VYNE US Equity☆

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”.

Company Overview

We are a clinical-stage biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.

In August 2021, we entered into a transaction with Tay providing us with exclusive worldwide rights to research, develop and commercialize products containing BET inhibitors for the treatment of any disease, disorder or condition in humans. Through our access to this library of new chemical BET inhibitor compounds, we plan to develop product candidates for a diverse set of indications. Based on preclinical data generated to date, we have chosen to focus our initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.

Our lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure. To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models. We believe that these data suggest potential broad utility for VYN201 across multiple routes of administration. In November 2022, we initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo. In February 2023, we announced positive preliminary safety data from the Phase 1a portion of the trial. The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023 and we expect topline results from this trial in mid-2023.

Our second program is VYN202, a BD2-selective oral small molecule BET inhibitor. VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and is being designed to achieve class-leading selectivity (BD2 vs. BD1), maximum potency versus BD2 and optimal oral bioavailability. By maximizing BD2 selectivity, we believe VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity is common.

We intend to actively evaluate and enter into strategic partnerships to advance our product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance our molecules in therapeutic areas outside of our core focus in immunology. We believe selectively entering into collaborations has the potential to expand and accelerate the development of our programs and maximize the value of our pipeline.

Known Trends, Events and Uncertainties

Business and Macroeconomic Conditions

The extent of the impact of macroeconomic events and conditions, including inflation, increasing interest rates, adverse developments affecting financial institutions, increasing financial market volatility and uncertainty, the impact of war or military conflict, including the war in Ukraine, and public health pandemics on our operational and financial performance will continue to depend on certain developments, including the impact on our financing activities, clinical studies, employee or industry events, and effect on our suppliers and manufacturers, all of which are uncertain and cannot be predicted. Adverse effects of these large macroeconomic conditions have been prevalent in many of the areas where we, our CROs, suppliers or third-party business partners conduct business and as a result, we have experienced disruptions and may continue to experience more pronounced disruptions in our operations. For example, we have experienced delays in enrollment in our clinical trials, and we may continue to experience such delays for a variety of reasons, including COVID-19, labor shortages and supply chain disruptions in distribution of clinical trial materials, study monitoring and data analysis, any of which could materially adversely impact our business, results of operations and overall financial performance in future periods. In addition, financial markets have experienced a period of high volatility due to these macroeconomic factors. The persistence of this volatility may impact our ability to engage in capital market activities and adequately fund our operations. As of the filing date of this Annual Report, the extent to which these macroeconomic events and conditions may impact our financial condition, results of operations or liquidity is uncertain. The effect of these macroeconomic events and conditions may not be fully reflected in our results of operations and overall financial performance until future periods. See Part I, Item 1A “Risk Factors” for further discussion of the possible impact of these macroeconomic conditions on our business.

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Collaboration Arrangements

Agreements with Tay Therapeutics

On April 30, 2021, we entered into the Option Agreement with Tay. Pursuant to the Option Agreement, Tay granted us an exclusive option to obtain certain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds for the treatment of any disease, disorder or condition in humans. Pursuant to the Option Agreement, we agreed to use commercially reasonable efforts to stabilize, develop and manufacture a product with a pan-BD BET inhibitor as its active ingredient and Tay agreed to provide a mutually agreed data package for its Oral BETi Compounds. We paid a $1.0 million non-refundable cash payment to Tay upon execution of the Option Agreement, 50% of which was to be used by Tay in the development of the Oral BETi Compounds.

Locally Administered Pan-BD BET Inhibitor Program (VYN201)

On August 6, 2021, we exercised our option with respect to the VYN201 program and, on August 9, 2021, the parties entered into the VYN201 License Agreement granting VYNE a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds. We have the sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products at our sole cost and discretion. We are required to use commercially reasonable efforts to develop and, if approved, commercialize such products. Pursuant to the VYN201 License Agreement, a joint development committee consisting of one representative from each party reviews the progress of the development plan for the licensed products. Pursuant to the VYN201 License Agreement, we may develop a product that contains or incorporates a specific BET inhibitor, whether alone or in combination with other active ingredients, in any form, formulation, presentation, or dosage, and for any mode of administration.

We made a $0.5 million cash payment to Tay in connection with entering into the VYN201 License Agreement. Pursuant to the VYN201 License Agreement, we have agreed to make cash payments to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States of up to $15.75 million for all indications. Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. In addition, with respect to any products we commercialize under the VYN201 License Agreement, we will pay tiered royalties to Tay on net sales of such licensed products by us, our affiliates, or sublicensees, of 5%, 7.5% and 10% based on tiered annual net sales bands subject to specified reductions. We are obligated to pay royalties until the later of (1) the tenth anniversary of the first commercial sale of the relevant licensed product, (2) the expiration of the last valid claim of the licensed patent rights covering such licensed product in such country and (3) the expiration of regulatory exclusivity for the relevant licensed product in the relevant country, on a licensed product-by-licensed product and country-by-country basis.

Selective BET Inhibitor Program (VYN202)

Under the Option Agreement, we have an exclusive option (the “Option”) to obtain certain exclusive worldwide rights to research, develop and commercialize products containing Tay’s Oral BETi Compounds. Under the original terms of the Option Agreement, the Option was to expire upon the earlier of (i) 14 days following the delivery of an agreed data package and selection of a lead candidate by In4Derm and (ii) June 30, 2022 (the “Option Term”). On June 15, 2022, the parties entered into a letter agreement to extend the Option Term to February 28, 2023. We recently informed Tay that we would like additional time to complete our assessment of the Oral BETi Compounds. In consideration of the significant progress made by the parties and our desire to maintain optionality with respect to our right to exercise the Option for the Oral BETi Compounds, the parties entered into a Letter Agreement on February 27, 2023 (the “Letter Agreement”) to extend the Option Term to April 30, 2023. Pursuant to the terms of the Letter Agreement, we agreed to pay Tay $250,000 to extend the Option Term. This fee will be deducted from the $4.0 million payable to Tay in the event that we exercise the Option pursuant to the Option Agreement.

Upon exercise of the Option, the parties will sign a license agreement (the “Oral License Agreement”) and we will pay Tay a $4.0 million cash payment, less the amount paid pursuant to the Letter Agreement. The Oral License Agreement will include cash payments of up to $43.75 million payable to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications. Tay will be entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. In addition, with respect to any products we commercialize under the Oral License Agreement, we will pay tiered royalties to Tay on net sales of such licensed products by us, our affiliates, or sublicensees, of 5%, 7.5% and 10% based on tiered annual net sales bands subject to specified reductions.

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Components of Results of Operations

Revenues

Our revenue reported for the periods presented is comprised of AMZEEQ and ZILXI product sales and royalty revenue.

AMZEEQ and ZILXI were commercially launched in January and October of 2020, respectively. We have not generated revenue from the sales of these products following January 12, 2022, the date we sold the MST Franchise to Journey. As a result of the disposition of these assets, product sales have been reclassified to discontinued operations for all periods presented. We will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval.

Historically, we have generated revenues under development and license agreements including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to Leo Pharma A/S ("LEO"). In the year ended December 31, 2022 and 2021 we received royalties of $0.5 million and $0.9 million, respectively. Our rights to royalty payments from the sale of Finacea were not transferred in the sale of the MST Franchise.

Cost of Goods Sold

Cost of goods sold expenses consist of direct and indirect costs to procure and manufacture AMZEEQ and ZILXI and primarily consist of:

◦third party expenses incurred in manufacturing product for sale;

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

◦other costs associated with delivery and manufacturing of product.

Prior to receiving FDA approval, these costs for AMZEEQ and ZILXI were expensed as research and development expenses. We began capitalizing inventory costs for AMZEEQ and ZILXI after receipt of FDA approval. As a result of the sale of the MST Franchise, cost of goods sold has been reclassified to discontinued operations for all periods presented.

Operating Expenses

Research and development expenses

Our research and development expenses have related primarily to the development of FMX114, VYN201 and VYN202. We charge all research and development expenses to operations as they are incurred. Following the sale of the MST Franchise in January 2022, our research and development has been focused on our immuno-inflammatory pipeline, including VYN201, VYN202 and FMX114. As a result of the sale of the MST Franchise in January 2022, research and development expenses related to the MST Franchise have been reclassified to discontinued operations for all periods presented.

Our total research and development expenses for the years ended December 31, 2022 and 2021 were $18.4 million and $19.5 million, respectively.

Research and development expenses consist primarily of:

•employee-related expenses, including salaries, benefits and related expenses, including share based compensation expenses, for researched and development personnel;

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

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

•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;

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•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, 2022 and 2021 were $16.4 million and $20.3 million, respectively.

Our selling, general and administrative expenses consist principally of:

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

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

•facility, information technology and depreciation expenses.

As a result of the sale of the MST Franchise in January 2022, selling, general and administrative expenses related to the MST Franchise have been reclassified to discontinued operations for all periods presented.

Interest Expense

During 2021, interest expense primarily consisted of interest expense on our long-term debt of $2.6 million. During the year ended December 31, 2021, interest expense also included prepayment penalties of $1.4 million and the write off of deferred financing costs of $1.6 million. We prepaid our indebtedness outstanding under the Amended and Restated Credit Agreement in August 2021. Accordingly, we did not incur interest expenses in 2022.

Other Income (Expense), net

Other income (expense), net primarily consists of interest earned on our cash and cash equivalents and foreign exchange rate gains and losses.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception. We expect to continue to incur NOLs until such a time when we generate adequate revenues for us to reach profitability. As of December 31, 2022, we had federal and state net operating loss carryforwards of $318.3 million and $90.4 million, respectively, of which $44.3 million and $89.0 million of these carryforwards will begin to expire starting in 2031 through 2040 for federal and state purposes, respectively. As of December 31, 2022, we had federal and state research and development tax credit carryforwards of $6.6 million and $1.2 million, respectively. The federal credits begin to expire in 2031 and the California research credits have no expiration dates. As of December 31, 2022,we had $274.0 million in federal and state NOLs with no limited period of use.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. State NOLs and tax credit carryforwards may be subject to similar limitations under state laws. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Sections 382 or 383. We may have experienced ownership changes in the past, including in connection to our initial public offering (“IPO”), and as a result of the Merger and/or subsequent shifts in our stock ownership, some of which may be outside of our control. As a result, even if we earn net taxable income, our ability to use the NOL and tax credit carryforwards may be materially limited, which could harm our future operating results by effectively increasing our future tax obligations.

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Results of Operations for the Years Ended December 31, 2022 and December 31, 2021

Summary of Operations

Year Ended December 31, Increase/(Decrease) Increase/(Decrease)

Revenues

Operating Expenses

Revenues

Revenues totaled $0.5 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, consisting of royalty revenue.

We divested our MST Franchise on January 12, 2022. As a result of the sale, we will not generate revenue from the sales of AMZEEQ or ZILXI following such date. Product revenues have been reclassified to discontinued operations for all periods presented.

Research and development expenses

Our research and development expenses for the year ended December 31, 2022 were $18.4 million, representing a decrease of $1.2 million, or 5.9%, compared to $19.5 million for the year ended December 31, 2021. The decrease was primarily due to lower employee-related expenses of $2.1 million, a decrease of $2.4 million in expenses for FMX114 and a decrease of $0.9 million in expenses for other R&D related activities. These decreases described above were partially offset by an increase of $2.8 million in expenses for VYN201 and the option extension fee for the VYN202 program totaling $1.4 million.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended December 31, 2022 were $16.4 million, representing a decrease of $3.9 million, or 19.3%, compared to $20.3 million for the year ended December 31, 2021. The decrease was primarily due to lower employee-related expenses of $2.1 million and a decrease of $1.8 million in expenses for consulting and professional fees.

Interest Expense

As a result of the prepayment of our indebtedness outstanding under the Amended and Restated Credit Agreement in August 2021, we did not incur interest expense for the year ended December 31, 2022. During the year ended December 31, 2021, interest expense totaled $5.6 million and primarily consisted of $2.6 million of interest expense associated with our

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indebtedness outstanding under the Amended and Restated Credit Agreement and also included prepayment penalties of $1.4 million and write off of deferred financing costs of $1.6 million.

Other Income (Expense), net

Other income for the year ended December 31, 2022 was $0.4 million, representing an increase of $0.5 million, or 368.9%, compared to $0.1 million of other expense for the year ended December 31, 2021.

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. AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, we no longer generate revenue from the sale of these products. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our product candidates, if approved, are commercially successful, if at all. We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products. For the year ended December 31, 2022, we incurred a net loss of $23.2 million and used $29.2 million of cash in operations. The net loss was comprised of $10.7 million of income from discontinued operations and $33.9 million loss from continuing operations.

As of December 31, 2022, we had cash and cash equivalents, and restricted cash of $31.0 million and an accumulated deficit of $662.7 million. We received the $5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise. We had no outstanding debt as of December 31, 2022. In addition, in March 2022, we entered into the Equity Purchase Agreement with Lincoln Park Capital which provides that, upon the terms and subject to the conditions and limitations set forth therein, we may sell to Lincoln Park up to $30.0 million of shares of our common stock over the 36-month term of the Equity Purchase Agreement. As of December 31, 2022, no shares have been sold under the Equity Purchase Agreement.

As described above, following the sale of the MST Franchise, we refocused our limited resources on our immuno-inflammatory pipeline. Continued research and development activities for these programs, including preclinical and clinical testing of our product candidates, will require significant additional financing. Our future viability and our ability to continue as a going concern is dependent on our ability to raise sufficient working capital through either debt or equity financings to fund our operations and successfully develop commercially viable product candidates. There is no assurance that we will be able to achieve these objectives under acceptable terms or at all.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that our consolidated financial statements are issued. The accompanying audited consolidated financial statements have been prepared assuming we will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including our ability to raise additional capital to fund our operations and the development and results from clinical trials for the BET inhibitor programs. Based on our current plans and assumptions, we believe that absent sufficient proceeds received from equity transactions, financing transactions or business development transactions, we will not have sufficient cash and cash equivalents to fund our operations beyond one year from the issuance of the accompanying audited consolidated financial statements. This assumption does not include proceeds that can be drawn from Lincoln Park under the Equity Purchase Agreement. Accordingly, we will, over the course of the next twelve months, require significant additional financing to continue our operations and meaningfully advance the development of our product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement. We may also employ strategies to further extend our ability to fund our operations including: (1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize our product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing our resources on research and development programs we choose to prioritize and reducing spending on other programs by delaying or discontinuing development. In addition, the amount of proceeds we may be able to raise pursuant to our existing shelf registration statement on Form S-3 may be limited. As of the filing of this Annual Report on Form 10-K, we are subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of our common stock held by our non-affiliates. Therefore, we will be limited in the amount of proceeds we are able to raise by selling shares of our common stock using our Form S-3 until such time as our public float exceeds $75 million. These factors raise substantial doubt about our ability to continue as a going concern. Failure to successfully receive additional financing will require us to delay, scale back or

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otherwise modify our business and our research and development activities and other operations. See “Item1A. Risk Factors—Risks Related to our Financial Position and Need for Capital—We will need substantial additional funding to fund our operations, and there is substantial doubt about our ability to continue as a going concern. We could also be forced to delay, reduce or terminate our research and development activities which would have a material adverse effect on our financial condition.” The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should we be unable to continue as a going concern.

Capital Resources

Overview

To date, we have financed our operations primarily through private and public placements of our common stock, debt and warrants and through the sale of our products, fees, cost reimbursements and payments received from our licensees. In January 2022, we sold our MST Franchise, which resulted in an upfront payment of $20.0 million at the close of the sale and deferred payment of $5.0 million in January 2023.

Cash Flows

The following table summarizes our statement of cash flows for the years ended December 31, 2022 and 2021:

Year Ended December 31,

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

Net cash used in operating activities

During the year ended December 31, 2022, net cash used in operating activities was $29.2 million and primarily reflected our net loss of $23.2 million adjusted for the gain on the sale of the MST Franchise of $12.9 million and non-cash items of $4.7 million related to stock-based compensation expense, depreciation and amortization, and loss from sale and disposal of property and fixed assets. The remainder of the cash used in operations is driven by net change in assets and liabilities.

During the year ended December 31, 2021, net cash used in operating activities was $56.4 million and primarily reflected our net loss of $73.3 million, partially offset by non-cash charges and non-cash finance expense of $10.8 million related to stock-based compensation expense, depreciation and amortization and $1.4 million in debt prepayment premium. The remainder of the cash used in operations is driven by net decrease in assets and liabilities.

Net cash provided by investing activities

During the year ended December 31, 2022, net cash provided by investing activities was $15.7 million and was the result of net proceeds from the disposition of the MST Franchise.

During the year ended December 31, 2021, net cash provided by investing activities was $1.0 million and was primarily comprised of proceeds from the sale and maturity of marketable securities and bank deposits.

Net cash provided by financing activities

During the year ended December 31, 2022, net cash provided by financing activities was $1.7 million and was primarily attributable to the issuance of common stock and convertible preferred stock.

During the year ended December 31, 2021, net cash provided by financing activities was $39.8 million and was primarily attributable to $76.0 million of cash from the issuance of common stock offset by $36.4 million from the prepayment of debt.

Cash and Funding Sources

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Our sources of funding in the year ended December 31, 2022 totaled $17.3 million and consisted primarily of $15.7 million net proceeds from the sale of the MST Franchise and $1.5 million net proceeds from the issuance of common stock pursuant to our at-the-market offering facility.

Our sources of funding in the year ended December 31, 2021 totaled $76.0 million and consisted primarily of $29.2 million net proceeds from our at-the-market program and $46.8 million net proceeds from our registered direct public offering completed in January 2021.

We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years.

ContractualObligations

Lease Commitments:

In November 2022, we transitioned to a smaller corporate headquarters and signed a Sublease Agreement (the “Sublease”) to sublease approximately 5,755 square feet of office space (the “Leased Premises”) in Bridgewater, New Jersey through September 30, 2023. In addition, we signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 2025. We expect to incur $0.1 million of rent expense in 2023 relating to the sublease. The future minimum lease payments for the Master Lease total approximately $0.3 million through September 30, 2025.

R&D Commitments:

We enter into contracts in the normal course of business with CROs, contract manufacturing organizations and other service providers for clinical trials, preclinical studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

Funding Requirements

Our present and future funding requirements will depend on many factors, including the following:

•costs associated with the research and development of product candidates;

•the time and costs involved in obtaining regulatory approval for our other pipeline product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates;

•terms and timing of any acquisitions, collaborations or other arrangements;

•the number of potential new products we identify and decide to develop; and

•the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights.

Our operating plan may change as a result of many factors currently unknown to us, and any such change may affect our funding requirements. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

For more information as to the risks associated with our future funding needs, see “Item 1A—Risk Factors” included herein.

Off-Balance Sheet Arrangements

As of December 31, 2022, we did not have any off-balance sheet arrangements.

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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 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.

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 collaboration agreements under ASC 606we identify the contract, 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.

Royalty Revenues and Collaboration Agreements

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.

Product sales, Product Sales Provisions and Product Returns

As a result of the disposition of the MST Franchise in January 2022, we no longer have any revenue generating products. See Note 4, “Discontinued Operations.” Our net product revenues were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020.

Our customers were a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies (together, the “customers”). Net product revenue was typically recognized when customers obtained control our products, which occurred at a point in time, typically upon delivery of product to the customers. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting 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. Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date. We estimate the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The information utilized to estimate the returns provision includes: (i) actual return history (ii) historical return industry information regarding rates for comparable pharmaceutical products and product portfolios, (iii) external data with respect to inventory levels in the wholesale distribution channel, (iv) external data with respect to prescription demand for products and (v) remaining shelf lives of products at the date of sale.

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Discontinued Operations

We accounted for the sale of the MST Franchise in accordance with Accounting Standards Codification, ASC, 205 Discontinued Operations and Accounting Standards Update, ASU, No. 2014-08, Reporting of Discontinued Operationsand Disclosures of Disposals of Components of an Entity. We followed the held-for-sale criteria as defined in ASC 360 and ASC 205. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the consolidated statements of operations. Assets and liabilities are also reclassified into separate line items on the related consolidated balance sheets for the periods presented. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.

Due to the sale of the MST Franchise during the first quarter of 2022, in accordance with ASC 205, Discontinued Operations, we have classified the results of the oncology business as discontinued operations in our consolidated statements of operations and cash flows for all periods presented, see Note 4, Discontinued Operations in the consolidated financial statements. All disposed assets and liabilities associated with our MST Franchise were therefore classified as assets and liabilities of discontinued operations in our consolidated balance sheets for the periods presented. All amounts included in the notes to the consolidated financial statements relate to continuing operations unless otherwise noted.

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

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VYNE THERAPEUTICS INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2022

INDEX

Item 8. Financial Statements and Supplementary Data

Page

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-8

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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, 2022, and the related consolidated statements of operations, changes in mezzanine equity and shareholders’ equity, and cash flows for the year ended December 31, 2022, and 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, 2022, 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.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that VYNE Therapeutics Inc. will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit and has incurred net losses and negative cash flows from operations since inception.These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 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 audit 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/ Baker Tilly US, LLP

Tewksbury, Massachusetts

March 14, 2023

We have served as the Company’s auditor since 2022.

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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 consolidated balance sheet of VYNE Therapeutics Inc. and its subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, of changes in mezzanine equity and 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, 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and experienced negative operating cash flows since its inception that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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 provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

March 17, 2022, except for the effects of the reverse stock split discussed in Note 1 and the effects of discontinued operations discussed in Note 4 to the consolidated financial statements, as to which the date is March 14, 2023

We served as the Company’s auditor from 2020 to 2022.

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VYNE THERAPEUTICS INC.

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands)

December 31

Assets

Current Assets:

Trade receivable, net of allowances 173 7,583

Amount due from sale of MST Franchise 5,000 —

Operating lease right of use assets (Note 7) — 338

Discontinued operations - current assets (Note 4) — 7,845

Property and equipment, net (Note 5) — 354

Non-current prepaid expenses and other assets 2,483 3,506

Liabilities, Mezzanine Equity and Shareholders’ Equity

Current Liabilities:

Liability for employee severance benefits 206 206

Operating lease liabilities (Note 7) — 349

Commitments and Contingencies (Note 9)

Mezzanine Equity:

Shareholders' Equity:

Total Liabilities, Mezzanine Equity and Shareholders’ Equity $ 40,758 $ 67,046

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

Operating Expenses:

Interest expense — (5,610)

Other income (expense), net 363 (135)

Loss from continuing operations before income taxes (33,932) (44,656)

Income tax expense (benefit) 13 (448)

Income (loss) from discontinued operations, net of income taxes 10,735 (29,121)

Loss per share from continuing operations, basic and diluted $ (10.65) $ (15.46)

Loss per share basic and diluted $ (7.28) $ (25.64)

Weighted average shares outstanding - basic and diluted 3,186 2,859

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

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY

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

Number of shares Amounts Number of shares Amounts Amounts

Stock-based compensation — — — — 8,080 — 8,080

Deemed dividend to warrants holders due to warrant modification — — — — —

Reclassification due to reverse stock split — — — (5) 5 — —

Stock-based compensation — — — — 4,297 — 4,297

Issuance of commitment shares in March 2022 — — 92,644 — — — —

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:

Depreciation and amortization 72 109

Non-cash finance expense, net — 2,472

Loss from sale and disposal of fixed assets 282 93

Debt prepayment premium — 1,432

Gain on the sale of the MST Franchise (12,918) —

Changes in operating asset and liabilities:

Decrease in trade receivables, prepaid and other assets 11,210 7,709

Decrease in inventory 97 113

Decrease in other non-current assets — 841

Decrease in operating lease liabilities (349) (1,212)

Net cash used in operating activities (29,200) (56,367)

Cash Flows From Investing Activities:

Proceeds from the sale of the MST Franchise 15,667 —

Net cash provided by investing activities 15,667 1,027

Cash Flows From Financing Activities:

Withholding tax from net exercise of restricted share units — (294)

Net cash provided by financing activities 1,653 39,777

Decrease in cash, cash equivalents and restricted cash (11,880) (15,563)

Cash, cash equivalents and restricted cash at end of the year $ 30,975 $ 42,855

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VYNE THERAPEUTICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

Year ended December 31,

Issuance of shares under employee share purchase plan $ 37 $ 169

Amount due from sale of MST Franchise $ 5,000 $ —

Supplemental disclosure of cash flow information:

Interest received $ 446 $ 17

Interest paid $ — $ 2,385

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

Company Overview

VYNE Therapeutics Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory conditions.

In August 2021, the Company entered into a transaction with Tay Therapeutics Ltd. (formerly known as In4Derm Limited, "Tay") providing the Company with exclusive worldwide rights to research, develop and commercialize products containing bromodomain and extra-terminal (“BET”) inhibitors for the treatment of any disease, disorder or condition in humans. Through our access to this library of new chemical BET inhibitor compounds, the Company plans to develop product candidates for a diverse set of indications. Based on preclinical data generated to date, the Company has chosen to focus its initial efforts for this platform on select therapeutic areas in immuno-inflammatory disease.

The Company's lead program is VYN201, a locally administered pan-BET inhibitor designed as a “soft” drug to address diseases involving multiple, diverse inflammatory cell signaling pathways while providing low systemic exposure. To date, VYN201 has produced consistent reductions in pro-inflammatory and disease-related biomarkers, improvements in disease severity and a demonstrated local activity through several preclinical models. The Company believes that these data suggest potential broad utility for VYN201 across multiple routes of administration. In November 2022, the Company initiated a Phase 1a/b clinical trial evaluating a topical formulation of VYN201 for the treatment of nonsegmental vitiligo. In February 2023, the Company announced positive preliminary safety data from the Phase 1a portion of the trial. The first nonsegmental vitiligo patient was dosed in the Phase 1b portion of the trial in January 2023 and the Company expects topline results from this trial in mid-2023.

The Company's second program is VYN202, a BD2-selective oral small molecule BET inhibitor. VYN202 is in preclinical development for the treatment of immuno-inflammatory indications, and is being designed to achieve class-leading selectivity (BD2 vs. BD1), maximum potency versus BD2 and optimal oral bioavailability. By maximizing BD2 selectivity, the Company believes VYN202 has the potential to be a more conveniently-administered non-biologic treatment option for both acute control and chronic management of immuno-inflammatory indications, where the damaging effects of unrestricted inflammatory signaling activity is common.

The Company intends to actively evaluate and enter into strategic partnerships to advance its product candidates through the clinic toward commercialization, and may also partner with leading pharmaceutical companies to advance the Company's molecules in therapeutic areas outside of its core focus in immunology. The Company believes selectively entering into collaborations has the potential to expand and accelerate the development of its programs and maximize the value of its pipeline.

In August 2021, the Company determined to dispose of its legacy commercial business and focus its strategy on the development of BET inhibitor product candidates through its licensing arrangements with Tay. For additional information regarding the sale of the commercial business to Journey Medical Corporation in January 2022 and the Company's licensing arrangements with Tay, see "—Note 3 - Strategic Agreements."

The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.

Reverse stock split and recasting of per-share amounts

On February 10, 2021, the Company's board of directors approved a one-for-four reverse stock split of its 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 the Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. In connection with the reverse stock split, the number of authorized shares of the Company's 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

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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. None of the authorized shares were impacted by the reverse stock split.

On July 19, 2021, the Company held its meeting of Stockholders (the "Annual Meeting"). Following the approval by the holders of a majority of the outstanding shares of common stock at the Annual Meeting, the Company filed a Certificate of Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000 shares of common stock, par value $0.0001 per share.

On February 8, 2023, the Company's board of directors approved a 1-for-18 reverse stock split of its outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:01 p.m. Eastern time. At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. A proportionate adjustment was also made to the maximum number of shares issuable under the Company’s 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.

Liquidity and Capital Resources

Since inception, the Company has funded operations primarily through private and public placements of its equity, debt and warrants and through fees, cost reimbursements and payments received from its licensees. The Company commenced generating product revenues related to sales of AMZEEQ and ZILXI in January 2020 and October 2020, respectively. AMZEEQ and ZILXI were sold as part of the sale of the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products. The Company has incurred losses and experienced negative operating cash flows since its inception and anticipates that it will continue to incur losses until such a time when its product candidates, if approved, are commercially successful, if at all. The Company will not generate any revenue from any current or future product candidates unless and until it obtains regulatory approval and commercializes such products. For the year ended December 31, 2022, the Company incurred a net loss of $23.2 million and used $29.2 million of cash in operations. The net loss was comprised of $10.7 million of income from discontinued operations and $33.9 million loss from continuing operations.

As of December 31, 2022, the Company had cash and cash equivalents, and restricted cash of $31.0 million and an accumulated deficit of $662.7 million. The Company received the $5.0 million deferred payment from Journey on January 12, 2023, the one-year anniversary of the sale of the MST Franchise. The Company had no outstanding debt as of December 31, 2022.

The Company has taken a number of actions to support its operations and meet its liquidity needs. Beginning in the second quarter of 2021, the Company conducted a review of its commercial and research and development portfolio to determine how to optimally deploy capital and drive shareholder value. Following its review, the Company initiated a process to explore a possible sale or license of its MST Franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform and refocus its resources on its immuno-inflammatory development programs. As a result of this decision, the Company restructured its operations and reduced its workforce, which lowered operating costs. In January 2022, the Company sold its MST Franchise.

In March 2022, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $30.0 million of shares of its common stock over the 36-month term of the Equity Purchase Agreement. The Company has not made any sales pursuant to the Equity Purchase Agreement to date.

As described above, the Company refocused its limited resources on its immuno-inflammatory pipeline. Continued research and development activities for these programs, including preclinical and clinical testing of the Company's product candidates, will require significant additional financing. The future viability of the Company and its ability to continue as a going concern is dependent on its ability to raise sufficient working capital through either debt or equity financings to fund its operations and

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successfully develop commercially viable product candidates. There is no assurance the Company will be able to achieve these objectives under acceptable terms or at all.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that its consolidated financial statements are issued. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including the Company's ability to raise additional capital to fund its operations and the development and results from clinical trials for the BET inhibitor programs. Based on its current plans and assumptions, the Company believes that absent sufficient proceeds received from financing transactions or business development transactions, the Company will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these consolidated financial statements. This assumption does not include proceeds that can be drawn from Lincoln Park. Accordingly, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations and meaningfully advance the development of its product candidates, including potentially selling a significant amount of shares pursuant to the Equity Purchase Agreement. The Company may also employ strategies to further extend its ability to fund its operations including: (1) identification of third-party partners to further develop, obtain marketing approval for and/or commercialize its product candidates, which may generate revenue and/or milestone payments and/or (2) refocusing its resources on research and development programs it chooses to prioritize and reducing spending on other programs by delaying or discontinuing development. In addition, the amount of proceeds the Company may be able to raise pursuant to its existing shelf registration statement on Form S-3 may be limited. As of the filing of this Annual Report on Form 10-K, the Company is subject to the general instructions of Form S-3 known as the "baby shelf rules." Under these instructions, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of its common stock held by non-affiliates of the Company. Therefore, the Company will be limited in the amount of proceeds it is able to raise by selling shares of its common stock using its Form S-3 until such time as its public float exceeds $75.0 million. These factors raise substantial doubt about the Company's ability to continue as a going concern. Failure to successfully receive additional financing will require the Company to delay, scale back or otherwise modify its business and its research and development activities and other operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

a.Basis of presentation

The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

b.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.

c.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. Significant items subject to such estimates and assumptions include revenue recognition and product returns accrual. Actual results could differ from the Company’s estimates.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations in 2021. Access to healthcare providers was limited, which has negatively impacted sales and the

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Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI prior to the sale of the assets to Journey in January 2022. 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, 2022 and through the date of this report.

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.Cash and cash equivalents

The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits and money market funds with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. As of December 31, 2022 and December 31, 2021, the Company had approximately $28.0 million and $29.5 million, respectively, of cash equivalents classified as Level 1 financial instruments.

f.Restricted Cash

As of December 31, 2022, the Company had restricted cash of $0.1 million. This amount represents bank guarantees for the Company's Israeli branch.

g.Marketable securities

The Company's marketable equity securities are recorded at fair value, with unrealized gains and losses included in other income, net in the consolidated statement of operations.

h.Inventory

As of December 31, 2021 and January 12, 2022, the date the inventory was sold as part of the sale of the MST Franchise, inventories were stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalized inventory costs associated with products following regulatory approval when future commercialization was considered probable and the future economic benefit was expected to be realized. The Company periodically reviewed its inventory levels and, if necessary, wrote down inventory that was expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that failed to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no material write-downs for the year ended December 31, 2021 and for the period from December 31, 2021 to January 12, 2022. As a result of the sale of the MST Franchise there were no inventory balances at December 31, 2022.

i.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:

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Estimated Useful Life

Computers 3 - 7 years

Laboratory equipment 5 - 14 years

Office furniture and equipment 7 - 14 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.

j.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.

k.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, 2022 and 2021.

l.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.

m.Leases

The Company's lease portfolio mainly consists of office space. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Operating lease assets represent the Company’s right to use an underlying asset for the lease term whereas lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. Operating lease expense is recognized on a straight-line basis over the expected lease term.

n.Contingencies

Certain conditions may exist as of the date of the consolidated 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

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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.

o.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.

p.Revenue recognition

The Company accounts for its revenue transactions under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.

As a result of the disposition of the MST Franchise in January 2022, the Company no longer has any revenue generating products; however, it still receives certain royalty revenues (see Note 4 Discontinued Operations).

Royalty Revenues and Collaboration Agreements

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Royalties are recognized as the products are sold by the customer. Revenues in the amount of $0.5 million and $0.9 million were recorded during the year ended December 31, 2022 and 2021, respectively.

For collaboration agreements under ASC 606, the Company identifies the contract, identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied.

The Company identifies the performance obligations included within the agreement and 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, the Company utilizes the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. The Company periodically review our estimated periods of performance based on

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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 the Company determines that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

Product Revenues, net

The Company’s net product revenues were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020. The Company sold the MST Franchise on January 12, 2022 and, as such, the Company no longer generates revenue from the sale of these products. The following is a description of the Company's accounting policies related to the sales of AMZEEQ and ZILXI.

Product sales

The Company’s customers were a limited number of national and select regional wholesalers (the “distributors”) and certain independent and specialty pharmacies (together, the “customers”). These distributors would subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue was typically recognized when customers obtained control of the Company’s products, which occurred at a point in time, typically upon delivery of product to the customers. The Company evaluated the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company did not assess whether a contract had a significant financing component if the expectation was such that the period between the transfer of the promised goods to the customer and the receipt of payment would be less than one year. Standard credit terms did not exceed 75 days. The Company expensed incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales were included in selling, general and administrative expenses.

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

Product Sales Provisions

Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to trade receivables, net on the consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the consolidated balance sheet. Provisions for revenue reserves reduced product revenues by $62.9 million for the year ended December 31, 2021. The revenue reserve accrual was $2.7 million and $5.5 million as of December 31, 2022 and December 31, 2021, respectively and was reflected in accrued expenses in the consolidated balance sheet. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

Distribution Fees and Trade Discounts and Allowances

The Company paid fees for distribution services and for certain data that distributors provide to the Company and generally provided discounts on sales to its distributors for prompt payment. These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.

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Rebates, Chargebacks and Other Discounts

Product sales made under managed-care and governmental pricing programs in the U.S. are subject to rebates. Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share. Chargebacks relate to contractual agreements to sell products to government agencies and other indirect customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers. The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.

Product Returns

Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date. The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The information utilized to estimate the returns provision includes: (i) actual return history (ii) historical return industry information regarding rates for comparable pharmaceutical products and product portfolios, (iii) external data with respect to inventory levels in the wholesale distribution channel, (iv) external data with respect to prescription demand for products and (v) remaining shelf lives of products at the date of sale.

Contract Assets and Contract Liabilities

The Company did not have any contract assets (unbilled receivables) related to product sales or as of December 31, 2022, as

customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract

assets (unbilled receivables) related to its license revenues as of December 31, 2022 or 2021.

The Company did not have any contract liabilities as of December 31, 2022 or 2021, as the Company did not receive payments

in advance of fulfilling its performance obligations to its customers.

Sales Commissions

Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales commissions are included in discontinued operations.

q.Collaboration arrangements

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company will assess whether aspects of the arrangement between it and their collaboration partner are within the scope of other accounting literature.

r.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.

s.Income taxes:

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•Deferred taxes

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.

•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.

t.Loss per share

Net loss per share, basic and diluted, is computed on the basis of the net loss from continuing operations for the period divided by the weighted average number of common 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 stock options, restricted stock units (“RSUs”) and warrants were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

Year ended December 31,

u.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.

v.Discontinued Operations

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The Company accounted for the sale of the MST Franchise in accordance with ASC 205, Discontinued Operations, and ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Company followed the held-for-sale criteria as defined in ASC 360 Property, Plant and Equipment and ASC 205. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items in the consolidated statements of operations. Assets and liabilities are also reclassified into separate line items on the related consolidated balance sheets for the periods presented. Non-cash items presented in the statement of cash flows and related to discontinued operations are presented in Note 4 - Discontinued Operations. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the consolidated financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.

Due to the sale of the MST Franchise during the first quarter of 2022, in accordance with ASC 205, the Company has classified the results of the MST Franchise as discontinued operations in its consolidated statements of operations and cash flows for all periods presented, see Note 4, Discontinued Operations. All disposed assets and liabilities associated with the MST Franchise were therefore classified as assets and liabilities of discontinued operations in the Company's consolidated balance sheets for the periods presented. All amounts included in the notes to the consolidated financial statements relate to continuing operations unless otherwise noted.

w.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, 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, 2022, the Company had other receivables of $5.2 million primarily relating to the deferred payment from the sale of the MST Franchise and royalty receivables. The Company received the $5.0 million deferred payment in January 2023. Existing royalty receivables relate to one customer, but do not present a credit risk due to immaterial nature. Restricted cash as of December 31, 2022 was $0.1 million which does not present a credit risk due to immaterial nature. All marketable securities were sold as of December 31, 2021.

For the year ended December 31, 2021, the Company's three largest customers represented 17%, 15% and 9%, of product revenue and collectively 58% of accounts receivable.

x.Comprehensive loss

For the years ended December 31, 2022 and 2021, comprehensive loss was equal to the net loss as presented in the accompanying consolidated statements of operations.

y.Newly issued and recently adopted accounting pronouncements:

Recent Accounting Guidance Issued:

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 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

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Company will adopt ASU 2016-13 effective January 1, 2023. Currently, the Company does not expect the adoption of the new standard to have a material impact to the consolidated financial statements.

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. This guidance became effective during the first quarter of 2021. The adoption of the new standard did not have a material impact to the Company's consolidated financial statements.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-04), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-04 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022.

In December 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848" (ASU 2022-06), which provides extension of the sunset date of Topic 848 from December 31, 2022, to December 31, 2024. The Company is currently evaluating the impact of ASU 2020-04 and ASU 2022-06 on its consolidated financial statements. Currently, the Company does not expect the adoption of the new standard to have a material impact to the consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the consolidated financial statements upon adoption.

NOTE 3 - STRATEGIC AGREEMENTS

Sale of the MST Franchise

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

On January 12, 2022, VYNE entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Journey Medical Corporation ("Journey”) pursuant to which the Company sold its Molecule Stabilizing Technology franchise, including AMZEEQ, ZILXI, and FCD105 (the “MST Franchise”), to Journey. The assets include certain contracts, including the license agreement with Cutia Therapeutics (HK) Limited (“Cutia”), inventory and intellectual property related to the MST Franchise (together, the “Assets”). Pursuant to the Agreement, Journey assumed certain liabilities of the MST Franchise including, among others, those arising from VYNE’s patent infringement suit initiated against Padagis Israel Pharmaceuticals Ltd. There were no current or long-term liabilities recorded by the Company which were transferred to Journey.

Pursuant to the Purchase Agreement, the Company received an upfront payment of $20.0 million at the closing of the sale of the MST franchise and received an additional $5.0 million deferred payment in January 2023. The Company is also eligible to receive sales milestone payments of up to $450.0 million in the aggregate upon the achievement of specified levels of net sales on a product-by-product basis, beginning with annual net sales exceeding $100.0 million (with products covered in three categories (1) AMZEEQ (and certain modifications), (2) ZILXI (and certain modifications), and (3) FCD105 and other products covered by the patents being transferred, including certain modifications). In addition, the Company is entitled to receive certain payments from any licensing or sublicensing of the assets by Journey outside of the United States.

As the Company transitioned from a commercial organization to one focused on research and development, the Company streamlined operations by eliminating the vast majority of planned expenditures supporting its commercial operations. Furthermore, following its decision to divest the MST Franchise, the Company reduced its workforce by terminating approximately 70 employees. The Company incurred a one-time charge of $1.6 million in the year ended December 31, 2021 in connection with this restructuring plan, consisting of $1.4 million of employee termination costs, including severance and other benefits, and retention payments of $0.2 million. The Company did not incur any material expenses in 2022 as a result of the restructuring plan.

BET Inhibitor License Agreements

On August 12, 2021, the Company announced a transaction with Tay Therapeutics Limited (formerly known as In4Derm Limited), a company incorporated and registered in Scotland (“Tay”). Tay is a spin-out of the University of Dundee’s School of Life Sciences which has discovered and is developing proprietary Bromodomain and Extra-Terminal Domain ("BET") inhibitors for the treatment of immunology and oncology conditions. On April 30, 2021, the parties entered into an Evaluation and Option Agreement (the “Option Agreement”) pursuant to which Tay granted the Company an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing Tay’s BET inhibitor compounds, which are new chemical entities for treatments in all fields for any disease, disorder or condition in humans. Under the terms of the Option Agreement, the Company's option with respect to selective BET inhibitor compounds ("Oral Option") was to expire upon the earlier of (i) 14 days following the delivery of an agreed data package and selection of a lead new chemical entity candidate by Tay or (ii) June 30, 2022 (the "Option Term"). On June 15, 2022, the parties entered into a Letter Agreement (the “Letter Agreement”) to extend the Option Term to February 28, 2023. Pursuant to the terms of the Letter Agreement, the Company paid $386,366 (£300,000) on June 28, 2022 to Tay to extend the Option Term. In addition, a second payment of $997,407 (£850,000) was paid to Tay pursuant to the terms of the Letter Agreement on August 29, 2022 following the discovery of potential preclinical candidates. Both payments were recorded as research and development expense. On February 27, 2023, the parties entered into a Letter Agreement (the "Second Letter Agreement") pursuant to which the Option Term has been extended to April 30, 2023. As consideration for the extension of the Option Term, the Company paid Tay $250,000 upon the execution of the Second Letter Agreement. Per the terms of the Second Letter Agreement, this fee will be deducted from the upfront fee payable by the Company to Tay in the event that the Company exercises the Oral Option.

On August 6, 2021, the Company exercised its option with respect to certain of Tay's pan-BD Inhibitor Compounds ("Topical Option"). On August 9, 2021, the parties entered into a License Agreement (the "VYN201 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s pan-BD BET inhibitor compounds in all fields. The Company paid a $1.0 million cash payment to Tay upon the execution of the Option Agreement and $0.5 million in connection with entering into the VYN201 License Agreement. These payments were recorded as a research and development expense in the period paid. Pursuant to the VYN201 License Agreement, the Company has agreed to make cash payments to Tay upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the United States of up to $15.75 million for all indications. Tay is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. The VYN201 License Agreement provides for tiered royalty payments of up to 10% of annual net sales on the licensed product.

In the event that the Company exercises the Oral Option, the parties will enter into a license agreement (the "VYN202 License Agreement") granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of Tay’s selective BET inhibitor compounds in all fields. The Company will owe a $4.0 million cash payment, less the extension fee paid in connection with Second Letter Agreement, to Tay in connection with entering into the VYN202 License Agreement. If the parties enter into the VYN202 License Agreement, the Company will make cash payments to Tay of up to $43.75 million upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the United States for all indications. Tay will also be entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S. The VYN202 License Agreement will provide for tiered royalty payments of up to 10% of annual net sales on the licensed product.

NOTE 4 – DISCONTINUED OPERATIONS

On January 12, 2022, the Company entered into the Purchase Agreement with Journey pursuant to which the Company sold its MST Franchise to Journey. The Company has determined that the sale of the MST Franchise represents a strategic shift that had a major effect on the business and therefore the MST Franchise met the criteria for classification as discontinued operations at March 31, 2022. Accordingly the MST Franchise is reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations. Amounts applicable to prior years have been recast to conform to the discontinued operations presentation. The Company recognized a gain on the sale of the MST Franchise upon closing. The negative product sales for the year ended December 31, 2022 was primarily attributable to a change in the product returns provision following the sale of the MST Franchise.

The following table presents the combined results of discontinued operations of the MST Franchise:

Year ended December 31,

Operating expenses:

Research and development — 5,415

Selling, general and administrative 259 34,182

Loss from discontinued operations (2,183) (29,121)

Gain on the sale of the MST Franchise 12,918 —

Income (loss) from discontinued operations, before income taxes 10,735 (29,121)

Income tax expense — —

Net income (loss) from discontinued operations $ 10,735 $ (29,121)

The following table presents the carrying amounts of the classes of assets related to the discontinued operations of the MST Franchise as of December 31, 2021:

(in thousands) December 31, 2021

Current assets:

Prepaid expenses and other assets 554

Total current assets of discontinued operations $ 7,845

Inventory was primarily comprised of $3.3 million of raw materials and $4.0 million of finished goods.

The following table presents non-cash items related to discontinued operations, which are included in the Company's consolidated statement of cash flows for the years ended December 31, 2022 and 2021:

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Year ended December 31,

Cash Flows From Operating Activities:

Stock-based compensation (income) expense* $ (352) $ 1,123

Gain on the sale of the MST Franchise (12,918) —

Total non-cash items of discontinued operations $ (13,270) $ 1,123

Supplemental disclosure of cash flow information:

Amount due from sale of MST Franchise $ 5,000 $ —

*Income from stock-based compensation is related to forfeitures.

The following table presents the gain on the sale of the MST Franchise:

(in thousands) Year ended December 31, 2022

Less transaction costs (4,334)

Less carrying value of assets sold (7,748)

Gain on sale, before income taxes 12,918

Income tax expense —

Gain on sale net of tax $ 12,918

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the research and development, marketing, selling and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the MST Franchise.

The milestone payment for sales of ZILXI, AMZEEQ and FCD105 represent contingent consideration. Contingent consideration has been accounted for as a gain contingency in accordance with ASC 450, Contingencies, and will be recognized in earnings in the period when realizable.

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NOTE 5 - PROPERTY AND EQUIPMENT

December 31,

Cost:

Leasehold improvements $ — $ 59

Computers and software — 374

Laboratory equipment — 53

Less:

Accumulated depreciation and amortization — 551

Property and Equipment, net $ — $ 354

Depreciation and amortization expense totaled $0.1 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022 and December 31, 2021, the Company disposed of fixed assets in the net amount of $0.3 million and $0.1 million, respectively. Loss on disposal of fixed assets during the year ended December 31, 2022 relates to the write-off of laboratory and leasehold improvements due to a reduction in office space in Israel and the US and is reflected in operating expenses in the Consolidated Statements of Operations.

NOTE 6 - ACCRUED EXPENSES

Accrued expenses consisted of the following:

December 31,

Research and development 987 969

Commercialized product accruals — 596

NOTE 7 – OPERATING LEASE

As of December 31, 2022, the Company had operating leases for its principal executive office in Bridgewater, New Jersey. As of December 31, 2021, the Company previously had operating leases for its vehicles. In connection with the strategic business review and sale of the MST Franchise certain vehicle leases were transferred to members of the commercial workforce resulting in the elimination of the operating lease amounts related to fleet vehicles.

On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (the “Lease Amendment”). The Lease Amendment included an extension of the lease period of the 10,000 square feet previously leased under the original agreement (the “Original Space”) and an addition of 4,639 square feet (the “Additional Space”). The Company entered the Additional Space following a period of preparation by the lessor completed during September 2019 (the “Commencement Date”). The term included in the Lease Amendment expired on September 30, 2022.

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Pursuant to the Lease Amendment, the Company recognized an additional right of use asset and liability in the amount of $0.7 million. The Additional Space was considered a new lease agreement and was recognized as a right of use asset and liability, in the amount of $0.3 million, on the Commencement Date. The lease liability matured on September 30, 2022.

In November 2022, the Company transitioned to a smaller corporate headquarters and signed a Sublease Agreement (the “Sublease”) to sublease approximately 5,755 square feet of office space (the “Leased Premises”) in Bridgewater, New Jersey through September 30, 2023. In addition, the Company signed a Lease Agreement (the “Master Lease”) to lease the Leased Premises following the termination of the Sublease through September 30, 2025. The Company will record a right of use asset and liability at the commencement date of the Master Lease. The Master Lease is expected to result in total lease payments of approximately $0.3 million.

The lease agreement for the office space in Israel was a one year lease that expired in December 2022. Given the short-term nature of the lease term, the Company did not recognize a right-of-use asset and liability.

Operating lease costs for the year ended December 31, 2022 are as follows:

(in thousands) Year Ended December 312022 Year Ended December 312021

Office lease expenses $ 297 $ 357

The operating lease costs include an immaterial amount of variable lease payments for the years ended December 31, 2022 and 2021, respectively. Lease expense is included within selling, general and administrative expenses on the Consolidated Statements of Operations.

As of December 31, 2021, the lease liabilities reflect a weighted average discount rate of 13.10% and a remaining weighted average lease term of 0.75 as of December 31, 2021. There were no lease liabilities as of December 31, 2022.

As of December 31, 2021, the Company had a lien in the amount of $0.6 million related to a letter of credit on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements. In April 2022, the lien was released and the Company reclassed the $0.6 million from restricted cash to cash and cash equivalents due to the lien release. This amount was presented as restricted cash in the Company's consolidated balance sheet as of December 31, 2021.

NOTE 8 - EMPLOYEE SAVINGS PLAN

Beginning September 2017, the Company has made retirement savings plans available to all employees of the Subsidiary, which are intended to qualify as deferred compensation plans under Section 401(k) of the Internal Revenue Code (the “401(k) Plans”). The Company made contributions to these 401(k) Plans during the years ended December 31, 2022, and 2021 of approximately $0.1 million and $0.4 million, respectively.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Litigation and contingencies

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of December 31, 2022, there are no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

NOTE 10 - LONG-TERM DEBT

On July 29, 2019, Foamix entered into a Credit Agreement (the "Credit Agreement") to secure up to $50.0 million from two lenders, one of which is a significant stockholder of the Company and is considered a related party, and a Securities Purchase Agreement with one of the lenders for gross proceeds of approximately $14.0 million, before deducting offering expenses (see "Note 12 - Share Capital" for more information). On March 9, 2020, the Company entered into an Amended and Restated Credit Agreement and Guaranty (as further amended on August 5, 2020, the "Amended and Restated Credit Agreement"),

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whereby the Company guaranteed the indebtedness obligations of the borrower and granted a first priority security interest in substantially all of the Company's assets for the benefit of the lenders.

The term loans drawn under the Amended and Restated Credit Agreement were comprised as follows: (a) $15.0 million that was funded on July 29, 2019 (the “Tranche 1 Loan”) and (b) $20.0 million that was funded on December 17, 2019 (the “Tranche 2 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the Company’s NDA for AMZEEQ and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining its arrangements with a third party for the commercial supply and manufacture of AMZEEQ. Subject to any acceleration as provided in the Amended and Restated Credit Agreement, including upon an event of default (as defined in the Amended and Restated Credit Agreement), the loans will mature on July 29, 2024 and bear interest equal to the sum of (A) 8.25% (subject to increase in accordance with the terms of the Amended and Restated Credit Agreement) plus (B) the greater of (x) the one-month LIBOR as of the second business day immediately preceding the first day of the calendar month or the date of borrowing (if such loan is not outstanding as of the first day of the calendar month), as applicable, and (y) 2.75%. A fee in an amount equal to 1.0% of the aggregate principal amount of all loans made on any given borrowing date shall be payable to the lenders.

The loans were scheduled to mature on July 29, 2024. However, following discussions with the Company's lenders regarding the revenue targets included in the Amended and Restated Credit Agreement, the revenue expected to be generated for the trailing twelve month period ended June 30, 2021 and the Company's strategic business review discussed in Note 1, the Company determined to prepay its outstanding indebtedness in addition to a 4% prepayment fee and accrued but unpaid interest in the total amount of approximately $36.5 million on August 11, 2021. Following the prepayment, the Amended and Restated Credit Agreement and the security interests thereunder were terminated. As of December 31, 2022 there was no debt outstanding.

Perceptive Credit Holdings II, LP ("Perceptive") was one of the lenders and the administrative agent under the Amended and Restated Credit Agreement. As of August 11, 2021, the date of the prepayment, affiliates of Perceptive were holders of more than 5% of the Company's outstanding common stock. In connection with the prepayment of the Company's indebtedness, Perceptive received $18.3 million, representing their portion of the principal amount, interest and prepayment premium. As of December 31, 2021, Perceptive was no longer a related party.

In addition, on July 29, 2019, the lenders under the Credit Agreement were issued warrants to purchase up to an aggregate of 61,111 of Foamix ordinary shares, at an exercise price of $37.62 per share (the “Warrants”), which represented the five-day volume weighted average price of the Foamix ordinary shares as of the trading day immediately prior to the issuance of the Warrants. In connection with the completion of the Merger on March 9, 2020, the applicable exchange ratio (the "Exchange Ratio") was applied to the Warrants such that they became exercisable for 36,202 shares of the Company's common stock, and the exercise price was adjusted to $63.54. On April 6, 2020, following the Phase 3 PN Trial results, the Warrants were further adjusted for the conversion of the contingent stock rights and reverse stock split. As of December 31, 2022, the Warrants were exercisable for 27,509 shares of the Company's common stock with an exercise price of $76.78 per share. Payment of the exercise price will be made, at the option of the holder, either in cash or as a reduction of common stock issuable upon exercise of the Warrant, with an aggregate fair value equal to the aggregate exercise price ("cashless exercise"), or any combination of the foregoing. The Warrants are exercisable pursuant to the terms, and subject to the conditions, thereof and expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants' expiration date, if in the money. The Warrants issued were classified as equity in accordance with ASC 815-40. Proceeds received under the Tranche 1 Loan were allocated to the Warrants and the Tranche 1 Loan on a relative fair value basis. The exercise price of the Warrants will be adjusted in the event of issuances of common stock at a price lower than the exercise price of the warrants then in effect (the “Down Round Feature”). During the years ended December 31, 2022 and 2021, the Down Round Feature was triggered due to the price per share received from the issuance of common stock. Refer to Note 11 - Mezzanine and Shareholders' Equity for further information on the impact of the Down Round Feature. The Warrants expire on July 29, 2026.

During the year ended December 31, 2021 the Company recorded interest expense of $5.6 million comprised of interest on debt of $3.8 million and discount cost of $1.8 million. The interest expense includes a debt prepayment fee of $1.4 million and the write-off of discount costs of $1.6 million associated with the Company's prepayment of outstanding indebtedness resulting in a total extinguishment loss of $3.0 million.

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NOTE 11 - MEZZANINE AND SHAREHOLDERS' EQUITY

Preferred stock

As of December 31, 2022, the Company's Certificate of Incorporation, as amended, authorized the Company to issue 20,000,000 shares of preferred stock, par value $0.0001 per share. There were 3,000 and 0 shares of Series A Convertible Preferred Stock issued and outstanding as of December 31, 2022 and December 31, 2021, respectively.

Shares of preferred stock may be issued from time to time in one or more series. The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's board of directors.

On November 11, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mutual Fund Series Trust, on behalf of AlphaCentric LifeSci Healthcare Fund (the “Purchaser”), pursuant to which the Company issued on November 14, 2022 (the “Closing Date”), in a private placement transaction (the “Transaction”), an aggregate of 3,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred”), for an aggregate subscription amount equal to $300,000. This transaction resulted in $89,000 of issuance costs and a net subscription of $211,000 as of December 31, 2022.

The Company determined that the Series A Convertible Preferred Stock should be classified as Mezzanine Equity (temporary equity outside of permanent equity), that the Series A Convertible Preferred Stock more closely aligned with debt as the intent is for redemption by either the holder or issuer, most likely the issuer (the Company) due to the more favorable redemption terms.

The Purchase Agreement required that the Company convene, no later than January 31, 2023 (excluding adjournments and assuming no review of the Company’s proxy statement by the Securities and Exchange Commission), an annual meeting or special meeting of stockholders for the purpose of presenting to the Company’s stockholders a proposal (the “Proposal”) to approve a reverse stock split of its outstanding Common Stock (the “Reverse Stock Split”), with the recommendation of the board of directors that the Proposal be approved, and that the Company use reasonable best efforts to obtain approval of the Proposal.

Additionally, the Purchase Agreement contained customary representations, warranties and agreements of the Company and the Purchaser, and customary indemnification rights and obligations of the parties. Pursuant to the Purchase Agreement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of Delaware designating the rights, preferences and limitations of the Series A Preferred. The Certificate of Designation provided, among other things, that except as otherwise provided in the Certificate of Designation or as otherwise required by law, the Series A Preferred would have no voting rights (other than the right to vote as a class on certain matters as provided in the Certificate of Designation). However, pursuant to the Certificate of Designation, each share of Series A Preferred entitled the holder thereof (i) to vote on the Proposal and any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Proposal, and (ii) to 1,000,000 votes per share of Series A Preferred on the Proposal and any such adjournment proposal. The Series A Preferred should, except as required by law, vote together with the Common Stock (and other issued and outstanding shares of preferred stock entitled to vote), as a single class; provided, however, that such shares of Series A Preferred should, to the extent cast on the Proposal or any such adjournment proposal, be automatically and without further action of the holders thereof voted in the same proportion as the shares of Common Stock (excluding abstentions and any shares of Common Stock that are not voted) and any other issued and outstanding shares of preferred stock of the Company entitled to vote (other than the Series A Preferred or shares of such other preferred stock, if any, not voted) are voted on the Proposal.

On November 14, 2022, the Company filed the Certificate of Designation with the Secretary of State of the State of Delaware designating 3,000 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred with a stated par value of $0.0001 per share. The Series A Preferred were entitled to customary dividends and distributions when and if paid on shares of the Common Stock and were entitled to the voting rights discussed above. The Series A Preferred had preference over the Common Stock with respect to distribution of assets or available proceeds, as applicable, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any other deemed liquidation event.

The shares of Series A Preferred were convertible at the option of the holder, at a conversion price of $4.68 per share (as adjusted for the reverse stock split), into shares of the Company’s common stock, at any time and from time to time from and

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after 15 business days following the earlier of (i) the date of the approval of the Proposal or (ii) the date the Company otherwise satisfies the Nasdaq listing requirements.

The Company had the right to redeem the Series A Preferred at any time during the 15 business days following the approval of the Proposal (the "Company Redemption Period") at 120% of the stated value. Each holder of Series A Preferred had the right to require the Company to redeem all or a portion of the Series A Preferred held by such holder following the expiration of the Company Redemption Period at 130% of the stated value. In addition, the Company would automatically redeem all of the Series A Preferred within five business days following a delisting event as specified in the Certificate of Designation at 130% of the stated value.

On January 17, 2023, the Company redeemed all outstanding shares of its Series A Preferred, for an aggregate of $360,000 paid to the sole holder of the Series A Preferred Stock. The redemption payment represents 120% of the stated value of the Series A Preferred Stock pursuant to the Certificate of Designation.

On January 17, 2023, the Company filed a Certificate of Elimination (the “Certificate”) with the Secretary of State of the State of Delaware with respect to the Series A Preferred Stock. The Certificate (i) eliminated the previous designation of 3,000 shares of Series A Preferred Stock from the Company’s Amended and Restated Certificate of Incorporation, none of which were outstanding at the time of filing, and (ii) caused such shares of Series A Preferred Stock to resume their status as authorized but unissued and non-designated shares of preferred stock.

Common stock

The number of shares of common stock authorized under the Company's Amended and Restated Certificate of Incorporation was proportionately reduced in connection with the Company's 1-for-4 reverse stock split in February 2021. On July 19, 2021, the Company held its meeting of Stockholders (the "Annual Meeting"). Following the approval by the holders of a majority of the outstanding shares of common stock at the Annual Meeting, the Company filed a Certificate of Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000 shares of common stock, par value $0.0001 per share.

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends on common stock.

On February 8, 2023, the Company's Board of Directors approved a 1-for-18 reverse stock split of the Company's outstanding shares of common stock. The reverse stock split was effected on February 10, 2023 at 5:01 p.m. Eastern time. At the effective time, every 18 issued and outstanding shares of the Company's common stock were converted into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and in lieu thereof, each stockholder holding fractional shares was entitled to receive a cash payment (without interest or deduction) from the Company’s transfer agent in an amount equal to such stockholder’s respective pro rata shares of the total net proceeds from the Company’s transfer agent sale of all fractional shares at the then-prevailing prices on the open market. The number of authorized shares of the Company's common stock and the par value of each share of common stock remained unchanged.

Unless noted, all common shares and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect a 1-for-18 reverse stock split.

The Company had reserved shares of common stock for future issuance as follows:

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Year ended December 31,

Common stock options outstanding (Note 12) 229,787

Outstanding restricted stock units (Note 12) 83,616

Shares available for future grant under 2018 and 2019 Plans (Note 12) 72,148

Shares reserved for conversion of Series A Convertible Preferred Stock* 64,102

Shares underlying outstanding warrants 27,509

Warrants

As of December 31, 2022 and December 31, 2021, the Company had equity-classified warrants to purchase an aggregate of 27,509 shares of the Company’s common stock outstanding, with an exercise price of $76.78 as of December 31, 2022 and an expiration date of July 29, 2026. The exercise price will be adjusted in the event the Down Round Feature is triggered. During the year ended December 31, 2022 and 2021, the Down Round Feature was triggered due to the price per share received from the issuance of common stock. The Company calculated the value of the effect of Down Round Feature measured as the difference between the warrants’ fair value, using the Black-Scholes-Merton option-pricing model, before and after the Down Round Feature was triggered using the original exercise price and the new exercise price. The difference in fair value of the effect of the Down Round Feature was immaterial and had no impact on net loss per share in the periods presented. The exercise price will continue to be adjusted in the event the Company issues additional shares of common stock below the current exercise price, in accordance with the terms of the warrants.

Issuance of stock

On February 1, 2019, the Company entered into a Sales Agreement (the "2019 Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor Fitzgerald") to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald acted as the Company's sales agent. Cantor Fitzgerald was entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold under the 2019 Sales Agreement. From January 1, 2021 through January 25, 2021 the Company issued and sold 154,334 shares of common stock at a weighted average price per share of $175.68 pursuant to the 2019 Sales Agreement for $26.3 million in net proceeds. Effective as of January 25, 2021, the Company terminated the 2019 Sales Agreement.

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 293,015 shares of common stock of the Company, at a purchase price of $170.64 per share in a registered direct offering. The offering was completed on January 28, 2021 and the Company received approximately $46.8 million in net proceeds, after deducting placement agent fees and other offering expenses.

On August 12, 2021, the Company entered into a new sales agreement (the "Sales Agreement") with Cantor Fitzgerald to sell shares of the Company's common stock, from time to time, with aggregate gross sales proceeds of up to $50.0 million through an at-the-market equity offering program under which Cantor Fitzgerald will act as the Company's sales agent. Cantor Fitzgerald is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement. During the year ended December 31, 2021, the Company issued and sold 108,629 shares of common stock at a weighted average per share price of $28.26 pursuant to the Sales Agreement for $2.9 million in net proceeds. During the year ended December 31, 2022, the Company issued and sold 143,770 shares of common stock at a weighted average per share price of $11.16 pursuant to the 2021 Sales Agreement for $1.5 million in net proceeds. This agreement was in effect as of December 31, 2022.

On March 15, 2022, the Company entered into the Equity Purchase Agreement, with Lincoln Park which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park, at the

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Company's discretion, up to $30.0 million of shares of its common stock over the 36-month term of the Equity Purchase Agreement. Upon execution of the Equity Purchase Agreement, the Company issued 92,644 shares of its common stock to Lincoln Park as commitment shares in accordance with the closing conditions contained within the Equity Purchase Agreement. The issuance of these shares were specific incremental costs directly attributable to the proposed offering. The commitment shares were valued at $0.9 million and recorded as an addition to equity for the issuance of common stock and treated as a reduction to equity as a cost of capital to be raised under the Equity Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s common stock. The Equity Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty. As of December 31, 2022, the Company had not sold any shares of its common stock to Lincoln Park under the Equity Purchase Agreement.

NOTE 12 - SHARE BASED COMPENSATION

Equity incentive plans:

The Company maintains the 2019 Equity Incentive Plan (the “2019 Plan”) and 2018 Omnibus Incentive Plan (the "2018 Plan"). As of December 31, 2022, 57,338shares remain issuable under the 2019 Plan and 14,810 shares remain issuable under the 2018 Plan. In January 2022, the number of shares reserved under the 2018 Plan automatically increased by 41,666 shares of common stock pursuant to the terms of the 2018 Plan.

Employee Share Purchase Plan:

The Company adopted Foamix's Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15% of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code.

As of December 31, 2022, 116,463 shares remain available for grant under the ESPP.

During the year ended December 31, 2022 and 2021, 7,549 and 3,994 shares were issued to employees pursuant to the ESPP, respectively.

Options and Restricted Stock Units ("RSUs") granted to employees and directors:

In the years ended December 31, 2022 and 2021, the Company granted options and RSUs as follows:

Award amount Exercise price range Vesting period Expiration

Employees and Directors:

Award amount Exercise price range Vesting period Expiration

Employees and Directors:

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The fair value of options and RSUs granted to employees and directors during 2022 and 2021 was $0.8 million and $9.4 million, respectively. One share of Common Stock will be issued for each RSU that vests.