On March 11, 2022, the Company completed the EPI Health Acquisition, in which the Company acquired all of the issued and outstanding units of membership interest of EPI Health from EPG for an estimated fair value of purchase consideration of $32,046. EPI Health is an integrated medical dermatology company providing the Company with a commercial infrastructure to support the commercialization of products. Subsequent to the EPI Health Acquisition, the Company sells various dermatological products for the treatments of plaque psoriasis, rosacea, acne and dermatoses.

At closing, the Company paid or committed to pay non-contingent consideration totaling $27,500, as adjusted for cash, indebtedness, net working capital estimates and other contractually defined adjustments (the “Closing Purchase Price”). The Closing Purchase Price consisted of (i) $11,000 paid in cash, (ii) a secured promissory note issued to EPG in the principal amount of $16,500 (the “Seller Note”), and (iii) a $993 payment representing an adjustment for estimated net working capital. See Note 9—“Notes Payable” for additional detail regarding the Seller Note and its related terms.

The purchase agreement entered into in connection with the EPI Health Acquisition (the “EPI Heath Purchase Agreement”) included the potential payment of additional contingent consideration totaling up to $23,500 upon achievement of certain milestones, as follows:

b.$3,000, as a one-time payment, payable in cash or the Company’s common stock, at the discretion of the Company, upon net sales of certain of EPI Health’s legacy products exceeding $30,000 during the period from April 1, 2022 through March 31, 2023;

c.up to $2,500, paid in quarterly installments in cash or the Company’s common stock at the discretion of the Company, upon net sales of Wynzora Cream (“Wynzora”) exceeding certain quarterly thresholds or an annual threshold of $12,500 during the period from April 1, 2022 through March 31, 2023;

d.$5,000, as a one-time payment, payable in cash or the Company’s common stock at the discretion of the Company, upon the first occurrence of post-closing net sales of certain of EPI Health’s legacy products exceeding $35,000 during any twelve-month period from April 1, 2023 through March 31, 2026; and

Certain of the above milestone payments will accelerate and become immediately payable upon certain specified events during the applicable milestone periods, including a sale of all or substantially all of the assets with respect to certain of EPI Health’s legacy products. The EPI Health Purchase Agreement provides that payment of any additional consideration may be made in cash or in shares of the Company’s common stock, so long as the number of shares that may be issued pursuant to the EPI Health Purchase Agreement or otherwise in connection with the EPI Health Acquisition is limited to no more than 19.99% of the Company’s outstanding shares of common stock immediately prior to the closing, unless stockholder approval is obtained to issue more than 19.99%.

The EPI Health Acquisition is being accounted for as a business combination using the acquisition method in accordance with ASC 805. Under this method of accounting the fair value of the consideration transferred is allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the date of the EPI Health Acquisition. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill.

For the nine months ended September 30, 2022, the Company incurred costs related to the EPI Health Acquisition of $4,811 recognized in selling, general and administrative expenses within the condensed consolidated statements of operations and comprehensive loss.

From the EPI Health Acquisition date through September 30, 2022, $11,202 of total net revenue and a net loss of $3,461 associated with EPI Health’s operations are included in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2022.

The following table presents the estimated fair value of purchase consideration as of each interim reporting period end date since the EPI Health Acquisition date, including measurement period adjustments made during each interim period. The estimated fair value of purchase consideration is then allocated to the estimated fair values of the net assets acquired at the EPI Health Acquisition date, as described further following the table under the section entitled Provisional Allocation of Purchase Consideration to Estimated Fair Values of Net Assets Acquired.


	As of March 11, 2022		Measurement Period Adjustments			As of June 30, 2022		Measurement Period Adjustments			As of September 30, 2022
Initial cash consideration to Seller	$	11,000	$	—		$	11,000	$	—		$	11,000
Secured promissory note issued to Seller	16,500		—			16,500		(3,195)		(B)	13,305
Closing date fair value of contingent consideration liability	3,773		—			3,773		(125)		(C)	3,648
Remaining working capital adjustment to be paid	4,069		(969)		(A)	3,100		—			3,100
Working capital adjustment paid at close	993		—			993		—			993
Total estimated purchase consideration	$	36,335	$	(969)		$	35,366	$	(3,320)		$	32,046

A.On July 7, 2022, the Company and EPG agreed to the final net working capital adjustment amount (the “Total Adjustment Amount”), as defined in the EPI Health Purchase Agreement, as part of the post-closing adjustment to the estimated purchase price for the EPI Health Acquisition. The Total Adjustment Amount was determined to be positive

and in the amount of $3,100, which was paid to EPG on July 7, 2022. As of March 31, 2022, the Company had previously estimated that the Total Adjustment Amount would be $4,069. Therefore, the Company has reflected a $969 measurement period adjustment to the estimated fair value of total purchase consideration. As this adjustment related to the estimated fair value of purchase consideration and did not affect the fair value of any assets acquired or liabilities assumed, it resulted in a reduction of goodwill.

B.During the third quarter of 2022, the Company, with the assistance of a third-party valuation specialist, continued to conduct a fair value assessment of the Seller Note as of the EPI Health Acquisition date of March 11, 2022. The Company completed the fair value assessment and updated the Seller Note fair value estimate as of March 11, 2022 to $13,305 via a downward measurement period adjustment of $3,195 during the interim quarterly period ended September 30, 2022. See Note 9—“Notes Payable” to these condensed consolidated interim financial statements for further discussion regarding the Seller Note, including its repayment and termination during the third quarter of 2022.

C.During the third quarter of 2022, the Company, with the assistance of a third-party valuation specialist, continued to conduct a fair value assessment of the contingent consideration liability as of the EPI Health Acquisition date of March 11, 2022. The Company updated the contingent consideration provisional fair value estimate as of March 11, 2022 to $3,648 via a downward measurement period adjustment of $125 during the interim quarterly period ended September 30, 2022, based on progression of the fair value assessment procedures conducted to date.

ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. Further, ASC 805 requires any consideration transferred or paid in a business combination in excess of the fair value of the assets acquired and liabilities assumed should be recognized as goodwill.


	As of March 11, 2022		Measurement Period Adjustments			As of June 30, 2022		Measurement Period Adjustments			As of September 30, 2022
Assets acquired and liabilities assumed:
Accounts receivable	$	20,083	$	—		$	20,083	$	—		$	20,083
Inventory	1,710		—			1,710		(410)		(B)	1,300
Prepaid expenses and other current assets	3,692		—			3,692		—			3,692
Property and equipment	100		—			100		—			100
Intangible assets	33,000		—			33,000		(4,000)		(C)	29,000
Other assets	27		—			27		—			27
Right-of-use lease assets	400		—			400		—			400
Total assets	$	59,012	$	—		$	59,012	$	(4,410)		$	54,602

Accounts payable	$	947	$	—		$	947	$	—		$	947
Accrued expenses	24,892		—			24,892		—			24,892
Operating lease liabilities, current portion	208		—			208		—			208
Operating lease liabilities, net of current portion	342		—			342		—			342
Other long-term liabilities	290		—			290		—			290
Total liabilities	$	26,679	$	—		$	26,679	$	—		$	26,679

Total identifiable net assets acquired	$	32,333	$	—		$	32,333	$	(4,410)		$	27,923
Goodwill	4,002		(969)		(A)	3,033		1,090		(D)	4,123
Total estimated purchase consideration	$	36,335	$	(969)		$	35,366	$	(3,320)		$	32,046

previously estimated that the Total Adjustment Amount would be $4,069. Therefore, the Company has reflected a $969 measurement period downward adjustment to the estimated fair value of total purchase consideration. As this adjustment related to the estimated fair value of purchase consideration and did not affect the fair value of any assets acquired or liabilities assumed, it resulted in a reduction of goodwill.

B.During the third quarter of 2022, the Company, with the assistance of a third-party valuation specialist, continued to conduct a fair value assessment of the trade inventory on hand as of the EPI Health Acquisition date of March 11, 2022. The Company updated the trade inventory’s provisional fair value estimate as of March 11, 2022 to $1,300 via a downward measurement period adjustment of $410 during the interim quarterly period ended September 30, 2022, based on progression of the fair value assessment procedures conducted to date.

C.During the third quarter of 2022, the Company, with the assistance of a third-party valuation specialist, continued to conduct a fair value assessment of the acquired definite-lived intangible product rights assets as of the EPI Health Acquisition date of March 11, 2022, which included further analysis of the forecasts used in the initial preliminary valuation. This downward measurement period adjustment also resulted in the recognition of $192 of additional amortization expense during the interim quarterly period ended September 30, 2022.

D.The aforementioned measurement period adjustments made to the acquired assets and assumed liabilities, as well as the measurement period adjustments made to the estimated fair value of purchase consideration in the preceding section entitled Purchase Consideration, result in an updated goodwill balance of $4,123 as of September 30, 2022 based on a net upward adjustment of $1,090 during the interim quarterly period ended September 30, 2022.

The Company determined the estimated fair value of the acquired intangible assets as of the closing date using the income approach. This is a valuation technique that is based on the market participant’s expectations of the cash flows that the intangible assets are forecasted to generate. The projected cash flows from these intangible assets were based on various assumptions, including estimates of revenues, expenses, and operating profit, and risks related to the viability of and commercial potential for alternative treatments. The cash flows were discounted at a rate commensurate with the level of risk associated with the projected cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.

Goodwill was determined on the basis of the provisional fair values of the assets and liabilities identified at the time of the EPI Health Acquisition. The estimated provisional allocation of purchase consideration will be adjusted, within a period of no more than 12 months from the EPI Health Acquisition date, if these fair values change further as a result of circumstances existing at the acquisition date. These measurement period adjustments may arise with regard to amounts recorded as assets and liabilities upon verification of such amounts or upon finalization of the required valuations of intangible assets identified. The amounts of reserves and provisions may also be adjusted as a result of ongoing procedures to identify and measure liabilities, including tax, environmental risks and litigation. The purchase consideration may also be adjusted further in connection with finalizing the valuation procedures for the contingent consideration liability and any potential changes in the fair value of the Seller Note. Any further adjustments to amounts may impact the valuation of the consideration or the amounts recorded as goodwill.

Goodwill was calculated as the excess of the consideration paid consequent to completing the acquisition, compared to the net assets recognized. Goodwill represents the future economic benefits arising from the other acquired assets, which could not be individually identified and separately valued. Goodwill is primarily attributable to the acquired commercial platform and infrastructure, including personnel, and expected synergies related to the commercialization of product candidates.

The following pro forma information presents the combined results of operations for the three and nine months ended September 30, 2022 and 2021, as if the Company had completed the EPI Health Acquisition at the beginning of the periods presented. The pro forma financial information is provided for comparative purposes only and is not indicative of what actual results would have been had the EPI Health Acquisition occurred at the beginning of the periods presented, nor does it give effect to synergies, cost savings, fair market value adjustments, and other changes expected to result from the EPI Health Acquisition. Accordingly, the pro forma financial results do not purport to be indicative of consolidated results of operations as of the date hereof, for any period ended on the date hereof, or for any other future date or period. The pro forma financial information has been calculated after applying the Company’s accounting policies and includes adjustments for transaction-related costs.