option award approach.

s.Revenue recognition

The Company accounts for its revenue transactions under FASB 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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The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies, together (the "customers"). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. The Company evaluates 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 does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 90 days. The Company expenses 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 are included in selling, general and administrative expenses.

The Company’s net product revenues through December 31, 2020 were primarily 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. 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 current 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. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for our minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. The Company received an upfront cash payment of $10.0 million and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognizes the revenues from the upfront license fee when the license is transferred to the licensee and the licensee is able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.

t.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, share-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.

u.Clinical trial accruals

Clinical trial expenses are charged to research and development expense as incurred. The Company accrues for expenses resulting from obligations under contracts with clinical research organizations ("CROs"). The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. The Company’s objective is to reflect the appropriate trial expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event advance payments are made to a CRO, the payments are recorded as other assets, which will be recognized as expenses as services are rendered.

v.Income taxes:

1)Deferred taxes

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Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future. Given the Company’s losses, the Company has provided a full valuation allowance with respect to its deferred tax assets.

2)Uncertainty in income tax

The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement.

w.Loss per share

The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:

a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement

b.The number of common stock outstanding from the merger date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.

The basic and diluted loss per share for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse merger was calculated by dividing (a) by (b):

a.The loss of the legal acquiree attributable to common stockholders in each of those periods.

b.The legal acquiree's historical weighted-average number of common stock outstanding multiplied by the exchange ratio established in the merge agreement

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares 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 average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) 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):

Year ended December 31

In addition to the above, the CSR was excluded from the calculation of the diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective exchange ratio (the "Exchange Ratio") in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.

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x.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.

y.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, bank deposits, marketable securities 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. In addition, all marketable securities carry a high rating or are government insured. 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.

For the year ended December 31, 2020, the Company's three largest customers collectively represented 96% of product revenue and 90% of accounts receivable.

z.Comprehensive loss

Comprehensive loss includes, in addition to net loss, unrealized holding gains and losses on available-for-sale debt securities and derivative instruments designated as cash flow hedge (net of related taxes where applicable).

Reclassification adjustments for gain or loss of available-for-sale securities are included in other income, net in the consolidated statement of operations.

aa.Newly issued and recently adopted accounting pronouncements:

Recent Accounting Guidance Issued:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), 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 2020-4 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 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards 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

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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 will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which clarifies and simplifies certain aspects of the accounting for income taxes. The standard is effective for years beginning after December 15, 2020, and interim periods beginning after December 15, 2020. Currently, we do not expect the adoption of the new standard to have a material impact to the Company's consolidated financial statements.

NOTE 3 - BUSINESS COMBINATION:

On November 10, 2019, Menlo entered into the Merger Agreement with Foamix, and Merger Sub, a direct and wholly-owned Israeli subsidiary of Menlo. On March 9, 2020, the Merger was completed and Foamix is now a wholly-owned subsidiary of the Company.

On the Effective Date, each ordinary share of Foamix was exchanged for 0.5924 shares of common stock of Menlo. In addition, on the Effective Date, Foamix shareholders received one contingent stock right (a “CSR”) for each Foamix ordinary share held by them. The CSRs were issued pursuant to the Contingent Stock Rights Agreement (the “CSR Agreement”), dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of prurigo nodularis (the “Phase III PN Trials”).

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 additional shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 additional shares of Menlo common stock underlying the CSRs, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021. Following the conversion of the CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders owned approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis.

For accounting purposes, the Merger is treated as a “reverse acquisition” under U.S. GAAP and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods.

Under reverse acquisition accounting, the U.S. dollar amount for common stock in the financial statements is based on the value and number of shares issued by Menlo (reflecting the legal structure of Menlo as the legal acquirer) on the Merger date plus subsequent shares issued by the Company. The amounts in additional paid-in capital represent that of Foamix and include the fair value of shares deemed for accounting purposes to have been issued by Foamix on the merger date and the fair value of the Menlo equity awards included in the purchase price calculation. The Foamix additional paid-in capital was also adjusted for the difference between the number of common stock and the historical number of shares of Foamix’s ordinary shares.

During the year ended December 31, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date.

Purchase Price

The following is the Merger Consideration (as defined in the Merger Agreement) was transferred to effect the Merger:

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(in thousands) Total

Deemed (for accounting purposes only) conversion of Menlo equity awards 7,322

* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.

Based on Foamix’s closing share price of $2.99 as of March 9, 2020, the Merger Consideration under reverse acquisition accounting was approximately $131.1 million, consisting of $123.8 million for the deemed (for accounting purposes only) issuance of 41.4 million Foamix shares assuming that no upwards adjustment was made to the Exchange Ratio relating to the CSR, and $7.3 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the Foamix closing share price of $2.99 as of March 9, 2020 as an input to the Black Scholes valuation model to determine the fair value of the options.

Purchase Price Allocation

The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:

(in thousands) March 9, 2020

Cash and cash equivalents $ 38,641

Investment in marketable securities 22,703

Prepaid expenses and other current assets 1,581

In-process research and development 49,800

Current liabilities (5,827)

Total liabilities (5,827)

Estimated purchase price* $ 111,443

* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.

Goodwill

Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually. None of the Goodwill recognized is expected to be deductible for income tax purposes. The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:

(in thousands) March 9, 2020

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In-Process Research and Development (“IPR&D")

The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:

(in thousands)

Intangible asset Estimated Fair Value

Acquired indefinite life intangible assets* $ 49,800

Fair value of identified intangible assets $ 49,800

* Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing.

The fair value of IPR&D has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place.

CSR

The CSR was issued pursuant to the CSR Agreement, dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s Phase III PN Trials. The Company recognized a liability of $19.6 million in the consolidated balance sheet as of March 9, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 additional shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74.5 million additional shares of Menlo common stock underlying the CSRs, adjusted retrospectively to 18.6 million shares of common stock upon the reverse stock split effective February 12, 2021. Following the conversion of the CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders own approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis. The conversion of

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the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020 and increased the awards available for grant under the Company's equity plan.

The contingent consideration associated with the CSR was recognized and measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5. An acquirer's obligation to pay contingent consideration should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity, ASC 815 Derivatives and Hedging, and other applicable U.S. GAAP. The contingent consideration associated with the CSR was initially measured at fair value and subsequently measured at fair value at each reporting date. The CSR was classified as a liability, as it was settled by issuing a variable number of the Company's common stock. On April 6, 2020, the Company recorded $84.7 million of expense in its consolidated statements of operations and comprehensive loss to remeasure the CSR liability in its consolidated balance sheet to its fair value of $104.4 million (calculated based on 74,544,413 shares issued, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021, and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.

Pro Forma

The actual Menlo net loss included in the Company’s consolidated statements of operations and comprehensive income for the year ended December 31, 2020 (for the period from March 9, 2020, the Effective Date, through December 31, 2020, which are not indicative of the results to be expected for a full year) and the supplemental unaudited pro forma revenue and net loss of the combined entity had the acquisition been completed on January 1, 2019 are as follows:

Actual Menlo results of operations included in the consolidated statement of operation for the year ended December 31, 2020:

(in thousands) Year ended December 31, 2020

Revenues $ —

Loss attributable to Menlo $ 24,517

Year endedDecember 31,

(in thousands, except per share data) (Unaudited)

SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:

Loss per share - basic and diluted $ 7.53 $ 11.19

Transaction costs $ (14,931) $ —

Acceleration of stock based compensation (7,199) —

Total Adjustments $ (22,130) $ —

These unaudited pro forma consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the Merger.

NOTE 4 - REVENUE RECOGNITION

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Product Sales

Product revenues for the year ended December 31, 2020 were primarily generated from sales of AMZEEQ which was commercially launched in the United States in January 2020 and ZILXI which became available in pharmacies nationwide on October 1, 2020. The Company’s customers include a limited number of national and select regional distributors and certain independent and specialty pharmacies, together (the "customers"). The distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. For the year ended December 31, 2020, three distributors accounted for 42%, 39% and 15% of product revenue, respectively.

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VYNE · 10-K · period ended 2020-12-31

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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VYNE · 10-K · period ended 2020-12-31

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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