10-Q

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, 2021

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___ TO ___.

Commission file number 001-38356

VYNE THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

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

520 U.S. Highway 22, Suite 204

Bridgewater, New Jersey 08807

(Address of principal executive offices including zip code)

(800) 775-7936

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐ No  ☒

As of August 6, 2021, there were 51,511,845 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.

TABLE OF CONTENTS

		Page
Part I	Financial Information	6
Item 1.	Unaudited Financial Statements	6
	Unaudited Condensed Consolidated Balance Sheets	6
	Unaudited Condensed Consolidated Statements Of Operations	7
	Unaudited Condensed Consolidated Statements Of Comprehensive Loss	8
	Unaudited Condensed Consolidated Statements Of Changes In Stockholders' Equity	9
	Unaudited Condensed Consolidated Statements Of Cash Flows	11
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
Part II	Other Information	45
Item 1	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
SIGNATURES		50

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 VYNE™, 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.

2

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “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 any described in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, could cause our future results to differ materially from those expressed in the forward-looking information:

•our ability to successfully complete a sale or out-license of our minocycline franchise on terms acceptable to us in a timely manner or at all;

•our ability to successfully execute our business strategy, including our ability to successfully develop our BETi platform for immuno-inflammatory diseases;

•our ability to raise substantial additional financing to fund our operations and continue as a going concern;

•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;

•disruptions related to COVID-19 or another pandemic, epidemic or outbreak of a contagious disease, on the ability of our suppliers to manufacture and 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;

•developments and projections relating to our competitors and our industry, including competing drugs and therapies, particularly if we are unable to receive exclusivity;

•our intentions and our ability to establish collaborations;

•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 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, including the matter with Padagis Israel Pharmaceuticals Ltd.;

•our ability to successfully challenge intellectual property claimed by others;

•estimates of our expenses, 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 litigation that may be initiated against us;

•our expectations regarding licensing, business transactions and strategic operations; and

•our future financial performance and liquidity.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

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Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in our Annual Report on Form 10-K as well as our other filings made with the Securities and Exchange Commission ("SEC"). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

VYNE THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	June 30		December 31
	2021		2020
Assets
Current Assets:
Cash and cash equivalents	$	103,406	$	57,563
Restricted cash	605		855
Investment in marketable securities (Note 6)	—		1,027
Trade receivables, net of allowances	10,868		15,819
Prepaid and other assets	5,268		4,591
Inventory (Note 7)	8,279		7,404
Total Current Assets	128,426		87,259
Property and equipment, net	501		555
Operating lease right-of-use assets (Note 10)	1,225		1,583
Prepaid and other assets	3,831		4,345
Total Assets	$	133,983	$	93,742
Liabilities and shareholders’ equity
Current Liabilities:
Trade payables	$	10,080	$	4,780
Accrued expenses (Note 4)	10,146		11,452
Debt (Note 8)	33,375		—
Employee related obligations	3,481		4,360
Operating lease liabilities (Note 10)	434		757
Other	104		104
Total Current Liabilities	57,620		21,453
Liability for employee severance benefits	206		312
Operating lease liabilities (Note 10)	812		853
Long-term debt (Note 8)	—		33,174
Other liabilities	452		457
Total Liabilities	59,090		56,249
Commitments and Contingencies (Note 11)	—		—
Shareholders' Equity:
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	—		—
Common stock: $0.0001 par value; 75,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 51,511,845 and 43,205,221 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	5		4
Additional paid-in capital	681,558		603,685
Accumulated deficit	(606,670)		(566,196)
Total Shareholders' Equity	74,893		37,493
Total Liabilities and Shareholders’ Equity	$	133,983	$	93,742

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

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VYNE THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Three months ended June 30				Six months ended June 30
	2021		2020		2021		2020
Revenues (Note 4)
Product sales	$	3,963	$	1,483	$	7,852	$	3,233
License revenues	—		10,000		—		10,000
Royalty revenues	295		205		525		205
Total Revenues	4,258		11,688		8,377		13,438
Cost of goods sold	795		216		1,396		487
Operating Expenses:
Research and development	6,409		13,119		12,742		29,072
Selling, general and administrative	15,835		26,459		32,451		51,874
Goodwill and in-process research & development impairments	—		54,345		—		54,345
Contingent Stock Right Remeasurement	—		84,726		—		84,726
Total Operating Expenses	22,244		178,649		45,193		220,017
Operating Loss	18,781		167,177		38,212		207,066
Interest expense	1,074		1,070		2,136		2,137
Other expense (income), net	69		(548)		126		(1,271)
Loss Before Income Tax	19,924		167,699		40,474		207,932
Income tax expense (benefit)	—		(259)		—		(259)
Net Loss	$	19,924	$	167,440	$	40,474	$	207,673
Loss per share basic and diluted	$	0.39	$	4.83	$	0.81	$	9.17
Weighted average shares outstanding - basic and diluted	51,411		34,663		50,162		22,656

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

6

VYNE THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars in thousands)

(Unaudited)

	Three months ended June 30				Six months ended June 30
	2021		2020		2021		2020
Net Loss	$	19,924	$	167,440	$	40,474	$	207,673
Other Comprehensive Loss:
Net unrealized (gains) losses from marketable securities	—		(43)		—		1
Losses on marketable securities reclassified into net loss	—		3		—		4
Total Other Comprehensive Loss	—		(40)		—		5
Total Comprehensive Loss	$	19,924	$	167,400	$	40,474	$	207,678

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

7

VYNE 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, 2020	9,120,078	$	1	$	328,156	$	(310,587)	$	5	$	17,575
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	—	—		—		(207,673)		(5)		(207,678)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	258,000	—		260		—		—		260
Stock-based compensation	—	—		12,527		—		—		12,527
Deemed dividend to warrants holders due to warrant modifications	—	—		41		(41)		—		—
Classification of stock awards to derivative liability	—	—		(975)		—		—		(975)
Issuance of common stock through a public offering, net of $3,903 issuance costs	7,776,875	1		53,648		—		—		53,649
Issuance of stock related to merger	24,765,999	2		196,168		—		—		196,170
BALANCE AT JUNE 30, 2020	41,920,952	$	4	$	589,825	$	(518,301)	$	—	$	71,528
BALANCE AT JANUARY 1, 2021	43,205,221	$	4	$	603,685	$	(566,196)	$	—	$	37,493
CHANGES DURING THE PERIOD:
Comprehensive loss	—	—		—		(40,474)		—		(40,474)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	254,351	—		403		—		—		403
Stock-based compensation	—	—		4,343		—		—		4,343
Issuance of common stock under at-the-market offering, net of $814 issuance costs	2,778,012	—		26,304		—		—		26,304
Issuance of common stock through a registered direct offering, net of $3,177 issuance costs	5,274,261	1		46,823		—		—		46,824
BALANCE AT JUNE 30, 2021	51,511,845	$	5	$	681,558	$	(606,670)	$	—	$	74,893

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

8

VYNE 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, 2020	15,375,282	$	2	$	420,434	$	(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	132,692	—		(43)		—		—		(43)
Stock-based compensation	—	—		10,768		—		—		10,768
Classification of stock awards to derivative liability	—	—		657		—		—		657
Issuance of common stock through a public offering, net of $3,903 issuance costs	7,776,875	1		53,648		—		—		53,649
Issuance of stock related to merger	18,636,103	1		104,361		—		—		104,362
BALANCE AT JUNE 30, 2020	41,920,952	$	4	$	589,825	$	(518,301)	$	—	$	71,528
BALANCE AT APRIL 1, 2021	51,386,596	$	5	$	679,642	$	(586,746)	$	—	$	92,901
CHANGES DURING THE PERIOD:
Comprehensive loss	—	—		—		(19,924)		—		(19,924)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	125,249	—		15		—		—		15
Stock-based compensation	—	—		1,901		—		—		1,901
BALANCE AT JUNE 30, 2021	51,511,845	$	5	$	681,558	$	(606,670)	$	—	$	74,893

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

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VYNE THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

	Six months ended June 30
	2021		2020
Cash Flows From Operating Activities:
Net Loss	$	40,474	$	207,673
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	55		187
Goodwill and in-process research & development impairments	—		54,345
Contingent stock right remeasurement	—		84,726
Changes in marketable securities and bank deposits, net	—		(142)
Changes in accrued liability for employee severance benefits, net of retirement fund profit	(108)		(21)
Stock-based compensation	4,343		12,527
Non-cash finance income, net	(150)		(833)
Changes in operating assets and liabilities, net of effects of businesses acquired:
Decrease (increase) in trade receivables, prepaid and other assets	4,266		(9,807)
Decrease (increase) in other non-current assets	876		(6,026)
Increase (decrease) in accounts payable and accruals	3,259		(10,908)
Increase in inventory	(875)		(4,445)
Net cash used in operating activities	(28,808)		(88,070)
Cash Flows From Investing Activities:
Purchase of fixed assets	—		(113)
Cash acquired through merger	—		38,641
Proceeds from sale and maturity of marketable securities	1,027		48,577
Net cash provided by investing activities	1,027		87,105
Cash Flows From Financing Activities:
Proceeds related to issuance of common shares through offerings, net of issuance costs	73,127		53,646
Proceeds related to issuance of stock for stock-based compensation arrangements, net	247		100
Net cash provided by financing activities	73,374		53,746
Increase in cash, cash equivalents and restricted cash	45,593		52,781
Effect of exchange rate on cash, cash equivalents and restricted cash	—		1
Cash, cash equivalents and restricted cash at beginning of the period	58,418		44,584
Cash, cash equivalents and restricted cash at end of the period	$	104,011	$	97,366
Cash and cash equivalents	$	103,406	$	96,511
Restricted cash	605		855
Total cash, cash equivalents and restricted cash shown in statement of cash flows	$	104,011	$	97,366
Supplementary information on investing and financing activities not involving cash flows:
Cashless exercise of warrants and restricted stock units	*		*
Issuance of shares under employee stock purchase plan	$	144	$	163
Additions to operating lease right of use assets	$	—	$	1,120
Additions to operating lease liabilities	$	—	$	1,120
Supplemental disclosure of cash flow information:
Interest received	$	11	$	298
Interest paid	$	1,936	$	1,946
Fair value of assets acquired	$	—	$	117,270
Less liabilities assumed	—		5,827
Net acquired (See “Note 3- Business combination”)	—		111,443
Less cash acquired	—		38,641
Merger net of cash acquired	$	—	$	72,802

*Represents an amount less than one thousand

10

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

11

VYNE Therapeutics Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 1 - NATURE OF OPERATIONS

VYNE Therapeutics Inc. ("VYNE" or the "Company") is a biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment. The Company currently has two commercial products, AMZEEQ® (minocycline) topical foam, 4%, and ZILXI® (minocycline) topical foam, 1.5%. As discussed below, the Company has initiated a process to explore a possible sale or license of its topical minocycline franchise.

Strategic Business Review

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 over the past 18 months during the commercial launches of both AMZEEQ and ZILXI, the current 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 has determined to initiate a process to explore a possible sale or license of its topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s 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.

By leveraging its drug development and clinical development capabilities and strong network of discovery and preclinical science partners, the Company will transition its strategic focus to develop therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. The Company expects to continue to invest in FMX114 for the treatment of mild to moderate atopic dermatitis and anticipates the first patient in its Phase 2a proof-of-concept study will be enrolled in the third quarter of 2021. The Company expects results from this study by the end of 2021. In addition, on August 12, 2021, the Company announced a transaction with In4Derm Limited, a company incorporated and registered in Scotland (“In4Derm”). In4Derm 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 Inhibitors (“BETi”) 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 In4Derm granted the Company an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing In4Derm’s BETi compounds, which are new chemical entities, in both topical (the “Topical BETi Option”) and oral (the “Oral BETi Option”) treatments in all fields for any disease, disorder or condition in humans. On August 6, 2021, the Company exercised the Topical BETi Option and the parties entered into a License Agreement granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of In4Derm’s BETi compounds identified to be suitable for topical administration in all fields. The Company paid a $1.0 million cash payment to In4Derm upon the execution of the Option Agreement and $0.5 million in connection with the exercise of the Topical BETi Option. Pursuant to the License Agreement, the Company has agreed to make cash payments to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the U.S. of up to $15.75 million for all indications. In addition, the Company currently expects to exercise the Oral BETi Option following the selection of a lead candidate for the program. Upon exercise of the exclusive Oral BETi Option, the parties will sign a license agreement (the “Oral License Agreement”), and the Company will be required to pay In4Derm a $4.0 million cash payment. The Oral License Agreement will include cash payments of up to $43.75 million payable to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the U.S. for all indications. The license agreements also provide for tiered royalty payments of up to 10% of net annual sales across licensed BETi products by the Company. In4Derm is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The initial BETi candidates that the Company plans to develop are VYN201 and VYN202. VYN201 is a pan-bromodomain or pan-BD BET inhibitor. It is a first-in-class “soft” pan-BD BET inhibitor that is designed to mitigate systemic drug exposure and will be developed for topical applications. The Company intends to progress VYN201 into rare, neutrophilic, dermatological

12

indications where there is significant unmet need due to a lack of indicated treatment options. The Company plans to enter this program into the clinic in 2022 after the prerequisite non-clinical safety assessments have been completed.

The second candidate, VYN202, is an orally-delivered, first-in-class BET inhibitor that is highly selective for Bromodomain 2 ("BD2"). Recent research has suggested that the majority of pro-inflammatory signaling via BET protein action is via interactions with BD2. By selectively inhibiting BD2, the Company believes VYN202 could have a more targeted anti-inflammatory effect with an improved benefit/risk profile. The Company views VYN202 as having significant potential as a novel, oral treatment for major immuno-inflammatory indications. Following the exercise of the Oral BETi Option, the Company intends to commence a IND-enabling non-clinical safety program for VYN202 and enter the clinic in 2022.

As the Company transitions from a commercial organization to one focused on research and development, the Company intends to streamline operations by eliminating the vast majority of planned expenditures supporting its commercial operations. Furthermore, the Company intends to reduce its workforce by terminating approximately 70 employees, which the Company expects to be completed by December 31, 2021. The Company expects to incur a one-time charge in the range of approximately $1.5 million to $2.0 million, excluding non-cash charges, in connection with this restructuring plan, consisting primarily of employee termination costs, including severance and other benefits. This charge is expected to be incurred during the quarter ending September 30, 2021 with related cash payments expected to be substantially paid out by December 31, 2021.

Reverse Merger

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

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

Reverse stock split and recasting of per-share amounts

On February 10, 2021, 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 made to the maximum number of shares issuable under the Company's 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

Unless otherwise noted, all common shares and per share amounts contained in the unaudited interim condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.

Topical Minocycline Franchise

In January 2020, the Company launched 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® for the treatment of inflammatory lesions of rosacea in adults. ZILXI became available in pharmacies nationwide in October 2020. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.

AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)™ that is also being used in the development of the Company’s product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating

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the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company held an end-of-Phase II meeting with the FDA in the fourth quarter of 2020.

Serlopitant

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

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 also launched ZILXI in the United States in October 2020 and commenced generating revenues in the fourth quarter of 2020. The Company’s activities prior to the commercial launches of AMZEEQ and ZILXI had primarily consisted of raising capital, developing product candidates, and performing research and development activities. Since inception, the Company has incurred recurring losses and negative cash flows from operations. For the six months ended June 30, 2021, the Company incurred a net loss of $40.5 million and used $28.8 million of cash in operations. As of June 30, 2021, the Company had cash, cash equivalents, restricted cash and investments of $104.0 million and an accumulated deficit of $606.7 million. The Company's outstanding debt under its Amended and Restated Credit Agreement at June 30, 2021 was $35.0 million. On August 11, 2021, the Company prepaid the entirety of its outstanding indebtedness, including a prepayment premium and accrued but unpaid interest, for a total amount of approximately $36.5 million.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. In addition, the commercial launches of both AMZEEQ and ZILXI have been negatively impacted by unfavorable payor decisions in March 2021 on product pricing. These conditions have impaired the Company's ability to generate revenue consistent with internal forecasts, which has had a negative impact on its financial condition and liquidity. The Company and its lenders discussed revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the Company’s strategic transition discussed above. Following such discussions, 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 has been terminated and the security interests thereunder will be terminated. As a result of the above, the Company determined that its projected cash flows from operations, combined with its cash balance after the debt prepayment, would not provide sufficient resources to fund its existing operations, for at least the next twelve months from the issuance of these financial statements.

As discussed above, the Company completed a strategic review of its business and has determined to initiate a process to explore a sale or license of its minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform. The Company will refocus its resources on its immuno-inflammatory pipeline and intends to support the FMX114 and the BETi development programs. Research and development activities for these programs, including preclinical and clinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully pivot to its research and development business strategy and develop commercially viable drug candidates and raise additional capital to finance its operations. The Company’s ability to continue as a going concern is contingent on its ability to sell or license its minocycline franchise, develop future commercially viable products and/or to raise sufficient working capital through either debt or equity financing. 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 the Company’s ability to continue as a going concern within one year after the date that its unaudited condensed consolidated financial statements are issued. The accompanying condensed

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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 successful sale or license of its minocycline franchise, positive results from clinical trials for FMX114, and the successful development and positive results from clinical trials for the BETi programs. Based on current plans and assumptions, the Company believes that absent sufficient proceeds received from a sale or license of the minocycline franchise, business development transactions or financing transactions, which are all beyond its control, it will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these financial statements. Accordingly, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations. Each of these factors are subject to uncertainty, and therefore, raise substantial doubt about the Company’s ability to continue as a going concern. Failure to successfully complete a sale or license of the minocycline franchise, develop the noted assets, and 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 financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

a.Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s 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. Certain prior period amounts have been reclassified to conform to current year presentation.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 4, 2021.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.

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 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 COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. 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 and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases, the development of new strains and the vaccination effort. 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, 2021 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. In 2020, 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

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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).

•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

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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”) and certain independent and specialty pharmacies (together, the “customers”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. The Company evaluates the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 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, 2021 were primarily generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for our minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. The Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 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 recognized the revenues from the upfront license fee when the license was transferred to the licensee and the licensee was 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, 2021 and 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 other expense (income), net in the accompanying condensed consolidated statements of operations. As of June 30, 2021 and June 30, 2020, the Company had no derivative instruments.

h.Fair value measurement

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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

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The 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 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 30		Six months ended June 30
	2021	2020	2021	2020
Outstanding stock options, RSUs and shares under the ESPP	5,378,428	3,743,846	5,365,232	3,020,509
Warrants	495,165	473,258	495,165	318,084

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

j.Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In December 2019, the Financial Accounting Standards Board ("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

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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 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 the Company.

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

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

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

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

During the six months ended June 30, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the condensed consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date.

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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:

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	49,800
Goodwill	4,545
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
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	(106,898)
Goodwill	$	4,545

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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 further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.5 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. There were no impairment charges in the three and six months ended June 30, 2021.

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

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

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	49,800
Fair value of identified intangible assets	$	49,800

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

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

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 further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $49.8 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. There were no impairment charges in the three and six months ended June 30, 2021.

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 9, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.

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

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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, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021, and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.

Pro Forma

The actual Menlo net loss included in the Company’s condensed 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, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

	Three months ended June 30, 2020		Six months ended June 30, 2020
(in thousands, except per share data)	(Unaudited)		(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	13,438
Net loss	$	167,441	$	205,082
Loss per share - basic and diluted	$	1.21	$	1.23
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	(14,931)
Acceleration of stock based compensation	—		(7,199)
Total Adjustments	$	—	$	(22,130)

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

NOTE 4 – REVENUE RECOGNITION

Product Sales

Product revenues for the three and six months ended June 30, 2021 were primarily generated from sales of AMZEEQ which was commercially launched in the United States in January 2020 and ZILXI which became available in pharmacies nationwide on October 1, 2020. The Company’s customers include a limited number of national and select regional distributors and certain independent and specialty pharmacies, together (the "customers"). The distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain

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control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. For the three months ended June 30, 2021, there were three major customers that each accounted for more than 10% of total product revenues and, as a group, represented 56% of total product revenues. For the six months ended June 30, 2021, there were four major customers that each accounted for more than 10% of total product revenues and, as a group, represented 70% of total product revenues. For the three months ended June 30, 2020, there were three major customers that each accounted for more than 10% of total product revenues and as a group, represented 100% of total product revenues. For the six months ended June 30, 2020, there were three major customers that each accounted for more than 10% of total product revenues and as a group, represented 99% of total product revenues.

Product Sales Provisions

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, described below.   The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its customers less provisions for (i) trade discounts and allowances, such as distributor fees and discounts for prompt payment, (ii) estimated rebates to third-party payers, patient co-pay assistance programs, chargebacks and other discount programs and (iii) reserves for expected product returns.

Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to trade receivables, net on the condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the condensed consolidated balance sheet. Provisions for revenue reserves described below reduced product revenues by $16.2 million and $5.9 million for the three months ended June 30, 2021 and June 30, 2020, respectively. Provisions for revenue reserves described below reduced product revenues by $31.8 million and $14.1 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The revenue reserve accrual at June 30, 2021 and December 31, 2020 was $7.6 million and $5.8 million, respectively, reflected in accrued expense in the consolidated balance sheet.

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

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

Product Returns: Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after 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) historical industry information regarding rates for comparable pharmaceutical products and product portfolios, (ii) external data with respect to inventory levels in the wholesale distribution channel, (iii) external data with respect to prescription demand for products and (iv) remaining shelf lives of products at the date of sale. The Company estimates that approximately 2% to 3% of product will be returned.

License Revenues

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

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the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. Outside of the license transferred, the Company does not have any additional performance obligations under the arrangement. In exchange for the license, the Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 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 license is considered functional IP as the licensee is able to use and benefit from the license without the continued involvement of the Company. There was no license revenue in the three months ended June 30, 2021. The Company recorded $10.0 million of license revenue in the three and six months ended June 30, 2020. The Company will also receive royalties on net sales of any licensed products, such royalties will be recognized in the period the sales or usage occurs under the royalties sales-and usage based exception. The Company has not recorded revenue related to the $1.0 million payment due upon receipt of marketing approval for the licensed product as such amount is constrained under the variable consideration guidance under ASC 606, Revenue from Contracts with Customers.

Contract Assets and Contract Liabilities 

The Company did not have any contract assets (unbilled receivables) related to product sales as of June 30, 2021 and December 31, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract assets (unbilled receivables) related to its license revenues as of June 30, 2021 and December 31, 2020.

The Company did not have any contract liabilities as of June 30, 2021 and December 31, 2020, 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 selling, general and administrative expenses.

Financing Component

The Company has elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Standard credit terms do not exceed 75 days.

Royalty Revenues 

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Revenues in the amount of $0.3 million and $0.5 million were recorded during the three and six months ended June 30, 2021, respectively. Revenues in the amount of $0.2 million were recorded during the three and six months ended June 30, 2020.

NOTE 5 - FAIR VALUE MEASUREMENT

The Company’s assets and liabilities that are measured at fair value as of December 31, 2020, are classified in the table below in one of the three categories described in "Note 2 - Fair value measurement" above:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Marketable securities	$	1,027	$	—	$	—	$	1,027

The Company sold its marketable securities during the six months ended June 30, 2021.

NOTE 6 - MARKETABLE SECURITIES

Marketable securities as of December 31, 2020 consist mainly of mutual funds securities. The debt securities are classified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in other comprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in the condensed consolidated statement of operations as other expense (income), net.

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Equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through other expense (income), net in the condensed consolidated statements of operations.

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2021		2020
Israeli mutual funds	$	—	$	1,027

As of June 30, 2021 and December 31, 2020 there were no available-for-sale debt securities.

The Company has considered factors regarding other than temporary impaired securities and determined that there are no securities with impairment that is other than temporary as of June 30, 2021 and December 31, 2020.

During the six months ended June 30, 2021 and June 30, 2020 the Company received aggregate proceeds of $1.0 million and $36.4 million, respectively, upon sale and maturity of marketable securities.

As of June 30, 2021 and December 31, 2020, there were no restricted marketable securities.

NOTE 7 – INVENTORY

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. The Company commenced capitalizing inventory for AMZEEQ and ZILXI upon FDA approval in October 2019 and May 2020, respectively. The Company periodically reviews its inventory levels and, if necessary, writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no inventory write-downs during the three and six months ended June 30, 2021 and June 30, 2020.

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2021		2020
Raw materials	$	3,466	$	4,042
Work-in-process	680		662
Finished goods	4,133		2,700
Total	$	8,279	$	7,404

NOTE 8 - DEBT

On July 29, 2019, Foamix entered into a Credit Agreement (the "Credit Agreement") to secure up to $50 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 million, before deducting offering expenses (see “Note 9- 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”), whereby the Company has guaranteed the indebtedness obligations of the borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. As of June 30, 2021 and December 31, 2020, $35.0 million was drawn under the Amended and Restated Credit Agreement. The Company did not incur the remaining $15.0 million under the Amended and Restated Credit Agreement.

The term loans available under the Amended and Restated Credit Agreement were comprised as follows: (a) $15 million that was funded on July 29, 2019 (the “Tranche 1 Loan”), (b) $20 million that was funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to $15 million that was available prior to September 30, 2020 (the “Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the NDA for AMZEEQ and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining arrangements with a third party for the commercial supply and manufacture of AMZEEQ. The Company did not incur the Tranche 3 Loan. Interest on the loans was 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

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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%.

The loans were scheduled to mature on July 29, 2024. However, the Company and its lenders discussed the revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the Company’s strategic transition discussed above. Following such discussions, 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 has been terminated and the security interests thereunder will be terminated. The Company reclassified the outstanding indebtedness as a current liability based on the conditions existing as of June 30, 2021.

In addition, on July 29, 2019, the lenders under the Credit Agreement were issued warrants to purchase up to an aggregate of 1,100,000 of Foamix ordinary shares, at an exercise price of $2.09 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, the exchange ratio was applied to the Warrants such that they became exercisable for 651,640 shares of the Company’s common stock, and the exercise price was adjusted to $3.53. Following the Phase 3 PN Trial results, the Warrants were further adjusted for the CSR and reverse stock split and they are currently exercisable for 495,165 shares of our common stock with an exercise price of $4.64 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 Company incurred offering expenses of $1.1 million in connection with transactions contemplated by the Credit Agreement and the Securities Purchase Agreement, which were allocated to the Warrants, shares and debt consistently with the allocation of proceeds. The Company incurred additional expenses in the amount of $0.3 million from the borrowing of Tranche 2 Loan, allocated only to the debt.

Debt issuance costs are recorded on the consolidated balance sheet as a reduction of liabilities.

Amounts allocated to the debt, net of issuance cost, are subsequently recognized at amortized cost using the effective interest method.

The fair value of the debt as of June 30, 2021 was $36.9 million and is categorized as Level 3. The valuation was performed by applying the income approach, under which the contractual present value method was used. The estimation of risk adjusted discount curve was based on public information reported in the financial statements of publicly traded venture lending companies.

During the three months ended June 30, 2021 and June 30, 2020, the Company recorded interest expense of $1.0 million and discount cost of $0.1 million. During the six months ended June 30, 2021 and June 30, 2020, the Company recorded interest expense of $1.9 million and discount cost of $0.2 million.

NOTE 9 – SHARE CAPITAL

Preferred stock

As of June 30, 2021, the Company's Certificate of Incorporation, as amended, authorizes the Company to issue 20,000,000 shares of preferred stock, par value $0.0001 per share. There were no shares of preferred stock issued and outstanding as of June 30, 2021 and December 31, 2020.

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.

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 one-for-four reverse stock split in February 2021. On July 19,

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2021, the Company held its annual 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 Amendment to its 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, effective as of July 19, 2021. Accordingly, the Company is authorized to issue 150,000,000 shares of common stock, par value $0.0001 per share.

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

Issuance of stock

On February 1, 2019, the Company entered into a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co., or 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 our sales agent. The issuance and sale of shares of common stock by us pursuant to the Sales Agreement are deemed an "at-the-market" offering under the Securities Act. 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. From January 1, 2021 through January 25, 2021, the Company issued and sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 pursuant to the Sales Agreement for $26.3 million in net proceeds. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.

On January 26, 2021, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale of an aggregate of 5,274,261 shares of common stock of the Company, at a purchase price of $9.48 per share in a registered direct offering. The offering was completed on January 28, 2021 and the Company received approximately $46.8 million in net proceeds, after deducting placement agent fees and other offering expenses.

On June 9, 2020, the Company completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $7.40 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.

Pursuant to the completion of the merger, on March 9, 2020, the Company issued 36,550,335 shares to Foamix shareholders. On April 6, 2020, pursuant to the terms of the CSR Agreement, the Company issued 74,544,413 shares to Foamix shareholders, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021.

Warrants

In connection with entering into the Credit Agreement on July 29, 2019, Foamix issued to the lenders Warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, later exchanged to Warrants to purchase up to 1,980,660 shares of Menlo’s common stock, adjusted retrospectively to 495,165 shares of common stock upon the reverse stock split effective February 12, 2021. Upon the closing of the Merger, each Warrant received one CSR as described in Note 3- Business Combinations. The Warrants were exercisable immediately following the closing of the Credit Agreement, subject to the terms of the warrant, and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants’ expiration date, if in the money.

The exchange of Warrants from Foamix warrants to Menlo warrants and the additional CSR was accounted for as a modification, by analogy, from the modification’s guidance under ASC 260-10-S99-2. The Company assessed the significance of the modification of the Warrants by comparing the fair value of the Warrants immediately before and after the amendments. In its assessment, it also considered additional qualitative factors. The Company concluded that the change of terms was not significant. Therefore, the incremental fair value, in the amount of $41,000, of the modified Warrants over the original ones (as of modification date) was recognized in retained earnings as a deemed dividend to the Warrants holders in the six months ended June 30, 2020.

Share-based compensation

Equity incentive plans:

Upon closing of the Merger, the Company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of June 30, 2021, 1,240,195 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan") in January 2018. In January 2020, the number of shares reserved under the 2018 Plan automatically

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increased by 750,000 shares of common stock pursuant to the terms thereof. As of June 30, 2021, 519,928 shares remain issuable under the 2018 Plan.

Employee Share Purchase Plan:

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

As of June 30, 2021, 2,261,108 shares remain available for grant under the ESPP.

During the six months ended June 30, 2021, 42,989 shares were issued to employees pursuant to the ESPP. During the six months ended June 30, 2020, 61,031 Foamix ordinary shares were purchased by Foamix employees pursuant to the ESPP prior to the Merger. Such shares were later exchanged for 36,155 shares of the Company's common stock and one CSR in the Merger, adjusted retrospectively to 9,038 shares of common stock and one CSR upon the reverse stock split effective February 12, 2021.

Options and RSUs granted to employees and directors:

In the six months ended June 30, 2021 and 2020, the Company granted options and RSU as follows:

	Six months ended June 30, 2021
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	957,682	$5.02-$11.08	1 year -4 years	10 years
RSUs	366,678	—	1 year -4 years	—

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	1,195,611	$7.80-$12.52	1 year -4 years	10 years
RSUs	647,427	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merger grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

The fair value of options and RSUs granted to employees and directors during the six months ended June 30, 2021 and the six months ended June 30, 2020 was $7.5 million and $11.4 million, respectively.

The fair value of RSUs granted is based on the share price on the grant date.

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

	Six months ended June 30
	2021		2020
Dividend yield	0	%	0	%
Expected volatility	68.38%-69.12%		60.44%-69.83%
Risk-free interest rate	0.5%-1.07%		0.44%-1.26%
Expected term	6 years		6 years

Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged for stock options and RSUs of Menlo’s common stock according to the Exchange Ratio. In addition, for each option and RSU the holder received a CSR as

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described in Note 3- Business Combination. This transaction was considered by the company to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded immaterial incremental compensation expense for the three months ended March 31, 2020. As described in Note 3 - Business Combination, 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 conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $0.5 million and $1.4 million for the three and six months ended June 30, 2021, respectively and $9.3 million for the three and six months ended June 30, 2020. As of June 30, 2021 there is $1.9 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 2 years.

Awards granted to holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the unaudited condensed consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $0.5 million and $1.0 million million for the three and six months ended June 30, 2020. There was no incremental compensation expense for the three and six months ended June 30, 2021. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that 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. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital.

Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan.

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30
(in thousands)	2021		2020		2021		2020
Research and development expenses	$	442	$	3,050	$	900	$	3,566
Selling, general and administrative	1,459		7,718		3,443		8,961
Total	$	1,901	$	10,768	$	4,343	$	12,527

NOTE 10 – OPERATING LEASE

Operating lease agreements

The Company has operating leases for corporate offices and vehicles. The properties primarily relate to the Company’s principal executive office in Bridgewater, New Jersey and office space in Israel.

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 includes 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 Lease Amendment is due to expire on August 31, 2022.

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

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The lease agreement for the office space in Israel is a one year lease that expires in December 2021. Given the short-term nature of the lease term, the Company did not recognize a right-of-use asset and liability.

Additionally, the Company entered into operating lease agreements in connection with the leasing of vehicles. The lease periods are generally for three years.

Maturities of lease liabilities are as follows:

(in thousands)
2021	$	458
2022	761
2023	151
Total lease payments	1,370
Less imputed interest	124
Total lease liability	$	1,246

As of June 30, 2021, the Company had a lien in the amount of $0.6 million on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2021, no claims or actions are pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

As previously disclosed, on June 30, 2021, the Company received a paragraph IV certification notice (the “Notice”) from Padagis Israel Pharmaceuticals Ltd. (f/k/a Perrigo Israel Pharmaceuticals Ltd. (“Padagis”)) advising that Padagis has submitted to the U.S. Food and Drug Administration (the “FDA”) an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of the Company’s product AMZEEQ® (minocycline) topical foam, 4% in the United States prior to the expiration of the Company’s U.S. patents Nos. 8,865,139, 8,945,516, 8,992,896, 9,675,700, 10,086,080, 10,137,200, 10,213,512, 10,265,404, 10,398,641, 10,517,882, 10,821,187, and 10,849,847 (the “Listed Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, otherwise known as the “Orange Book.” The Notice alleges that the Listed Patents are invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Padagis’s ANDA.

On August 9, 2021, the Company initiated a patent infringement suit against Padagis in the United States District Court for the District of Delaware arising from Padagis’s ANDA filing with the FDA. The patent infringement suit asserts each of the Listed Patents. As a result, under applicable law, the FDA cannot grant final approval to Padagis’s ANDA before December 30, 2023, or a court decision in Padagis’s favor. VYNE is seeking, among other relief, an order that the effective date of any FDA approval of Padagis’s ANDA be no earlier than the expiration of the Listed Patents, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

The Company intends to vigorously defend its intellectual property rights, including the Listed Patents.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020. In this Quarterly Report on Form 10-Q, unless otherwise indicated, all references to the “Company,” “we,” “us” and “our” or similar terms refer to VYNE Therapeutics Inc. The disclosure set forth in this section reflects the Company's 1-for-4 reverse stock split, which was effected on February 12, 2021. Accordingly, all share amounts and per share amounts have been adjusted.

Company Overview

Beginning in the second quarter of 2021, we conducted a review of our commercial and research and development portfolio to determine how to optimally deploy capital and drive shareholder value. During the course of this review, we 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 over the past 18 months during the commercial launches of both AMZEEQ and ZILXI, the current payor landscape, as well as the costs to develop each of our pipeline products. During this process, we evaluated several strategic options, including the acquisition of marketed assets, out-licensing our approved products outside of the United States, and possible partnering or co-development relationships with interested parties. Following our review, we have determined to initiate a process to explore a possible sale or license of our topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s 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.

By leveraging our drug development and clinical development capabilities and strong network of discovery and preclinical science partners, we will transition our strategic focus to develop therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. We expect to continue to invest in FMX114 for the treatment of mild to moderate atopic dermatitis and anticipate the first patient in our Phase 2a proof-of-concept study will be enrolled in the third quarter of 2021. We expect results from this study by the end of 2021. In addition, on August 12, 2021, we announced a transaction with In4Derm Limited, a company incorporated and registered in Scotland (“In4Derm”). In4Derm 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 Inhibitors (“BETi”) 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 In4Derm granted us an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing In4Derm’s BETi compounds, which are new chemical entities, in both topical (the “Topical BETi Option”) and oral (the “Oral BETi Option”) treatments in all fields for any disease, disorder or condition in humans. On August 6, 2021, we exercised the Topical BETi Option and the parties entered into a License Agreement granting VYNE a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of In4Derm’s BETi compounds identified to be suitable for topical administration in all fields. We paid a $1.0 million cash payment to In4Derm upon the execution of the Option Agreement and $0.5 million in connection with the exercise of the Topical BETi Option. Pursuant to the License Agreement, we have agreed to make cash payments to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the U.S. of up to $15.75 million for all indications. In addition, we currently expect to exercise the Oral BETi Option following the selection of a lead candidate for the program. Upon exercise of the exclusive Oral BETi Option, the parties will sign a license agreement (the “Oral License Agreement”), and we will pay In4Derm a $4.0 million cash payment. The Oral License Agreement will include cash payments of up to $43.75 million payable to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the U.S. for all indications. The license agreements also provide for tiered royalty payments of up to 10% of net annual sales across licensed BETi products by VYNE. In4Derm is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The initial BETi candidates that we plan to develop are VYN201 and VYN202. VYN201 is a pan-bromodomain or pan-BD BET inhibitor. It is a first-in-class “soft” pan-BD BET inhibitor that is designed to mitigate systemic drug exposure and will be developed for topical applications. We intend to progress VYN201 into rare, neutrophilic, dermatological indications where there is significant unmet need due to a lack of indicated treatment options. We plan to enter this program into the clinic in 2022 after the prerequisite non-clinical safety assessments have been completed.

The second candidate, VYN202, is an orally-delivered, first-in-class BET inhibitor that is highly selective for Bromodomain 2 ("BD2"). Recent research has suggested that the majority of pro-inflammatory signaling via BET protein action is via interactions with BD2. By selectively inhibiting BD2, we believe VYN202 could have a more targeted anti-inflammatory effect with an improved benefit/risk profile. We view VYN202 as having significant potential as a novel, oral treatment for major

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immuno-inflammatory indications. Following the exercise of the Oral BETi Option, we intend to commence a IND-enabling non-clinical safety program for VYN202 and enter the clinic in 2022.

As we transition from a commercial organization to one focused on research and development, we intend to streamline operations by eliminating the vast majority of planned expenditures supporting our commercial operations. Furthermore, we intend to reduce our workforce by terminating approximately 70 employees, which we expect to be completed by December 31, 2021. We expect to incur a one-time charge in the range of approximately $1.5 million to $2.0 million, excluding non-cash charges, in connection with this restructuring plan, consisting primarily of employee termination costs, including severance and other benefits. This charge is expected to be incurred during the quarter ending September 30, 2021 with related cash payments expected to be substantially paid out by December 31, 2021.

Key Developments

Below is a summary of selected key developments affecting our business that have occurred since December 31, 2020:

•From January 1, 2021 through January 25, 2021, the Company issued and sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 for $26.3 million in net proceeds pursuant to a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co. ("Cantor Fitzgerald") through an at-the-market equity offering program under which Cantor Fitzgerald acted as our sales agent. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.

•On January 21, 2021, the Company announced the execution of a contract with CVS Caremark ("Caremark"), one of the largest pharmacy benefit managers in the U.S., with respect to AMZEEQ and ZILXI. In late March 2021, Caremark informed the Company that it decided to not include these products, and other new branded comparator drugs, on its national formulary for 2021. Certain custom plans under the Caremark umbrella have decided to add the Company's drugs to their respective formularies. This could have an unfavorable pricing impact in the future.

•On January 28, 2021, the Company completed a registered direct offering of 5,274,261 shares of common stock at a price of $9.48 per share. The net proceeds of the offering were approximately $46.7 million, after deducting placement agent fees and other offering expenses.

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

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

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

•Tyler Zeronda was appointed as our interim Chief Financial Officer and Treasurer, effective as of June 18, 2021, following the resignation of Andrew Saik.

•On July 19, 2021, the Company amended its 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. The increase in the number of authorized shares was approved by the holders of a majority of the outstanding shares of common stock at the Company's annual meeting of stockholders held on July 19, 2021.

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•On August 9, 2021, we initiated a patent infringement suit against Padagis Israel Pharmaceuticals Ltd. (f/k/a Perrigo Israel Pharmaceuticals Ltd. (“Padagis”)) in the United States District Court for the District of Delaware arising from Padagis’s ANDA filing with the FDA. The patent infringement suit asserts each of the patents related to AMZEEQ listed in the Orange Book (the “Listed Patents”). As a result, under applicable law, the FDA cannot grant final approval to Padagis’s ANDA before December 30, 2023, or a court decision in Padagis’s favor. VYNE is seeking, among other relief, an order that the effective date of any FDA approval of Padagis’s ANDA be no earlier than the expiration of the Listed Patents, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

•On August 11, 2021, the Company prepaid its outstanding indebtedness in addition to a 4% prepayment fee and accrued but unpaid interest. Following the prepayment, the Amended and Restated Credit Agreement has been terminated and the security interests thereunder will be terminated. See "Part I—Item 1. Unaudited Condensed Consolidated Financial Statements—Note 8. Debt."

•On August 12, 2021, we announced a licensing arrangement with In4Derm, giving us access to their library of novel BETi compounds. See "—Company Overview."

•On August 12, 2021, we announced that we have initiated a process to explore a sale or license of our topical minocycline franchise. In addition, we will refocus our resources on our immuno-inflammatory development programs, including the compounds that we licensed from In4Derm. See “—Company Overview.”

Financial Overview

We have incurred net losses since our inception. Until the first quarter of 2020, when we commenced commercial operations, our business activities were primarily limited to developing product candidates, raising capital and performing research and development activities. As of June 30, 2021, we had an accumulated deficit of $606.7 million. We recorded net losses of $19.9 million and $167.4 million for the three months ended June 30, 2021 and 2020, respectively.

Our capital resources and business efforts have largely been focused on activities relating to the commercialization of AMZEEQ and ZILXI and advancing our product candidates and pipeline. As discussed above, we completed a strategic review of our business and have determined to explore a possible sale or license of our minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform. We will refocus our resources on our immuno-inflammatory pipeline and expect to support the continued development of FMX114 and the BETi research and development programs. Research and development activities for these programs, including preclinical and clinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on our ability to successfully execute our business strategy and develop our drug candidates and raise additional capital to finance operations. Our failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies.

Components of Operating Results

Revenues

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

We received FDA approval for AMZEEQ on October 18, 2019 and launched AMZEEQ in the United States in January 2020. We commercially launched ZILXI on October 1, 2020. We have generated product revenue of $7.9 million for the six months ended June 30, 2021. We will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval. Our ability to generate revenues from sales will depend on the successful commercialization of our drug products AMZEEQ and ZILXI and any other product candidates that receive marketing approval.

Historically, we have generated revenues under development and license agreements including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to Leo Pharma A/S ("LEO"). In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to the suspension of the manufacturing of Finacea by LEO, following inadequate supply of quality-compliant batches of the API used in such product. In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sale in the United States. In the six months ended June 30, 2021 we received royalties of $0.5 million.

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

Additionally, on April 23, 2020, we entered into a licensing agreement with Cutia for AMZEEQ as well as certain of our 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. We will supply the finished licensed products to Cutia for clinical and commercial use. We received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 30, 2020) and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. We will also receive royalties on net sales of any licensed products pursuant to the agreement. There was no license revenue for the six months ended June 30, 2021.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2021 and 2020 were approximately $1.4 million and $0.5 million, respectively.

Our gross margin percentage of 82% and 85% was favorably impacted during the six months ended June 30, 2021 and June 30, 2020, respectively, by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2021 and June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 80% and 80%, respectively.

Cost of goods sold expenses consist primarily of:

◦third party expenses incurred in manufacturing product for sale;

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

◦other costs associated with delivery and manufacturing of product.

Operating Expenses

Research and Development Expenses

Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI, serlopitant, FCD105 and FMX114. Our total research and development expenses for the six months ended June 30, 2021 and 2020 were approximately $12.7 million and $29.1 million, respectively. We charge all research and development expenses to operations as they are incurred.

Research and development expenses consist primarily of:

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

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

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

◦facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs;

◦costs associated with the creation, development and protection of intellectual property;

◦other costs associated with preclinical and clinical activities and regulatory operations; and

•materials and manufacturing costs related to commercial production prior to FDA approval.

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Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2021 and 2020 were approximately $32.5 million and $51.9 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;

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

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

•facility, information technology and depreciation expenses.

Interest Expense

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

Other Expense, net

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

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception. We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any other product, if approved in the future, generates adequate revenues for us to reach profitability. As of December 31, 2020, we had federal and state net operating loss carryforwards of $243.2 million and $66.3 million, respectively, of which $44.3 million and $66.3 million of these carryforwards will begin to expire in 2031 for federal and state purposes, respectively. As of December 31, 2020, we had federal and state research and development tax credit carryforwards of $6.2 million and $1.2 million, respectively. The federal credits begin to expire in 2031 and the California research credits have no expiration dates. As of December 31, 2020, the company had $198.9 million in federal and state NOLs with no limited period of use. There are no significant updates through June 30, 2021.

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.

Results of Operations

Comparison of the Three-Month Periods Ended June 30, 2021 and 2020

Revenue 

Revenues totaled $4.3 million and $11.7 million for the three months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021, our revenue consisted of $4.0 million of product sales and $0.3 million of royalty revenue. For the three months ended June 30, 2020, revenues consisted of $1.5 million of product sales, $0.2 million of royalty revenue and $10.0 million of license revenue.

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The increase in product sales is due to the ZILXI product launch in October 2020 and an increase in demand for AMZEEQ. The decrease in license revenue for the three months ended June 30, 2021 as compared to license revenue for the three months ended June 30, 2020 is due to the upfront cash payment received in 2020 under the licensing agreement with Cutia for the sale and marketing of our topical minocycline products in China.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on our operations. Access to healthcare providers has been limited through the second quarter of 2021, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. 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 and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases, the development of new strains and the vaccination effort

Cost of Goods Sold

Cost of goods sold was $0.8 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively. The increase in cost of goods sold is primarily due to an increase in sales volume.

Our gross margin percentage was 80% for the three months ended June 30, 2021. Our gross margin percentage of 85% for the three months ended June 30, 2020 was favorably impacted by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the three months ended June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 80%.

Research and Development Expenses

Our research and development expenses for the three months ended June 30, 2021 were $6.4 million, representing a decrease of $6.7 million, or 51.1%, compared to $13.1 million for the three months ended June 30, 2020. Employee-related expenses decreased $4.6 million primarily due to severance costs incurred in 2020 due to the Merger, including stock based compensation. Clinical trial and manufacturing expenses decreased with the completion of FCD105 and serlopitant clinical trials and the product launches of AMZEEQ and ZILXI during 2020.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended June 30, 2021 were $15.8 million, representing a decrease of $10.6 million, or 40.2%, compared to $26.5 million for the three months ended June 30, 2020. Employee-related expenses decreased by $8.5 million primarily due to severance costs incurred in 2020 due to the Merger. Professional services spend decreased as these expenses were incurred in 2020 as a result of the Merger.

Interest Expense

Interest expense for the three months ended June 30, 2021 and June 30, 2020 was $1.1 million.

Other Expense (Income), net

Other expense (income), net for the three months ended June 30, 2021 was $0.1 million of expense as compared with $0.5 million of income for the three months ended June 30, 2020.

Income Taxes

During the three months ended June 30, 2021 there was no income tax expense. Income tax benefit for the three months ended June 30, 2020 was $0.3 million.

Comparison of the Six-Month Periods Ended June 30, 2021 and 2020

Revenue 

Revenues totaled $8.4 million and $13.4 million for the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021, our revenue consisted of $7.9 million of product sales and $0.5 million of royalty revenue. For the six months ended June 30, 2020, revenues consisted of $3.2 million of product sales, $0.2 million of royalty revenue and $10.0 million of license revenue.

The increase in product sales is due to the ZILXI product launch in October 2020 and an increase in demand for AMZEEQ. The decrease in license revenue for the six months ended June 30, 2021 as compared to license revenue for the six months ended

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June 30, 2020 is due to the upfront cash payment received in 2020 under the licensing agreement with Cutia for the sale and marketing of our topical minocycline products in China.

Cost of Goods Sold

Cost of goods sold was $1.4 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively. The increase in cost of goods sold is primarily due to an increase in sales volume.

Our gross margin percentage of 82% and 85% for the six months ended June 30, 2021 and June 30, 2020, respectively, was favorably impacted by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2021 and June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 80% and 80%, respectively.

Research and Development Expenses

Our research and development expenses for the six months ended June 30, 2021 were $12.7 million, representing a decrease of $16.3 million, or 56.2%, compared to $29.1 million for the six months ended June 30, 2020. Employee-related expenses decreased $9.6 million primarily due to severance costs incurred in 2020 due to the Merger including stock based compensation. Clinical trial and manufacturing expenses decreased with the completion of FCD105 and serlopitant clinical trials and the product launches of AMZEEQ and ZILXI during 2020.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2021 were $32.5 million, representing a decrease of $19.4 million, or 37.4%, compared to $51.9 million for the six months ended June 30, 2020. Employee-related expenses decreased by $13.6 million primarily due to severance costs incurred in 2020 due to the Merger, including stock based compensation. Professional services spend decreased as these expenses were incurred in 2020 as a result of the Merger.

Interest Expense

Interest expense for the six months ended June 30, 2021 and June 30, 2020 was $2.1 million.

Other Expense (Income), net

Other expense (income), net for the six months ended June 30, 2021 was $0.1 million of expense as compared with $1.3 million of income for the six months ended June 30, 2020. Other income decreased primarily due to a decrease in gains on derivative liabilities.

Income Taxes

During the six months ended June 30, 2021 there was no income tax expense. Income tax benefit for the six months ended June 30, 2020 was $0.3 million.

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 also launched ZILXI in the United States in October 2020 and commenced generating revenues in the fourth quarter of 2020. The Company’s activities prior to the commercial launches of AMZEEQ and ZILXI had primarily consisted of raising capital, developing product candidates, and performing research and development activities. Since inception, the Company has incurred recurring losses and negative cash flows from operations. As of June 30, 2021, we had cash, cash equivalents, restricted cash and investments of $104.0 million. The outstanding debt under our Amended and Restated Credit Agreement at June 30, 2021 was $35.0 million. On August 11, 2021, we prepaid the entirety of our outstanding indebtedness, including a prepayment premium and accrued but unpaid interest, for a total amount of approximately $36.5 million.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. In addition, the commercial launches of both AMZEEQ and ZILXI have been negatively impacted by unfavorable payor decisions in March 2021 on product pricing. These conditions have impaired our ability to generate revenue consistent with internal forecasts, which has had a negative impact on our financial condition and liquidity. The Company and its lenders discussed revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the

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Company’s strategic transition discussed above. Following such discussions, 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 has been terminated and the security interests thereunder will be terminated. See "Part I—Item 1. Unaudited Condensed Consolidated Financial Statements—Note 1. Nature of Operations—Liquidity and Capital Resources and —Note 8. Debt."

As discussed above, the Company completed a strategic review of its business and has determined to initiate a process to explore a sale or license of its minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform. The Company will refocus its resources on its immuno-inflammatory pipeline and intends to support the FMX114 and the BETi development programs. Research and development activities for these programs, including preclinical and clinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully pivot to its research and development business strategy and develop commercially viable drug candidates and raise additional capital to finance its operations. The Company’s ability to continue as a going concern is contingent on its ability to sell or license its minocycline franchise, develop future commercially viable products and/or to raise sufficient working capital through either debt or equity financing. 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 the Company’s ability to continue as a going concern within one year after the date that its unaudited condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including the successful sale or license of its minocycline franchise, positive results from clinical trials for FMX114, and the successful development and positive results from clinical trials for the BETi programs. The Company will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of its June 30, 2021 financial statements. Based on its plans to conduct a Phase 2b clinical trial for FMX114 (assuming positive results in the Phase 2a study) and progress both the topical and oral BETi programs into the clinic in 2022, the Company currently believes it has sufficient cash and cash equivalents to fund its operations through the end of the second quarter of 2022. This assumes that operating expenses will be significantly reduced in connection with the disposition of the minocycline franchise and projected clinical trial costs. This excludes potential proceeds received from a sale or license of the minocycline franchise, business development transactions or financing transactions which are all beyond the Company’s control. As such, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations. Each of these factors are subject to uncertainty, and therefore, raise substantial doubt about the Company’s ability to continue as a going concern. Failure to successfully complete a sale or license of the minocycline franchise, develop the noted assets, and 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.

Summary Statement of Cash Flows

The following table summarizes our statement of cash flows for the six months ended June 30, 2021 and 2020:

	Six months ended June 30
	2021		2020
	(in thousands of U.S. dollars)
Net cash (used in) / provided by:
Operating activities	$	(28,808)	$	(88,070)
Investing activities	1,027		87,105
Financing activities	$	73,374	$	53,746

Cash Used in Operating Activities

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization, share-based compensation, goodwill and in-process research and development impairment, and contingent stock right remeasurement.

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Net cash used in operating activities was $28.8 million in the six months ended June 30, 2021, compared to $88.1 million in the six months ended June 30, 2020. The decrease was attributable primarily to increases in revenues with the launch of AMZEEQ and ZILXI in January 2020 and October 2020, respectively, as well as decreased costs associated with the Merger.

Cash Used in (Provided by) Investing Activities

Net cash provided by investing activities was $1.0 million in the six months ended June 30, 2021, compared to $87.1 million in the six months ended June 30, 2020. The change was primarily attributable to the cash acquired through the Merger and a decrease in investments in bank deposits and marketable securities in the six months ended June 30, 2020.

Cash Provided by Financing Activities

There was $73.4 million provided by financing activities in the six months ended June 30, 2021, compared to $53.7 million in the six months ended June 30, 2020. The increase was attributable to proceeds from the offering of common stock in January 2021, along with the exercise of options and issuance of shares under our equity incentive plan.

Cash and Funding Sources

Our sources of liquidity in the six months ended June 30, 2021 consisted primarily of proceeds from the issuance of common stock under the at-the-market offering and the registered direct offering in January 2021 and sales of AMZEEQ and ZILXI.

Our sources of liquidity in the six months ended June 30, 2020 consisted primarily of cash and investments acquired in the Merger.

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

Funding Requirements

Our present and future funding requirements will depend on many factors, including, among other things:

•the amount of proceeds, if any, received from the possible sale or license of the minocycline franchise, other business transactions or financing activities;

•our ability to reduce selling, marketing and patent-related activities undertaken in connection with the commercialization of AMZEEQ, ZILXI, as well as costs involved to support an effective sales and marketing organization as we go through the divestiture process;

•the progress, timing and completion of preclinical testing and clinical trials for pipeline product candidates, including FMX114, VYN201 and VYN202;

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

•the 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.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as

39

well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 4, 2021.

While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results. These policies relate to the more significant areas involving management’s judgments and estimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

COVID-19

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. 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 and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases, the development of new strains and the vaccination effort. 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, 2021 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. In 2020, the Company recorded impairments of goodwill and certain indefinite-lived intangibles; however, these impairments were unrelated to the impact of COVID-19 (See “Note 3 – Business Combination” for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Revenue Recognition

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

We identify the performance obligations included within the agreement and evaluate which performance obligations are distinct. Upfront payments for licenses are evaluated to determine if the license is capable of being distinct from the obligations to participate on certain development and/or commercialization committees with the collaboration partners and supply manufactured drug product for clinical trials. For performance obligations that are satisfied over time, we utilize the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. We periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.

Milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive event. Milestone payments are estimated and included in the transaction price when we determine that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

Business Acquisition

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

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

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

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

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

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

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

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

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

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

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

Asset Impairment

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

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we are required to indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with our directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of June 30, 2021 and December 31, 2020.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

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Recently Issued and Adopted Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 2, “Significant Accounting Policies” in the Notes to Unaudited Interim Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements not yet adopted, and their expected impact on our financial position and results of operations.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and Item 10 of Regulation S-K. As such, we are not required to provide the information set forth in this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021 our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the three months ended June 30, 2021 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2021, no claims or actions are pending against the Company that, in the opinion in management, are likely to have a material adverse effect on the Company.

As previously disclosed, on June 30, 2021, the Company received a paragraph IV certification notice (the “Notice”) from Padagis Israel Pharmaceuticals Ltd. (f/k/a Perrigo Israel Pharmaceuticals Ltd. (“Padagis”)) advising that Padagis has submitted to the U.S. Food and Drug Administration (the “FDA”) an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of the Company’s product AMZEEQ® (minocycline) topical foam, 4% in the United States prior to the expiration of the Company’s U.S. patents Nos. 8,865,139, 8,945,516, 8,992,896, 9,675,700, 10,086,080, 10,137,200, 10,213,512, 10,265,404, 10,398,641, 10,517,882, 10,821,187, and 10,849,847 (the “Listed Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, otherwise known as the “Orange Book.” The Notice alleges that the Listed Patents are invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Padagis’s ANDA.

On August 9, 2021, the Company initiated a patent infringement suit against Padagis in the United States District Court for the District of Delaware arising from Padagis’s ANDA filing with the FDA. The patent infringement suit asserts each of the Listed Patents. As a result, under applicable law, the FDA cannot grant final approval to Padagis’s ANDA before December 30, 2023, or a court decision in Padagis’s favor. VYNE is seeking, among other relief, an order that the effective date of any FDA approval of Padagis’s ANDA be no earlier than the expiration of the Listed Patents, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

The Company intends to vigorously defend its intellectual property rights, including the Listed Patents

1A. Risk Factors.

Information about our risk factors is contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 4, 2021. As of June 30, 2021 there have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K, except as set forth below.

Risks Related to our Business Strategy

Our recently announced decision to sell or license our commercial business may not result in a successful transaction or create any shareholder value. Uncertainty regarding a potential transaction may adversely impact our business, financial condition, results of operations and stock price.

In August 2021, we announced that we completed a strategic review of our business to determine how to optimally deploy capital and drive shareholder value. After completing an exhaustive review, we determined to initiate a process to sell or license our commercial business, including AMZEEQ and ZILXI. We may not identify or effect any transaction to divest our commercial assets in a timely manner, or at all, and any transaction we do undertake may not be on terms that are favorable to us or that yield any value for shareholders. Further, the anticipated benefits of eliminating these assets from our portfolio, including anticipated expense reductions, may not be realized at expected levels, or at all. Identifying and completing any potential transaction depends on a number of factors, many of which are beyond our control, including, among other things, market conditions, the interest of third parties in a potential transaction with us on terms that are acceptable and the availability of financing for potential buyers on reasonable terms, if required. If we fail to consummate a transaction to sell or otherwise divest our commercial business or if such transaction is significantly delayed beyond our expected timeline, our results of operations may be adversely affected or we may not be able to adequately fund our clinical development programs on the anticipated timelines, or at all.

The process of divesting these assets will be time consuming and disruptive to our business operations and could have a negative impact on our stock price for the following reasons:

•We could incur substantial expenses associated with identifying, evaluating and effecting a divestiture, including those related to severance pay, vendor cancellation fees, legal, accounting and financial advisory fees and other fees or costs that may be payable regardless of whether we successfully divest these assets;

•We may experience a negative impact on our ability to attract, retain and motivate key personnel;

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•Uncertainty regarding any developments related to our plans to divest our commercial assets and any other perceived uncertainties related to the future of our company; and

•The attention of management and the Board of Directors may be diverted from our business.

Our business is dependent on the successful development of our drug candidate FMX114 and the advancement of our BETi platform.

Following the determination to pursue a sale or license of its commercial business, we are now focused on the development of treatments for immuno-inflammatory diseases of high unmet medical need. This includes the continued development of FMX114 for the treatment of mild-to-moderate atopic dermatitis as well as the development of BETi-based formulations pursuant to the licensing arrangements with In4Derm. Both of these pipeline development programs are in early stages. Clinical drug development is very expensive, time-consuming and difficult to design and implement, and its outcome is inherently uncertain. Before obtaining regulatory approval for the commercial sale of a product candidate, we must demonstrate through clinical trials that a product candidate is both safe and effective for use in the target indication. Most product candidates that commence clinical trials are never approved by regulatory authorities for commercialization. The clinical trials for these product candidates may take significantly longer than expected to complete. Any setbacks in pre-clinical or clinical testing for these programs would have a material adverse effect on our financial condition.

Risks Related to our Liquidity

We will need substantial additional funding to fund our operations, and we may not be able to continue as a going concern if we are unable to do so. We could also be forced to delay, reduce or terminate our research and development activities which would have a material adverse effect on our financial condition.

Developing and commercializing biopharmaceutical products, including launching new products into the marketplace and conducting preclinical studies and clinical trials, is an expensive and highly uncertain process that takes years to complete. As of June 30, 2021, we had approximately $104.0 million in cash, cash equivalents and restricted cash as well as negative cash flows from operating activities. Following the prepayment of our indebtedness, we do not have sufficient cash and cash equivalents to fund our anticipated level of operations as they become due during the twelve months following the date of filing of this Quarterly Report on Form 10-Q. The aforementioned factors raise substantial doubt about our ability to continue as a going concern. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further discussion regarding our liquidity. We may not be able to raise any proceeds from the sale or license of our minocycline franchise or from other financing transactions. Accordingly, additional funds may not be obtained for our ongoing operations and we may not succeed in our future operations. Unless we are able to raise additional capital to finance our operations, our long-term business plan may not be accomplished, and we may be forced to cease, reduce, or delay operations. Furthermore, if the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies, or grant licenses on terms that are not favorable to the Company.

Risks Related to our Intellectual Property

We have received a notice letter of an ANDA submitted to the FDA seeking approval to manufacture and sell a generic version of AMZEEQ, which may lead to substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, and such litigation may divert the attention of our management and scientific personnel and adversely affect our development and commercialization efforts.

We have various patents listed in the FDA’s Orange Book in respect of our AMZEEQ and ZILXI products. Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and may be unsuccessful in whole or part. For example, on June 30, 2021, we received a paragraph IV certification notice (the “Notice”) from Padagis Israel Pharmaceuticals Ltd. (formerly Perrigo Israel Pharmaceuticals Ltd., “Padagis”) advising that Padagis has submitted to the U.S. Food and Drug Administration (the “FDA”) an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of AMZEEQ® (minocycline) topical foam, 4% in the United States prior to the expiration of the Listed Patents, which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, otherwise known as the “Orange Book.” The Notice alleges that the Challenged Patents are invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Padagis’s ANDA. On August 9, 2021, we initiated a patent infringement suit against

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Padagis in the United States District Court for the District of Delaware arising from Padagis’s ANDA filing with the FDA. The patent infringement suit asserts each of the Listed Patents. As a result, under applicable law, the FDA cannot grant final approval to Padagis’s ANDA before December 30, 2023, or a court decision in Padagis’s favor. We are seeking, among other relief, an order that the effective date of any FDA approval of Padagis’s ANDA be no earlier than the expiration of the Listed Patents, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate. See “Item 1. Legal Proceedings.” Litigation proceedings with respect to this matter, or any future matters, may also fail, and even if successful, they may result in substantial costs and distraction of our management and other employees. Furthermore, in any infringement proceeding, a court may decide that a patent of ours, or one or more claims of such patent, is not valid or is unenforceable, or may refuse to stop the other party from using the supposedly infringing technology on the grounds that our patents, or one or more claims of such patents, do not cover such technology. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could also put one or more of our pending patent applications at risk of not issuing. Our product candidates may be subject to the same risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Restructuring Plan

On August 12, 2021, the Company and its Board of Directors announced that it has initiated a process to explore a possible sale or license of its minocycline franchise. In addition, the Company is assessing capital expenditures and plans to significantly reduce operating expenses by immediately eliminating the vast majority of spend currently supporting commercial operations. As the Company transitions from a commercial organization to one focused on research and development, the Company intends to streamline operations by eliminating the vast majority of planned expenditures supporting its commercial operations. Furthermore, the Company intends to reduce its workforce by terminating approximately 70 employees, which the Company expects to be completed by December 31, 2021. The Company expects to incur a one-time charge in the range of approximately $1.5 million to $2.0 million, excluding non-cash charges, in connection with this restructuring plan, consisting primarily of employee termination costs, including severance and other benefits. This charge is expected to be incurred during the quarter ending September 30, 2021 with related cash payments expected to be substantially paid out by December 31, 2021.

Prepayment of Indebtedness

On August 11, 2021, in connection with the Company's strategic transition, the Company prepaid the entirety of its outstanding indebtedness under the Amended and Restated Credit Agreement. The Company paid to its lenders approximately $36.5 million, consisting of $35 million aggregate principal amount of indebtedness, $1.4 million representing a 4% prepayment premium on the total principal amount prepaid and approximately $0.1 million of accrued but unpaid interest. Following the prepayment, the Amended and Restated Credit Agreement has been terminated and all security interests thereunder will be terminated.

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Item 6.  Exhibits.

The following documents are filed, or furnished as applicable, as part of this Quarterly Report on Form 10-Q:

Exhibit Index

Exhibit Number		Incorporated by Reference			Filed
	Exhibit Description	Form	Date	Number	Herewith
3.1(a)	Amended and Restated Certificate of Incorporation.	10-K	3/4/2021	3.1
3.1(b)	Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated as of July 19, 2021.	8-K	7/19/2021	3.1
3.2	Amended and Restated Bylaws.	8-K	9/08/2020	3.2
10.1	Offer Letter, dated as of June 7, 2021, by and between Tyler Zeronda and VYNE Pharmaceuticals Inc.				X
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X
32.1*	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).				X
32.2*	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).				X
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.				X
101.SCH	XBRL Taxonomy Extension Schema Document.				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.				X

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104 The cover page of VYNE Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included within Exhibit 101 attachments).

_______________________________________________________

*    The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of VYNE Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 12, 2021

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

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EX-10.1

Exhibit 10.1

June 7, 2021

Tyler Zeronda

Dear Tyler,

This letter (the “Offer Letter”) contains the terms and conditions of your employment with VYNE Pharmaceuticals Inc. (the “Company”), a subsidiary of VYNE Therapeutics Inc. (“VYNE”), effective as of June 18, 2021 (the “Effective Date”). The Company, together with its ultimate parent and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.” Your employment pursuant to this Offer Letter will commence as of the Effective Date and the terms and conditions of this Offer Letter shall be effective as of the Effective Date. Unless stated otherwise herein, this Offer Letter will supersede any prior offer letters between you and the Company or any of its affiliates, including the letter dated May 11, 2021, April 8, 2019 and any amendments thereto (together, the “Previous Offer Letter”). You may be interchangeably referred to as “you” or “the Executive” within this Offer Letter. Additionally, where the context permits, references to “the Company” shall include the Company, its subsidiaries and affiliates and any successor thereto.

Brief Description of Role, Reporting Structure and Major Responsibilities:

We are pleased to offer you the position of VYNE’s Interim Chief Financial Officer (“Interim CFO”) and Treasurer until a permanent replacement is identified. You will also continue to serve as Vice President of Finance. You will report to VYNE’s Chief Executive Officer, David Domzalski or his designee.

As the Interim CFO, you will work closely with the CEO and leadership team to craft the long-term financing and corporate development strategy and play an important role in guiding the Group Companies in its next growth phase. The Interim CFO will be a partner to the CEO in communicating the Group Companies’ strategy to VYNE’s board of directors (the “Board”), investors and other stakeholders. The Interim CFO will execute the financial strategy by assessing and leading the execution of all capital raising for the Group Companies and will provide financial and business expertise in assessing and crafting the financial structures of licensing and strategic partnerships/collaborations.

The Interim CFO will be the most senior executive responsible for overseeing and directing the financial, investor relations, supply chain and IT functions of VYNE. The Interim CFO will be relied upon as a financial thought leader in the Group Companies’ business and as such, be a trusted sounding board to the CEO and leadership team. You will play a critical role in the Group Companies’ strategic positioning and will lead the finance, investor relations, supply chain and IT organizations to ensure they can meet the future needs and direction of the Group Companies.

The Interim CFO will approach the role as a strategic one as well as hands-on to ensure the organizations they oversee constantly seek improvement, with a balance of superior technical, operational and leadership skills. As the Interim CFO you must be a strong communicator, collaborator and able to fit in with an entrepreneurial environment that is dynamic and results oriented.

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

Specific responsibilities as the Interim CFO shall be as mutually agreed between you and the CEO, and shall include strategic and tactical business growth and business development, financing and fundraising matters, financial, tax and risk management for VYNE, participation on board of directors meetings, general management of financial matters for VYNE and investor and public relations.

As the Vice President of Finance, your responsibilities are to continue to lead the F,P&A/strategic planning, supply chain, trade and distribution and treasury functions and work closely with the chief financial officer, CEO and internal stakeholders to support VYNE’s investor relations and business development capabilities. Specific responsibilities will include, inter alia: strategic planning and business development for VYNE, managing treasury-related matters, overseeingsupply chain, trade and distribution matters for VYNE, and working closely with VYNE’s key internal stakeholders and our external agency to lead our dialogue with the US financial community.

Compensation

You will be paid a base salary at an annual rate of $300,000, payable in accordance with the Company’s payroll policies, less applicable deductions and employment taxes. Currently, the Company’s regular pay period is bi-monthly (the 15th and 30th of each month).

You will be eligible to receive a cash bonus of up to 35% of your base salary based on achievement of milestones and targets set by VYNE’s Chief Executive Officer (CEO), under the framework of the applicable bonus plan of VYNE for the relevant year.

The payment and grant of the cash bonus, if awarded, shall be made no later than March 15th of the calendar year following the year to which the performance relates, upon evaluation of your performance and the achievement of milestones and targets set for the performance year, and in accordance with the then-current general bonus plan. You must be employed by the Company on the bonus payment date to be eligible to receive the bonus.

You will receive annual equity awards to acquire common stock in VYNE with a per share exercise price for the options equal to the fair market value of one share of VYNE common stock on the grant date. The annual equity grants are expected to be granted in March and will vest over a period of four years following the last day of the calendar quarter in which the grant was made as follows: 25% on the first anniversary of the vesting commencement date and 6.25% on the last day of each subsequent calendar quarter, subject to your continued employment with VYNE or one of its subsidiaries through the applicable vesting date. Please note that such vesting period does not amount to an undertaking of the Company or VYNE to employ you for any given period. The equity grants shall be subject to the execution of a share award agreement with VYNE and the terms and conditions of VYNE's 2019 Equity Incentive Plan, or VYNE's 2018 Omnibus Equity Incentive Plan, in each case, as may be amended or amended and restated from time to time.

Consistent with its policies as established from time to time, the Company will also cover all expenses directly related to your job performance, in accordance with the Company’s policies as in effect from time to time.

You will be entitled to four (4) weeks of paid vacation. These vacation days accrue ratably over the calendar year and may not be carried forward from year to year or paid out at the termination of employment, except as described below or if your state laws mandate this payout. You will be

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

entitled to participate in the Company’s healthcare plan, then in effect, or, at the Company’s election, the Company may direct you to purchase an individual plan providing equivalent coverage and will reimburse you for all premium payments under such individual plan, upon proof of payment. All matters of eligibility under the Company’s plans will be determined solely by the carriers providing such insurance. You will continue to be eligible to participate in the Company’s 401(k) plan.

The Company will also recognize certain holidays. These dates are communicated each year by the Company and may change based upon business needs.

Termination of Employment

Your employment with the Company is at-will and may be terminated by either you or the Company at any time, with or without reason.

In the event of a termination for Cause (as defined on Appendix A) by the Company, your employment will end immediately without notice and the Company and its subsidiaries and affiliates will have no further liability towards you except for payment of (1) any earned but unpaid base salary, (2) any incurred but unreimbursed business expenses and (3) any accrued but unused vacation days that exist as of the date of your termination of employment to the extent mandated by state law (together, the “Accrued Benefits”).

In the event of your death or the termination of your employment as a result of your disability (as determined by the Company in good faith), the Company will have no further liability to you except for payment of the Accrued Benefits through the date of your death or the first day of your disability.

You shall have the right to resign at any time by giving the Company thirty (30) days’ notice of the termination date, subject to the Company’s right, at its election, to reduce the duration of the notice period upon notice to you, in which case the last day of the reduced notice period shall constitute your employment termination date. The Company shall not have any further liability to you except for payment of all Accrued Benefits due through the date of termination unless such resignation is for Good Reason which shall be governed by the provisions below.

The Company may terminate your employment without Cause upon thirty (30) days’ notice, during which notice period you will receive your full compensation and benefits.

If your employment is terminated without Cause or you resign for Good Reason, subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment (the “Non-CIC Severance Payment”) equal to the better of (A) three (3) months salary plus one (1) month for every full year of your employment by a Group Company (up to a maximum of twelve (12) months) or (B) (i) a severance payment in accordance with the terms set forth on Appendix A to this Offer Letter (the “Severance Policy”) based on your then-current position as set forth therein and (ii) if you qualify for and timely elect continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination that corresponds to your severance payment, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

obligations under this clause (ii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.

Notwithstanding the above, if you experience a Qualifying Termination within the twelve (12) month period after a Change in Control (a “Qualifying Change in Control Termination”), subject to your execution and non-revocation of a release of claims in a form acceptable to the Company in its sole discretion within 55 days following your termination of employment, you will be entitled to receive, in addition to the Accrued Benefits, (i) a severance payment (the “CIC Severance Payment” and, together with the Non-CIC Severance Payment, the “Severance Payment”) that is equal to the better of: (A) twelve (12) months of your then current base salary or (B) a severance payment in accordance with the Severance Policy as applicable for a termination of employment that occurs following a change in control, plus a cash payment equal to your target annual bonus for the year of termination multiplied by a fraction, the numerator of which is the number of days you were employed with the Company during the calendar year in which the date of termination occurs, and the denominator of which is 365 (the “Pro-rated Bonus”) and (ii) if you qualify for and timely elect continuation coverage under COBRA, continued payment by the Company of monthly contributions in respect of your coverage under the Company’s healthcare plan for the number of months following the date of termination that corresponds to your severance payment, in an amount equal to the contribution the Company would have made if you had continued to be an active employee (assuming the applicable rates in effect as of the date of your termination of employment); provided that, the Company’s obligations under this clause (ii) shall terminate on the earlier of (x) the date on which you enroll in a group health plan offered by another employer and (y) the date on which you are no longer eligible for continuation coverage under COBRA; provided further that, notwithstanding the foregoing, in the event such Company contributions, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially a similar benefit to you but does not result in such tax or other penalties.

Furthermore, notwithstanding the terms of the Company equity incentive plan under which your equity awards are granted or any applicable award agreements, in the event of a Qualifying Change in Control Termination, all of your outstanding, unvested Company employee stock options and unvested restricted stock units, if any, shall become fully vested and any restrictions thereon shall lapse.

For the purpose of this Offer Letter, “Good Reason” means: (i) a material reduction in your base salary; (ii) a material reduction in your target annual bonus opportunity; (iii) a relocation of your principal place of employment by more than twenty-five (25) miles provided that such relocation increases your daily commute; or (iv) an adverse change in your position, including title, reporting relationship(s), authority, duties or responsibilities; all of the above without your consent. You must provide notice of the existence of the Good Reason condition within thirty (30) days of the date you learn of the condition, and the Company shall have a period of thirty (30) days during which it may remedy the condition, and in case of full remedy such condition shall not be deemed to constitute Good Reason hereunder.

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520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

For purposes of this Offer Letter, “Change in Control” shall have the meaning set forth in the Company’s 2019 Equity Plan. For the avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected primarily for the purpose of changing the domicile of the Company.

Timing of Payment

The applicable Severance Payment (in the event of a Qualifying Change in Control Termination) will be paid in a lump sum within sixty (60) days following the date of your termination of employment subject to the provisions of Appendix A and as set forth below.

The payments and benefits under this Offer Letter are intended to qualify for exemptions from the application of Section 409A of the Internal Revenue Code (“Section 409A”), and this Offer Letter will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Offer Letter (and any definitions hereunder) will be construed in a manner that complies with Section 409A to the extent necessary to avoid adverse taxation under Section 409A. Notwithstanding anything to the contrary herein, to the extent required to comply with Section 409A, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Offer Letter providing for the payment of amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Section 409A. Your right to receive any installment payments will be treated as a right to receive a series of separate payments and, accordingly, each installment payment shall at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Offer Letter, if you are deemed by the Company at the time of your separation from service to be a “specified employee” for purposes of Section 409A, and if any of the payments upon separation from service set forth herein and/or under any other agreement with the Company are deemed to be “deferred compensation,” then, to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Section 409A and the related adverse taxation under Section 409A, such payments shall not be provided to you prior to the earliest of (i) the expiration of the six-month period measured from the date of separation from service, (ii) the date of your death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation. With respect to payments to be made upon execution of an effective release, if the release revocation period spans two calendar years, payments will be made in the second of the two calendar years to the extent necessary to avoid adverse taxation under Section 409A.

Miscellaneous

You represent that (i) there is no legal restriction and/or contractual restriction prohibiting you from entering into an employment relationship with the Company, (ii) that by doing so you are not violating any third party’s rights, including any undertaking entered into with any former employer, and (iii) that you know that the Company is employing you based upon this statement.

A dispute under this Offer Letter shall be heard and governed by the procedural and substantive laws of the State of New Jersey or of your primary workplace. BY SIGNING THIS OFFER LETTER YOU AND THE COMPANY AGREE TO WAIVE ANY RIGHT TO A JURY TRIAL FOR ANY DISPUTES ARISING OUT OF THIS OFFER LETTER.

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

This Offer Letter constitutes and expresses the entire agreement of the parties hereto with reference to any of the matters or things herein provided for or herein before discussed or mentioned with reference to your employment, and it cancels and replaces any and all prior understandings and agreements between you and the Company, except the Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement attached hereto as Appendix B. All other promises, representations, collateral agreements and understandings not expressly incorporated in this Offer Letter are hereby superseded by this Offer Letter.

The Company may withhold from any amounts payable under this Offer Letter all federal, state, city or other taxes as it is required to withhold pursuant to any applicable law, regulation or ruling. Notwithstanding any other provision of this Offer Letter, the Company shall not be obligated to guarantee any particular tax result for you with respect to any payment provided to you hereunder, and you shall be responsible for any taxes imposed on you with respect to any such payment.

Without derogating from the above, you will be required to abide by the Company’s policies, rules and procedures, as may be in effect from time to time, at the Company’s sole discretion, and that may be modified or changed as circumstances warrant.

Prior to your commencement of work, you will be required to sign a Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement, which is attached hereto as Appendix B. You will be bound by the terms of the document.

We are pleased to present this Offer Letter to you. Please sign below to indicate your acceptance of this employment offer on the basis of the foregoing terms.

Sincerely,

/s/ David Domzalski

David Domzalski

Chief Executive Officer

I hereby confirm that I have carefully read and understood this offer of employment and I have accepted it and entered into it of my own free will.

/s/ Tyler Zeronda____________

Tyler Zeronda

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

Appendix A

SEVERANCE POLICY

	Provision	CEO	SVP+	VP
Non-CIC Severance	Non CIC-Severance Trigger	A termination of employment (i) by the Company and its subsidiaries without “Cause” or (ii) by the employee for “Good Reason” (each, a “Qualifying Termination).*
	Cash Severance	1.0x base salary**	0.75x base salary**	0.5x base salary**
	Benefits	12 months benefits continuation	9 months benefits continuation	6 months benefits continuation
	Equity Treatment	Full vesting acceleration of time-based awards	As provided in the applicable equity plan and award agreement
CIC Severance	Protection Period	12 months following a Change in Control***
	CIC Severance Trigger	Double trigger (i.e., a Qualifying Termination during the Protection Period)
	Cash Severance	1.5x (salary + target bonus), plus pro-rata target bonus**	1.0x (salary + target bonus), plus pro-rata target bonus**	0.5x (salary + target bonus), plus pro-rata target bonus**
	Benefits	18 months benefits continuation	12 months benefits continuation	6 months benefits continuation
	Equity Treatment	Double trigger full vesting acceleration of time-based awards
	Excise Tax	Best net provision

*“Cause” shall have the meaning set forth in the VYNE’s 2019 Equity Incentive Plan (the “2019 Plan”) and “Good Reason” shall have the meaning set forth in the Offer Letter.

**Amounts shall be paid in a cash lump sum within 60 days following the date of termination; provided that, if (i) the employee was party to an employment agreement or other plan, agreement or arrangement with the Company or any of its subsidiaries or affiliates prior to the effective date of this severance policy that provided for severance payments and benefits upon a termination of employment (each such employment agreement or other plan, agreement or arrangement, a “Prior Agreement”) and (ii) the payments and benefits provided pursuant to this severance policy are determined to be “deferred compensation” for purposes of Section 409A of the Internal Revenue Code or any successor provision thereto (the “Code”), then, to the extent necessary to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the payments and benefits

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

provided pursuant to this severance policy shall be paid at the same time(s) and in the same form(s) provided in the Prior Agreement, at all times, in accordance with Section 409A of the Code.

***”Change in Control” shall have the meaning set forth in the 2019 Plan. For the avoidance of doubt, the consummation of the merger contemplated by that certain Agreement and Plan of Merger by and among VYNE, Foamix Pharmaceuticals Ltd. and Giants Merger Subsidiary Ltd., dated as of November 10, 2019 (as amended), shall not constitute a Change in Control for purposes of this severance policy.

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

Appendix B

Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement

This Non-Solicitation, Non-Competition, Confidentiality and Intellectual Property Agreement (“Agreement”), is made and entered into by and between, VYNE Pharmaceuticals Inc. (the “Company”) and Tyler Zeronda (“you” and “your”). The Company, together with its ultimate parent and their respective affiliates and subsidiaries, are hereinafter referred to as the “Group Companies.”

The parties hereby agree to the following in exchange for your employment with the Company:

(a)Non-Competition. You recognize that your knowledge of the Confidential Information (as defined below) and trade secrets of the Group Companies and your role in the Group Companies’ business may allow you to compete or to assist a third party to compete unfairly with the Group Companies.

(i)During the term of this Agreement, and for a period of 12 months following the termination of your employment with any member of the Group Companies (the “Restricted Period”), you agree that you shall not, without the prior consent of the Company and its ultimate parent, directly or indirectly, as an employee, executive, agent, principal, partner, stockholder, officer, director, consultant, independent contractor, advisor, investor or any other representative, work with or without compensation in any business that develops or commercializes foam or topical tetracycline antibiotics or is otherwise directly competitive with, the business of the Group Companies (i.e., any compound that is the same or substantially similar to a compound being developed or sold by any member of the Group Companies) (each, a “Competitive Business”) within the same geographic territory in which you operated during your last year of employment with any member of the Group Companies.

(ii)Necessary and Reasonable. You acknowledge that this non-compete provision is necessary and reasonable to protect Group Companies’ business interests. You further acknowledge that the Group Companies would suffer irreparable harm and other damage in the event of a breach of this provision. You agree that the term, scope and geographic area of the covenants contained herein are reasonable. However, if any court of competent jurisdiction determines that this covenant is unenforceable as to the term, scope or geographic area then this covenant nevertheless shall be enforceable by such court as to such shorter term, such lesser scope or within such lesser geographic area as the court determines to be reasonable and enforceable.

(b)Non-Solicitation. You will not, in any manner whatsoever, directly or indirectly, without the prior written consent of the Company and its ultimate parent, at any time during the Restricted Period:

(i) induce or endeavor to induce (A) any employee of any member of the Group Companies to leave employment with any member of the Group Companies, or (B) any consultant or contractor of any member of the Group Companies to terminate its relationship as such with any member of the Group Companies during any period of time that the business services provided, directly or indirectly, by such consultant or contractor are exclusively or primarily being provided to any member of the Group Companies, provided that this clause shall not

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520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

preclude customary non-targeted recruiting efforts or general solicitations that are not specifically directed to, but which may have the effect of causing an employee, consultant or contractor to leave the employment or arrangement with any member of the Group Companies; or

(ii) employ or attempt to employ or assist any individual or other entity to employ     any employee of any member of the Group Companies or to retain any consultant or contractor during any period of time that the business services provided, directly or indirectly, by such consultant or contractor are exclusively or primarily being provided to any member of the Group Companies, provided, that this clause shall not preclude an employer of yours from offering employment or consulting or contracting services to anyone without your direct or indirect assistance

(c)Confidentiality. You acknowledge that by reason of your employment with any member of the Group Companies, you have had access to Confidential Information and trade secrets of the Group Companies, and that such Confidential Information and trade secrets are essential components of the business of the Group Companies, and are proprietary and would be of great value and benefit to competitors of the Group Companies. “Confidential Information” is to be broadly defined and includes anything respecting the Company and its affiliates or their respective businesses, customers, supplier or operations, and which is not made readily available to the general public. You agree that both during and after your employment with any member of the Group Companies, you will not disclose to any individual or other entity, except in the proper course of your employment with any member of the Group Companies, or use for your own purposes or for purposes other than those of any member of the Group Companies, any Confidential Information or trade secrets of any member of the Group Companies acquired by you. You agree that at all times after your employment with any member of the Group Companies, you will hold in trust, keep confidential, and not publish, disclose or otherwise disseminate to any third party or make any use of the Confidential Information of any member of the Group Companies except for the benefit of the Group Companies and in the course of employment with any member of the Group Companies. You further agree not to cause the transmission, removal or transport of Confidential Information from the Group Companies’ place of business (principal, remote or otherwise), whether by hard or electronic copy, without prior written approval of the Company and its ultimate parent, except for the benefit of the Group Companies and in the course of your employment relationship with any member of the Group Companies. You acknowledge that you are aware that the unauthorized disclosure of Confidential Information of any member of the Group Companies may be highly prejudicial to the Group Companies’ interests, an invasion of privacy and an improper disclosure of proprietary information. You agree, promptly and without request, to deliver to and inform the Company and its ultimate parent of all documents and data pertaining to your services to the any member of the Group Companies and the Confidential Information of the Group Companies, whether prepared by you or otherwise coming into your possession or control. You will not retain any written or other tangible material containing any information concerning or disclosing any of the Confidential Information of any member of the Group Companies, including but not limited to any electronically stored data.

(i)If information enters the public domain, except as a result of a breach of this Section (c) by you or a breach of another confidentiality agreement to which any member of the Group Companies is a party, the information will not be deemed Confidential Information, or a trade secret protected by this Section (c). If you are compelled by law to disclose Confidential Information or trade secrets of any member of the Group Companies, pursuant to subpoena, an order from a court of

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520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

competent jurisdiction, or other applicable legal authority, you may disclose such Confidential Information or trade secrets to the extent so required, but you will, if possible, (i) provide reasonable advance notice of the subpoena, court order, or legal authority to the Company and its ultimate parent, and (ii) afford the Group Companies the reasonable opportunity to take legal action to contest, challenge, narrow or otherwise limit or condition the disclosure.

(ii)Sanctions for Unauthorized Taking of Confidential Information. You recognize that the unauthorized taking of the Group Companies’ Confidential Information could result in civil liability and that willful misappropriation may result in an award against you for damages and attorney’s fees and costs in collecting such damages. The unauthorized taking of trade secrets is a crime and may be punishable by imprisonment, or a fine, or both, and/or may result in civil liability, including, where applicable, punitive or similar damages, under applicable federal and state trade secret laws.

(iii)Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 ("DTSA"). Notwithstanding any other provision of this Agreement:

(A)You will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that: (1) is made: in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and solely for the purpose of reporting or investigating a suspected violation of law; or (2) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

(B)    If you file a lawsuit for retaliation by any member of the Group Companies for reporting a suspected violation of law, you may disclose the Group Companies’ trade secrets to your attorney and use the trade secretinformation in the court proceeding if you: (1) file any document containing the trade secret under seal; and (2) do not disclose the trade secret, except pursuant to court order.

(d)Intellectual Property.

(i) You have attached hereto as Exhibit 1, a list describing all inventions, original works of authorship, developments, improvements, copyrights and patents that were made or developed by you prior to the date you sign this Agreement, that belong to you. If such list is not attached or is left blank, you represent that no such inventions exist.

(ii) You agree that all ideas, techniques, inventions, systems, business and marketing plans, projections and analyses, discoveries, technical information, programs, prototypes, copyrightable works of authorship, including without limitation software code, and similar developments, improvements or creations developed, conceived, created, discovered, made, or written by you in the course of or as the result, directly or indirectly, of the performance of your employment with any member of the Group Companies (hereinafter called "Developments"), and all related intellectual property rights, including but not limited to, writings and other works of authorship, United States and foreign patents, mask works, copyright and trademark registrations and other forms of intellectual property protection, shall be and remain the property of the Group Companies. You further agree to assign (or cause to be assigned) and do hereby assign fully to the Group Companies all such Developments and

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any copyrights, patents, mask work rights or other intellectual property rights relating thereto. In the event copyrightable works do not fall within the theory of works made for hire, you agree to assign, and do hereby assign, all rights, title and interest therein, without further consideration, to the Group Companies. You, insofar as you have the right to do so, agree that you will execute or cause to be executed such United States and foreign patents, mask works, copyright and trademark registrations and other documents and agreements and take such other action as may be desirable in the opinion of the Group Companies to enable intellectual property, copyright and other forms of protection for Developments to be obtained, maintained, renewed, preserved and protected throughout the world by or on behalf of the Group Companies.

(iii) If any member of the Group Companies is unable, after exercising reasonable efforts, to secure your signature on any application for patent, copyright, analogous registration, or other documents regarding any legal protection regarding Developments or other works and inventions, whether because of your physical or mental incapacity or for any other reason, you hereby irrevocably designate and appoint the Group Companies and their duly authorized officers and agents as your agent and attorney-in-fact to act for and on your behalf and to execute and file any such application or applications or other documents and to do all other lawfully permitted acts to further the prosecution and issuance of such patent, copyright or trademark registrations or any other legal protection thereon with the same legal force and effect as if executed by you.

(iv) Incorporation into Company Products. You agree that if in the course of your employment with any member of the Group Companies, you incorporate into any invention, service, or product any invention, improvement, Development, concept, discovery or other proprietary information owned by you or in which you have an interest, (i) you will inform the Company and its ultimate parent, in writing, before incorporating such invention, improvement, development, concept, discovery or other proprietary information into any invention, Service, or Development; and (ii) the Group Companies are hereby granted and will have a nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such item as part of or in connection with such invention, services, or Development. You will not incorporate any invention, improvement, development, concept, discovery or other proprietary information owned by any third party into any invention without the Company's and its ultimate parent’s prior written permission.

(v) Subsequent Use Restrictions. During the course of employment and during the Restricted Period, you agree to promptly notify the Company and its ultimate parent of any inventions you develop that are based on, relate to or are a derivative of Developments or Confidential Information. You agree that any invention or work involving you after the separation of your employment shall be deemed to result from access to the Company’s Developments or Confidential Information (including without limitation patentable inventions and copyrightable works) if such invention or work: (i) arose from your work with any member of the Group Companies; or (ii) is related to the business of the Group Companies and is made, created, used, sold, exploited or reduced to practice, or an application for patent, trademark, copyright or other proprietary protection is filed by you and/or with your significant aid by a third party, within the Restricted Period.

(e)Disclosure of New Employment. In light of your obligations under this Agreement, you agree to disclose the name of any future employer to the Company and its ultimate parent in writing (even if you intend to be self-employed), along with your future business contact information,

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including name and full address of the new employer. Where necessary to protect the Group Companies’ interests, any member of the Group Companies may notify any future or prospective employer of the existence of this Agreement and/or the terms and conditions of your employment with any member of the Group Companies. This obligation shall continue until the end of the time periods under the Non-Competition and Non-Solicitation provisions above.

(f)Cooperation. You shall provide reasonable cooperation in connection with any legal action or proceeding (or any appeal from any action or proceeding) which relates to events during your employment hereunder. The Company shall reimburse you for your reasonable travel expenses incurred in connection with the foregoing, in accordance with the Company’s policies and subject to the delivery of reasonable support for such expenses.

(g) Restrictions Reasonable. You confirm that all restrictions and covenants in this Agreement are reasonable and valid, and waive all objections to and defenses to the strict enforcement thereof.

(h)Survival of Restrictions. This Agreement shall survive the termination of the Offer Letter between you and the Company and the termination of your employment with any member of the Group Companies, whether such termination is voluntary or involuntary, and regardless of the reason(s) for such termination.

(i)Remedies. In the event of breach or threatened breach by you of any provision of this Agreement, any member of the Group Companies shall be entitled to (i) injunctive relief by temporary restraining order, preliminary injunction, and/or permanent injunction, (ii) recovery of the attorneys’ fees and costs incurred by any member of the Group Companies in obtaining such relief, and (iii) any other legal and equitable relief to which it may be entitled, including any and all monetary damages which any member of the Group Companies may incur as a result of said breach or threatened breach. Injunctive relief shall not be the exclusive relief and may be in addition to any other relief to which any member of the Group Companies would otherwise be entitled. The existence of any cause of action by you against the Company shall not constitute a defense to enforcement of the restrictions on you created by this Agreement. If you fail to comply with this Agreement during the Restricted Period, the time period for that the Restricted Period will be extended by one day for each day that you are found to have violated this Agreement, up to a maximum extension of twelve (12) months. In the event that a court finds the restrictions on you in this Agreement are unenforceable as written, then the parties shall consent to the reformation of the Agreement to make it enforceable to protect the interests of the Group Companies to the maximum extent legally allowed.

(j)Parties Benefited; Assignments. This Agreement shall inure to the benefit of the Group Companies’ owners, successors, assigns and affiliates, and may be assigned to and enforced by any of the foregoing. Neither this Agreement nor any rights or obligations hereunder may be assigned by you.

(k)Notices. Any notice required or permitted by this Agreement shall be in writing sent by personal delivery, or by registered or certified mail, return receipt requested, addressed to the Company at its then principal office, or to you at your last known address, or to such other address or addressees as any party may from time to time specify in writing. Notices shall be deemed given when received.

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

(l)Governing Law, Jurisdiction and Venue. This Agreement and any issues arising from it or regarding its provisions shall be governed by and construed in accordance with the substantive and procedural laws of the state of your primary workplace without reference to such jurisdiction’s choice of law rules.

(m)Severability. The provisions of this Agreement are severable so that in the event any provision(s) in this Agreement is held to be illegal or unenforceable by any court or agency of competent jurisdiction, or by operation of any applicable law, the remaining terms of this Agreement shall remain valid and in full force and effect. Further, such court or agency shall modify the offending provision to conform to the most expansive permissible reading under the law to protect the interests of the Group Companies.

(n)No Waiver. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

(o)Comprehension; Consultation with Counsel. You acknowledge having read and understood this Agreement and further acknowledge being hereby advised, by this paragraph, to consult independent legal counsel. Accordingly, you acknowledge that you are voluntarily entering into this Agreement of your own volition and not under duress.

(p)Waiver of Jury Trial.

YOU AND THE GROUP COMPANIES KNOWINGLY AND WILLINGLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT.

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THIS AGREEMENT, THAT THEY HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL IF THEY SO CHOSE, AND THAT THEY ENTER INTO THIS AGREEMENT FREELY AND VOLUNTARILY.

__________________________

Tyler Zeronda

________________

Date

VYNE Pharmaceuticals Inc.

By:________________________________

David Domzalski, Chief Executive Officer

________________

Date

Vyne Therapeutics Inc.

520 U.S. Highway 22, Suite 204, Bridgewater, New Jersey 08807

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, David Domzalski, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of VYNE Therapeutics Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2021	By:	/s/ David Domzalski
		David Domzalski Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Tyler Zeronda, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of VYNE Therapeutics Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2021	By:	/s/ Tyler Zeronda
		Tyler Zeronda Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of VYNE Therapeutics Inc. (the “Company”), for the quarterly period ended June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, David Domzalski, President and Chief Executive Officer and principal executive officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 12, 2021	By:	/s/ David Domzalski
		David Domzalski Principal Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of VYNE Therapeutics Inc. (the “Company”), for the quarterly period ended June 30, 2021 as filed with the Securities and Exchange Commission (the “Report”), I, Tyler Zeronda, Chief Financial Officer, Treasurer and principal financial officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 12, 2021	By:	/s/ Tyler Zeronda
		Tyler Zeronda Principal Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

Cover - shares	6 Months Ended
	Jun. 30, 2021	Aug. 06, 2021
Cover [Abstract]
Document Type	10-Q
Document Period End Date	Jun. 30, 2021
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-38356
Entity Registrant Name	VYNE THERAPEUTICS INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	45-3757789
Entity Address, Address Line One	520 U.S. Highway 22, Suite 204
Entity Address, City or Town	Bridgewater
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08807
City Area Code	800
Local Phone Number	775-7936
Title of 12(b) Security	Common Stock, par value $0.0001
Trading Symbol	VYNE
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Shell Company	false
Entity Central Index Key	0001566044
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		51,511,845

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current Assets:
Cash and cash equivalents	$ 103,406	$ 57,563
Restricted cash	605	855
Investment in marketable securities (Note 6)	0	1,027
Trade receivables, net of allowances	10,868	15,819
Prepaid and other assets	5,268	4,591
Inventory (Note 7)	8,279	7,404
Total Current Assets	128,426	87,259
Property and equipment, net	501	555
Operating lease right-of-use assets (Note 10)	1,225	1,583
Prepaid and other assets	3,831	4,345
Total Assets	133,983	93,742
Current Liabilities:
Trade payables	10,080	4,780
Accrued expenses (Note 4)	10,146	11,452
Debt (Note 8)	33,375	0
Employee related obligations	3,481	4,360
Operating lease liabilities (Note 10)	434	757
Other	104	104
Total Current Liabilities	57,620	21,453
Liability for employee severance benefits	206	312
Operating lease liabilities (Note 10)	812	853
Long-term debt (Note 8)	0	33,174
Other liabilities	452	457
Total Liabilities	59,090	56,249
Commitments and Contingencies (Note 11)	0	0
STOCKHOLDERS' EQUITY:
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	0	0
Common stock: $0.0001 par value; 75,000,000 shares authorized at June 30, 2021 and December 31, 2020, respectively; 51,511,845 and 43,205,221 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	5	4
Additional paid-in capital	681,558	603,685
Accumulated deficit	(606,670)	(566,196)
Total Shareholders' Equity	74,893	37,493
Total Liabilities and Shareholders’ Equity	$ 133,983	$ 93,742

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Preferred stock, par value (USD/share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock par value (USD/share)	$ 0.0001	$ 0.0001
Common stock shares authorized (in shares)	75,000,000	75,000,000
Common stock shares issued (in shares)	51,511,845	43,205,221
Common stock shares outstanding (in shares)	51,511,845	43,205,221

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Total Revenues	$ 4,258	$ 11,688	$ 8,377	$ 13,438
Cost of goods sold	795	216	1,396	487
Operating Expenses:
Research and development	6,409	13,119	12,742	29,072
Selling, general and administrative	15,835	26,459	32,451	51,874
Goodwill and in-process research & development impairments	0	54,345	0	54,345
Contingent Stock Right Remeasurement	0	84,726	0	84,726
Total Operating Expenses	22,244	178,649	45,193	220,017
Operating Loss	18,781	167,177	38,212	207,066
Interest expense	1,074	1,070	2,136	2,137
Other expense (income), net	69	(548)	126	(1,271)
Loss Before Income Tax	19,924	167,699	40,474	207,932
Income tax expense (benefit)	0	(259)	0	(259)
Net Loss	$ 19,924	$ 167,440	$ 40,474	$ 207,673
Loss per share basic (in dollars per share)	$ 0.39	$ 4.83	$ 0.81	$ 9.17
Loss per share diluted (in dollars per share)	$ 0.39	$ 4.83	$ 0.81	$ 9.17
Weighted average shares outstanding - basic (in shares)	51,411	34,663	50,162	22,656
Weighted average shares outstanding - diluted (in shares)	51,411	34,663	50,162	22,656
Product sales
Total Revenues	$ 3,963	$ 1,483	$ 7,852	$ 3,233
License revenues
Total Revenues	0	10,000	0	10,000
Royalty revenues
Total Revenues	$ 295	$ 205	$ 525	$ 205

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Statement of Comprehensive Income [Abstract]
Net loss	$ 19,924	$ 167,440	$ 40,474	$ 207,673
Other Comprehensive Loss:
Net unrealized (gains) losses from marketable securities	0	(43)	0	1
Losses on marketable securities reclassified into net loss	0	3	0	4
Total Other Comprehensive Loss	0	(40)	0	5
Total Comprehensive Loss	$ 19,924	$ 167,400	$ 40,474	$ 207,678

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	At-the-market Offering	Public Offering	Common stock	Common stock At-the-market Offering	Common stock Public Offering	Additional paid-in capital	Additional paid-in capital At-the-market Offering	Additional paid-in capital Public Offering	Accumulated deficit	Accumulated other comprehensive income (loss)
Balance at Dec. 31, 2019	$ 17,575			$ 1			$ 328,156			$ (310,587)	$ 5
Balance (shares) at Dec. 31, 2019				9,120,078
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(207,678)									(207,673)	(5)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	260						260
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)				258,000
Stock-based compensation	12,527						12,527
Deemed dividend to warrants holders due to warrant modifications	0						41			(41)
Classification of stock awards to derivative liability	(975)						(975)
Issuance of common stock, net of issuance costs			$ 53,649	$ 1					$ 53,648
Issuance of common stock, net of issuance costs (in shares)						7,776,875
Issuance of stock related to merger	196,170			$ 2			196,168
Issuance of stock related to merger (in shares)				24,765,999
Balance at Jun. 30, 2020	71,528			$ 4			589,825			(518,301)	0
Balance (shares) at Jun. 30, 2020				41,920,952
Balance at Mar. 31, 2020	69,535			$ 2			420,434			(350,861)	(40)
Balance (shares) at Mar. 31, 2020				15,375,282
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(167,400)									(167,440)	40
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	(43)						(43)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)				132,692
Stock-based compensation	10,768						10,768
Classification of stock awards to derivative liability	657						657
Issuance of common stock, net of issuance costs			53,649	$ 1					53,648
Issuance of common stock, net of issuance costs (in shares)						7,776,875
Issuance of stock related to merger	104,362			$ 1			104,361
Issuance of stock related to merger (in shares)				18,636,103
Balance at Jun. 30, 2020	71,528			$ 4			589,825			(518,301)	$ 0
Balance (shares) at Jun. 30, 2020				41,920,952
Balance at Dec. 31, 2020	$ 37,493			$ 4			603,685			(566,196)
Balance (shares) at Dec. 31, 2020	43,205,221			43,205,221
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	$ (40,474)									(40,474)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	403						403
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)				254,351
Stock-based compensation	4,343						4,343
Issuance of common stock, net of issuance costs		$ 26,304	$ 46,824	$ 1				$ 26,304	$ 46,823
Issuance of common stock, net of issuance costs (in shares)					2,778,012	5,274,261
Balance at Jun. 30, 2021	$ 74,893			$ 5			681,558			(606,670)
Balance (shares) at Jun. 30, 2021	51,511,845			51,511,845
Balance at Mar. 31, 2021	$ 92,901			$ 5			679,642			(586,746)
Balance (shares) at Mar. 31, 2021				51,386,596
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(19,924)									(19,924)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	15						15
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)				125,249
Stock-based compensation	1,901						1,901
Balance at Jun. 30, 2021	$ 74,893			$ 5			$ 681,558			$ (606,670)
Balance (shares) at Jun. 30, 2021	51,511,845			51,511,845

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2021
Payments of stock issuance costs	$ 3,903
At-the-market Offering
Payments of stock issuance costs		$ 814
Public Offering
Payments of stock issuance costs		$ 3,177

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash Flows From Operating Activities:
Net Loss	$ 40,474	$ 207,673
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	55	187
Goodwill and in-process research & development impairments	0	54,345
Contingent Stock Right Remeasurement	0	84,726
Changes in marketable securities and bank deposits, net	0	(142)
Changes in accrued liability for employee severance benefits, net of retirement fund profit	(108)	(21)
Stock-based compensation	4,343	12,527
Non-cash finance income, net	(150)	(833)
Changes in operating assets and liabilities, net of effects of businesses acquired:
Decrease (increase) in trade receivables, prepaid and other assets	4,266	(9,807)
Decrease (increase) in other non-current assets	876	(6,026)
Increase (decrease) in accounts payable and accruals	3,259	(10,908)
Increase in inventory	(875)	(4,445)
Net cash used in operating activities	(28,808)	(88,070)
Cash Flows From Investing Activities:
Purchase of fixed assets	0	(113)
Cash acquired through merger	0	38,641
Proceeds from sale and maturity of marketable securities	1,027	48,577
Net cash provided by investing activities	1,027	87,105
Cash Flows From Financing Activities:
Proceeds related to issuance of common shares through offerings, net of issuance costs	73,127	53,646
Proceeds related to issuance of stock for stock-based compensation arrangements, net	247	100
Net cash provided by financing activities	73,374	53,746
Increase in cash, cash equivalents and restricted cash	45,593	52,781
Effect of exchange rate on cash, cash equivalents and restricted cash	0	1
Cash, cash equivalents and restricted cash at beginning of the period	58,418	44,584
Cash, cash equivalents and restricted cash at end of the period	104,011	97,366
Cash and cash equivalents	103,406	96,511
Restricted cash	605	855
Total cash, cash equivalents and restricted cash shown in statement of cash flows	104,011	97,366
Supplementary information on investing and financing activities not involving cash flows:
Issuance of shares under employee stock purchase plan	144	163
Additions to operating lease right of use assets	0	1,120
Additions to operating lease liabilities	0	1,120
Supplemental disclosure of cash flow information:
Interest received	11	298
Interest paid	1,936	1,946
Fair value of assets acquired	0	117,270
Less liabilities assumed	0	5,827
Net acquired (See “Note 3- Business combination”)	0	111,443
Less cash acquired	0	38,641
Merger net of cash acquired	$ 0	$ 72,802

XML

NATURE OF OPERATIONS

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS

NATURE OF OPERATIONS

VYNE Therapeutics Inc. ("VYNE" or the "Company") is a biopharmaceutical company focused on developing proprietary, innovative and differentiated therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment. The Company currently has two commercial products, AMZEEQ® (minocycline) topical foam, 4%, and ZILXI® (minocycline) topical foam, 1.5%. As discussed below, the Company has initiated a process to explore a possible sale or license of its topical minocycline franchise.

Strategic Business Review

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 over the past 18 months during the commercial launches of both AMZEEQ and ZILXI, the current 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 has determined to initiate a process to explore a possible sale or license of its topical minocycline franchise, including AMZEEQ, ZILXI, FCD105 (the Company’s 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.

By leveraging its drug development and clinical development capabilities and strong network of discovery and preclinical science partners, the Company will transition its strategic focus to develop therapies for the treatment of immuno-inflammatory diseases of high unmet medical need. The Company expects to continue to invest in FMX114 for the treatment of mild to moderate atopic dermatitis and anticipates the first patient in its Phase 2a proof-of-concept study will be enrolled in the third quarter of 2021. The Company expects results from this study by the end of 2021. In addition, on August 12, 2021, the Company announced a transaction with In4Derm Limited, a company incorporated and registered in Scotland (“In4Derm”). In4Derm 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 Inhibitors (“BETi”) 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 In4Derm granted the Company an exclusive option to obtain exclusive worldwide rights to research, develop and commercialize products containing In4Derm’s BETi compounds, which are new chemical entities, in both topical (the “Topical BETi Option”) and oral (the “Oral BETi Option”) treatments in all fields for any disease, disorder or condition in humans. On August 6, 2021, the Company exercised the Topical BETi Option and the parties entered into a License Agreement granting the Company a worldwide, exclusive license that is sublicensable through multiple tiers to exploit certain of In4Derm’s BETi compounds identified to be suitable for topical administration in all fields. The Company paid a $1.0 million cash payment to In4Derm upon the execution of the Option Agreement and $0.5 million in connection with the exercise of the Topical BETi Option. Pursuant to the License Agreement, the Company has agreed to make cash payments to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed topical product in the U.S. of up to $15.75 million for all indications. In addition, the Company currently expects to exercise the Oral BETi Option following the selection of a lead candidate for the program. Upon exercise of the exclusive Oral BETi Option, the parties will sign a license agreement (the “Oral License Agreement”), and the Company will be required to pay In4Derm a $4.0 million cash payment. The Oral License Agreement will include cash payments of up to $43.75 million payable to In4Derm upon the achievement of specified clinical development and regulatory approval milestones with respect to each licensed oral product in the U.S. for all indications. The license agreements also provide for tiered royalty payments of up to 10% of net annual sales across licensed BETi products by the Company. In4Derm is entitled to additional milestones upon the achievement of regulatory approvals in certain jurisdictions outside the U.S.

The initial BETi candidates that the Company plans to develop are VYN201 and VYN202. VYN201 is a pan-bromodomain or pan-BD BET inhibitor. It is a first-in-class “soft” pan-BD BET inhibitor that is designed to mitigate systemic drug exposure and will be developed for topical applications. The Company intends to progress VYN201 into rare, neutrophilic, dermatological

indications where there is significant unmet need due to a lack of indicated treatment options. The Company plans to enter this program into the clinic in 2022 after the prerequisite non-clinical safety assessments have been completed.

The second candidate, VYN202, is an orally-delivered, first-in-class BET inhibitor that is highly selective for Bromodomain 2 ("BD2"). Recent research has suggested that the majority of pro-inflammatory signaling via BET protein action is via interactions with BD2. By selectively inhibiting BD2, the Company believes VYN202 could have a more targeted anti-inflammatory effect with an improved benefit/risk profile. The Company views VYN202 as having significant potential as a novel, oral treatment for major immuno-inflammatory indications. Following the exercise of the Oral BETi Option, the Company intends to commence a IND-enabling non-clinical safety program for VYN202 and enter the clinic in 2022.

As the Company transitions from a commercial organization to one focused on research and development, the Company intends to streamline operations by eliminating the vast majority of planned expenditures supporting its commercial operations. Furthermore, the Company intends to reduce its workforce by terminating approximately 70 employees, which the Company expects to be completed by December 31, 2021. The Company expects to incur a one-time charge in the range of approximately $1.5 million to $2.0 million, excluding non-cash charges, in connection with this restructuring plan, consisting primarily of employee termination costs, including severance and other benefits. This charge is expected to be incurred during the quarter ending September 30, 2021 with related cash payments expected to be substantially paid out by December 31, 2021.

Reverse Merger

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

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

Reverse stock split and recasting of per-share amounts

On February 10, 2021, 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 made to the maximum number of shares issuable under the Company's 2019 Equity Incentive Plan, 2018 Omnibus Incentive Plan and 2019 Employee Share Purchase Plan.

Unless otherwise noted, all common shares and per share amounts contained in the unaudited interim condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split.

Topical Minocycline Franchise

In January 2020, the Company launched 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® for the treatment of inflammatory lesions of rosacea in adults. ZILXI became available in pharmacies nationwide in October 2020. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.

AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)™ that is also being used in the development of the Company’s product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating

the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company held an end-of-Phase II meeting with the FDA in the fourth quarter of 2020.

Serlopitant

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

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 also launched ZILXI in the United States in October 2020 and commenced generating revenues in the fourth quarter of 2020. The Company’s activities prior to the commercial launches of AMZEEQ and ZILXI had primarily consisted of raising capital, developing product candidates, and performing research and development activities. Since inception, the Company has incurred recurring losses and negative cash flows from operations. For the six months ended June 30, 2021, the Company incurred a net loss of $40.5 million and used $28.8 million of cash in operations. As of June 30, 2021, the Company had cash, cash equivalents, restricted cash and investments of $104.0 million and an accumulated deficit of $606.7 million. The Company's outstanding debt under its Amended and Restated Credit Agreement at June 30, 2021 was $35.0 million. On August 11, 2021, the Company prepaid the entirety of its outstanding indebtedness, including a prepayment premium and accrued but unpaid interest, for a total amount of approximately $36.5 million.

The COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. In addition, the commercial launches of both AMZEEQ and ZILXI have been negatively impacted by unfavorable payor decisions in March 2021 on product pricing. These conditions have impaired the Company's ability to generate revenue consistent with internal forecasts, which has had a negative impact on its financial condition and liquidity. The Company and its lenders discussed revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the Company’s strategic transition discussed above. Following such discussions, 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 has been terminated and the security interests thereunder will be terminated. As a result of the above, the Company determined that its projected cash flows from operations, combined with its cash balance after the debt prepayment, would not provide sufficient resources to fund its existing operations, for at least the next twelve months from the issuance of these financial statements.

As discussed above, the Company completed a strategic review of its business and has determined to initiate a process to explore a sale or license of its minocycline franchise, including AMZEEQ, ZILXI, FCD105 and the underlying MST platform. The Company will refocus its resources on its immuno-inflammatory pipeline and intends to support the FMX114 and the BETi development programs. Research and development activities for these programs, including preclinical and clinical testing of the Company’s drug candidates, will require significant additional financing. The future viability of the Company is dependent on its ability to successfully pivot to its research and development business strategy and develop commercially viable drug candidates and raise additional capital to finance its operations. The Company’s ability to continue as a going concern is contingent on its ability to sell or license its minocycline franchise, develop future commercially viable products and/or to raise sufficient working capital through either debt or equity financing. 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 the Company’s ability to continue as a going concern within one year after the date that its unaudited condensed consolidated financial statements are issued. The accompanying condensed

consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is expected to be impacted by the outcome of the plans outlined above, including the successful sale or license of its minocycline franchise, positive results from clinical trials for FMX114, and the successful development and positive results from clinical trials for the BETi programs. Based on current plans and assumptions, the Company believes that absent sufficient proceeds received from a sale or license of the minocycline franchise, business development transactions or financing transactions, which are all beyond its control, it will not have sufficient cash and cash equivalents to fund its operations beyond one year from the issuance of these financial statements. Accordingly, the Company will, over the course of the next twelve months, require significant additional financing to continue its operations. Each of these factors are subject to uncertainty, and therefore, raise substantial doubt about the Company’s ability to continue as a going concern. Failure to successfully complete a sale or license of the minocycline franchise, develop the noted assets, and 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 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.

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SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

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. Certain prior period amounts have been reclassified to conform to current year presentation.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 4, 2021.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.

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 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 COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. 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 and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases, the development of new strains and the vaccination effort. 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, 2021 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. In 2020, 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).

•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”) and certain independent and specialty pharmacies (together, the “customers”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. The Company evaluates the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 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, 2021 were primarily generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for our minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. The Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 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 recognized the revenues from the upfront license fee when the license was transferred to the licensee and the licensee was 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, 2021 and 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 other expense (income), net in the accompanying condensed consolidated statements of operations. As of June 30, 2021 and June 30, 2020, the Company had no derivative instruments.

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

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The 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 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 30		Six months ended June 30
	2021	2020	2021	2020
Outstanding stock options, RSUs and shares under the ESPP	5,378,428	3,743,846	5,365,232	3,020,509
Warrants	495,165	473,258	495,165	318,084

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

j.Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In December 2019, the Financial Accounting Standards Board ("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 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.

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BUSINESS COMBINATION

6 Months Ended

Jun. 30, 2021

Business Combinations [Abstract]

BUSINESS COMBINATION

BUSINESS COMBINATION

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

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

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

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

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

During the six months ended June 30, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the condensed consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date.

Purchase Price

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

(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:

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	49,800
Goodwill	4,545
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
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	(106,898)
Goodwill	$	4,545

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 further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.5 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. There were no impairment charges in the three and six months ended June 30, 2021.

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

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

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	49,800
Fair value of identified intangible assets	$	49,800

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

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

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 further pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $49.8 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. There were no impairment charges in the three and six months ended June 30, 2021.

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 9, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 additional shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 additional shares of Menlo common stock underlying the CSRs, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021. Following the conversion of the CSRs, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders 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, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021, and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.

Pro Forma

The actual Menlo net loss included in the Company’s condensed 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, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

	Three months ended June 30, 2020		Six months ended June 30, 2020
(in thousands, except per share data)	(Unaudited)		(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	13,438
Net loss	$	167,441	$	205,082
Loss per share - basic and diluted	$	1.21	$	1.23
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	(14,931)
Acceleration of stock based compensation	—		(7,199)
Total Adjustments	$	—	$	(22,130)

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

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REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2021

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION

Product Sales

Product revenues for the three and six months ended June 30, 2021 were primarily generated from sales of AMZEEQ which was commercially launched in the United States in January 2020 and ZILXI which became available in pharmacies nationwide on October 1, 2020. The Company’s customers include a limited number of national and select regional distributors and certain independent and specialty pharmacies, together (the "customers"). The distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain

control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. For the three months ended June 30, 2021, there were three major customers that each accounted for more than 10% of total product revenues and, as a group, represented 56% of total product revenues. For the six months ended June 30, 2021, there were four major customers that each accounted for more than 10% of total product revenues and, as a group, represented 70% of total product revenues. For the three months ended June 30, 2020, there were three major customers that each accounted for more than 10% of total product revenues and as a group, represented 100% of total product revenues. For the six months ended June 30, 2020, there were three major customers that each accounted for more than 10% of total product revenues and as a group, represented 99% of total product revenues.

Product Sales Provisions

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, described below.   The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its customers less provisions for (i) trade discounts and allowances, such as distributor fees and discounts for prompt payment, (ii) estimated rebates to third-party payers, patient co-pay assistance programs, chargebacks and other discount programs and (iii) reserves for expected product returns.

Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to trade receivables, net on the condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within accrued expenses on the condensed consolidated balance sheet. Provisions for revenue reserves described below reduced product revenues by $16.2 million and $5.9 million for the three months ended June 30, 2021 and June 30, 2020, respectively. Provisions for revenue reserves described below reduced product revenues by $31.8 million and $14.1 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The revenue reserve accrual at June 30, 2021 and December 31, 2020 was $7.6 million and $5.8 million, respectively, reflected in accrued expense in the consolidated balance sheet.

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

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

Product Returns: Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after 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) historical industry information regarding rates for comparable pharmaceutical products and product portfolios, (ii) external data with respect to inventory levels in the wholesale distribution channel, (iii) external data with respect to prescription demand for products and (iv) remaining shelf lives of products at the date of sale. The Company estimates that approximately 2% to 3% of product will be returned.

License Revenues

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 products to Cutia for clinical and commercial use. Outside of the license transferred, the Company does not have any additional performance obligations under the arrangement. In exchange for the license, the Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 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 license is considered functional IP as the licensee is able to use and benefit from the license without the continued involvement of the Company. There was no license revenue in the three months ended June 30, 2021. The Company recorded $10.0 million of license revenue in the three and six months ended June 30, 2020. The Company will also receive royalties on net sales of any licensed products, such royalties will be recognized in the period the sales or usage occurs under the royalties sales-and usage based exception. The Company has not recorded revenue related to the $1.0 million payment due upon receipt of marketing approval for the licensed product as such amount is constrained under the variable consideration guidance under ASC 606, Revenue from Contracts with Customers.

Contract Assets and Contract Liabilities 

The Company did not have any contract assets (unbilled receivables) related to product sales as of June 30, 2021 and December 31, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract assets (unbilled receivables) related to its license revenues as of June 30, 2021 and December 31, 2020.

The Company did not have any contract liabilities as of June 30, 2021 and December 31, 2020, 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 selling, general and administrative expenses.

Financing Component

The Company has elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Standard credit terms do not exceed 75 days.

Royalty Revenues 

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Revenues in the amount of $0.3 million and $0.5 million were recorded during the three and six months ended June 30, 2021, respectively. Revenues in the amount of $0.2 million were recorded during the three and six months ended June 30, 2020.

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FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

The Company’s assets and liabilities that are measured at fair value as of December 31, 2020, are classified in the table below in one of the three categories described in "Note 2 - Fair value measurement" above:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Marketable securities	$	1,027	$	—	$	—	$	1,027

The Company sold its marketable securities during the six months ended June 30, 2021.

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MARKETABLE SECURITIES

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

MARKETABLE SECURITIES

MARKETABLE SECURITIESMarketable securities as of December 31, 2020 consist mainly of mutual funds securities. The debt securities are classified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in other comprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in the condensed consolidated statement of operations as other expense (income), net.

Equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through other expense (income), net in the condensed consolidated statements of operations.

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2021		2020
Israeli mutual funds	$	—	$	1,027

As of June 30, 2021 and December 31, 2020 there were no available-for-sale debt securities.

The Company has considered factors regarding other than temporary impaired securities and determined that there are no securities with impairment that is other than temporary as of June 30, 2021 and December 31, 2020.

During the six months ended June 30, 2021 and June 30, 2020 the Company received aggregate proceeds of $1.0 million and $36.4 million, respectively, upon sale and maturity of marketable securities.

As of June 30, 2021 and December 31, 2020, there were no restricted marketable securities.

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INVENTORY

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. The Company commenced capitalizing inventory for AMZEEQ and ZILXI upon FDA approval in October 2019 and May 2020, respectively. The Company periodically reviews its inventory levels and, if necessary, writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no inventory write-downs during the three and six months ended June 30, 2021 and June 30, 2020.

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2021		2020
Raw materials	$	3,466	$	4,042
Work-in-process	680		662
Finished goods	4,133		2,700
Total	$	8,279	$	7,404

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DEBT

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

DEBT

DEBT

On July 29, 2019, Foamix entered into a Credit Agreement (the "Credit Agreement") to secure up to $50 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 million, before deducting offering expenses (see “Note 9- 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”), whereby the Company has guaranteed the indebtedness obligations of the borrower and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. As of June 30, 2021 and December 31, 2020, $35.0 million was drawn under the Amended and Restated Credit Agreement. The Company did not incur the remaining $15.0 million under the Amended and Restated Credit Agreement.

The term loans available under the Amended and Restated Credit Agreement were comprised as follows: (a) $15 million that was funded on July 29, 2019 (the “Tranche 1 Loan”), (b) $20 million that was funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to $15 million that was available prior to September 30, 2020 (the “Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the NDA for AMZEEQ and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining arrangements with a third party for the commercial supply and manufacture of AMZEEQ. The Company did not incur the Tranche 3 Loan. Interest on the loans was 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%.

The loans were scheduled to mature on July 29, 2024. However, the Company and its lenders discussed the revenue expected to be generated for the trailing twelve month period ended June 30, 2021, the revenue targets included in the Amended and Restated Credit Agreement and the Company’s strategic transition discussed above. Following such discussions, 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 has been terminated and the security interests thereunder will be terminated. The Company reclassified the outstanding indebtedness as a current liability based on the conditions existing as of June 30, 2021.

In addition, on July 29, 2019, the lenders under the Credit Agreement were issued warrants to purchase up to an aggregate of 1,100,000 of Foamix ordinary shares, at an exercise price of $2.09 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, the exchange ratio was applied to the Warrants such that they became exercisable for 651,640 shares of the Company’s common stock, and the exercise price was adjusted to $3.53. Following the Phase 3 PN Trial results, the Warrants were further adjusted for the CSR and reverse stock split and they are currently exercisable for 495,165 shares of our common stock with an exercise price of $4.64 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 Company incurred offering expenses of $1.1 million in connection with transactions contemplated by the Credit Agreement and the Securities Purchase Agreement, which were allocated to the Warrants, shares and debt consistently with the allocation of proceeds. The Company incurred additional expenses in the amount of $0.3 million from the borrowing of Tranche 2 Loan, allocated only to the debt.

Debt issuance costs are recorded on the consolidated balance sheet as a reduction of liabilities.

Amounts allocated to the debt, net of issuance cost, are subsequently recognized at amortized cost using the effective interest method.

The fair value of the debt as of June 30, 2021 was $36.9 million and is categorized as Level 3. The valuation was performed by applying the income approach, under which the contractual present value method was used. The estimation of risk adjusted discount curve was based on public information reported in the financial statements of publicly traded venture lending companies.

During the three months ended June 30, 2021 and June 30, 2020, the Company recorded interest expense of $1.0 million and discount cost of $0.1 million. During the six months ended June 30, 2021 and June 30, 2020, the Company recorded interest expense of $1.9 million and discount cost of $0.2 million.

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SHARE CAPITAL

6 Months Ended

Jun. 30, 2021

Stockholders' Equity Note [Abstract]

SHARE CAPITAL

SHARE CAPITAL

Preferred stock

As of June 30, 2021, the Company's Certificate of Incorporation, as amended, authorizes the Company to issue 20,000,000 shares of preferred stock, par value $0.0001 per share. There were no shares of preferred stock issued and outstanding as of June 30, 2021 and December 31, 2020.

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.

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 one-for-four reverse stock split in February 2021. On July 19,

2021, the Company held its annual 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 Amendment to its 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, effective as of July 19, 2021. Accordingly, the Company is authorized to issue 150,000,000 shares of common stock, par value $0.0001 per share.

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

Issuance of stock

On February 1, 2019, the Company entered into a Sales Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co., or 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 our sales agent. The issuance and sale of shares of common stock by us pursuant to the Sales Agreement are deemed an "at-the-market" offering under the Securities Act. 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. From January 1, 2021 through January 25, 2021, the Company issued and sold 2,778,012 shares of common stock at a weighted average price per share of $9.76 pursuant to the Sales Agreement for $26.3 million in net proceeds. Effective as of January 25, 2021, the Company terminated the Sales Agreement and will not make any additional sales thereunder.

On January 26, 2021, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors for the sale of an aggregate of 5,274,261 shares of common stock of the Company, at a purchase price of $9.48 per share in a registered direct offering. The offering was completed on January 28, 2021 and the Company received approximately $46.8 million in net proceeds, after deducting placement agent fees and other offering expenses.

On June 9, 2020, the Company completed an underwritten public offering of 7,776,875 shares of common stock at a price to the public of $7.40 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.

Pursuant to the completion of the merger, on March 9, 2020, the Company issued 36,550,335 shares to Foamix shareholders. On April 6, 2020, pursuant to the terms of the CSR Agreement, the Company issued 74,544,413 shares to Foamix shareholders, adjusted retrospectively to 18,636,103 shares of common stock upon the reverse stock split effective February 12, 2021.

Warrants

In connection with entering into the Credit Agreement on July 29, 2019, Foamix issued to the lenders Warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, later exchanged to Warrants to purchase up to 1,980,660 shares of Menlo’s common stock, adjusted retrospectively to 495,165 shares of common stock upon the reverse stock split effective February 12, 2021. Upon the closing of the Merger, each Warrant received one CSR as described in Note 3- Business Combinations. The Warrants were exercisable immediately following the closing of the Credit Agreement, subject to the terms of the warrant, and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants’ expiration date, if in the money.

The exchange of Warrants from Foamix warrants to Menlo warrants and the additional CSR was accounted for as a modification, by analogy, from the modification’s guidance under ASC 260-10-S99-2. The Company assessed the significance of the modification of the Warrants by comparing the fair value of the Warrants immediately before and after the amendments. In its assessment, it also considered additional qualitative factors. The Company concluded that the change of terms was not significant. Therefore, the incremental fair value, in the amount of $41,000, of the modified Warrants over the original ones (as of modification date) was recognized in retained earnings as a deemed dividend to the Warrants holders in the six months ended June 30, 2020.

Share-based compensation

Equity incentive plans:

Upon closing of the Merger, the Company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of June 30, 2021, 1,240,195 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan") in January 2018. In January 2020, the number of shares reserved under the 2018 Plan automatically

increased by 750,000 shares of common stock pursuant to the terms thereof. As of June 30, 2021, 519,928 shares remain issuable under the 2018 Plan.

Employee Share Purchase Plan:

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

As of June 30, 2021, 2,261,108 shares remain available for grant under the ESPP.

During the six months ended June 30, 2021, 42,989 shares were issued to employees pursuant to the ESPP. During the six months ended June 30, 2020, 61,031 Foamix ordinary shares were purchased by Foamix employees pursuant to the ESPP prior to the Merger. Such shares were later exchanged for 36,155 shares of the Company's common stock and one CSR in the Merger, adjusted retrospectively to 9,038 shares of common stock and one CSR upon the reverse stock split effective February 12, 2021.

Options and RSUs granted to employees and directors:

In the six months ended June 30, 2021 and 2020, the Company granted options and RSU as follows:

	Six months ended June 30, 2021
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	957,682	$5.02-$11.08	1 year -4 years	10 years
RSUs	366,678	—	1 year -4 years	—

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	1,195,611	$7.80-$12.52	1 year -4 years	10 years
RSUs	647,427	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merger grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

The fair value of options and RSUs granted to employees and directors during the six months ended June 30, 2021 and the six months ended June 30, 2020 was $7.5 million and $11.4 million, respectively.

The fair value of RSUs granted is based on the share price on the grant date.

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

	Six months ended June 30
	2021		2020
Dividend yield	0	%	0	%
Expected volatility	68.38%-69.12%		60.44%-69.83%
Risk-free interest rate	0.5%-1.07%		0.44%-1.26%
Expected term	6 years		6 years

Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged for stock options and RSUs of Menlo’s common stock according to the Exchange Ratio. In addition, for each option and RSU the holder received a CSR as

described in Note 3- Business Combination. This transaction was considered by the company to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded immaterial incremental compensation expense for the three months ended March 31, 2020. As described in Note 3 - Business Combination, 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 conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $0.5 million and $1.4 million for the three and six months ended June 30, 2021, respectively and $9.3 million for the three and six months ended June 30, 2020. As of June 30, 2021 there is $1.9 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 2 years.

Awards granted to holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the unaudited condensed consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $0.5 million and $1.0 million million for the three and six months ended June 30, 2020. There was no incremental compensation expense for the three and six months ended June 30, 2021. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that 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. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital.

Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan.

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30
(in thousands)	2021		2020		2021		2020
Research and development expenses	$	442	$	3,050	$	900	$	3,566
Selling, general and administrative	1,459		7,718		3,443		8,961
Total	$	1,901	$	10,768	$	4,343	$	12,527

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OPERATING LEASE

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

OPERATING LEASE

OPERATING LEASE

Operating lease agreements

The Company has operating leases for corporate offices and vehicles. The properties primarily relate to the Company’s principal executive office in Bridgewater, New Jersey and office space in Israel.

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 includes 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 Lease Amendment is due to expire on August 31, 2022.

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

The lease agreement for the office space in Israel is a one year lease that expires in December 2021. Given the short-term nature of the lease term, the Company did not recognize a right-of-use asset and liability.

Additionally, the Company entered into operating lease agreements in connection with the leasing of vehicles. The lease periods are generally for three years.

Maturities of lease liabilities are as follows:

(in thousands)
2021	$	458
2022	761
2023	151
Total lease payments	1,370
Less imputed interest	124
Total lease liability	$	1,246

As of June 30, 2021, the Company had a lien in the amount of $0.6 million on the Company’s cash in respect of bank guarantees granted in order to secure the lease agreements.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2021, no claims or actions are pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

As previously disclosed, on June 30, 2021, the Company received a paragraph IV certification notice (the “Notice”) from Padagis Israel Pharmaceuticals Ltd. (f/k/a Perrigo Israel Pharmaceuticals Ltd. (“Padagis”)) advising that Padagis has submitted to the U.S. Food and Drug Administration (the “FDA”) an Abbreviated New Drug Application (“ANDA”) seeking approval to manufacture and sell a generic version of the Company’s product AMZEEQ® (minocycline) topical foam, 4% in the United States prior to the expiration of the Company’s U.S. patents Nos. 8,865,139, 8,945,516, 8,992,896, 9,675,700, 10,086,080, 10,137,200, 10,213,512, 10,265,404, 10,398,641, 10,517,882, 10,821,187, and 10,849,847 (the “Listed Patents”), which are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, otherwise known as the “Orange Book.” The Notice alleges that the Listed Patents are invalid, unenforceable, and/or will not be infringed by the commercial manufacture, use or sale of the generic product described in Padagis’s ANDA.

On August 9, 2021, the Company initiated a patent infringement suit against Padagis in the United States District Court for the District of Delaware arising from Padagis’s ANDA filing with the FDA. The patent infringement suit asserts each of the Listed Patents. As a result, under applicable law, the FDA cannot grant final approval to Padagis’s ANDA before December 30, 2023, or a court decision in Padagis’s favor. VYNE is seeking, among other relief, an order that the effective date of any FDA approval of Padagis’s ANDA be no earlier than the expiration of the Listed Patents, the latest of which expires on September 8, 2037, and such further and other relief as the court may deem appropriate.

The Company intends to vigorously defend its intellectual property rights, including the Listed Patents.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Basis of Presentation

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. Certain prior period amounts have been reclassified to conform to current year presentation.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 4, 2021.

The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the year ending December 31, 2021.

Principles of Consolidation

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

Use of Estimates

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 COVID-19 pandemic and government measures taken in response to the pandemic have had a negative impact on the Company's operations. Access to healthcare providers has been limited, which has negatively impacted sales and the Company's ability to execute its commercial strategy with respect to AMZEEQ and ZILXI. 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 and liquidity will depend on future developments that are highly uncertain, subject to change and will continue to evolve with geographical re-openings, surges in cases, the development of new strains and the vaccination effort. 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, 2021 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. In 2020, 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

Business Acquisition

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).

•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.

Revenue Recognition

Revenue RecognitionThe 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”) and certain independent and specialty pharmacies (together, the “customers”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when customers obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the customers. The Company evaluates the creditworthiness of its customers to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 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, 2021 were primarily generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020, and ZILXI, which was approved by the FDA in May 2020 and was commercially launched in the United States in October 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for our minocycline products and product candidate, if approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commercial use. The Company received an upfront cash payment of $10.0 million in 2020 ($6.0 million received in the three months ended June 30, 2020 and $4.0 million received in the three months ended September 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 recognized the revenues from the upfront license fee when the license was transferred to the licensee and the licensee was able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.

Allowance for credit losses

Allowance for credit lossesAn 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, 2021 and June 30, 2020.

Derivative instruments

Derivative instrumentsThe 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 other expense (income), net in the accompanying condensed consolidated statements of operations. As of June 30, 2021 and June 30, 2020, the Company had no derivative instruments.

Fair value measurement

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.

Loss per share

Loss per share

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The 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 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 30		Six months ended June 30
	2021	2020	2021	2020
Outstanding stock options, RSUs and shares under the ESPP	5,378,428	3,743,846	5,365,232	3,020,509
Warrants	495,165	473,258	495,165	318,084

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

Newly issued and recently adopted accounting pronouncements

Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In December 2019, the Financial Accounting Standards Board ("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 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.

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2021

Accounting Policies [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

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 30		Six months ended June 30
	2021	2020	2021	2020
Outstanding stock options, RSUs and shares under the ESPP	5,378,428	3,743,846	5,365,232	3,020,509
Warrants	495,165	473,258	495,165	318,084

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BUSINESS COMBINATION (Tables)

6 Months Ended

Jun. 30, 2021

Business Combinations [Abstract]

Schedule of Merger Consideration to be Transferred

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.

Schedule of Allocation of the Purchase Price to the Fair Values of Assets Acquired and Liabilities Assumed

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

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	49,800
Goodwill	4,545
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
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.

Schedule of the Calculation for Goodwill of Merger

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	(106,898)
Goodwill	$	4,545

Schedule of In Process Research and Development Assets Acquired Through Business Combination

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

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	49,800
Fair value of identified intangible assets	$	49,800

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

Schedule of Pro Forma Information

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, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

	Three months ended June 30, 2020		Six months ended June 30, 2020
(in thousands, except per share data)	(Unaudited)		(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	13,438
Net loss	$	167,441	$	205,082
Loss per share - basic and diluted	$	1.21	$	1.23
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	(14,931)
Acceleration of stock based compensation	—		(7,199)
Total Adjustments	$	—	$	(22,130)

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FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The Company’s assets and liabilities that are measured at fair value as of December 31, 2020, are classified in the table below in one of the three categories described in "Note 2 - Fair value measurement" above:

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Marketable securities	$	1,027	$	—	$	—	$	1,027

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MARKETABLE SECURITIES (Tables)

6 Months Ended

Jun. 30, 2021

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2021		2020
Israeli mutual funds	$	—	$	1,027

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INVENTORY (Tables)

6 Months Ended

Jun. 30, 2021

Inventory Disclosure [Abstract]

Schedule of Inventories

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2021		2020
Raw materials	$	3,466	$	4,042
Work-in-process	680		662
Finished goods	4,133		2,700
Total	$	8,279	$	7,404

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SHARE CAPITAL (Tables)

6 Months Ended

Jun. 30, 2021

Stockholders' Equity Note [Abstract]

Schedule of Share Based Compensation by Share Based Payment Award Grants in Period

In the six months ended June 30, 2021 and 2020, the Company granted options and RSU as follows:

	Six months ended June 30, 2021
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	957,682	$5.02-$11.08	1 year -4 years	10 years
RSUs	366,678	—	1 year -4 years	—

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	1,195,611	$7.80-$12.52	1 year -4 years	10 years
RSUs	647,427	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merger grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

	Six months ended June 30
	2021		2020
Dividend yield	0	%	0	%
Expected volatility	68.38%-69.12%		60.44%-69.83%
Risk-free interest rate	0.5%-1.07%		0.44%-1.26%
Expected term	6 years		6 years

Share-based Payment Arrangement, Expensed and Capitalized, Amount

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30
(in thousands)	2021		2020		2021		2020
Research and development expenses	$	442	$	3,050	$	900	$	3,566
Selling, general and administrative	1,459		7,718		3,443		8,961
Total	$	1,901	$	10,768	$	4,343	$	12,527

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OPERATING LEASE (Tables)

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Lessee, Operating Lease, Liability, Maturity

Maturities of lease liabilities are as follows:

(in thousands)
2021	$	458
2022	761
2023	151
Total lease payments	1,370
Less imputed interest	124
Total lease liability	$	1,246

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NATURE OF OPERATIONS (Details) $ in Thousands				3 Months Ended		6 Months Ended		12 Months Ended
	Aug. 11, 2021 USD ($)	Aug. 06, 2021 USD ($)	Feb. 12, 2021 shares	Jun. 30, 2021 USD ($) shares	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) segment shares	Jun. 30, 2020 USD ($)	Dec. 31, 2021 employee	Sep. 30, 2021 USD ($)	Jul. 19, 2021 shares	Feb. 11, 2021 shares	Dec. 31, 2020 USD ($) shares	Dec. 31, 2019 USD ($)
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of segments | segment						1
Reverse stock split, conversion ratio (share/share)			0.25
Common stock shares authorized (in shares) | shares			75,000,000	75,000,000		75,000,000						75,000,000
Net loss				$ 19,924	$ 167,440	$ 40,474	$ 207,673
Cash used in operations						(28,808)	(88,070)
Cash and investments				104,000		104,000
Accumulated deficit				(606,670)		(606,670)						$ (566,196)
Pro forma cash, cash equivalents, restricted cash and restricted cash equivalents				104,011	$ 97,366	104,011	$ 97,366					$ 58,418	$ 44,584
Amended And Restated Credit Agreement
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Outstanding debt				$ 35,000		$ 35,000
Employee Severance | Forecast
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of employees expected to be terminated | employee								70
Employee Severance | Minimum | Forecast
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Employee termination costs									$ 1,500
Employee Severance | Maximum | Forecast
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Employee termination costs									$ 2,000
Subsequent Event
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Common stock shares authorized (in shares) | shares										150,000,000
Repayments on outstanding debt	$ 36,500
Prepayment fee, percentage	4.00%
Licensing Agreements | Subsequent Event
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Payments for licensing agreements		$ 1,000
Royalty percent, maximum		10.00%
Topical BETi Option Agreement | Subsequent Event
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Payments for licensing agreements		$ 500
Milestone payments upon achieving certain criteria, maximum		15,750
Oral BETi Option Agreement | Subsequent Event
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Payments for licensing agreements		4,000
Milestone payments upon achieving certain criteria, maximum		$ 43,750
Menlo - Premerger
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Common stock shares authorized (in shares) | shares											300,000,000

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SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Millions	3 Months Ended		6 Months Ended
	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($) derivativeInstruments	Sep. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) derivativeInstruments	Apr. 06, 2020
Loss per share
Number of derivative instruments held | derivativeInstruments		0		0
Number of common stock shares issued per CSR (in shares)					1.2082
Effective exchange ratio of Foamix ordinary shares into Menlo common stock (share/share)					1.8006
Foamix
Loss per share
Proceeds from royalties	$ 4.0	$ 6.0	$ 10.0
Additional royalty upon receipt of marketing approval in China				$ 1.0

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SIGNIFICANT ACCOUNTING POLICIES - Schedule of AntiDilutive Equity Awards Not Included in the Calculation of EPS (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Outstanding stock options, RSUs and shares under the ESPP
Loss per share
Antidilutive securities (in shares)	5,378,428	3,743,846	5,365,232	3,020,509
Warrants
Loss per share
Antidilutive securities (in shares)	495,165	473,258	495,165	318,084

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BUSINESS COMBINATION - Narrative (Details)					3 Months Ended		6 Months Ended
	Feb. 12, 2021 shares	Apr. 07, 2020	Apr. 06, 2020 USD ($) $ / shares shares	Mar. 09, 2020 USD ($) contingentStockRight $ / shares shares	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)
Business Acquisition [Line Items]
Number of common stock shares issued per CSR (in shares)			1.2082
Effective exchange ratio (CSR per share)			1.8006
Share issued and delivered upon CSR conversion (in shares) | shares	18,636,103		74,544,413
Ownership percentage of parent by subsidiary stockholders		82.00%
Ownership percentage of parent by parent stockholders		18.00%
Closing share price (in usd per share) | $ / shares			$ 1.40
Goodwill impairment loss					$ 0	$ 4,500,000	$ 0	$ 4,500,000
Value of CSR converted into additional shares of the combined company				$ 19,600,000
Contingent Stock Right Remeasurement			$ 84,700,000		0	84,726,000	0	84,726,000
Contingent consideration, fair value of liability			$ 104,400,000
In Process Research and Development
Business Acquisition [Line Items]
In process research and development impairment					$ 0	$ 49,800,000	$ 0	49,800,000
Foamix
Business Acquisition [Line Items]
Number of contingent stock rights issued (in CSR) | contingentStockRight				1
Closing share price (in usd per share) | $ / shares				$ 2.99
Consideration transferred				$ 131,079,000
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders				$ 123,757,000
Number of shares deemed (for accounting purposes only) issued (in shares) | shares				41,400,000
Deemed (for accounting purposes only) conversion of Menlo equity awards				$ 7,322,000
Value of CSR converted into additional shares of the combined company				19,600,000
Contingent consideration, fair value of liability				$ 19,600,000
Foamix | Employee benefits
Business Acquisition [Line Items]
Acquisition related costs								8,100,000
Foamix | Selling, general and administrative
Business Acquisition [Line Items]
Acquisition related costs								$ 11,700,000
Common stock | Foamix
Business Acquisition [Line Items]
Exchange ratio per ordinary share for common stock (share per share)				0.5924

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BUSINESS COMBINATION - Consideration Transferred in Merger (Details) - USD ($) $ in Thousands	Mar. 09, 2020	Apr. 06, 2020
Business Acquisition [Line Items]
Contingent consideration, fair value of liability		$ 104,400
Foamix
Business Acquisition [Line Items]
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
Contingent consideration, fair value of liability	19,600
Consideration net of the effect of CSRs	$ 111,400

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BUSINESS COMBINATION - Purchase Price Allocation (Details) $ in Thousands	Mar. 09, 2020 USD ($)
Allocations of purchase price
Value of CSR converted into additional shares of the combined company	$ 19,600
Foamix
Allocations of purchase price
Cash and cash equivalents	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	49,800
Goodwill	4,545
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Purchase price	111,443
Value of CSR converted into additional shares of the combined company	$ 19,600

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BUSINESS COMBINATION - Goodwill (Details) - Foamix	Mar. 09, 2020 USD ($)
Business Combination, Goodwill [Abstract]
Goodwill deductible for income tax purposes	$ 0
Purchase price	111,443,000
Less: fair value of net assets acquired, including other identifiable intangibles	(106,898,000)
Goodwill	$ 4,545,000

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BUSINESS COMBINATION - IPRD and CSR (Details) - Foamix $ in Thousands	Mar. 09, 2020 USD ($)
In-Process Research and Development
Acquired indefinite life intangible assets	$ 49,800
Fair value of identified intangible assets	$ 49,800

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BUSINESS COMBINATION - Pro Forma (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Business Combinations [Abstract]
Revenues	$ 0	$ 0
Loss attributable to Menlo	(7,594)	(19,637)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	11,688	13,438
Net loss	$ 167,441	$ 205,082
Loss per share - basic (in USD per share)	$ 1.21	$ 1.23
Loss per share - diluted (in dollars per share)	$ 1.21	$ 1.23
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$ 0	$ (14,931)
Acceleration of stock based compensation	0	(7,199)
Total Adjustments	$ 0	$ (22,130)

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REVENUE RECOGNITION (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Dec. 31, 2020
Product Sales
Product sales provisions	$ 16,200		$ 5,900	$ 31,800		$ 14,100
Minimum estimate product return (as a percent)	2.00%			2.00%
Maximum estimate product return (as a percent)	3.00%			3.00%
Revenues	$ 4,258		11,688	$ 8,377		13,438
Royalty revenues
Product Sales
Revenues	295		205	525		205
Allowance For Sales Returns
Product Sales
Revenue reserve accrual	7,600			7,600			$ 5,800
Foamix
Product Sales
Proceeds from royalties		$ 4,000	$ 6,000		$ 10,000
Upfront royalty receipt	0					$ 10,000
Additional royalty upon receipt of marketing approval in China	$ 1,000			$ 1,000
Customers | Revenue from Contract with Customer, Product and Service Benchmark | Four Customers
Product Sales
Concentration risk, percentage	56.00%			70.00%
Customers | Revenue from Contract with Customer, Product and Service Benchmark | Three Customers
Product Sales
Concentration risk, percentage			100.00%			99.00%

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FAIR VALUE MEASUREMENT - Assets and Liabilities Measured at Fair Value (Details) $ in Thousands	Dec. 31, 2020 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	$ 1,027
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	1,027
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	$ 0

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MARKETABLE SECURITIES - Marketable Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Israeli mutual funds
Debt Securities, Available-for-sale [Line Items]
Marketable securities	$ 0	$ 1,027

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MARKETABLE SECURITIES - Narrative (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Investments, Debt and Equity Securities [Abstract]
Debt securities, available-for-sale	$ 0		$ 0
Permanent impairment loss, debt securities, available for sale	0		0
Proceeds from sale and maturity of marketable securities	1,000,000.0	$ 36,400,000
Restricted Investments	$ 0		$ 0

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INVENTORY - Narrative (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Inventory Disclosure [Abstract]
Inventory write-down	$ 0	$ 0	$ 0	$ 0

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INVENTORY - Schedule of Inventory Components (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Raw materials	$ 3,466	$ 4,042
Work-in-process	680	662
Finished goods	4,133	2,700
Total	$ 8,279	$ 7,404

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DEBT - Narrative (Details)				3 Months Ended		6 Months Ended
	Aug. 11, 2021 USD ($)	Jul. 29, 2019 USD ($) lender $ / shares shares	Feb. 01, 2019 USD ($)	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)	Mar. 09, 2020 $ / shares shares	Dec. 17, 2019 USD ($)
Debt offering expenses
Incurred expenses related to Credit Agreement and Securities Purchase Agreement		$ 1,100,000	$ 50,000,000.0
Interest expense				$ 1,000,000.0	$ 1,000,000.0	$ 1,900,000	$ 1,900,000
Discount cost				100,000	$ 100,000	200,000	$ 200,000
Subsequent Event
Debt instrument information
Prepayment fee, percentage	4.00%
Repayments on outstanding debt	$ 36,500,000
Credit Agreement | Level 3
Debt offering expenses
Debt instrument, fair value				36,900,000		36,900,000
Amended And Restated Credit Agreement
Debt instrument information
Long-term debt, gross				35,000,000.0		35,000,000.0		$ 35,000,000.0
Remaining borrowing capacity				$ 15,000,000.0		$ 15,000,000.0		$ 15,000,000.0
Base interest rate				8.25%		8.25%
Amended And Restated Credit Agreement | One-month LIBOR
Debt instrument information
Basis spread on variable rate						2.75%
Amended and Restated Credit Agreement, Trench 1 Loan
Debt instrument information
Debt instrument, face amount		15,000,000
Amended and Restated Credit Agreement, Trench 2 Loan
Debt instrument information
Debt instrument, face amount										$ 20,000,000
Debt offering expenses
Incurred expenses related to Credit Agreement and Securities Purchase Agreement		$ 300,000
Amended and Restated Credit Agreement, Trench 3 Loan
Debt instrument information
Borrowing capacity				$ 15,000,000		$ 15,000,000
Shareholder Lender | Foamix
Warrants issued
Number of ordinary shares that may be purchased by exercise of warrants (in shares) | shares		1,100,000		495,165		495,165			651,640
Warrant exercise price (in dollars per share) | $ / shares		$ 2.09		$ 4.64		$ 4.64			$ 3.53
Shareholder Lender | Credit Agreement
Debt instrument information
Borrowing capacity		$ 50,000,000
Registered offering per securities purchase agreement | Shareholder Lender
Debt instrument information
Number of lenders involved | lender		1
Gross proceeds from issuance of common stock		$ 14,000,000

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SHARE CAPITAL - Common Stock, Preferred Stock, and Warrants Narrative (Details) $ / shares in Units, $ in Thousands								1 Months Ended	6 Months Ended
	Feb. 12, 2021 shares	Jan. 26, 2021 USD ($) $ / shares shares	Jun. 09, 2020 USD ($) $ / shares shares	Apr. 06, 2020 shares	Mar. 09, 2020 USD ($) contingentStockRight shares	Jul. 29, 2019 USD ($) shares	Feb. 01, 2019 USD ($)	Jan. 25, 2021 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Jul. 19, 2021 $ / shares shares	Jun. 30, 2021 vote $ / shares shares	Dec. 31, 2020 $ / shares shares
Class of Stock [Line Items]
Preferred stock, shares authorized (in shares)											20,000,000	20,000,000
Preferred stock, par value (USD/share) | $ / shares											$ 0.0001	$ 0.0001
Preferred stock, shares issued (in shares)											0	0
Preferred stock, shares outstanding (in shares)											0	0
Reverse stock split, conversion ratio (share/share)	0.25
Common stock shares authorized (in shares)	75,000,000										75,000,000	75,000,000
Common stock par value (USD/share) | $ / shares											$ 0.0001	$ 0.0001
Payments of financing and stock issuance costs | $						$ 1,100	$ 50,000
Share issued and delivered upon CSR conversion (in shares)	18,636,103			74,544,413
Deemed dividend to warrants holders due to warrant modifications | $									$ 0
Subsequent Event
Class of Stock [Line Items]
Common stock shares authorized (in shares)										150,000,000
Common stock par value (USD/share) | $ / shares										$ 0.0001
Foamix
Class of Stock [Line Items]
Number of shares issued pursuant to the merger (in shares)				74,544,413	36,550,335
Number of contingent stock rights issued (in CSR) | contingentStockRight					1
Deemed dividend to warrants holders due to warrant modifications | $					$ 41
Cantor Sales Agreement
Class of Stock [Line Items]
Commission from gross proceeds from issuance of common stock							3000.00%
Number of shares issued in transaction (in shares)								2,778,012
Sale of stock (USD/share) | $ / shares								$ 9.76
Consideration received in a transaction | $								$ 26,300
Registered Direct Offering
Class of Stock [Line Items]
Number of shares issued in transaction (in shares)		5,274,261
Sale of stock (USD/share) | $ / shares		$ 9.48
Consideration received in a transaction | $		$ 46,800
Initial Public Offering
Class of Stock [Line Items]
Number of shares issued in transaction (in shares)			7,776,875
Sale of stock (USD/share) | $ / shares			$ 7.40
Consideration received in a transaction | $			$ 53,600
Common stock
Class of Stock [Line Items]
Number of votes entitled to each ordinary share | vote											1
Warrants | Foamix | Maximum
Class of Stock [Line Items]
Number of ordinary shares that may be purchased by exercise of warrants (in shares)						1,100,000
Number of shares issued for warrants exercised	495,165					1,980,660

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SHARE CAPITAL - Share-based Compensation Narrative (Details)				3 Months Ended		6 Months Ended
	Feb. 12, 2021 contingentStockRight shares	Apr. 06, 2020	Mar. 09, 2020 USD ($) contingentStockRight	Jun. 30, 2021 USD ($) shares	Jun. 30, 2020 USD ($) contingentStockRight	Jun. 30, 2021 USD ($) shares	Jun. 30, 2020 USD ($) contingentStockRight shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options and RSUs granted						$ 7,500,000	$ 11,400,000
Number of common stock shares issued per CSR (in shares)		1.2082
Effective exchange ratio (CSR per share)		1.8006
Additional paid in capital reclassified to derivate liabilities					$ (657,000)		975,000
Foamix
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of contingent stock rights issued (in CSR) | contingentStockRight			1
Foamix | Employees and consultants
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incremental compensation costs incurred				$ 500,000	9,300,000	1,400,000	9,300,000
Incremental compensation costs incurred						$ 1,900,000
Incremental compensation costs, recognition period						2 years
Foamix | No longer employed or providing services
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incremental compensation costs incurred				$ 0	$ 500,000	$ 0	$ 1,000,000.0
Additional paid in capital reclassified to derivate liabilities			$ 1,600,000
Incremental compensation cost			$ 600,000
Common stock | Foamix
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued during the period (in shares) | shares						42,989	61,031
2019 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance (in shares) | shares				1,240,195		1,240,195
2018 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance (in shares) | shares				519,928		519,928
Increase in shares reserved for future issuance (in shares) | shares				750,000		750,000
ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance (in shares) | shares				2,261,108		2,261,108
Percentage of fair market value used as purchase price						85.00%
Percent of annual earnings that may be used to purchase shares				15.00%		15.00%
ESPP | Common stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock issued during period, conversion of units (in shares) | shares	9,038						36,155
ESPP | Common stock | Foamix
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of contingent stock rights issued (in CSR) | contingentStockRight	1				1		1

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SHARE CAPITAL - Options and RSU Grants (Details) - $ / shares	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option, award amount (in shares)	957,682	1,195,611
Exercise price range, minimum (in usd per share)	$ 5.02	$ 7.80
Exercise price range, maximum (in usd per share)	$ 11.08	$ 12.52
Expiration	10 years	10 years
Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year	1 year
Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years	4 years
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSU, award amount (in shares)	366,678	647,427
RSUs | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year	1 year
RSUs | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years	4 years

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SHARE CAPITAL - Fair value assumptions (Details) - Options	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Share-based payment assumptions for computing fair value
Dividend yield	0.00%	0.00%
Expected volatility, minimum	68.38%	60.44%
Expected volatility, maximum	69.12%	69.83%
Risk-free interest rate, minimum	0.50%	0.44%
Risk-free interest rate, maximum	1.07%	1.26%
Expected term	6 years	6 years

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SHARE CAPITAL - Schedule of Share-based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Expense
Share-based compensation	$ 1,901	$ 10,768	$ 4,343	$ 12,527
Research and development expenses
Expense
Share-based compensation	442	3,050	900	3,566
Selling, general and administrative
Expense
Share-based compensation	$ 1,459	$ 7,718	$ 3,443	$ 8,961

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OPERATING LEASE - Narrative (Details) $ in Thousands	Mar. 13, 2019 USD ($) ft²	Jun. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Operating Lease
Operating lease right-of-use assets		$ 1,225	$ 1,583
Operating lease terms		3 years
Lien on marketable securities to secure lease agreements		$ 600
ISRAEL
Operating Lease
Operating lease terms		1 year
Original Space | Bridgewater, New Jersey
Operating Lease
Facility space leased | ft²	10,000
Operating lease right-of-use assets	$ 700
Additional Space | Bridgewater, New Jersey
Operating Lease
Facility space leased | ft²	4,639
Operating lease right-of-use assets	$ 300

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OPERATING LEASE - Maturities of Lease Liabilities (Details) $ in Thousands	Jun. 30, 2021 USD ($)
Leases [Abstract]
2021	$ 458
2022	761
2023	151
Total lease payments	1,370
Less imputed interest	124
Total lease liability	$ 1,246