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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___.
Commission file number 001-38356
MENLO THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
Delaware45-3757789
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
520 U.S. Highway 22, Suite 204
Bridgewater, New Jersey 08807
(Address of principal executive offices including zip code)
(800755-7936
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange
on which registered
Common Stock, par value $0.0001MNLOThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   No  
As of July 30, 2020, there were 167,690,615 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.


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TABLE OF CONTENTS
Page
We own or have rights to various copyrights, trademarks, and trade names used in our business in the U.S. and/or other countries, including AMZEEQ®, ZILXI, Molecule Stabilizing Technology (MST)™ and MST™. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
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This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” “until,” “if” and similar expressions or variations.
The following factors, among others, including those described in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, could cause our future results to differ materially from those expressed in the forward-looking information:
our ability to successfully commercialize AMZEEQ® and ZILXI and our other product candidates;
disruptions related to a pandemic, epidemic or outbreak of a contagious disease, such as COVID-19, on the ability of our suppliers to provide materials for our products and product candidates, initiating and retaining patients in our clinical trials, distribution of our products and business sales execution, operating results, liquidity and financial condition;
the regulatory approval process for our product candidates, including any delay or failure in obtaining requisite approvals;
the potential market size of treatments for any diseases and market adoption of our products, if approved or cleared for commercial use, by physicians and patients;
the timing, cost or other aspects of the commercialization of AMZEEQ, ZILXI and product candidates;
our ability to achieve favorable pricing for AMZEEQ, ZILXI and product candidates;
third-party payor reimbursement for AMZEEQ, ZILXI and any future products;
developments and projections relating to our competitors and our industry, including competing drugs and therapies, particularly if we are unable to receive exclusivity;
risks related to our indebtedness, including our ability to comply with the covenants in our loan documents;
the timing of commencement of future non-clinical studies and clinical trials;
our ability to successfully complete, and receive favorable results in, clinical trials for our product candidates;
our intentions and our ability to establish collaborations or obtain additional funding;
the timing or likelihood of regulatory filings and approvals or clearances for our product candidates;
our ability to comply with various regulations applicable to our business;
our expectations regarding the commercial supply of AMZEEQ, ZILXI and product candidates;
our ability to create intellectual property and the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected terms of patent protection;
the timing, costs or results of litigation, including litigation to protect our intellectual property;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital on acceptable terms or at all;
our ability to attract and retain key scientific or management personnel;
our defense of current and any future litigation that may be initiated against us;
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our expectations regarding licensing, business transactions and strategic operations; and
our future financial performance and liquidity.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
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PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements

MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
(Unaudited)
June 30December 31
20202019
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents$96,511  $43,759  
Restricted cash855  825  
Short-term bank deposits  12,102  
Investment in marketable securities (Note 6)2,609  16,246  
Restricted investment in marketable securities (Note 6)435  434  
Trade receivables, net of allowances6,407  135  
Other receivable4,000    
Prepaid and other assets2,672  1,557  
Inventory (Note 7)5,801  1,356  
TOTAL CURRENT ASSETS119,290  76,414  
NON-CURRENT ASSETS:
Property and equipment, net2,811  2,885  
Operating lease right-of-use assets (Note 10)2,558  1,694  
Prepaid and other assets6,183  166  
TOTAL NON-CURRENT ASSETS11,552  4,745  
TOTAL ASSETS$130,842  $81,159  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except per share data)
(Unaudited)
June 30December 31
20202019
Liabilities and shareholders’ equity
CURRENT LIABILITIES:
Trade payables$9,952  $19,352  
Accrued expenses8,812  3,381  
Employee related obligations4,081  5,231  
Operating lease liabilities (Note 10)1,245  1,092  
Other142  270  
TOTAL CURRENT LIABILITIES24,232  29,326  
LONG-TERM LIABILITIES:
Liability for employee severance benefits403  424  
Operating lease liabilities (Note 10)1,308  653  
Long-term debt (Note 8)32,915  32,725  
Other liabilities456  456  
TOTAL LONG-TERM LIABILITIES35,082  34,258  
TOTAL LIABILITIES59,314  63,584  
COMMITMENTS (Note 11)    
STOCKHOLDERS' EQUITY:
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
    
Common stock: $0.0001 par value; 300,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 167,683,814 and 36,480,314 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
17  3  
Additional paid-in capital589,812  328,154  
Accumulated deficit(518,301) (310,587) 
Accumulated other comprehensive income  5  
TOTAL SHAREHOLDERS' EQUITY71,528  17,575  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$130,842  $81,159  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. dollars in thousands, except per share data)
(Unaudited)
Three months ended
June 30
Six months ended
June 30
2020201920202019
REVENUES (Note 4)
Product sales$1,483  $  $3,233  $  
License revenues10,000    10,000    
Royalty revenues205    205  308  
TOTAL REVENUES11,688    13,438  308  
EXPENSES
Cost of goods sold216    487    
Research and development13,119  12,556  29,072  23,404  
Selling, general and administrative26,459  6,803  51,874  12,147  
Goodwill and in-process research & development impairments54,345    54,345    
Contingent Stock Right Remeasurement84,726    84,726    
TOTAL EXPENSES178,865  19,359  220,504  35,551  
OPERATING LOSS167,177  19,359  207,066  35,243  
FINANCE INCOME(564) (468) (1,292) (1,004) 
FINANCE EXPENSES1,086  102  2,158  134  
LOSS BEFORE INCOME TAX167,699  18,993  207,932  34,373  
INCOME TAX(259)   (259) (176) 
NET LOSS FOR THE PERIOD$167,440  $18,993  $207,673  $34,197  
LOSS PER SHARE BASIC AND DILUTED$1.21  $0.19  $2.29  $0.35  
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS
138,653  97,999  90,627  97,954  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars in thousands)
(Unaudited)
Three months ended
June 30
Six months ended
June 30
2020201920202019
NET LOSS$167,440  $18,993  $207,673  $34,197  
OTHER COMPREHENSIVE LOSS (INCOME):
Net unrealized (gains) losses from marketable securities(43) (4) 1  (40) 
Losses on marketable securities reclassified into net loss3    4    
Net unrealized losses (gains) on derivative financial instruments  13    (2) 
TOTAL OTHER COMPREHENSIVE (INCOME) LOSS(40) 9  5  (42) 
TOTAL COMPREHENSIVE LOSS$167,400  $19,002  $207,678  $34,155  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)
Common stock
Additional paid-in
capital
Accumulated deficit
Accumulated
other
comprehensive
Income (loss)
Total
Number of Shares
Amounts
Amounts
BALANCE AT JANUARY 1, 201997,864,663  $10  $307,624  $(215,409) $(43) $92,182  
CHANGES DURING THE PERIOD:
Comprehensive (loss) income—  —  —  (34,197) 42  (34,155) 
Exercise of options and vesting of restricted stock units
188,755  —  18  —  —  18  
Stock-based compensation
—  —  2,337  —  —  2,337  
BALANCE AT JUNE 30, 201998,053,418  $10  $309,979  $(249,606) $(1) $60,382  
BALANCE AT JANUARY 1, 202036,480,314  $3  $328,154  $(310,587) $5  $17,575  
CHANGES DURING THE PERIOD:

Comprehensive loss
—  —  —  (207,673) (5) (207,678) 
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan
1,032,003  —  260  —  —  260  
Stock-based compensation
—  —  12,527  —  —  12,527  
Deemed dividend to warrants holders due to warrant modification
—  —  41  (41) —    
Classification of stock awards to derivative liability
—  —  (975) —  —  (975) 
Issuance of Ordinary Shares through a public offering, net of $3,903 issuance costs
31,107,500  3  53,646  —  —  53,649  
Issuance of stock related to merger
99,063,997  11  196,159  —  —  196,170  
BALANCE AT JUNE 30, 2020167,683,814  $17  $589,812  $(518,301) $  $71,528  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(U.S. dollars in thousands, except share data)
(Unaudited)
Common stock
Additional paid-in
capital
Accumulated deficit
Accumulated
other
comprehensive
Income (loss)
Total
Number of Shares
Amounts
Amounts
BALANCE AT APRIL 1, 201997,987,433  $10  $308,590  $(230,613) $8  $77,995  
CHANGES DURING THE PERIOD:
Comprehensive loss—  —  —  (18,993) (9) (19,002) 
Exercise of options and vesting of restricted stock units
65,985  —  2  —  —  2  
Stock-based compensation
—  —  1,387  —  —  1,387  
BALANCE AT JUNE 30, 201998,053,418  $10  $309,979  $(249,606) $(1) $60,382  
BALANCE AT APRIL 1, 202061,501,130  $6  $420,430  $(350,861) $(40) $69,535  
CHANGES DURING THE PERIOD:
Comprehensive (loss) income—  —  —  (167,440) 40  (167,400) 
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan
530,771  —  (43) —  —  (43) 
Stock-based compensation
—  —  10,768  —  —  10,768  
Classification of stock awards to derivative liability
—  —  657  —  —  657  
Issuance of Ordinary Shares through a public offering, net of $3,903 issuance costs
31,107,500  3  53,646  —  —  53,649  
Issuance of stock related to merger
74,544,413  8  104,354  —  —  104,362  
BALANCE AT JUNE 30, 2020167,683,814  $17  $589,812  $(518,301) $  $71,528  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MENLO THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
(Unaudited)
Six months ended June 30
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss$207,673  $34,197  
Adjustments required to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization187  163  
Goodwill and in-process research & development impairments54,345    
Contingent stock right remeasurement84,726    
Loss from disposal and sale of fixed assets  29  
Changes in marketable securities and bank deposits, net(142) (358) 
Changes in accrued liability for employee severance benefits, net of retirement fund profit(21) 42  
Stock-based compensation12,527  2,337  
Non-cash finance (income) expenses, net(833) 3  
Changes in operating assets and liabilities, net of effects of businesses acquired:
Increase in trade receivables, prepaid and other assets(9,807) 246  
Increase in other non-current assets(6,026)   
(Decrease) increase in accounts payable and accruals(10,908) 2,374  
Increase in inventory(4,445)   
Net cash used in operating activities(88,070) (29,361) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets(113) (454) 
Investment in bank deposits  (16,048) 
Cash acquired through merger38,641    
Proceeds from sale and maturity of marketable securities and bank deposits48,577  57,014  
Net cash provided by investing activities87,105  40,512  
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds related to issuance of ordinary shares through offerings, net of issuance costs53,646    
Proceeds related to issuance of stock for stock-based compensation arrangements, net100  18  
Net cash provided by financing activities53,746  18  
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
52,781  11,169  
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
1  48  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD
44,584  28,118  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD$97,366  $39,335  
Cash and cash equivalents$96,511  $39,085  
Restricted cash855  250  
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN IN STATEMENT OF CASH FLOWS
$97,366  $39,335  
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS -
Cashless exercise of warrants and restricted stock units*$4  
Issuance of shares under employee stock purchase plan$163  $  
Additions to operating lease right of use assets$1,120  $867  
Additions to operating lease liabilities$1,120  $850  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest received$298  $666  
Interest paid$1,946  $  
Fair value of assets acquired$117,270  $  
Less liabilities assumed5,827    
Net acquired (See “Note 3- Business combination”)111,443    
Less cash acquired38,641    
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Merger net of cash acquired$72,802  $  
*Represents an amount less than one thousand
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Menlo Therapeutics Inc.
Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 1 - NATURE OF OPERATIONS
Menlo Therapeutics Inc. (the “Company,” “Menlo” or the “combined company”) is a specialty pharmaceutical company focused on developing and commercializing proprietary therapies to address unmet needs in dermatology. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.
Reverse Merger
On November 10, 2019, the Company, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).
For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.
Products, Product Candidates and Licenses
Prior to the Merger, in January 2020, Foamix launched AMZEEQ® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the U.S. Food and Drug Administration (the "FDA") approved ZILXI (minocycline) topical form, 1.5% (formerly FMX103, "ZILXI"), for the treatment of inflammatory lesions of rosacea in adults. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.
AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST) that is also being used in the development of the Company’s other product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company has begun preparations to conduct an end-of-Phase II meeting with the FDA before the end of 2020.
Additionally, the Company was developing serlopitant, a small molecule inhibitor of the neurokinin 1 receptor, or NK1-R, given as a once-daily, oral tablet, for the treatment of pruritus, or itch, associated with various conditions including prurigo nodularis, or PN. On April 6, 2020, the Company announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN, studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. The Company does not currently intend to pursue serlopitant. As a result, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets in its unaudited condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2020. See "Note 3 - Business Combination" for more information.
The Company is actively pursuing opportunities to out-license its products and product candidates to third parties for development and commercialization outside the United States, and recently entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”). See "Note 4 - Revenue Recognition." The Company has also licensed certain technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining the Company’s foam technology with the licensee’s proprietary drugs.
Liquidity and Capital Resources
The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of
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developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the six months ended June 30, 2020, the Company incurred a net loss of $207.7 million and used $88.1 million of cash in operations. As of June 30, 2020, the Company had cash, cash equivalents and investments of $100.4 million and an accumulated deficit of $518.3 million.
If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.
Prior to the Merger, the Company was focused on the development and commercialization of serlopitant. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other topical minocycline product candidates. The Company does not currently intend to pursue serlopitant further. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.
The Company believes that its existing cash, cash equivalents and investments as of June 30, 2020 and projected cash flows from revenues and the funds that the Company is entitled to receive under the license agreement with Cutia Therapeutics (HK) Limited ("Cutia"), will provide sufficient resources to fund its current ongoing needs for at least the next 12 months from the issuance of these financial statements, though there may be need for additional financing activity if the on-going COVID-19 pandemic continues for an extended duration and as the Company continues to grow.
As a result of the COVID-19 pandemic, the Company suspended the vast majority of its in-person interactions by its customer-facing professionals in healthcare settings and have engaged with these customers remotely as the Company seeks to continue to support healthcare professionals and patient care. During the second quarter of 2020, the Company began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures. As a result of the negative impact on the Company's product sales, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement. See "Note 8 - Long-Term Debt." The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI, and have a material adverse effect on the Company's liquidity, as well as the Company's ability to remain in compliance with the minimum net revenue covenants contained in the Company's loan documents.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a.Basis of Presentation
The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
These unaudited interim condensed consolidated financial statements should be read in conjunction with Foamix’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on May 7, 2020, and the Company's unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020.
The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020.
b.Principles of Consolidation
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The consolidated financial statements include the accounts of Menlo and its subsidiaries. Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.
c.Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.
The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which the pandemic impacts worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. For the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures due to the pandemic. 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 June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
d.Business Acquisition
The Company’s unaudited interim condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.
Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.  For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.  The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.
When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:
Income approach, which is based on the present value of a future stream of net cash flows.
Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.
Our fair value methodologies depend on the following types of inputs:
Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
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Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).
Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).
A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.
Asset Impairment
The Company reviews all of its long-lived assets for impairment indicators throughout the year. Impairment testing is performed for indefinite-lived intangible assets annually (or sooner if warranted) and for all other long-lived assets whenever impairment indicators are present. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.
e.Revenue Recognition
The Company accounts for its revenue transactions under FASB ASC Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.
The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 90 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.
The Company’s net product revenues through June 30, 2020 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. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.
On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed
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products to Cutia for clinical and commercial use. The Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognizes the revenues from the upfront license fee when the license is transferred to the licensee and the licensee is able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.
f.Allowance for credit losses
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 three and six months ended June 30, 2020.
g.Derivative instruments
The Company recognizes all derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheet at their respective fair values. All gains and losses associated with derivatives are reported as a finance expense (income) in the accompanying condensed consolidated statements of operations.
h.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.
i.Loss per share
The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:
a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement
b.The number of common outstanding common stock outstanding from the merge date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.
The basic and diluted loss per share for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse merger was calculated by dividing (a) by (b):
a.The loss of the legal acquiree attributable to common stockholders in each of those periods.
b.The legal acquiree's historical weighted-average number of common stock outstanding multiplied by the exchange ratio established in the merge agreement
Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary shares outstanding during the period. Diluted net loss per share is based upon the weighted average number
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of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.
The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):
Three months ended June 30Six months ended June 30,
2020201920202019
Outstanding stock options, RSUs and shares under the ESPP14,975,385  11,037,802  12,082,037  10,576,229  
Warrants
1,893,032    1,272,336    
In addition to the above, the CSR was excluded from the calculation of the diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.
j.Newly issued and recently adopted accounting pronouncements
Recent Accounting Guidance Issued:
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-4 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.
NOTE 3 – BUSINESS COMBINATION
On November 10, 2019, Menlo entered into the Merger Agreement with Foamix, and Merger Sub, a direct and wholly-owned Israeli subsidiary of Menlo. On March 9, 2020, the Merger was completed and Foamix is now a wholly-owned subsidiary of Menlo.
On the Effective Date, each ordinary share of Foamix was exchanged for 0.5924 shares of common stock of Menlo (the “Exchange Ratio”). In addition, on the Effective Date, Foamix shareholders received one contingent stock right (a “CSR”) for each Foamix ordinary share held by them. The CSRs were issued pursuant to the Contingent Stock Rights Agreement (the “CSR Agreement”), dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of prurigo nodularis (the “Phase III PN Trials”).
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on
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April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders owned approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis.
For accounting purposes, the Merger is treated as a “reverse acquisition” under U.S. GAAP and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods.
Under reverse acquisition accounting, the U.S. dollar amount for common stock in the financial statements is based on the value and number of shares issued by Menlo (reflecting the legal structure of Menlo as the legal acquirer) on the Merger date plus subsequent shares issued by the Company. The amounts in additional paid-in capital represent that of Foamix and include the fair value of shares deemed for accounting purposes to have been issued by Foamix on the merger date and the fair value of the Menlo equity awards included in the purchase price calculation. The Foamix additional paid-in capital was also adjusted for the difference between the number of common stock and the historical number of shares of Foamix’s ordinary shares.
During the six months ended June 30, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date. The total transaction costs and other non-recurring costs related to the Merger were $21.8 million.
Purchase Price
The following is the Merger Consideration (as defined in the Merger Agreement) was transferred to effect the Merger:
(in thousands)
Total
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders
$123,757  
Deemed (for accounting purposes only) conversion of Menlo equity awards
7,322  
Total consideration*
$131,079  
* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.
Based on Foamix’s closing share price of $2.99 as of March 9, 2020, the Merger Consideration under reverse acquisition accounting was approximately $131.1 million, consisting of $123.8 million for the deemed (for accounting purposes only) issuance of 41.4 million Foamix shares assuming that no upwards adjustment was made to the Exchange Ratio relating to the CSR, and $7.3 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the Foamix closing share price of $2.99 as of March 9, 2020 as an input to the Black Scholes valuation model to determine the fair value of the options.
Purchase Price Allocation
The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:
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(in thousands)
March 9, 2020
Cash and cash equivalents
$38,641  
Investment in marketable securities
22,703  
Prepaid expenses and other current assets
1,581  
In-process research and development
50,300  
Goodwill
4,045  
Total assets
117,270  
Current liabilities
(5,827) 
Total liabilities
(5,827) 
Estimated purchase price*
$111,443  
* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.
Goodwill
Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually. None of the Goodwill recognized is expected to be deductible for income tax purposes. The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:
(in thousands)March 9, 2020
Purchase price$111,443  
Less: fair value of net assets acquired, including other identifiable intangibles(107,398) 
Goodwill$4,045  
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.0 million related to goodwill in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.
In-Process Research and Development (“IPR&D")
The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:
(in thousands)
Intangible asset
Estimated Fair Value
Acquired indefinite life intangible assets*
$50,300  
Fair value of identified intangible assets
$50,300  
* Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing.
The fair value of IPR&D has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. 
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On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $50.3 million related to the IPR&D asset in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.
CSR
The CSR was issued pursuant to the CSR Agreement, dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s Phase III PN Trials. The Company recognized a liability of $19.6 million in the unaudited condensed consolidated balance sheet as of March 31, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.
On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery pre-Merger Foamix shareholders and pre-Merger Menlo stockholders own approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020 and increased the awards available for grant under the Company's equity plan.
The contingent consideration associated with the CSR was recognized and measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5. An acquirer's obligation to pay contingent consideration should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity, ASC 815 Derivatives and Hedging, and other applicable U.S. GAAP. The contingent consideration associated with the CSR was initially measured at fair value and will subsequently be measured at fair value at each reporting date. The CSR was classified as a liability, as it is settled by issuing a variable number of the Company's common stock. On April 6, 2020, the Company recorded $84.7 million of expense in its unaudited condensed consolidated statements of operations and comprehensive loss to remeasure the CSR liability in its consolidated balance sheet to its fair value of $104.4 million (calculated based on 74,544,413 shares issued and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.
Pro Forma
The actual Menlo net loss included in the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2020 (for the period from the March 9, 2020, the Effective Date, through June 30, 2020, which are not indicative of the results to be expected for a full year) and the supplemental unaudited pro forma revenue and net loss of the combined entity had the acquisition been completed on January 1, 2019 are as follows:
Actual Menlo results of operations included in the condensed consolidated statement of operation for the three and six months ended June 30, 2020:
(in thousands)Three months ended June 30, 2020Six months ended June 30, 2020
(Unaudited)
Revenues
$  $  
Loss attributable to Menlo$7,594  $19,637  

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Three months ended June 30,Six months ended June 30,
20202019