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 ~~September 30, 2021~~March 31, 2022

☐ 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 001-38709

~~Osmotica~~RVL Pharmaceuticals plc

(Exact name of registrant as specified in its charter)


Ireland		Not Applicable
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

400 Crossing Boulevard

Bridgewater, NJ 08807

(Address of principal executive offices)

(Zip Code)

(908) 809-1300

(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
Ordinary ~~Shares~~shares, $0.01 nominal value per share	~~OSMT~~RVLP	Nasdaq Global Select Market

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, 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 ☒.

There were ~~83,280,591~~83,549,659 ordinary shares ($0.01 nominal value per share) outstanding as of ~~November 12, 2021.~~May 11, 2022.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans ~~and the impact of the COVID-19 pandemic on the sufficiency of our product supply,~~ and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "plan," "should," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives and financial needs. Examples of forward-looking statements include, among others, statements we make regarding: our intentions, beliefs or current expectations concerning, among other things, future operations; future financial performance, trends and events, particularly relating to sales of ~~our product and the development, approval and introduction of new products;~~Upneeq; U.S. Food and Drug Administration, or the FDA, and other regulatory applications, approvals and actions; the continuation of historical trends; our ability to manage costs and service our debt; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs.

We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include the following:

●

Due to our dependence on one product, Upneeq, our business ~~would~~could be materially adversely affected if ~~this product~~Upneeq does not perform as well as ~~expected;~~expected.

●

~~our ability to continue our operations requires that we raise additional capital and our operations could~~Our business may be ~~curtailed if we are unable to obtain additional funding as or when needed;~~adversely affected by the ongoing coronavirus outbreak.

●

Upneeq may fail to achieve market acceptance by clinicians and patients, or others in the medical community, and the market opportunity for Upneeq may be smaller than we ~~estimate;~~estimate.

●

~~failures~~If we are unable to successfully commercialize Upneeq, or develop new products, on a timely or cost effective basis, our operating results will suffer.

●

Our profitability depends on our customers’ willingness to pay the price we charge for Upneeq. If we decide to lower the price we charge for Upneeq our profitability could materially suffer.

●

Our marketing and sales expenditures may not result in the commercial success of Upneeq.

●

There is no certainty that we will be able to get FDA approval of arbaclofen extended release (“ER”) and no certainty that we will be able to realize any value for arbaclofen ER if we decide to license or divest the product.

●

We expend a significant amount of resources on research and development, including milestones on in licensed products, which may not lead to successful product introductions.

●

If we are unable to maintain our sales, marketing and distribution capabilities, or establish additional capabilities if and when necessary, we may not be successful in commercializing Upneeq.

●

We depend to a large extent on third-party suppliers and distributors for Upneeq, including Nephron Pharmaceuticals, and if such suppliers and distributors are unable to supply raw materials for manufacture and deliver Upneeq in a timely manner, or are unable to manufacture Upneeq at a scale sufficient to meet demand, it could have material adverse effect on our business, financial position and results of operations.

●

If Upneeq does not produce the intended effects, our business may suffer.

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●

Failures of or delays in clinical trials are common and have many causes, and such failures or delays could result in increased costs to us and could prevent or delay our ability to obtain regulatory approval and commence product sales offor new ~~products;~~products.

●

The drug regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

●

We are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes;

●

our substantial debt could adversely affect our liquidity and our ability to raise additional capital to fund operations and could limit our ability to pursue our growth strategy or react to changes in the economy or our industry;

●

~~we may face competition, including from other drug manufacturers and compounding pharmacies, which could significantly limit our growth and materially adversely affect our financial results;~~

●

~~a business interruption at our pharmacy or at facilities operated by third parties that we rely on, could have a material adverse effect on our business;~~

●

~~if we are unable to develop or maintain our sales capabilities, we may not be able to effectively market or sell Upneeq or any other products we may develop;~~

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●

our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business;

●

~~we are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations;~~

●

our product or product candidates may cause undesirable side effects or have other adverse properties that could delay or prevent their regulatory approval or limit the scope of any approved package insert or market acceptance, or result in significant negative consequences following marketing approval;

●

~~manufacturing or quality control problems may damage our reputation, require costly remedial activities or otherwise negatively impact our business;~~

●

~~we may in the future become subject to rules applicable to PFICs;~~

●

~~our business may be adversely affected by the continuing coronavirus pandemic; and~~

●

~~other~~Other factors that are described in ~~the~~Part 1, Item 1A "Risk Factors" ~~section~~ of ~~this Quarterly~~our Annual Report on Form ~~10-Q~~10-K for the year ended December 31, 2021 as filed with the U.S. Securities and ~~our Current Report~~Exchange Commission (“SEC”) on ~~Form 8-K filed on September 8, 2021.~~March 30, 2022.

The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

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TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited).	5
Unaudited Condensed Consolidated Balance Sheets – ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	5
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss – Three Months Ended March 31, 2022 and ~~Nine months ended September 30,~~ 2021 ~~and 2020~~	6
Unaudited Condensed Consolidated ~~Statement~~Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2022 and ~~Nine months ended September 30,~~ 2021 ~~and 2020~~	7
Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and ~~Nine months ended September 30,~~ 2021 ~~and 2020~~	8
Notes to Unaudited Condensed Consolidated Financial Statements	9
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2619
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.	4226
ITEM 4. Controls and Procedures.	4226
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.	4326
ITEM 1A. Risk Factors.	4326
ITEM 6. Exhibits.	4527

SIGNATURES	4628

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PART I – FINANCIAL INFORMATION

Item 1.Financial ~~Statements.~~Statements (unaudited).

~~OSMOTICA~~RVL PHARMACEUTICALS PLC

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	September 30, 2021		December 31, 2020
	(Unaudited)				March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	8,352	$	114,053	$	26,341	$	40,444
Accounts receivable, net		4,190		3,149
Other receivables						17,572		2,133
Inventories, net		824		1,831		838		838
Prepaid expenses and other current assets		10,019		12,592		12,481		12,901
Assets held for sale		—		41,529
Financial commitment asset						2,096		3,063
Total current assets		23,385		173,154		59,328		59,379
Property, plant and equipment, net		851		2,391		804		866
Operating lease assets		1,651		1,953		1,119		1,368
Intangibles, net		27,210		35,090
Indefinite-lived intangible assets						27,210		27,210
Goodwill		55,847		55,847		55,847		55,847
Other non-current assets		603		373
Assets held for sale		—		102,141
Total assets	$	109,547	$	370,949	$	144,308	$	144,670
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable	$	4,449	$	3,128	$	4,732	$	3,777
Accrued liabilities		18,521		16,951		14,345		13,077
Current portion of debt, net of deferred financing costs		29,925		—
Current portion of obligation under finance leases		6		20
Current portion of debt						1,512		2,409
Current portion of obligations under finance leases						2		5
Current portion of lease liability		1,029		1,199		688		839
Income taxes payable - current portion		—		2		13		1
Liabilities held for sale		—		34,484
Total current liabilities		53,930		55,784		21,292		20,108
Long-term debt, net of non-current deferred financing costs		—		219,525
Long-term debt (measured at fair value and representing $55,000 of aggregate unpaid principal)						45,100		43,800
Warrant liability						7,728		3,220
Long-term portion of lease liability		701		871		478		592
Income taxes payable - long term portion		1		—		67		66
Deferred taxes		165		345		160		151
Liabilities held for sale		—		568
Total liabilities		54,797		277,093		74,825		67,937
Commitments and contingencies (See Note 12)
Commitments and contingencies (See Note 11)
Shareholders' equity:
Ordinary shares ($0.01 nominal value 400,000,000 shares authorized, 63,127,288 and 62,545,832 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)		631		625
Preferred shares ($0.01 nominal value 40,000,000 shares authorized, 0 shares issued and outstanding)		0		0
Euro deferred shares (€1.00 nominal value 25,000 shares authorized, 0 shares issued and outstanding)		0		0
Ordinary shares ($0.01 nominal value, 400,000,000 shares authorized, 83,515,411 and 83,297,567 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)						835		833
Preferred shares ($0.01 nominal value, 40,000,000 shares authorized, no shares issued and outstanding)						0		0
Euro deferred shares (€1.00 nominal value, 25,000 shares authorized, 0 shares issued and outstanding)						0		0
Additional paid in capital		554,156		548,070		592,999		591,730
Accumulated deficit		(497,808)		(452,610)		(524,351)		(517,530)
Accumulated other comprehensive loss		(2,229)		(2,229)
Accumulated other comprehensive income						—		1,700
Total shareholders' equity		54,750		93,856		69,483		76,733
Total liabilities and shareholders' equity	$	109,547	$	370,949	$	144,308	$	144,670

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

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~~OSMOTICA~~RVL PHARMACEUTICALS PLC

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

~~(Unaudited)~~

(In thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,


2021

2020

2021

2020










Net product sales

$
2,196

$
586

$
4,451

$
998

Royalty revenue

—

165

190

629

Licensing revenue

—

25,000

10,000

25,000

Total revenues

2,196

25,751

14,641

26,627

Cost of goods sold

1,147

1,185

2,535

1,794

Gross profit

1,049

24,566

12,106

24,833

Selling, general and administrative expenses

24,841

21,360

63,769

54,028

Research and development expenses

1,376

1,779

5,789

9,264

Impairment of intangibles

—

—

7,880

—

Total operating expenses

26,217

23,139

77,438

63,292

Operating income (loss)

(25,168)

1,427

(65,332)

(38,459)

Gain on sales of product rights, net

—

—

5,636

—

Operating income (loss)

(25,168)

1,427

(59,696)

(38,459)

Interest expense and amortization of debt discount

735

1,071

1,750

3,560

Other non-operating (gain) loss

120

(51)

1,312

246

Total other non-operating expense

855

1,020

3,062

3,806

Income (loss) before income taxes

(26,023)

407

(62,758)

(42,265)

Income tax expense (benefit)

324

(1,308)

415

(5,042)

Income (loss) from continuing operations

(26,347)

1,715

(63,173)

(37,223)

Gain on sales of discontinued operations

4,373

—

4,373

—

Income (loss) from discontinued operations before income tax expense

3,983

(10,171)

14,219

17,571

Income tax expense (benefit) - discontinued operations

(132)

177

617

5,063

Income (loss) from discontinued operations, net of tax

8,488

(10,348)

17,975

12,508

Net and other comprehensive loss

$
(17,859)

$
(8,633)

$
(45,198)

$
(24,715)

(Loss) income per share attributable to shareholders:

Basic and Diluted, loss from continuing operations

$
(0.42)

$
0.03

$
(1.01)

$
(0.62)

Basic and Diluted, income from discontinued operations

0.13

(0.16)

0.29

0.21

Basic and Diluted loss per share

$
(0.28)

$
(0.14)

$
(0.72)

$
(0.41)

Weighted average shares basic and diluted:





Basic

62,945,898

62,785,866

62,798,123

59,979,834

Diluted

62,945,898

63,285,258

62,798,123

59,979,834


	Three Months Ended March 31,
	2022		2021

Net product sales	$	5,944	$	773
Royalty and licensing revenue		15,500		162
Total revenues		21,444		935
Cost of goods sold		2,144		679
Gross profit		19,300		256
Selling, general and administrative expenses		23,834		16,952
Research and development expenses		862		2,204
Total operating expenses		24,696		19,156
Operating loss before gain on sales of product rights, net		(5,396)		(18,900)
Gain on sales of product rights, net		—		5,636
Operating loss		(5,396)		(13,264)
Interest expense and amortization of debt discount		985		521
Change in fair value of debt and interest expense		1,044		—
Change in fair value of warrants		4,508		—
Other non-operating income, net		(5,037)		(9)
Total other non-operating expense		1,500		512
Loss before income taxes		(6,896)		(13,776)
Income tax benefit, continuing operations		(75)		(4)
Loss from continuing operations		(6,821)		(13,772)
Income from discontinued operations before income taxes		—		4,699
Income tax expense, discontinued operations		—		539
Income from discontinued operations, net of tax		—		4,160
Net loss	$	(6,821)	$	(9,612)
Change in fair value of debt due to change in credit risk, net of tax		(1,700)		—
Comprehensive loss	$	(8,521)	$	(9,612)
(Loss) earnings per ordinary share:
Basic and diluted, continuing operations	$	(0.08)	$	(0.22)
Basic and diluted, discontinued operations		—		0.07
Basic and diluted	$	(0.08)	$	(0.15)
Weighted average ordinary shares outstanding:
Basic and diluted		83,489,900		62,678,130

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

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~~OSMOTICA~~RVL PHARMACEUTICALS PLC

~~CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY~~Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity

~~FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND SEPTEMBER 30, 2020~~

~~(Unaudited)~~

(In thousands, except share data)


									Accumulated												Accumulated
									other												other
	Ordinary shares				Additional		Accumulated		comprehensive				Ordinary shares				Additional		Accumulated		comprehensive		Total
	Shares		Amount		paid in capital		deficit		loss		Total
Balance at January 1, 2020		51,845,742	$	518	$	489,440	$	(373,021)	$	(2,229)	$	114,708
Repurchase of ordinary shares		(29,000)		—		(167)		—		—		(167)
Share compensation		181,966		2		1,107		—		—		1,109
Net loss		—		—		—		(3,083)		—		(3,083)
Payments for taxes related to the net share settlement of equity awards		—		—		(616)		—		—		(616)
Proceeds from issuance of ordinary shares, net of offering costs		6,900,000		69		31,720		—		—		31,789
Balance at March 31, 2020		58,898,708		589		521,484		(376,104)		(2,229)		143,740
Repurchase of ordinary shares		(169,257)		(2)		(917)		—		—		(919)
Share compensation		31,295		1		1,221		—		—		1,222
Net loss		—		—		—		(12,999)		—		(12,999)
Payments for taxes related to the net share settlement of equity awards		—		—		(133)		—		—		(133)
Balance at June 30, 2020		58,760,746		588		521,655		(389,103)		(2,229)		130,911
Repurchase of ordinary shares		(677,468)		(7)		(3,742)		—		—		(3,749)
Share compensation		22,554		—		1,508		—		—		1,508
Net loss		—		—		—		(8,633)		—		(8,633)
Proceeds from issuance of ordinary shares, net of offering costs		5,000,000		50		30,599		—		—		30,649
Balance at September 30, 2020		63,105,832	$	631	$	550,020	$	(397,736)	$	(2,229)	$	150,686
													Shares		Amount		paid in capital		deficit		income (loss)		shareholders' equity
Balance at January 1, 2021		62,545,832	$	625	$	548,070	$	(452,610)	$	(2,229)	$	93,856		62,545,832	$	625	$	548,070	$	(452,610)	$	(2,229)	$	93,856
Share compensation		173,299		2		1,309		—		—		1,311		173,299		2		1,309		—		—		1,311
Net loss		—		—		—		(9,612)		—		(9,612)		—		—		—		(9,612)		—		(9,612)
Payments for taxes related to the net share settlement of equity awards		—		—		(358)		—		—		(358)		—		—		(358)		—		—		(358)
Balance at March 31, 2021		62,719,131		627		549,021		(462,222)		(2,229)		85,197		62,719,131	$	627	$	549,021	$	(462,222)	$	(2,229)	$	85,197

Balance at January 1, 2022														83,297,567	$	833	$	591,730	$	(517,530)	$	1,700	$	76,733
Share compensation		128,931		1		1,232		—		—		1,233		217,844		2		1,326		—		—		1,328
Net loss		—		—		—		(17,727)		—		(17,727)		—		—		—		(6,821)		—		(6,821)
Payments for taxes related to the net share settlement of equity awards		—		—		(249)		—		—		(249)		—		—		(57)		—		—		(57)
Balance at June 30, 2021		62,848,062		628		550,004		(479,949)		(2,229)		68,454
Share compensation		133,064		2		4,277		—		—		4,279
Net loss		—		—		—		(17,859)		—		(17,859)
Payments for taxes related to the net share settlement of equity awards		—		—		(160)		—		—		(160)
Proceeds from issuance of ordinary shares, net of offering costs		146,162		1		35		—		—		36
Balance at September 30, 2021		63,127,288	$	631	$	554,156	$	(497,808)	$	(2,229)	$	54,750
Change in credit risk associated with fair value of debt														—		—		—		—		(1,700)		(1,700)
Balance at March 31, 2022														83,515,411	$	835	$	592,999	$	(524,351)	$	—	$	69,483

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

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~~OSMOTICA~~RVL PHARMACEUTICALS PLC

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~Unaudited Condensed Consolidated Statements of Cash Flows

~~(Unaudited)~~

(In thousands)


	Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2022		2021
Cash Flows from Operating Activities:
Net loss from continuing operations	$	(63,173)	$	(37,223)	$	(6,821)	$	(13,772)
Net income from discontinued operations		17,975		12,508		—		4,160
Net loss		(45,198)		(24,715)		(6,821)		(9,612)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,068		16,589		89		3,986
Share compensation		6,592		3,836		1,209		1,177
Impairment of intangibles		7,880		23,157
Change in fair value of debt						(400)		—
Change in fair value of warrants						4,508		—
Deferred income tax benefit		(180)		(974)		9		83
Gain on sale of fixed and leased assets						(37)		(3)
Gain on sale of product rights, net		(5,636)		—		—		(5,636)
Gain on sale of discontinued operations		(4,373)		—
Loss on sale of fixed and leased assets		1,229		281
Bad debt provision		—		6		—		5
Amortization of deferred financing and loan origination fees		746		985		967		277
Write off of deferred financing and loan origination fees in connection with prepayment		1,387		496
Change in operating assets and liabilities:
Accounts receivable, net		4,643		22,339
Other receivables						(15,439)		3,817
Inventories, net		2,256		(398)		—		655
Prepaid expenses and other current assets		(3,316)		4,741		420		1,398
Other non-current assets		(603)		—
Trade accounts payable		515		(586)		955		(2,246)
Accrued and other current liabilities		(4,347)		(19,915)		1,264		(5,387)
Net cash provided by (used in) operating activities		(30,337)		25,842
Net cash used in operating activities						(13,276)		(11,486)
Cash Flows from Investing Activities:
Proceeds from product rights disposal						—		7,300
Proceeds from sale of fixed and leased assets		40		50		37		3
Payments on disposal of leased assets		—		(209)
Proceeds from product rights disposal		7,300		—
Proceeds from discontinued operations		110,845		—
Purchase of property, plant and equipment		(1,657)		(2,213)
Net cash provided by (used in) investing activities		116,528		(2,372)
Cash flows from Financing Activities:
Purchases of property, plant and equipment						(27)		(422)
Net cash provided by investing activities						10		6,881
Cash Flows from Financing Activities:
Payments on finance lease obligations		(35)		(98)		(2)		(16)
Proceeds from public offering, net of issuance costs		36		62,440
Proceeds from purchases of stock under ESPP		234		—
Debt repayment		(191,360)		(50,000)
Repurchases of ordinary shares		—		(4,835)
Payments for taxes related to net share settlement of equity awards		(767)		(749)
Net cash provided by (used in) financing activities		(191,892)		6,758
Payments on insurance financing loan						(897)		—
Payments for taxes related to net share settlement of share-based awards						(57)		(358)
Proceeds from issuance of ordinary shares under ESPP						119		138
Net cash used in financing activities						(837)		(236)
Net change in cash and cash equivalents		(105,701)		30,228		(14,103)		(4,841)
Cash and cash equivalents, beginning of period		114,053		95,865		40,444		114,053
Cash and cash equivalents, end of period	$	8,352	$	126,093	$	26,341	$	109,212
Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	7,166	$	12,014
Cash paid for taxes	$	2,060	$	1,439

See accompanying notes to unaudited condensed consolidated financial ~~statements~~statements.

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements

~~(UNAUDITED)~~

Note 1. Organization and Nature of Operations

~~Osmotica~~RVL Pharmaceuticals plc, an Irish public limited company, ~~(the “Company”),~~ together with its subsidiaries (the “Company”), is a specialty pharmaceutical company focused on the ~~commercialization~~development and ~~development~~commercialization of products that target markets with underserved patient populations. In July 2020, the Company received regulatory approval from the FDA for RVL-1201, or Upneeq, (oxymetazoline ~~hydrocholoride~~hydrochloride ophthalmic ~~solution,~~solution), 0.1%), for the treatment of acquired blepharoptosis, or droopy ~~eyelid,~~or low-lying eyelids in adults. Upneeq was commercially launched in September 2020 to a limited number of eye care professionals with ~~commercialization~~commercial operations expanded in 2021 among ophthalmology, optometry and oculoplastic specialties. In February 2022, Upneeq was commercially expanded into the medical aesthetics market.

On August 27, 2021, the Company closed the divestiture of its portfolio of branded and non-promoted products and its Marietta, Georgia, manufacturing facility (the “Legacy Business”) to certain affiliates of Alora Pharmaceuticals ~~or Alora,~~(“Alora”) for $111 million in cash upon closing, subject to certain adjustments, and up to $60 million in additional contingent milestone payments. Pursuant to the agreement the Company post-closing retained the rights to Upneeq and to arbaclofen extended release (“ER”) tablets which is under development for the treatment of spasticity in multiple sclerosis. With the divestiture of the Legacy Business the primary focus of the Company will be on the commercialization and development of specialty pharmaceuticals in the ocular and medical aesthetics therapeutic areas.

With the divestiture of the Legacy Business the Company’s commercial operations ~~would be~~are conducted by its wholly-owned subsidiaries, RVL Pharmaceuticals, Inc. (“RVL Pharmaceuticals”) and RVL Pharmacy, LLC, ~~or RVL.~~ (“RVL Pharmacy”). RVL Pharmacy operates pharmacy operations dedicated to the processing and fulfillment of prescriptions for Upneeq.

Unless otherwise indicated or required by the context, references throughout to ~~“Osmotica,~~“RVL,” or the ~~“Company”,~~“Company,” refer to ~~our~~the Company’s continuing operations following the sale or the Legacy Business to Alora. A description of our business prior to the consummation of the transaction is included in Item 1. “Business”, in Part I of the Annual Report on Form 10-K for the year ended December 31, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”) on March 30, 2021.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

~~Going Concern Evaluation~~

As of September 30, 2021, the Company’s cash and cash equivalents totaled $8.4 million. For the fiscal year ended December 31, 2020 and the three and nine months ended September 30, 2021 the Company incurred net losses of $79.6 million, $17.9 million and $45.2 million, respectively. On August 27, 2021, the Company announced the closing of the divestiture of the Company’s portfolio of branded and non-promoted products and its Marietta, Georgia manufacturing facility, or the Legacy Business, to certain affiliates of Alora Pharmaceuticals for $111 million in cash upon closing, subject to certain post-closing adjustments, and up to $60 million in contingent milestone payments, or the Transaction. Pursuant to the Transaction the Company retained the rights to Upneeq and to arbaclofen extended release tablets, which is under development for the treatment of spasticity in multiple sclerosis. Proceeds from the divestiture of the Legacy business, together with cash on hand were used to repay $186.1 million of debt. As of September 30, 2021, the Company had interest bearing debt of $29.9 million, net of deferred financing fees, with a maturity date of November 21, 2021.

On October 12, 2021 the Company issued $55.0 million of senior secured notes to a lender, a portion of the proceeds of which, together with the proceeds from the underwritten offering described below, were used to repay $30.7 million of outstanding term loans, accrued interest and related fees and expenses. Also on October 12, 2021 the Company issued 14,000,000 ordinary shares and warrants to purchase 16,100,000 shares in an underwritten offering, raising net proceeds

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

~~of approximately $32.5 million. The remaining net proceeds from the issuance of the senior notes and ordinary shares is being used for general corporate purposes.~~

The divestiture of the Legacy Business resulted in the loss of substantially all the Company’s revenue generating assets and the Company’s business plan is focused on the launch of its commercial product, Upneeq, which diminished the Company’s cash flows in at least the near term, in particular cash inflows from product sales. The Company will require additional capital to fund its operating needs, including the commercialization of Upneeq and other activities. Accordingly, the Company expects to incur significant expenditures and increasing operating losses in the future. As a result, the Company’s current sources of liquidity will not be sufficient to meet its obligations for the 12 months following the date the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. These conditions give rise to substantial doubt as to our ability to operate as a going concern. Our ability to continue as a going concern will require us to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.

The Company’s plans to address these conditions include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or are entirely within our control:

~~raise funds through additional sales of our ordinary shares, through equity sales agreements with broker/dealers or other public or private equity financings.~~

•~~raise capital through additional debt facilities, including convertible debt.~~

•~~partner or sell a portion or all rights to any of our assets to potentially secure additional non-dilutive funds.~~

There can be no assurance the Company will receive cash proceeds from any of these potential resources or, to the extent cash proceeds are received, such proceeds would be sufficient to support the Company’s current operating plan for at least the next 12 months from the date the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. The sale of additional equity or convertible debt securities may result in additional dilution to the Company’s stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of the Company’s ordinary shares and could contain covenants that would restrict the Company’s operations. Additional funds may not be available when needed, on terms that are acceptable to the Company, or at all.

The unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on the Company’s ability to obtain the necessary financing to meet its obligations and repay liabilities arising from the normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and under the rules and regulations of the ~~SEC~~U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In management’s opinion, the interim financial data presented herein includes all adjustments (consisting solely of normal, recurring ~~items)~~adjustments) that are necessary for a fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the SEC. ~~Operating~~The operating results for the three ~~and~~

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

~~nine~~ months ended ~~September 30, 2021,~~March 31, 2022 are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, ~~2021~~2022 or any period thereafter. The accompanying ~~Condensed Consolidated Balance Sheet~~condensed consolidated balance sheet data as of December 31, ~~2020~~2021 was derived from the audited consolidated financial statements.

~~These unaudited condensed consolidated financial statements should be~~Management believes that the disclosures included herein are adequate to make the information presented not misleading in any material respect when read in conjunction with the ~~Company’s~~ audited consolidated financial statements and ~~the~~ notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Those audited consolidated financial statements include a summary of our significant accounting policies, updates to which are included in this Note 2.

~~The Company accounted for the sale of the Legacy Business in accordance with Accounting Standards Codification, ASC, 205~~ Discontinued Operations and Accounting Standards Update, ASU, No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. The Company followed the held-for-sale criteria as defined in ASC 360 and ASC 205. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items, net of tax, in the unaudited condensed consolidated statements of operations. Assets and liabilities are also reclassified into separate line items on the related condensed consolidated balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. ASU 2014-08 requires that only a disposal—Upon divestiture of a ~~component of an entity, or~~business, the Company classifies such business as a ~~group of components of an entity, that~~discontinued operation, if the divested business represents a strategic shift that has or(or will ~~have,~~have) a major effect on ~~the reporting~~an entity’s operations and financial ~~results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.~~

~~Due to the sale of the Legacy Business during the third quarter of 2021, in accordance with ASC 205, Discontinued Operations, the Company has classified the~~results. The results of ~~the Legacy Business~~businesses that have qualified as discontinued operations ~~in our unaudited condensed consolidated statements of operations and cash flows~~have been presented as such for all ~~periods presented. All assets and liabilities associated with our Legacy Business were therefore classified as assets and liabilities~~reporting periods. Results of discontinued operations ~~in our condensed consolidated balance sheets as of December 31, 2020. All amounts included in the notes~~include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to ~~the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 3, Discontinued Operations.~~

~~Basic and Diluted Loss per Share~~—Basic and diluted net loss per share is determined by dividing net loss by the weighted average ordinary shares outstanding during the period. For all periods presented with a net loss, the shares underlying the ordinary share options and time and performance-based restricted stock units have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share are the same for periods with a net loss.

~~The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive as of September 30, 2021 and 2020:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2021

2020

2021

2020

Performance and restricted stock units

1,456,910

2,092,419

1,456,910

2,591,811

Options to purchase ordinary shares

2,650,946

2,772,805

2,650,946

2,772,805

Shares to be purchased through employee stock purchase plan

79,919

—

79,919

—

~~Fair Value of Financial Instrument~~~~s—The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts~~discontinued operations.

119

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

~~(UNAUDITED)~~

~~receivable, accounts payable and debt approximate book value because~~The divestiture of the ~~short maturity~~Legacy Business qualifies as a discontinued operation and therefore has been presented as such. See Note 4, Discontinued Operations, for more information.

Use of ~~these~~Estimates—The preparation of financial ~~instruments.~~statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported throughout the financial statements. Actual results could differ materially from those estimates.

Supplemental Cash Flow Disclosures—Supplemental cash flow disclosures are as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Cash paid for:
Interest	$	1,461	$	2,674
Income taxes	$	85	$	258

Recently Issued Accounting Standards

In August 2020, the FASB issued Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ~~valuation hierarchy~~standard requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The standard, which allows entities to adopt the guidance through either a modified or fully retrospective method of transition, becomes effective for the Company, as a smaller reporting company, for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is ~~composed~~currently assessing the impact of adoption of ASU 2020-06.

There are no other recently issued accounting standards that are expected to have a material to have a material impact to the Company’s financial position or results of operations upon adoption.

Note 3. Liquidity

At March 31, 2022, the Company had cash and cash equivalents of $26.3 million, an accumulated deficit of $524.4 million, and total long-term debt with aggregate principal maturities of $55.0 million, with such maturities commencing in March 2024 and extending through October 2026 (see Note 8). In addition, the Company’s primary indebtedness contains various restrictive covenants including minimum liquidity and minimum quarterly product sales requirements. For the three ~~levels.~~ months ended March 31, 2022 and 2021, the Company incurred net losses from continuing operations of $6.8 million and $13.8 million, respectively. For the three months ended March 31, 2022, the Company used $13.3 million in cash for operating activities.

The ~~classification within~~divestiture of the ~~valuation hierarchy~~Legacy Business in 2021 resulted in the loss of substantially all the Company’s revenue generating assets. The Company’s current business plan is ~~based~~focused on the ~~lowest level~~continued launch and commercialization of ~~input that is~~Upneeq, which has and will continue to diminish the Company’s cash flows in at least the near term. The Company will require additional capital to fund its operating needs, including the expanded commercialization of Upneeq and other activities. The Company expects to incur significant ~~to the fair value measurement. The levels within the valuation hierarchy are described below:~~

~~Level 1 — Assets~~expenditures and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

~~Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists~~sustained operating losses for the ~~assets or liabilities.~~foreseeable future.

~~Segment Reporting~~~~—The~~Management of the Company ~~operates in 1 business segment which focuses on developing~~does not believe that current sources of liquidity will be sufficient to fund the Company’s planned expenditures and ~~commercializing pharmaceutical products that target markets with underserved patient populations. The Company’s business offerings have similar economic and other characteristics, including~~meet its obligations for at least 12 months following the nature of products, manufacturing and acquiring processes, types of customers, distribution methods and regulatory environment. The chief operating decision maker (“CODM”) reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions. Thedate the accompanying unaudited condensed consolidated financial statements ~~reflect~~are issued without raising additional funding. As a result, there is a

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

substantial doubt as to the ~~financial results~~Company’s ability to operate as a going concern. The Company’s ability to continue as a going concern will require it to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.

Management’s plans to address these conditions include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or is entirely within its control, (i) raise funds through additional sales of ordinary shares, through equity sales agreements with brokers/dealers or other public or private equity financings, (ii) raise funds through borrowings under existing debt facilities and/or convertible debt, and/or (iii) raise non-dilutive funds through product collaborations and/or to partner or sell a portion or all rights to any of the Company’s ~~1 reportable~~assets.

There can be no assurance that the Company will receive cash proceeds from any of these potential sources or, to the extent cash proceeds are received, such proceeds would be sufficient to support its current operating ~~segment.~~plan for at least the next 12 months from the date the accompanying unaudited condensed consolidated financial statements are issued. The sale of additional equity or convertible debt securities may result in additional dilution to the Company’s shareholders. If the Company ~~has no significant revenues~~raises additional funds through the issuance of debt securities or ~~tangible~~preferred shares, these securities could provide for rights senior to those of its ordinary shares and could contain covenants that would further restrict its operations. Additional funds may not be available when the Company needs them, on terms that are acceptable to it, or at all.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets ~~outside~~and settlement of liabilities in the ~~United States.~~normal course of business, and therefore do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Note 3.4. Discontinued Operations

On August 27, 2021, ~~we closed~~the Company announced the closing of the divestiture of ~~the Company’s~~its Legacy Business to certain affiliates of Alora ~~Pharmaceuticals~~ for $111 million in cash upon closing, subject to certain post-closing adjustments, and up to $60 million in additional contingent milestone payments. During the three months ended March 31, 2022, the Company received an aggregate of $5.0 million in cash from Alora related to contingent milestone payments earned in connection with the sale of the Legacy Business, such income was recognized and classified within other non-operating income, net in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

~~We have~~The Company has determined the divestiture of the Legacy Business represents astrategic shift that will have a major effect on ~~our~~its business and therefore met the criteria for classification as discontinued ~~operations at September 30,2021.~~operations. Accordingly, the Legacy Business is reported as discontinued operations in accordance with ~~ASC~~Accounting Standards Codification 205-20, Discontinued Operations. The ~~relatedassetsandliabilities~~of~~theLegacy Business areclassified~~as~~assetsandliabilities~~of~~discontinuedoperations~~in~~the condensedconsolidated balance sheets as of December 31, 2020 and the~~ results of operations from the Legacy Business are classified as discontinued operations in the accompanying unaudited condensed consolidated statements of ~~operations.~~operations and comprehensive loss. Applicable amounts in prior ~~years~~periods have been recast to conform to this discontinued operations presentation. WeThe Company recognized a gain on the sale of the Legacy Business upon closing.

1211

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

~~(UNAUDITED)~~

The following table presents the results of ~~the~~ discontinued operations ~~for the three- and nine -month periods ended September 30, 2021 and 2020:~~(in thousands):

Three months ended

Nine months ended

September 30,

September 30,

2021

2020

2021

2020
Total revenues

$
15,551

$
31,421

$
61,785

$
116,726
Cost of goods sold (exclusive of depreciation and amortization shown separately below)

4,973

10,938

23,435

41,583
Selling, general and administrative expense

740

2,185

4,209

7,247
Depreciation and amortization

—

4,592

6,583

13,925
Impairment of intangibles

—

19,539

—

23,157
Research and development expenses

3,189

1,947

5,882

5,921
Income (loss) from operations

6,649

(7,780)

21,676

24,893
Interest expense

1,495

2,493

6,399

7,808
Other income (loss), net

1,171

(102)

1,058

(486)
Income (loss) from discontinued operations before costs of disposal and provision for income taxes

3,983

(10,171)

14,219

17,571
Income tax expense (benefit)

(132)

177

617

5,063
Income (loss) from discontinued operations before gain on disposal

4,115

(10,348)

13,602

12,508
Gain on sales of discontinued operations

4,373

—

4,373

—
Income (loss) from discontinued operations, net of tax

$
8,488

$
(10,348)

$
17,975

$
12,508


	Three Months Ended
	March 31, 2021
Total revenues	$	22,945
Cost of goods sold (inclusive of depreciation and amortization)		12,810
Selling, general and administrative expenses		1,970
Research and development expenses		1,106
Income from operations		7,059
Interest expense and amortization of debt discount		2,439
Other non-operating income, net		(79)
Income from discontinued operations before provision for income taxes		4,699
Income tax expense		539
Income from discontinued operations, net of tax	$	4,160

The following table presents the significant non-cash items and purchases of property, plant and equipment for the discontinued operations ~~for the Legacy Business~~ that are included in the accompanying unaudited condensed consolidated statements of cash ~~flows.~~flows (in thousands):


		Nine months ended
	September 30,				Three Months Ended
Cash flows from operating activities:	2021		2020		March 31, 2021
Depreciation and amortization	$	6,583	$	13,925	$	3,309
Share compensation		619		260		103
Impairment of intangibles		—		23,157

Cash flows from investing activities:
Purchase of property, plant and equipment	$	(1,335)	$	(1,707)
Purchases of property, plant and equipment					$	314

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

~~The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations as of December 31, 2020.~~

December 31, 2020
Cash and cash equivalents

$
—
Accounts receivable, net

23,263
Inventories

16,103
Prepaid expenses and other current assets

2,163
Total current assets of discontinued operations

41,529
Property, plant and equipment, net

25,663
Operating lease right-of-use assets

803
Goodwill

45,008
Intangible assets, net

30,667
Total non-current assets of discontinued operations

102,141
Total assets of discontinued operations

$
143,670

Accounts payable

$
3,640
Accrued liabilities

30,566
Current portion of operating lease liabilities

278
Total current liabilities of discontinued operations

34,484
Operating lease liabilities, net of current portion

568
Total non-current liabilities of discontinued operations

568
Total liabilities of discontinued operations

35,052
Net assets of discontinued operations

$
108,618

~~The following table presents the gain on the sale for the quarter ended September 30, 2021:~~

September 30, 2021
Cash proceeds

$
111,848
Less: transaction costs

(6,335)
Less: net assets transferred

(101,140)
Gain on sale, pre-tax

$
4,373

Note 4.5. Revenues

The Company’s performance obligations are to provide its pharmaceutical products based upon purchase orders from customers. The performance obligation is satisfied at a point in time, typically upon delivery, when the customer obtains control of the pharmaceutical product. The Company collects payments in advance from its customers.

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

The following table ~~disaggregates revenue~~presents disaggregated revenues from contracts with customers ~~by pharmaceutical products (dollars in~~(in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Pharmaceutical Products

2021

2020

2021

2020

Upneeq

$
2,196

$
52

$
4,451

$
52

Osmolex

—

534

—

946

Net product sales

2,196

586

4,451

998

Royalty revenue

—

165

190

629

Licensing revenue

—

25,000

10,000

25,000

Total revenues

$
2,196

$
25,751

$
14,641

$
26,627


	Three Months Ended March 31,
	2022		2021
Net product sales - Upneeq	$	5,944	$	773
Royalty and licensing revenue		15,500		162
Total revenues	$	21,444	$	935

On July 28, 2020, the Company entered into a License Agreement with Santen Pharmaceutical Co. Ltd (“Santen”), granting Santen exclusive development, registration, and commercialization rights to RVL-1201 in Japan, China, and other Asian countries as well as Europe, the Middle East and Africa (“EMEA”) ~~countries.~~countries (the “License Agreement”). Under the ~~agreement~~License Agreement the Company is entitled to certain development and regulatory milestone payments. The Company is also entitled to royalty payments on net sales of RVL-1201 in Santen commercialization territories.

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RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

On March 29, 2022, RVL Pharmaceuticals entered into the First Amendment to License Agreement (the “Amendment”) with Santen, amending the License Agreement. Under the terms of the Amendment, effective March 31, 2022, RVL Pharmaceuticals is entitled to receive an upfront cash payment of $15.5 million, and the remaining developmental and regulatory cash milestone payments, were removed. Pursuant to the terms of the Amendment, new developmental and regulatory cash milestone payments with an aggregate value of up to $1.0 million will be payable to RVL Pharmaceuticals. In addition, the territories were expanded to include additional EMEA countries and Canada, and during the first five years following the effective date of the Amendment, Santen was granted an option to expand the territories to include Russia, subject to additional upfront and milestone payments of $2.0 million and $1.0 million, respectively. Further, under the terms of the Amendment, if RVL Pharmaceuticals desires to enter into an agreement to license certain rights related to the License Agreement to a third party in Russia, then Santen will have a right to exercise an option to expand the territories to include Russia or to match the terms of the agreement with the third party.

During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company ~~received $0.0~~recognized $15.5 million ~~and $10.0 million, respectively, which were recognized~~ as license revenue ~~in the periods~~ as all performance obligations were ~~met.~~met, and the related receipt of cash from Santen occurred in April 2022 (see Note 6).

When the Company receives consideration from a customer, or such consideration is unconditionally due from a customer prior to the transfer of products to the customer under the terms of a contract, the Company records a contract liability. The Company classifies contract liabilities as deferred revenue. The Company had deferred revenue of ~~$0.2~~$0.8 million ~~for the nine months ended September 30,~~at March 31, 2022 and an immaterial amount at December 31, 2021.

Contract assets primarily relate to rights to consideration for goods or services transferred to the customer when the right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional. The Company ~~had 0 contract assets as of September 30, 2021. The Company has 0~~generally does not incur costs to obtain or fulfill contracts meeting the capitalization criteria under ASC Topic 340, Other Assets and Deferred Costs.The Company had 0 contract assets at March 31, 2022 or December 31, 2021.

The following table presents the various adjustments recognized against gross product sales (in thousands):


	Three Months Ended March 31,
	2022		2021
Gross product sales	$	6,027	$	773
Less provisions for:
Chargebacks		(1)		—
Discounts and allowances		(82)		—
Net product sales	$	5,944	$	773

Note ~~5. Accounts Receivable~~6. Other Receivables

~~Accounts receivable result primarily from amounts due under revenue sharing, license and royalty arrangements.~~

~~Trade accounts receivable, net consisted~~The following table presents the components of ~~the following (dollars in~~other receivables (in thousands):

September 30,

December 31,

2021

2020
Gross accounts receivable:




Accounts receivable

$
—

$
196
Royalty accounts receivable

—

55
Other receivable

4,190

2,903
Less reserves for:

Commercial rebates

—

(4)
Discounts and allowances

—

(1)
Total accounts receivable, net

$
4,190

$
3,149


	March 31,		December 31,
	2022		2021
Milestone receivable	$	15,500	$	—
Other receivable		2,072		2,133
Total other receivables	$	17,572	$	2,133

Other receivables result primarily from payroll retention credits and other miscellaneous activities.

1513

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

~~(UNAUDITED)~~

~~The Company recorded the following adjustments to gross product sales (dollars in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,


2021

2020

2021

2020

Gross product sales

$
2,355

$
647

$
4,611

$
1,497

Less provisions for:

Chargebacks

(1)

—

(2)

—

Government and managed care rebates

—

(57)

—

(96)

Commercial rebates

—

2

—

(50)

Product returns

—

(3)

—

(67)

Discounts and allowances

(158)

(1)

(158)

(12)

Advertising and promotions

—

(2)

—

(274)

Net product sales

$
2,196

$
586

$
4,451

$
998

~~The activity in the Company’s allowance for customer deductions against trade accounts receivable was as follows (dollars in thousands):~~

Discounts


Commercial

and

Rebates

Allowances

Total
Balance at January 1, 2020

$
7

$
2

$
9
Provision

56

14

70
Charges processed

(59)

(15)

(74)
Balance at December 31, 2020

$
4

$
1

$
5
Provision

—

158

158
Charges processed

(4)

(159)

(163)
Balance at September 30, 2021

$
—

$
—

$
—

~~Note 6. Inventories~~

~~The components of inventories, net of allowances, were as follows (dollars in thousands):~~

September 30,

December 31,

2021

2020
Finished goods

$
824

$
1,593
Work in process

—

90
Raw materials and supplies

—

148

$
824

$
1,831

The Company maintains an allowance for excess and obsolete inventory, as well as inventory where its cost is in excess of its net realizable value. There was 0 allowance for excess, obsolete, and net realizable value inventory in the nine months ended September 30, 2021 or year ended December 31, 2020.

~~Note 7. Goodwill and Other Intangible Assets~~

~~The Company tests goodwill and indefinite-lived intangible assets for impairment annually as of October 1~~^st, or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. The Company evaluated goodwill as of September 30, 2021 in conjunction with the sale of Legacy Business and determined that there

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

~~were no indications that the fair value of goodwill was less than its carrying value. The following table sets forth the carrying value of goodwill as of September 30, 2021 and December 31, 2020.~~

Goodwill
January 1, 2020

$
55,847
Impairments

0
December 31, 2020

55,847
Impairments

0
September 30, 2021

$
55,847

~~Impairments of indefinite-lived In-Process R&D assets for the nine months ended September 30, 2021 and year ended December 31, 2020, were $7.9 million and $28.9~~ ~~million, respectively, related to arbaclofen ER due to delay in anticipated commercialization of the product candidate, if approved.~~

As part of the Company’s intangible asset impairment assessment, the Company estimates the fair value of the intangible asset using an income approach that utilizes a discounted cash flow model, or, where appropriate, a market approach. The discounted cash flow models are dependent upon our estimates of future cash flows and other factors. These estimates of future cash flows involve assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. Indefinite-lived intangible assets classified as in-process research and development, or IPRD, are subject to adjustments reducing their anticipated revenues and costs by a probability of success, or POS, factor based upon empirical research of probabilities a new drug candidate would be approved based on the candidate’s stage of clinical development. The POS factor applied to the IPRD asset on the impairment assessment for the nine months ended September 30, 2021 and for the year ended December 31, 2020 was 69.6% and the discount rate was 12.5%. The Company believes the discount rates and other inputs and assumptions are consistent with those that a market participant would use.

The following table sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period for those assets that were not already fully amortized (dollars in thousands):

September 30, 2021










Weighted

Average

Remaining

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Impairment

Amount

(Years)
IPR&D

$
35,090

$
—

$
(7,880)

$
27,210

Indefinite Lived

$
35,090

$
—

$
(7,880)

$
27,210

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

December 31, 2020










Weighted

Average

Gross

Net

Remaining

Carrying

Accumulated

Carrying

Amortization

Amount

Amortization

Impairment

Amount

Period (Years)
IPR&D

$
64,000

$
—

$
(28,910)

$
35,090

Indefinite Lived

$
64,000

$
—

$
(28,910)

$
35,090

~~Changes in the net carrying amount of intangible assets were as follows (dollars in thousands):~~

Intangible Assets

Total
January 1, 2020

$
64,000

$
64,000
Amortization

—

—
Impairments

(28,910)

(28,910)
December 31, 2020

35,090

35,090
Amortization

—

—
Impairments

(7,880)

(7,880)
September 30, 2021

$
27,210

$
27,210

~~There was 0 amortization expense for the nine months ended September 30, 2021 or 2020.~~

Note 8.7. Accrued Liabilities

~~Accrued~~The following table presents the components of accrued liabilities ~~consist of the following (dollars in~~(in thousands):


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Accrued chargeback	$	—	$	1,376
Accrued product returns		—		88
Accrued expenses and other liabilities					$	6,871	$	7,897
Accrued compensation						5,624		4,504
Accrued research and development						356		409
Accrued royalties		144		29		718		200
Accrued compensation		6,570		6,232
Accrued government and managed care rebates		—		46
Accrued research and development		312		721
Accrued expenses and other liabilities		11,289		8,455
Customer coupons		—		4
Deferred revenue		206		—		776		67
Total	$	18,521	$	16,951
Total accrued liabilities					$	14,345	$	13,077

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

Note 9.8. Financing Arrangements

The ~~composition~~following table presents the components of ~~the Company’s~~long-term debt and financing obligations ~~were as follows (dollars in~~(in thousands):


	September 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
CIT Bank, N.A. Term Loan, net of deferred financing costs of $0.1 million and $1.8 million as of September 30, 2021 and December 31, 2020, respectively	$	29,925	$	219,525
Total debt		29,925		219,525
Less: current portion		(29,925)		—
Senior Secured Notes (measured at fair value)					$	45,100	$	43,800
Note payable — insurance financing						1,512		2,409
Total debt and financing obligations						46,612		46,209
Less: current portion of debt						(1,512)		(2,409)
Long-term debt	$	—	$	219,525	$	45,100	$	43,800

The following table presents the aggregation of principal maturities of long-term debt and financing obligations (in thousands):



Year Ending December 31,	Debt Obligations
Remainder of 2022	$	1,512
2023		0
2024		11,000
2025		11,000
2026		33,000
Total future minimum payments		56,512
Less: current portion of debt principal		(1,512)
Non-current portion of debt principal	$	55,000

~~Term Loan~~Senior Secured Notes

As of September 30, 2021, the interest rate was 4.75% for the Company’s Term A Loan and 5.25% for the Term B Loan. As of December 31, 2020, the interest rate was 4.75% for the Term A Loan and 5.25% for the Term B Loan. The Company was in compliance with all covenants of the Term Loan Agreement as of September 30, 2021.

~~Revolving Facility~~

~~In connection with the Fifth Amendment to the credit agreement with CIT Bank, N.A. which became effective on August 27,~~On October 1, 2021, the Company ~~terminated its revolving credit facility. Additionally,~~entered into a note purchase agreement (the “Note Purchase Agreement”) with, among others, Athyrium Opportunities IV Acquisition 2 LP (“Purchaser”) providing for the ~~Company prepaid $186.1 million~~issuance of senior secured notes in aggregate of the outstanding principal amount of its term loans. The prepayments consisted of $157.4 million of Term A Loan outstanding principal and $28.7 million of Term B Loan outstanding principal. The prepayments were made on a pro-rata basis between the Term A Loan and the Term B Loan.

In accordance with ASC 470, when debt is prepaid within its contractual terms and the terms of the remaining debt are not modified, the prepayment should be treated as a partial extinguishment rather than a modification. During the second quarter, pursuant to the terms of Fourth Amendment to the Credit Agreement, the Company exercised its right to cure a shortfall in the financial covenants which resulted in the mandatory prepayment of $5.3 million of term loans.

As a result of the partial extinguishment, the Company has elected, as an accounting policy in accordance with ASC 470-50-40-2, to write off a proportionate amount of the unamortized fees at the time that the financing was partially settled in accordance with the terms of the Third Amendment. The unamortized debt issuance costs are allocated between the remaining original loan balance and the portion of the loan paid down on a pro-rata basis. During the three and nine months ended September 30, 2021, the Company wrote off $1.4 million and $1.4 million of debt issuance costs, respectively, relating to the prepayments and recorded the expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss.

separate tranches (the “Senior Secured Notes”). On October 12, 2021, the Company issued ~~$55~~$55.0 million ~~of senior secured~~first tranche notes, ~~and completed an equity follow-on offering of 14,000,000 ordinary shares and warrants to purchase 16,100,000~~ ~~shares. A~~a portion of the proceeds of which, together with the proceeds from ~~these transactions was~~a concurrent underwritten equity offering, were used to ~~fully~~ repay ~~term loans outstanding~~in full the obligations under ~~the~~a prior credit ~~agreement as of September 30, 2021, see Note 17, Subsequent Events.~~agreement.

~~Note 10. Concentrations and Credit Risk~~

~~The~~Prior to October 12, 2022, upon satisfaction of certain conditions, including a minimum net product sales target for Upneeq over a specified period of time, the Company ~~does not have significant concentrations~~may request second tranche notes of ~~credit risk with its customers.~~up to $20.0 million. Prior to October 12, 2023, the Company may request third tranche notes of up to $25.0 million, in the sole discretion of the Purchaser.

1914

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

~~(UNAUDITED)~~

~~Purchasing~~

The ~~Company does not have significant purchase agreements~~Senior Secured Notes bear interest at an annual rate of 9.0% plus adjusted three-month LIBOR, with ~~third parties.~~a LIBOR floor of 1.50% and LIBOR cap of 3.00%, payable in cash quarterly in arrears. At March 31, 2022, the interest rate applicable to the Senior Secured Notes was 10.5%.

In addition, the restrictive covenants in the Note ~~11. Incentive Plans~~Purchase Agreement require the Company to comply with certain minimum liquidity requirements and minimum quarterly product sales requirements. At any time, the Company is required to maintain unrestricted cash and cash equivalents greater than or equal to $15.0 million, and, as of the end of each fiscal quarter, it is required to maintain consolidated Upneeq net product sales greater than or equal to specified quarterly thresholds (beginning at $3.0 million for the quarter ending March 31, 2022, and increasing in $1.0 million increments each quarter thereafter until the quarter ending June 30, 2024, for which quarter and all subsequent quarters the threshold is $12.0 million). At March 31, 2022, the Company was in compliance with all conditions of the Note Purchase Agreement.

During the year ended December 31, 2021, the Company incurred aggregate debt issuance costs of $2.1 million related

to the Senior Secured Notes, $1.5 million and $0.6 million of which were recognized as financial commitment assets

underlying the first and second tranche notes, respectively.

The Company elected the fair value option of accounting on the senior secured notes upon issuance and, accordingly, a proportionate amount of related debt issuance costs were immediately written off. The Company’s residual financial commitment asset related to the undrawn second tranche notes, is being amortized over the relevant one-year commitment period. During the three months ended March 31, 2022, the Company recognized $1.0 million of amortization expense from the second tranche financial commitment asset with such expense being recorded within interest expense and amortization of debt discount in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss. At March 31, 2022 and December 31, 2021, the second tranche financial commitment asset had a carrying value of $2.1 million and $3.1 million, respectively, and was recorded within current assets in the accompanying unaudited condensed consolidated balance sheets. If the second tranche notes are drawn within the one-year commitment period, the Company will expense the remaining balance under the fair value option of accounting.

On a recurring basis, changes in fair value of Senior Secured Notes will be presented in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss at each reporting period (see Note 13).

In the three months ended March 31, 2022, the Company obtained waivers from the Purchaser of mandatory repayments of an aggregate of $5.0 million in principal of the Senior Secured Notes as otherwise required under the Note Purchase Agreement, in exchange for a consent fee of $0.2 million, resulting in net retained proceeds of $4.8 million.

Note 9. Share-Based Compensation

The following table presents the components of share-based compensation expense ~~of $5.9 million and $3.3~~(in thousands):

million during the nine months ended September 30, 2021 and 2020, respectively. In connection with the divestiture of the Company’s Legacy Business, we accelerated the vesting of certain options, restricted stock units and performance stock units under our incentive plans during the quarter. As of September 30, 2021, the total remaining


	Three Months Ended March 31,
	2022		2021
Share options	$	550	$	101
Performance stock units		—		225
Restricted stock units		616		729
Employee share purchase plan		43		19
Total share-based compensation expense	$	1,209	$	1,074

At March 31, 2022, aggregate unrecognized share compensation ~~cost~~expense related to ~~non-vested share-based compensation~~unvested awards ~~amounted~~was $7.0 million which is expected to $5.4 million. During the nine months ended on September 30, 2021 and 2020, there were 150,188 and 1,644,778, respectively, grants of restricted stock units. During the nine months ended September 30, 2021 and 2020, shares vested were 451,061 and 280,381, respectively. As of September 30, 2021, there were 1,456,910 restricted units, including performance stock units outstanding and thebe recognized over a weighted-average remaining ~~requisite~~ service period of 1.86 years.

Table of Contents

RVL PHAMACEUTICALS PLC

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

Note 10. Earnings (Loss) Per Ordinary Share

The following potentially dilutive securities have been excluded from the ~~non-vested stock options was 1.05 years and for non-vested restricted stock units was 2.32 years.~~weighted average ordinary shares outstanding in the computation of diluted earnings (loss) per share because the impact of including them would have been anti-dilutive:


	Three Months Ended March 31,
	2022	2021
Performance and restricted stock units	1,900,052	2,545,483
Share options to purchase ordinary shares	637,778	2,864,016
Warrants to purchase ordinary shares	16,100,000	—
Ordinary shares to be purchased through employee stock purchase plan	214,366	28,227

Note ~~12.~~11. Commitments and Contingencies

~~Contingent Milestone Payments~~

Upon closing of the Legacy Business divestiture, the only strategic business agreements remaining with the Company are those related to the acquisition of Upneeq and its related intellectual property. The amount of future contingent milestone payments under the intellectual property license agreement, based on certain levels of US and ex-US sales of Upneeq, was $1.3 million in the aggregate as of September 30, 2021, in addition to royalties paid to the licensor on net sales of Upneeq. The Company is also obligated to pay earn out payments pursuant to the acquisition of RevtitaLid, Inc., the original owner of Upneeq, as a percentage of US and ex-US sales of Upneeq. The Company believes the earn-out payments are currently immaterial to its financial statements.

~~Supply Agreement Obligations~~

~~The only supply agreement remaining with the Company after the divestiture of the Legacy Business is that related to the supply of Upneeq, which contains no minimum purchase obligations.~~

Legal Proceedings

The Company is a party in legal proceedings and potential claims arising from time to time in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined. Despite the inherent uncertainties of litigation, management of the Company believes that the ultimate disposition of such proceedings and exposures will not have a material adverse impact on the financial condition, results of operations, or cash flows of the Company.

On February 16, 2018, the Company received FDA approval for its amantadine extended release tablets under the trade name Osmolex ~~ER. On that same date the Company~~ER and filed ~~in the Federal District Court for the District of Delaware~~ a Complaint for Declaratory Judgment of Noninfringement of certain patents owned by Adamas Pharmaceuticals, Inc. ~~(Osmotica Pharmaceutical US LLC and Vertical Pharmaceuticals, LLC vs. Adamas Pharmaceuticals, Inc. and Adamas Pharma, LLC). Adamas was served with~~, who filed counterclaims against the ~~Complaint on February 21, 2018. Adamas filed an answer on April 13,~~

~~Table of Contents~~

~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

2018 denying the allegations in the Complaint and reserving the ability to raise counterclaims as the litigation progresses. On September 20, 2018, Adamas filed an amended answer to the Company’s Complaint for Declaratory Judgment of Noninfringement, with counterclaims alleging infringement of certain patents included in the Company’s Complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys’ fees.Company. On December 2, 2020, wethe Company entered into an agreement to settle the litigation with ~~Adamas. Under the terms of the agreement,~~Adamas, under which both parties agreed to drop their respective claims relating to the patent litigation, and Adamas agreed to acquire the global rights to Osmolex ER from the Company for $7.5 million. The sale of the global rights to Osmolex ER closed in January 2021 ~~at which time the related gain was recorded. The sale of the global rights to Osmolex ER closed in January 2021~~ and a gain of $5.6 million was recorded in the unaudited condensed consolidated statements of operations and comprehensive loss under gain on sale of product rights, net.

~~Additionally,~~Note 12. Income Taxes

The following table presents the relationship between income tax expense or benefit from continuing operations and income or loss before income taxes from continuing operations (dollars in ~~connection with~~thousands):


	Three Months Ended March 31,
	2022			2021
Loss before income taxes, continuing operations	$	(6,896)		$	(13,776)
Income tax benefit, continuing operations		(75)			(4)
Effective income tax rate		1.09	%		0.03	%

Income tax expense or benefit in the ~~settlement and~~quarterly periods is based upon the ~~sale~~estimated income or loss for the full year. The composition of the global rights to Osmolex ER, the parties entered into a supply agreement pursuant to which the Company agreed to supply Adamas with amantadine extended release tablets for a six-year term, subject to possible two-year ~~extensions~~income or loss in different jurisdictions and ~~customary closing conditions at market rates. The supply agreement transferred to Alora as part of the divestiture of the Legacy Business.~~

On April 30, 2019, the Company was served with a complaint in an action entitled Leo Shumacher, et al., v. Osmotica Pharmaceuticals plc, et al., Superior Court of New Jersey, Somerset County No. SOM-L-000540-19. On May 10, 2019, a Complaint entitled Jeffrey Tello, et al., v. Osmotica Pharmaceuticals plc, et al., Superior Court of New Jersey, Somerset County No. SOM-L-000617-19 was filedadjustments, if any, in the ~~same court as~~applicable quarterly periods influences the Shumacher action. The complaints named the Company, certain of the Company’s directors and officers and the underwriters of the Company’s initial public offering as defendants in putative class actions alleging violations of Sections 11 and 15 of the Securities Act of 1933 related to the disclosures contained in the registration statement and prospectus used for the Company’s initial public offering of ordinary shares. On July 22, 2019, the plaintiffs filed an amended complaint consolidating the 2 actions, reiterating the previously pled allegations and adding an additional individual defendant. The parties participated in a mediation and reached an agreement in principle to settle the litigation on December 15, 2020. The parties subsequently negotiated a settlement agreement setting forth the terms of the settlement. On May 18, 2021, plaintiffs filed an unopposed motion for preliminary approval of the settlement and notice to the proposed settlement class, which motion was granted by the court on June 11, 2021. The settlement, which was finally approved by the Court on November 10, 2021, calls for a payment by the Company of $5.25 million (a portion of which was covered by applicable insurance) and which fully resolves all claims asserted in the litigation against all defendants named in the litigation, including the Company. No party admitted any wrongdoing as part of the settlement, which was reached to avoid the further cost and distraction of litigation.periodic expense or benefit.

~~On April 19, 2021, Vertical Pharmaceuticals, LLC (“Vertical”) was served with~~The relationship between pre-tax income or loss and income tax expense or benefit is greatly affected by the impact of losses for which management cannot claim a ~~complaint in an action entitled United States ex rel. Lupinetti, et al. v. Exeltis USA, Inc., et al., Northern District of Illinois, No. 1:19-cv-00825. The complaint named Vertical~~tax benefit, non-deductible expenses, and 4 other pharmaceutical manufacturers as defendants in a suit alleging violations of the federal False Claims Act and state corollary statutory schemes related to the labelling, marketing, and reimbursement of several prenatal vitamins. The United States government declined to intervene in the action and the plaintiff has chosen to proceed with the litigation as a qui tam relator on behalf of the federal government and 29 individual states seeking monetary damages, statutory civil penalties, and costs and fees. We have retained outside counsel to defend us against the claims. On June 18, 2021, we and the other defendants in the action filed a Joint Motion to Dismiss, and on August 2, 2021, Plaintiff filed an Opposition to the Joint Motion to Dismiss. The Company disputes the allegations in the complaint and intends to vigorously defend against the action. However, this litigation matter is still in an early stage and there is no assuranceitems that the Company will be successful in its defense or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of the action, which could adversely affect the Company’s results of operations and financial condition. There was not a loss that is probable or reasonably estimatable as of September 30, 2021.increase tax

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Table of Contents

~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

~~(UNAUDITED)~~

~~Note 13. Income Taxes~~

~~During~~expense without a relationship to income, such as withholding taxes and changes with respect to uncertain tax positions. The increase in the nine months ended September 30, 2021, the Company recognized an income tax expense on continuing operations of $0.4 million on $62.8 million of loss before income tax, compared to $5.0 million of income tax benefit on $42.3 million of loss before income tax during the comparable 2020 period.

~~Income taxes for the interim periods have been based on an estimated annual worldwide~~ effective ~~tax rate. Income tax (expense) benefit differs from the statutory~~ income tax rate ~~primarily due to the occurrence of orphan drug and research development credits, movement~~ in ~~a valuation allowance and the addition of state and foreign taxes.~~

The Company provides reserves for potential payments of income tax to various tax authorities or does not recognize income tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be decided based on its technical merits. The Company’s policy is to record interest and penalties in the provision for income taxes.

~~Valuation Allowance~~

Net deferred tax assets arise due to the recognition of income and expense items for tax purposes, which differ from those used for financial statement purposes. ASC 740, Income Taxes, provides for the recognition of deferred tax assets if the realization of such assets is more likely than not. In assessing the need for a valuation allowance in the nine months ended September 30, 2021, the Company considered all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies.

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on actuals and forecasted operating results in order to determine the proper amount, if any, of a valuation allowance. As a result of this analysis, the Company determined that it is more likely than not that it will not realize the benefits of its net deferred tax assets and therefore has recorded a valuation allowance to reduce the carrying value of its net deferred tax assets. The Company continues to maintain valuation allowances on deferred tax assets applicable to entities in foreign jurisdictions for which separate income tax returns are filed, where realization of the related deferred tax assets from future profitable operations is not reasonably assured.

~~Note 14. Related Parties~~

~~There were 0 related party transactions during~~ the three months ended ~~September 30,~~March 31, 2022 when compared to the three months ended March 31, 2021, is primarily related to our recognition of a benefit relating to a foreign tax refund unique to the 2022 period.

Note 13. Financial Instruments and ~~had recognized 0~~Fair Value Measurements

The Company’s financial instruments subject to fair value measurements include cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued liabilities, long-term debt and warrant liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial Assets - ~~related expenses~~Cash and cash equivalents, generally consisting of investments in interest-bearing money market accounts, are measured at fair value on a recurring basis using Level 1 measurements. Fair value inputs for these investments are considered Level 1 measurements within the fair value hierarchy because money market account fair values are known and observable through daily published floating net asset values. The fair value of the Company’s cash and cash equivalents, being the same as their carrying value, were $26.3 million and $40.4 million at March 31, 2022 and December 31, 2021, respectively.

Financial Liabilities— The Senior Secured Notes, a material component of long-term debt (see Note 8), and our warrant liabilities, a material component of total liabilities have each been measured and carried at fair value since their issuance in October 2021. Such instruments represent financial liabilities whose measurement contains significant unobservable inputs, which management considers to be Level 3 measurements under the fair value hierarchy.

The Company uses a discounted cash flow technique, an income-based approach, to determine the fair value of the Senior Secured Notes. This technique relies upon an assumption of pricing the Senior Secured Notes to their maturity (without mandatory or voluntary prepayments) and incorporates inputs such as contractual repayment terms, maturity, and discount rate. The most significant unobservable input for the ~~nine months ended September 30, 2021.~~Senior Secured Notes is the discount rate which is estimated by performing a yield analysis that relies upon the discount rate observed in the initial issuance of the Senior Secured Notes as well as certain benchmark debt instruments with observable pricing from which conclusions are drawn on the change in the discount rate from period to period.

The Company uses the Black-Scholes Merton option-pricing model to value the warrants. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, and volatility. The most significant unobservable input for the warrant liabilities is volatility. Given the limited trading volume and period of time the Company’s stock has been traded in an active market, the expected volatility is estimated by taking the average historical price volatility for industry peers, consisting of several public companies in the Company’s industry that are similar in size, stage, or financial leverage, over a period of time commensurate to the expected term of the warrants.

The following tables show financial liabilities subject to fair value measurement on a recurring basis and related information on fair values, valuation techniques and unobservable inputs (dollars in thousands):


		At March 31, 2022

Financial Instrument	Fair Value		Valuation Technique	Unobservable Inputs
Senior Secured Notes	$	(45,100)	Income Approach - DCF	Discount rate	18.4	%
				Term (in years)	4.5

Warrants	$	(7,728)	Black-Scholes Merton	Equity volatility	65.0	%
				Term (in years)	3.0

~~Note 15. Shareholders’ Equity~~

~~Ordinary Share Repurchase Program~~

In September 2019, the Company’s Board of Directors authorized the repurchase of up to 5,251,892 ordinary shares pursuant to a share repurchase program. Purchases under the ordinary share repurchase program can be made on the open market or in privately negotiated transactions, with the size and timing of these purchases based on a number of

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~~OSMOTICA~~RVL PHAMACEUTICALS PLC

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Unaudited Condensed Consolidated Financial Statements (Continued)


		At December 31, 2021

Financial Instrument	Fair Value		Valuation Technique	Unobservable Inputs
Senior Secured Notes	$	(43,800)	Income Approach - DCF	Discount rate	17.9	%
				Term (in years)	4.8

Warrants	$	(3,220)	Black-Scholes Merton	Equity volatility	65.0	%
				Term (in years)	3.3

~~(UNAUDITED)~~

~~factors, including the price and business and market conditions. The Company expects to retire ordinary shares acquired under the repurchase program. In the~~ ~~nine~~ ~~months ended September 30, 2021, the Company did not repurchase ordinary shares.~~

~~2019 Employee Share Purchase Plan~~

In September 2019, the Company’s board of directors adopted and approved, the Employee Share Purchase Plan (the “ESPP”). The ESPP allows each eligible employee who is participating in the plan to purchase shares by authorizing payroll deductions of up to $2,000 per payroll period. Unless the participating employee has previously withdrawn from the offering, accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85 percent of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of ordinary shares, valued at the start of the purchase period, under the ESPP in any calendar year. There is no minimum holding period associated with shares purchased pursuant to this plan. An employee’s purchase rights terminate immediately upon termination of employment.

The ~~Company accounts for employee stock purchases made under its ESPP using~~following table shows changes in the ~~estimate grant date~~ fair value of ~~accounting~~financial liabilities subject to Level 3 fair value measurements on a recurring basis (in thousands):


		Senior Secured Notes		Warrants
Balance, At December 31, 2021	$	(43,800)	$	(3,220)
Cash payments for interest		1,444		-
Fair value adjustments through earnings (inclusive of related accrued interest expense)		(1,044)		(4,508)
Fair value adjustments through accumulated other comprehensive income or loss		(1,700)		-
Balance, At March 31, 2022	$	(45,100)	$	(7,728)

Changes in ~~accordance with ASC 718, Stock Compensation. The purchase price discount~~the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying unaudited condensed consolidated statements of operations and ~~the look-back feature cause the ESPP to be compensatory~~comprehensive loss under change in fair value of debt and ~~the Company to recognize compensation~~interest expense. The ~~compensation cost is recognized on a straight-line basis over the requisite service period. The Company recognized less than $0.1 million~~portion of ~~compensation expense for the nine months ended September 30, 2021. The Company values ESPP shares using the Black-Scholes model.~~

Astotal changes in fair value of ~~September 30, 2021, there was less than $0.1 million~~debt attributable to changes in instrument-specific credit risk are determined through specific measurement of ~~unrecognized ordinary share compensation expense related to the ESPP, which is expected to be recognized over a weighted-average period of 0.50 years. On July 2, 2021, the Company issued 37,111~~ ~~ordinary shares to the employees who participated~~periodic changes in the ~~ESPP during~~discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income or loss in the ~~offering period ended September 30, 2021.~~

~~2020 Equity Offering~~

~~On January 13, 2020 we completed an equity offering~~accompanying unaudited condensed consolidated statements of operations and allotted 6.9 million ordinary shares at a public offering price of $5.00 per share. The number of shares issued in this offering reflected the exercise in full of the underwriters option to purchase 900,000 ordinary shares. The aggregate proceeds from the follow-on offering were approximately $31.8 million after deducting underwriter discounts and commissions and offering expenses.comprehensive loss.

~~On July 16, 2020 we completed~~No financial liabilities were subject to fair value measurements on a ~~follow-on equity offering and allotted 5.0 million ordinary shares. The aggregate proceeds from the follow-on offering were approximately $30.6 million after deducting offering expenses.~~recurring basis prior to October 2021.

~~Note 16. Restructuring Expenses~~Assets and Liabilities for Which Fair Value is Only Disclosed

~~In April 2021,~~The carrying amounts for trade accounts receivable, trade accounts payable, accrued liabilities and the ~~Company curtailed operations and implemented workforce reductions in its research and development subsidiary in Buenos Aires, Argentina. These restructuring activities were associated~~residual amounts of long-term debt not otherwise measured at fair value on a recurring basis approximate their relative fair values due to their short-term nature with relevant inputs considered Level 2 measurements within the Company’s plans to reduce expenses and better align business activities with the Company’s corporate strategy. As a result, the Company recognized $4.5 million of restructuring expenses in operating expenses which were incurred in the nine month period ending on September 30, 2021. The restructuring expenses consisted of $3.2 million one-time employee related termination benefits, and $1.3 million of asset disposal costs related to leasehold improvements at the Buenos Aires location.fair value hierarchy.

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

Of the $4.5 million of restructuring expenses, $2.0 million were recognized in Selling, General and Administrative expenses, $1.2 million were recognized in Research and Development expenses, and $1.3 million of asset disposal costs were recognized in non-operating expenses.

Note ~~17.~~14. Subsequent Events

~~On October 1, 2021,~~In April 2022, as part of an initiative to refine the Company’s go to market strategy, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with, among others, Athyrium Opportunities IV Acquisition LP, as administrative agent, and certain purchasers party thereto from time to time (the “Purchaser”). The Note Purchase Agreement provides for the issuance of senior secured notes (the “Notes”) to Purchaser inrecognized an aggregate ~~principal amount~~ of ~~up to $100~~$1.9 million in three separate tranches. The first tranche of Notes was issued in an aggregate principle amount equal to $55,000,000 on October 12, 2021. At any time after October 12, 2021 but prior to the first anniversary thereof, upon the satisfaction of certain conditions, including a minimum net product sales target for Upneeq over a specified period of time, the Company may request the issuance of second tranche Notes in an aggregate principal amount of up to $20,000,000. At any time after October 12, 2021 but prior to the second anniversary thereof, the Company may request the issuance of third tranche Notes in an aggregate principal amount of up to $25,000,000, which shall be funded in the sole discretion of the Purchasers.

The Notes are guaranteed on a senior secured basis by certain of the Company’s subsidiaries. The Notes and guarantees are secured by substantially all of the assets of the Company and its U.S. subsidiaries, including a security interest in substantially all of the tangible and intangible assets of the Issuer and each guarantor, including intellectual property rights and personal property consisting of inventory, related accounts, cash and deposit accounts. The Notes bear interest at a rate of 9.0% plus adjusted three-month LIBOR,expenses primarily associated with ~~a LIBOR floor of 1.50% and LIBOR cap of 3.00%, payable in cash quarterly arrears, and will mature~~ ~~five~~ ~~(5) years following the date of issuance of the first tranche of Notes.~~

The Notes may be voluntarily prepaid upon the satisfaction of certain conditions and with each such prepayment being accompanied by, as applicable, (1) a make-whole premium, (2) an exit fee of 2.0% of the principal amount of the Notes prepaid, (3) certain other fees, indemnities and expenses and (4) all accrued interest on the principal amount of the Notes being so prepaid. The exit fee described in (2) above is payable on the principal amount of all Notes prepaid or repaid, including upon the repayment of the Notes upon maturity.

Subject to certain exceptions and qualifications, the Note Purchase Agreement contains covenants that, among other things, limit the Issuer’s ability and the ability of its restricted subsidiaries, including the guarantors, to:

·~~incur additional indebtedness or issue certain disqualified capital stock;~~

·~~create liens;~~

·~~transfer or sell assets;~~

·~~make certain investments, loans, advances and acquisitions;~~

·	~~engage in consolidations, amalgamations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets; and~~

·~~enter into certain transactions with affiliates.~~

The Note Purchase Agreement also provides for events of default which, if any of them occurs and is continuing, would require or permit (x) the principal of, premium, if any, exit fee and accrued interest on the Notes to become or to be declared due and payable and (y) the termination of the commitments (if any) of each purchaser to purchase Notes.

As a condition to the effectiveness of the Note Purchase Agreement, on October 1, 2021, the Company entered into a share subscription agreement with the Purchaser for the issuance and sale of 6,148,832 ordinary shares for a price of $0.01 per share. The Company issued the shares to the Purchaser on October 12, 2021.

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~~OSMOTICA PHAMACEUTICALS PLC~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(UNAUDITED)~~

On October 12, 2021,a portion of the proceeds of the first tranche notes, together with the proceeds from the underwritten offering described below, were used to repay in full the $29.9 million, net of deferred financing fees, outstanding under the Credit Agreement dated as of February 3, 2016 (as amended) between the Company, CIT Bank, N.A., and the other parties thereto (the “Credit Agreement”) together with $0.7 million in fees and accrued interest. The remainder of the proceeds from the first tranche notes and the issuance of ordinary shares will be used for working capital and general corporate purposes, including the launch of Upneeq.

Further, on October 12, 2021 the Company completed a follow-on offering and issued and allotted 14,000,000 ordinary shares of the Company and warrants to purchase up to 14,000,000 ordinary shares, at a public offering price of $2.50 per share and accompanying warrant. In addition, the Company granted the underwriter a 30-day option to purchase up to an additional 2,100,000 ordinary shares and/or warrants to purchase additional 2,100,000 ordinary shares at the public offering price, less the underwriting discounts and commissions. On October 11, 2021 the underwriter exercised its option to purchase additional warrants to purchase up to 2,100,000 ordinary shares. The warrants have an exercise price of $3.10 per share, were immediately exercisable and will expire 3.5 years from the date of issuance. The aggregate net proceeds from the follow-on offering were approximately $32.5 ~~million after deducting underwriting commissions and offering expenses.~~

employee severance benefits.

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

The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” You should read the following discussion together with our audited consolidated financial statements, and related notes thereto, appearing in our Annual Report on Form 10-K and our unaudited condensed consolidated financial statements, and related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. This discussion and analysis is based upon the historical financial statements of ~~Osmotica~~RVL Pharmaceuticals ~~plc.~~plc and subsidiaries. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31.

Overview

We are a specialty pharmaceutical company focused on the ~~commercialization~~development and ~~development~~commercialization of products that target markets with underserved patient populations. In July 2020, we received regulatory approval from the FDA for RVL-1201, or Upneeq, (oxymetazoline ~~hydrocholoride~~hydrochloride ophthalmic ~~solution,~~solution), 0.1%), for the treatment of acquired blepharoptosis, or droopy ~~eyelid,~~or low-lying eyelids in adults. WeUpneeq was commercially launched ~~Upneeq~~ in September 2020 to a limited number of eye care professionals ~~and~~with commercial operations expanded ~~our commercialization efforts~~ in 2021 among ophthalmology, optometry and oculoplastic specialties. In February 2022, Upneeq was commercially expanded into the medical aesthetics market. We believe Upneeq is the first non-surgical treatment option approved by the FDA for acquired blepharoptosis.

On August 27, 2021, we announced the closing of the divestiture of ~~the Company’s~~our portfolio of branded and non-promoted products and ~~its~~our Marietta, Georgia, manufacturing facility (the “Legacy Business”), to certain affiliates of Alora Pharmaceuticals (“Alora”) for $111 million in cash upon closing, subject to certain ~~post-closing~~ adjustments, and up to $60 million in additional contingent milestone payments (the “Transaction”). Pursuant to the Transaction, we retained the rights to Upneeq and to arbaclofen extended release (“ER”) tablets, which is under development for the treatment of spasticity in multiple sclerosis. As a result, our business is now primarily focused on the commercialization and development of ~~specialty pharmaceuticals in~~Upneeq. Following the ~~ocular and medical aesthetics therapeutic areas.~~

~~The Legacy Business met the criteria within Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements~~Transaction, on January 17, 2022 we formally changed our name to be reported as discontinued operations because the transaction was a strategic shift in business that had a major effect on our operations and financial results. Therefore, we have reported the historical results of the Legacy Business including the results of operations and cash flows as discontinued operations, and related assets and liabilities were retrospectively reclassified as assets and liabilities of discontinued operations for all periods presented herein. Unless otherwise noted, applicable amounts in the prior year have been recast to conform to this discontinued operations presentation. Refer to Note 2, “Summary of Significant Accounting Policies” of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. Unless otherwise indicated, the following information relates to our continuing operations following the sale to Alora. A description of our business prior to the consummation of the transaction is included in Item 1. “Business”, in Part I of the Annual Report on Form 10-K for the year ended December 31, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”) on March 30, 2021.RVL Pharmaceuticals plc.

With the divestiture of the Legacy Business, our commercial operations are ~~now~~ conducted by our wholly-owned ~~subsidiary,~~subsidiaries, RVL Pharmaceuticals, Inc. and ~~its subsidiary~~ RVL Pharmacy, LLC ~~or RVL.~~ (“RVL Pharmacy”). RVL Pharmacy operates pharmacy operations dedicated to the processing and fulfillment of prescriptions for Upneeq.

~~In addition,~~Business Update Regarding COVID-19

The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment in which we ~~are developing~~do business as further described in Part II, Item 1A, “Risk Factors” included in our ~~late-stage product candidate arbaclofen extended-release, or ER, tablets designed~~Annual Report on Form 10-K for the alleviation of signs and symptoms of spasticity resulting from multiple sclerosis, or MS, for which we have completed Phase III clinical trials. In June 2020, we resubmitted our NDA for arbaclofen ER tablets for the alleviation of spasticity in MS to the FDA. On July 17, 2020 we received notice from the FDA that it considered the resubmission a complete response to the July 9, 2016 action letter and set a goal date for a FDA decision on the NDA ofyear ended December 29, 2020. On December 28, 2020 we received a complete response letter, or CRL indicating the FDA could not approve the NDA in its then current form. The CRL stated that we did not provide adequate justification (including in our most recent NDA amendment) for the statistical analysis of the change from baseline to Day 84 in TNmAS-MAL scores comparing arbaclofen 40 mg to placebo, one of the co-primary endpoints. On January 23, 2021, we submitted a Type A meeting request to the FDA to discuss the CRL’s recommendations and obtain advice on a path forward for the NDA.31, 2021.

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The meeting took place on March 4, 2021, during which we explored selective review of the currently available data and options for a path forward for FDA approval, including conducting another clinical study. On August 2, 2021, we submitted a Special Protocol Assessment, or SPA, to the FDA proposing an additional clinical study for arbaclofen ER. FDA responded in a letter dated October 15, 2021, indicating that they are unable to issue an agreement on the submitted protocol. We are reviewing the FDA’s comments and may request a Type A meeting with the Division to discuss the protocol. We intend to revise the protocol and statistical analysis plan and resubmit the SPA agreement request.

~~Business Update Regarding COVID-19~~

The continuing COVID-19 pandemic has presented a substantial public health and economic challenge around the world. In particular, the ongoing COVID-19 pandemic has resulted in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, access restrictions, restrictions on public gatherings, and stay at home orders. The effect of these orders, government imposed quarantines and measures we have taken, such as implementing work-at-home policies, may negatively impact productivity, disrupt our business and/or could adversely affect our commercialization plans and results. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

We launched our commercial activities for Upneeq and began engaging with eye care providers to promote Upneeq in September 2020 and have since expanded our field sales force. In some instances our sales force has encountered challenges engaging with eye care providers during this on-going pandemic. Although many areas of the United States have re-opened, or begun to re-open, access to offices and other commercial facilities, there continue to be areas where restrictions remain in place, which may have the potential to affect our ability to conduct our business. Additionally, new variants, some of which could be resistant to existing vaccines, may lead to new shutdowns or business disruptions in the future, and our ability to conduct our business in the manner and on the timeline presently planned could be materially and adversely impacted.

To date, we have been able to continue to supply Upneeq to patients without significant disruptions, and we do not currently anticipate significant interruption in the near term. However, we are continuing to monitor the potential impact of the COVID-19 pandemic on our business and operations, including our sales, expenses, and pharmacy operations.

Our third-party contract manufacturing partner for Upneeq has been able to operate its manufacturing facility at or near normal levels. While we currently do not anticipate significant interruptions in our manufacturing supply chain, the COVID-19 pandemic and related mitigation efforts may have a negative impact in the future on our third party suppliers’ and contract manufacturing partner’s ability to manufacture our products or to have our products reach all markets.

In the U.S., our office-based employees have been encouraged to work from home since mid-March 2020. During this time, we are ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our pharmacy.

~~For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in our Current Report on Form 8-K.~~

~~Financial Operations Overview~~

~~Segment Information~~

We currently operate in one business segment focused on the development and commercialization of pharmaceutical products that target markets with underserved patient populations. We are not organized by market and are managed and operated as one business. We also do not operate any separate lines of business or separate business entities with respect to our products. A single management team reports to our chief operating decision maker who comprehensively manages

~~Table of Contents~~

~~our entire business. Accordingly, we do not accumulate discrete financial information with respect to separate product lines and do not have separately reportable segments. See Note 2,~~ ~~Basis of Presentation and~~~~Summary of Significant Accounting Policies~~ ~~to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~Components of Results of Operations~~

~~Revenues~~

As a result of the divestiture, all revenues of the Legacy Business have been reclassified under discontinued operations. Our revenues consist of product sales, royalty revenues and licensing revenue from the Santen license.

~~Net product sales~~—Our revenues consist of sales of Upneeq sold through the pharmacy operations of RVL. RVL ships Upneeq to our customers pursuant to prescriptions which in certain cases are fulfilled by a third party pharmacy partner. All sales are made pursuant to credit cards for which we are paid prior to shipment. We recognize revenue when control has transferred to the customer, which is typically on delivery to the customer. Accordingly a portion of revenue is deferred until we have evidence the product was delivered to the customer. The amount of revenue we recognize is equal to the selling price, adjusted for any variable consideration, which largely consists of disputed chargebacks, at the time revenues are recognized.

~~Royalty revenue~~—For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied).

~~Licensing revenue~~—We have arrangements with commercial partners that allow for the purchase of Upneeq from us by the commercial partners for the purpose of sub-distribution. Licensing revenue is recognized when the performance obligation identified in the arrangement is completed. Variable considerations, such as returns on Upneeq sales, government program rebates, price adjustments and prompt pay discounts associated with licensing revenue, are generally the responsibility of our commercial partners.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses consist primarily of personnel expenses, including salaries and benefits for employees in executive, sales, marketing, finance, accounting, business development, legal and human resource functions. General and administrative expenses also include corporate facility costs, including rent, utilities, insurance, legal fees related to corporate matters, share based compensation and fees for accounting and other consulting services.

~~Research and Development~~

Costs for research and development are charged as incurred and include employee-related expenses (including salaries and benefits, share based compensation, travel and expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies), costs associated with preclinical activities and development activities and costs associated with regulatory operations.

Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid expenses or accrued expenses as applicable.

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~~Discontinued Operations~~

Due to the sale of the Legacy Business during the third quarter of 2021, the Company has classified the results of the Legacy Business as discontinued operations, and all assets and liabilities associated with our Legacy Business were classified as assets and liabilities of discontinued operations for all periods presented.

Results of Operations

Comparison of Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

Financial Operations Overview

The following table presents revenues and expenses for the ~~three months ended September 30, 2021 and 2020~~periods indicated (dollars in thousands):


	Three Months Ended September 30,								Three Months Ended March 31,
	2021			2020			% change		2022			2021			% Change
Net product sales	$	2,196		$	586		275	%	$	5,944		$	773		669	%
Royalty revenue		—			165		(100)	%
Licensing revenue		—			25,000		(100)	%
Royalty and licensing revenue										15,500			162		9,468	%
Total revenues		2,196			25,751		(91)	%		21,444			935		2,193	%
Cost of goods sold		1,147			1,185		(3)	%		2,144			679		216	%
Gross profit		1,049			24,566		(96)	%		19,300			256		7,439	%
Gross profit percentage		48	%		95	%				90	%		27	%
Selling, general and administrative expenses		24,841			21,360		16	%		23,834			16,952		41	%
Research and development expenses		1,376			1,779		(23)	%		862			2,204		(61)	%
Total operating expenses		26,217			23,139		13	%		24,696			19,156		29	%
Operating income (loss)		(25,168)			1,427		(1,864)	%
Gain on sales of product rights, net										—			5,636		(100)	%
Operating loss										(5,396)			(13,264)		(59)	%
Interest expense and amortization of debt discount		735			1,071		(31)	%		985			521		89	%
Other non-operating (gain) loss		120			(51)		(335)	%
Change in fair value of debt and interest expense										1,044			—		NM	%
Change in fair value of warrants										4,508			—		NM	%
Other non-operating income, net										(5,037)			(9)		55,867	%
Total other non-operating expense		855			1,020		(16)	%		1,500			512		193	%
Income (loss) before income taxes		(26,023)			407		(6,494)	%
Income tax expense (benefit)		324			(1,308)		(125)	%
Income (loss) from continuing operations		(26,347)			1,715		(1,636)	%
Gain on sales of discontinued operations		4,373			—		NM
Income (loss) from discontinued operations before income tax expense		3,983			(10,171)		(139)	%
Income tax expense (benefit) - discontinued operations		(132)			177		(175)	%
Income (loss) from discontinued operations, net of tax		8,488			(10,348)		(182)	%
Net and other comprehensive loss	$	(17,859)		$	(8,633)		107	%
Loss before income taxes										(6,896)			(13,776)		(50)	%
Income tax benefit, continuing operations										(75)			(4)		1,775	%
Loss from continuing operations										(6,821)			(13,772)		(50)	%
Income from discontinued operations before income taxes										—			4,699		(100)	%
Income tax expense, discontinued operations										—			539		(100)	%
Income from discontinued operations, net of tax										—			4,160		(100)	%
Net loss									$	(6,821)		$	(9,612)		(29)	%

NM-Not Meaningful

Revenue

The following table presents total revenues for the periods indicated (dollars in thousands):


	Three Months Ended March 31,
	2022		2021		% Change
Net product sales - Upneeq	$	5,944	$	773	669	%
Royalty and licensing revenue		15,500		162	9,468	%
Total revenues	$	21,444	$	935	2,193	%

Total Revenues — Total revenues increased by $20.5 million to $21.4 million in the three months ended March 31, 2022, as compared to $0.9 million in the three months ended March 31, 2021, primarily due to $15.5 million licensing revenue from Santen recognized during the 2022 period and further attributable to a $5.1 million year over year increase in net product sales of Upneeq.

Net Product Sales — Net product sales, relating entirely to sales of Upneeq, increased by $5.1 million to $5.9 million in the 2022 period, as compared to $0.8 million in the 2021 period. The increase in net product sales was primarily

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~~Revenue~~

~~The following table presents total revenues for~~attributable to a year over year increase in sales volume reflecting expanded commercialization into eyecare markets and, effective February 2022, the ~~three months ended September 30, 2021 and 2020 (dollars in thousands):~~

Three Months Ended September 30,

Pharmaceutical Products

2021

2020

% change

Upneeq

$
2,196

$
52

4,123
%
Osmolex

—

534

(100)
%
Net product sales

2,196

586

275
%
Royalty revenue

—

165

(100)
%
Licensing revenue

—

25,000

(100)
%
Total revenues

$
2,196

$
25,751

(91)
%

medical aesthetics market.

~~Total Revenues -~~ Royalty and Licensing Revenue~~Total revenues decreased~~ — Licensing revenue increased by ~~$23.6~~$15.3 million ~~to $2.2 million for~~during the ~~three months ended September 30, 2021, as compared to $25.8 million for the three months ended September 30, 2020~~2022 period, primarily due to ~~a decrease in license revenue from the Santen license~~$15.5 million recognized ~~during the prior year period.~~

~~Net Product Sales -~~ ~~Net product sales increased by $1.6 million to $2.2 million for the three months ended September 30~~, 2021, as compared to $0.6 million for the three months ended September 30, 2020. The increase in product sales of Upneeq was primarily attributable to an increase in volume of sales as the product was commercially launched in September, 2020. The decrease in product sales of Osmolex reflects the divestiture of the product in January, 2021.

~~Royalty Revenue -~~ ~~Royalty revenue decreased by $0.2 million for the three months ended September 30, 2021, relative to the three months ended September 30, 2020, as the underlying product licenses expired during the second quarter of 2021.~~

~~Licensing Revenue -~~ ~~Licensing revenue decreased $25.0 million during the three months ended September 30, 2021 as there were no milestone payments~~ under ~~the Santen~~our license agreement ~~recognized during the quarter as compared~~with Santen. Refer to ~~the prior year period .~~Note 5, “Revenues” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our License Agreement with Santen.

Cost of Goods Sold and Gross Profit Percentage

The following table presents a breakdown of total cost of goods sold for the ~~three months ended September 30, 2021 and 2020~~periods indicated (dollars in thousands):


	Three Months Ended							Three Months Ended March 31,
	September 30,							2022		2021		% Change
	2021		2020		% change
Royalty expense								$	718	$	59		1,117	%
Depreciation expense	$	13	$	2		550	%		14		16		(13)	%
Royalty expense		144		11		1,209	%
Other costs of goods sold		990		1,172		(16)	%		1,412		604		134	%
Total costs of goods sold	$	1,147	$	1,185		(3)	%	$	2,144	$	679		216	%

Total cost of goods sold ~~decreased $0.1~~increased $1.4 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$1.1~~$2.1 million, as compared to ~~$1.2~~$0.7 million in the three months ended March 31, 2021. The year over year increase in cost of goods sold was primarily driven by $0.8 million in higher product costs for Upneeq due to, higher sales volume, and by $0.6 million relating to increased royalties and contingent milestone payments due under an intellectual property license agreement, each attributable to sales of Upneeq.

Gross profit percentage increased to 90% for the three months ended ~~September 30, 2020. The decrease was primarily driven by~~March 31, 2022 compared to 27% in the ~~absence of product costs for Osmolex which was divested in January,~~ 2021 ~~and higher product costs for Upneeq reflecting a full quarter of~~period, largely due to unique licensing revenue from Santen recognized during the 2022 period. Excluding licensing revenues, gross profit percentage from net product sales ~~as compared to~~was 64% in the ~~prior year period as the product was launched in September, 2020.~~2022 period.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$3.4 million during the three months ended September 30, 2021 to $24.8 million as compared to $21.4~~$6.8 million in the three months ended ~~September~~March 31, 2022 to $23.8 million as compared to $17.0 million in the three months ended March ~~30, 2020.~~31, 2021. The year over year increase in ~~our~~ selling, general and administrative expenses ~~reflects~~was primarily influenced by $6.8 million in higher ~~selling expenses associated with the~~compensation and training costs for our expanded ~~sales force and~~salesforce, $0.7 million of higher marketing expenses ~~due~~for Upneeq, and $0.7 million of transactional fees unique to the ~~Upneeq launch during 2021 as compared to the prior year period.~~2022 period, partially offset by approximately $1.1 million of lower fees for legal and other professional fees.

Selling, general and administrative expenses include ~~share~~non-cash share-based compensation expenses of ~~$3.2~~$1.1 million and ~~$1.1~~$0.9 million ~~for~~in the three months ended ~~September~~March 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The year over year increase in share compensation expense reflects new share option awards issued to directors and employees in the ~~acceleration of vesting of equity awards triggered by the divestiture of the Legacy business during the quarter.~~2022 period.

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Research and Development

~~Research and development expenses decreased by $0.4 million in the three months ended September 30, 2021 to $1.4 million as compared to $1.8 million in the three months ended September~~ ~~30, 2020. The decrease primarily reflects lower spending on arbaclofen ER and lower headcount costs, partially offset by higher spending on a new formulation of Upneeq.~~

Research and development expenses include share compensation $0.4 million and $0.1 million for the three months ended September 30, 2021 and 2020, respectively. The increase of share compensation expense reflects the acceleration of vesting of equity awards triggered by the divestiture of the Legacy business during the quarter.

Expenses

The following table summarizes our research and development (“R&D”) expenses incurred for the periods indicated (dollars in thousands):


	Three Months Ended September 30,						Three Months Ended March 31,
	2021		2020		% change		2022		2021		% Change
Arbaclofen ER	$	57	$	372	(85)	%	$	52	$	384	(86)	%
RVL-1201		427		315	36	%
Other		892		1,092	(18)	%
Total	$	1,376	$	1,779	(23)	%
RVL-1201 (Upneeq)								25		197	(87)	%
Other research and development								785		1,623	(52)	%
Total research and development expenses							$	862	$	2,204	(61)	%

R&D expenses decreased by $1.3 million in the three months ended March 31, 2022 to $0.9 million, as compared to $2.2 million in the three months ended March 31, 2021. The year over year decrease in R&D expenses primarily reflects $0.6 million in lower personnel costs and $0.5 million in lower project spending on arbaclofen ER and Upneeq in the 2022 period.

~~Impairment~~R&D expenses include non-cash share-based compensation expenses of ~~Intangible Assets~~

~~There was no impairment of intangible assets during~~$0.2 million and $0.2 million for the three months ended ~~September~~March 31, 2022 and 2021, respectively.

~~30, 2021.~~

Gain on Sale of Product Rights, Net

On December 2, 2020, we entered into an agreement to settle certain litigation. Under the terms of an agreement, we agreed to convey the global rights to Osmolex ER for $7.5 million. The sale of the global rights to Osmolex ER closed in January 2021 resulting in our recognition of a $5.6 million gain.

Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount ~~decreased~~increased by ~~$0.4~~$0.5 million in the three months ended ~~September 30, 2021~~March 31, 2022 to ~~$0.7~~$1.0 million as compared to ~~$1.1~~$0.5 million in the three months ended ~~September 30, 2020.~~March 31, 2021. The ~~decrease due~~year over year increase is attributable to ~~lower levels~~our recognition of $0.9 million of amortization expense from the second tranche financial commitment asset, unique to the 2022 period, partially offset by the absence of interest expense in the 2022 period.

Beginning in the fourth quarter of 2021, our recognition of interest expense on our senior secured notes is classified within the separate caption titled “Change in fair value of debt ~~reflecting prepayments made during 2020~~ and ~~2021.~~interest expense” pursuant to our elections related to fair value accounting (see “Change in Fair Value of Debt and Interest Expense and Change in Fair Value of Warrants” section below).

~~Income Tax Benefit (Expense)~~Refer to Note 8, “Financing Arrangements,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on our indebtedness.

~~During~~Change in Fair Value of Debt and Interest Expense and Change in Fair Value of Warrants

Changes in the fair value of our senior secured notes and warrants, each issued in October 2021, resulted in losses of $1.0 million and $4.5 million, respectively, in the three months ended ~~September 30, 2021, we recognized income tax expense on continued operations~~March 31, 2022. Changes in the fair value of ~~$0.3 million on $26.0~~our senior secured notes includes $1.4 million of ~~loss before income tax, compared~~related interest expense.

Refer to ~~$1.3 million~~Note 13, “Financial Instruments and Fair Value Measurements,” of ~~income tax benefit~~our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on ~~$0.4 million of income before income tax during the comparable 2020 period.~~

~~Income taxes~~Form 10-Q for ~~the interim periods have been based~~additional information on an estimated annualized worldwide effective tax rate. Income tax (expense) benefit differs from the statutory income tax rate primarily due to the occurrence of orphan drug and research development credits, movement in a valuation allowance and the addition to state and foreign taxes.

~~Table of Contents~~

The income tax expense was based on the applicable federal, state and foreign tax rates for those periods. For periods with income before provision for income taxes, favorable tax items result in a decrease in the effective tax rate, while unfavorable tax items result in an increase in the effective tax rate. For periods with a loss before benefit from income taxes, favorable tax items result in an increase in the effective tax rate, while unfavorable tax items result in a decrease in the effective tax rate.

~~Discontinued Operations~~

For the three months ended September 30, 2021 the Company recognized income from discontinued operations, net of tax, of $8.5 million. For the three months ended September 30, 2020 the Company recognized income from discontinued operations, net of tax of $10.4 million.

~~Comparison of Nine Months Ended September 30, 2021 and 2020~~

~~Financial Operations Overview~~

~~The following table presents revenues and expenses for the nine months ended September 30, 2021 and 2020 (dollars in thousands):~~our recurring fair value measurements.

Nine Months Ended September 30,


2021

2020

% change

Net product sales

$
4,451

$
998

346
%
Royalty revenue

190

629

(70)
%
Licensing revenue

10,000

25,000

(60)
%
Total revenues

14,641

26,627

(45)
%
Cost of goods sold

2,535

1,794

41
%
Gross profit

12,106

24,833

(51)
%
Gross profit percentage

83
%

93
%

Selling, general and administrative expenses

63,769

54,028

18
%
Research and development expenses

5,789

9,264

(38)
%
Impairment of intangibles

7,880

—

NM
%
Total operating expenses

77,438

63,292

22
%
Gain on sales of product rights, net

5,636

—

NM
%
Operating loss

(59,696)

(38,459)

55
%
Interest expense and amortization of debt discount

1,750

3,560

(51)
%
Other non-operating (gain) loss

1,312

246

433
%
Total other non-operating expense

3,062

3,806

(20)
%
Loss before income taxes

(62,758)

(42,265)

48
%
Income tax expense (benefit)

415

(5,042)

(108)
%
Loss from continuing operations

(63,173)

(37,223)

70
%
Gain on sales of discontinued operations

4,373

—

NM
%
Income from discontinued operations before income tax expense

14,219

17,571

(19)
%
Income tax expense - discontinued operations

617

5,063

(88)
%
Income from discontinued operations, net of tax

17,975

12,508

44
%
Net and other comprehensive loss

$
(45,198)

$
(24,715)

83
%

~~NM-Not Meaningful~~

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~~Revenue~~Other Non-operating Income, Net

~~The following table presents total revenues for the nine months ended September 30, 2021~~Other non-operating income, net was $5.0 million and ~~2020 (dollars in thousands):~~

Nine Months Ended September 30,

Pharmaceutical Products

2021

2020

% change

Upneeq

$
4,451

$
52

8,460
%
Osmolex

—

946

(100)
%
Net product sales

4,451

998

346
%
Royalty revenue

190

629

(70)
%
Licensing revenue

10,000

25,000

(60)
%
Total revenues

$
14,641

$
26,627

(45)
%

~~Total Revenues -~~ Total revenues decreased by $12.0 million to $14.6 million for the nine months ended September 30, 2021, as compared to $26.6 million for the nine months ended September 30, 2020 primarily due to a decrease in licensing revenue.

~~Net Product Sales -~~ Net product sales increased by $3.5 million to $4.5 million for the nine months ended September 30, 2021, as compared to $1.0 million for the nine months ended September 30, 2020. Product sales of Upneeq increased $4.4 million due to a $4.2 million increase in unit volume and a $0.2 million increase in realized price. Upneeq was commercially launched in September, 2020. The decrease in product sales of Osmolex reflects the divestiture of the product in January, 2021.

~~Royalty Revenue -~~ Royalty revenue decreased by $0.4 million for the nine months ended September 30, 2021, relative to the nine months ended September 30, 2020 due to the expiration of the underlying product licenses during the second quarter of 2021.

~~Licensing Revenue -~~ Licensing revenue decreased $15.0 million during the nine months ended September 30, 2021 reflecting lower milestone payments under the Santen license agreement recognized during 2021 as compared to the prior year period.

~~Cost of Goods Sold and Gross Profit Percentage~~

~~The following table presents a breakdown of total cost of goods sold for the nine months ended September 30, 2021 and 2020 (dollars in thousands):~~

Nine Months Ended

September 30,


2021

2020

% change

Depreciation expense

$
42

$
2

2,000
%
Royalty expense

287

35

720
%
Other costs of goods sold

2,206

1,757

26
%
Total costs of goods sold

$
2,535

$
1,794

41
%

~~Total cost of goods sold increased $0.7~~less than $0.1 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, to $2.5 million as compared to $1.8 million for the nine months ended September 30, 2020. The increase was primarily driven by higher volumes of Upneeq sold during 2021 and higher royalty expense, partially offset by a decreaserespectively. Non-operating income in the ~~costs~~2022 period was attributable to our receipt of ~~goods associated with Osmolex which was divested in January, 2021.~~

~~Table of Contents~~

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses increased $9.8 million during the nine months ended September 30, 2021 to $63.8 million as compared to $54.0 million in the nine months ended September 30, 2020. The increase in our selling, general and administrative expenses primarily reflects higher selling expenses associated with a salesforce expansion and higher marketing expenses associated with the launch of Upneeq during 2021 as compared to the prior year period.

~~Selling, general and administrative expenses include share compensation expenses~~an aggregate of $5.0 million ~~and $2.9 million for~~in cash from Alora related to contingent milestone payments earned in connection with the ~~nine months ended September 30, 2021 and 2020, respectively. The increase in share compensation expense reflects the acceleration of vesting of equity awards triggered by the divestiture~~sale of the Legacy ~~business during~~Business.

Refer to Note 4, “Discontinued Operations,” of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the ~~quarter.~~Alora contingent milestone payments.

~~Research and Development~~

Research and development expenses decreased by $3.5 million in the nine months ended September 30, 2021 to $5.8 million as compared to $9.3 million in the nine months ended September 30, 2020. The decrease primarily reflects lower headcount, lower spending on arbaclofen ER, Upneeq and other R&D projects, partially offset by severance costs related to the cessation of operations in the Company’s Argentine subsidiary during the second quarter.

Research and development expenses include share compensation $0.7 million and $0.4 million for the nine months ended September 30, 2021 and 2020, respectively. The increase of share compensation expense reflects the acceleration of vesting of equity awards triggered by the divestiture of the Legacy business during the quarter.

Income Tax Benefit (Expense)

The following table summarizes our ~~research~~income tax benefit from continuing operations and ~~development expenses incurred~~the resultant effective income tax rate for the periods indicated (dollars in thousands):

Nine Months Ended September 30,


2021

2020

% change

Arbaclofen ER

$
662

$
2,720

(76)
%
RVL-1201

1,015

2,629

(61)
%
Other

4,112

3,915

5
%
Total

$
5,789

$
9,264

(38)
%


	Three Months Ended March 31,
	2022			2021
Loss before income taxes, continuing operations	$	(6,896)		$	(13,776)
Income tax benefit, continuing operations		(75)			(4)
Effective income tax rate		1.09	%		0.03	%

~~Impairment of Intangible Assets~~

~~Impairment of intangible assets of $7.9 million during~~The increase in effective income tax rate in the three months ended ~~September~~ ~~30,~~March 31, 2022 when compared to the three months ended March 31, 2021, is primarily related to our recognition of a benefit relating to a foreign tax refund unique to the write-down to fair value of arbaclofen ER due to delay in anticipated commercialization of the product candidate, if approved. The following table details the impairment charges for such period (in thousands):

Nine Months Ended September 30, 2021

Impairment

Asset/Asset Group

Charge

Reason For Impairment
In-Process R&D

Arbaclofen ER

$
7,880

Delay in anticipated commercialization of the product candidate, if approved.
Total Impairment Charges for nine months ended September 30, 2021

$
7,880

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~~Interest Expense and Amortization of Debt Discount~~

Interest expense and amortization of debt discount decreased by $1.8 million in the nine months ended September 30, 2021 to $1.8 million as compared to $3.6 million in the nine months ended September 30, 2020. The decrease reflects lower interest rates and prepayment of debt during 2020 and 2021.

~~Other non-operating (gain) loss~~2022 period.

~~Other non-operating loss~~Refer to Note 12, “Income Taxes,” of ~~$1.3 million~~our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for ~~the nine month period ended~~additional information on September 30, 2021 increased $1.1 million from other non-operating gain of $0.2 million for the nine months ended September 30, 2020. The loss resulted primarily from asset disposal costs related to leasehold improvements associated with the curtailment of operations in Argentina during the second quarter of 2021.income taxes.

~~Income Tax Benefit (Expense)~~

During the nine months ended September 30, 2021, we recognized income tax expense on continuing operations of $0.4 million on $62.8 million of loss before income tax, compared to $5.0 million of income tax benefit on $42.3 million of loss before income tax during the comparable 2020 period.

Income taxes for the interim periods have been based on an estimated annualized worldwide effective tax rate. Income tax (expense) benefit differs from the statutory income tax rate primarily due to the occurrence of orphan drug and research development credits, movement in a valuation allowance and the addition to state and foreign taxes.

Discontinued Operations

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021 ~~the Company recognized loss from discontinued operations, net of tax, of $18.0 million. For the nine months ended September 30, 2020 the Company~~we recognized income from discontinued operations, net of tax of ~~$12.5~~$4.2 million.

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents ~~on hand. We~~and borrowings available under our Note Purchase Agreement, dated October 1, 2021, with Athyrium Opportunities IV Acquisition LP, as administrative agent, and Athyrium Opportunities IV Acquisition 2 LP, as the Purchaser. At March 31, 2022, we had cash and cash equivalents of ~~$8.4~~$26.3 million asand total debt obligations with aggregate principal amounts of ~~September 30, 2021.~~$56.5 million including an aggregate principal amount of $55.0 million of long-term debt, the maturities of which commence in March 2024 and extend through October 2026. Our primary uses of cash are to fund operating expenses, ~~product development~~including commercialization costs associated with Upneeq, capital expenditures, and debt service payments.

AsThe Note Purchase Agreement provides for the issuance of ~~September 30, 2021,~~ the ~~interest rate was 4.75% and 5.25% for our Term A Loan and Term B Loan, respectively. As of September 30, 2020,~~notes to the ~~interest rate was 4.75% and 5.25% for our Term A Loan and Term B Loan, respectively.~~

~~On September 8, 2021, we entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., or Cantor under which the Company may offer and sell its ordinary shares having~~Purchaser in an aggregate ~~sales proceeds~~principal amount of up to ~~$75.0~~$100.0 million ~~from~~in three separate tranches. The first tranche of notes was issued in an aggregate principle amount equal to $55.0 million on October 12, 2021. At any time after October 12, 2021 but prior to the first anniversary thereof, upon the satisfaction of certain conditions, including a minimum liquidity requirement and minimum net product sales target for Upneeq, we may request the issuance of the second tranche notes in an aggregate principal amount of up to $20.0 million. At any time ~~through Cantor as its~~after October 12, 2021 but prior to the second anniversary thereof, we may request the issuance of the third tranche notes in an aggregate principal amount of up to $25.0 million, which shall be funded in the sole discretion of the Purchaser. The minimum net product sales ~~agent by any method permitted that~~target for Upneeq is deemed an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including, without limitation, sales made directly on the Nasdaq Global Select Market or any other existing trading market$3.0 million for the ~~Company’s ordinary shares. As of September~~quarter ending March 31, 2022, and increasing in $1.0 million increments each quarter thereafter until the quarter ending June 30, ~~2021 we had sold 146,162 of our ordinary shares~~2024, for ~~aggregate proceeds of $0.5 million~~which quarter and ~~net proceeds to us of $0.04 million, after deducting commissions payable by us.~~

~~On January 13, 2020 we completed an equity offering and allotted 6.9 million ordinary shares at a public offering price of $5.00 per share.~~all subsequent quarters the threshold is $12.0 million. The ~~number of shares issued in this offering reflected the exercise in full of the underwriters option~~minimum liquidity requirement

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under the Note Purchase Agreement requires us to ~~purchase 900,000 ordinary shares. The aggregate proceeds from~~maintain, at any time, unrestricted cash and cash equivalents greater than or equal to $15.0 million.

As of March 31, 2022, the follow-on offering were approximately $31.8 million after deducting underwriting discounts and commissions and offering expenses. Proceeds from the offering were used for working capital and general corporate purposes.

On July 16, 2020 we completed a follow-on equity offering and allotted 5.0 million ordinary shares. The aggregate proceeds from the follow-on offering were approximately $30.4 million after deducting offering expenses. Proceeds from the offering will be used for working capital and general corporate purposes.interest rate on our Notes was 10.50%.

Going Concern

~~As of September 30, 2021, the Company’s~~At March 31, 2022, we had cash and cash equivalents ~~totaled $8.4 million.~~of $26.3 million, an accumulated deficit of $524.4 million, and total long-term debt with aggregate principal maturities of $55.0 million, with such maturities commencing in March 2024 and extending through October 2026. In addition, our primary indebtedness contains various restrictive covenants including minimum liquidity and minimum quarterly product sales requirements. For the ~~fiscal year ended December 31, 2020 and the~~ three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~the Company~~we incurred net losses from continuing operations of ~~$79.6 million, $17.9~~$6.8 million and ~~$45.2~~$13.8 million, respectively. ~~On August 27, 2021,~~For the three months ended March 31, 2022, we ~~announced the closing of the Transaction. Pursuant to the Transaction we retained the rights to Upneeq and to arbaclofen extended release tablets, which is under development~~used $13.3 million in cash for the treatment of spasticity in multiple sclerosis. Proceeds from the divestiture of the Legacy business, together with cash on hand were used to repay $186.1 million of debt. As of September 30, 2021, the Company had interest bearing debt of $29.9 million, net of deferred financing fees, with a maturity date of November 21, 2021.operating activities.

The divestiture of the Legacy Business in 2021 resulted in the loss of substantially all ~~the Company’s~~of our revenue generating ~~assets and the Company’s~~assets. Our current business plan is focused on the continued launch and commercialization of ~~its~~ Upneeq, which has and will continue to diminish ~~the Company’s~~our cash flows in at least the near ~~term, in particular cash inflows from product sales. The Company~~term. We will require additional capital to fund ~~its~~our operating needs, including the expanded commercialization of Upneeq and other activities. ~~Accordingly, the Company expects~~We expect to incur significant expenditures and ~~increasing~~sustained operating losses infor the foreseeable future. ~~As a result, the Company’s~~

Our management does not believe that current sources of liquidity will ~~not~~ be sufficient to fund our planned expenditures and meet ~~its~~our obligations for ~~the~~at least 12 months following the date the accompanying unaudited condensed consolidated financial statements ~~contained in this Quarterly Report on Form 10-Q~~ are ~~issued. These conditions give rise to~~issued without raising additional funding. As a result, there is a substantial doubt as to our ability to operate as a going concern. Our ability to continue as a going concern will require us to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.

Our plans to address these conditions include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or is entirely within our ~~control:~~

control, (i) raise funds through additional sales of ~~our~~ ordinary shares, through equity sales agreements with ~~broker/~~brokers/dealers or other public or private equity ~~financings.~~

•financings, (ii) raise ~~capital~~funds through ~~additional~~borrowings under existing debt facilities ~~including~~and/or convertible ~~debt.~~

•debt, and/or (iii) raise non-dilutive funds through product collaborations and/or to partner or sell a portion or all rights to any of our ~~assets to potentially secure additional non-dilutive funds.~~assets.

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There can be no assurance that we will receive cash proceeds from any of these potential ~~resources~~sources or, to the extent cash proceeds are received, such proceeds would be sufficient to support our current operating plan for at least the next 12 months from the date the accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q are issued. The sale of additional equity or convertible debt securities may result in additional dilution to our ~~stockholders.~~shareholders. If we raise additional funds through the issuance of debt securities or preferred ~~stock or through additional credit facilities,~~shares, these securities ~~and/or the loans under credit facilities~~ could provide for rights senior to those of our

~~Table of Contents~~

ordinary shares and could contain covenants that would further restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all.

~~Our~~The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of ~~business. Our ability to continue as a going concern is dependent on our ability to obtain the necessary financing to meet our obligations~~business, and repay our liabilities arising from the normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited condensed consolidated financial statementstherefore do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

Cash Flows

The following table provides information regarding our cash flows, including our continuing operations and discontinued operations, for the periods indicated ~~(dollars in~~(in thousands):


	Nine Months Ended						Three Months Ended March 31,
	September 30,						2022		2021			$ Change
	2021		2020			Change
Net cash provided by (used in) operating activities	$	(30,337)	$	25,842	$	(56,179)
Net cash provided by (used in) investing activities		116,528		(2,372)		118,900
Net cash provided by (used in) financing activities		(191,892)		6,758		(198,650)
Net increase (decrease) in cash and cash equivalents	$	(105,701)	$	30,228	$	(135,929)
Net cash used in operating activities							$	(13,276)	$	(11,486)	$	(1,790)
Net cash provided by investing activities								10		6,881		(6,871)
Net cash used in financing activities								(837)		(236)		(601)
Net decrease in cash and cash equivalents							$	(14,103)	$	(4,841)	$	(9,262)

Net cash ~~provided by (used in)~~from operating activities

Cash flows from operating activities are primarily driven by earnings from operations (excluding the impact of non-cash items), the timing of cash receipts and disbursements related to accounts receivable and accounts payable and the timing of inventory transactions and changes in other working capital amounts. Net cash used in operating activities was ~~$30.3~~$13.3 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and net cash ~~provided by~~used in operating activities was ~~$25.8~~$11.5 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

The additional cash used in operating activities ~~for~~during the ~~nine months ended September 30, 2021,~~2022 period, was primarily as a result of ~~lower~~higher net cash used to fund working capital assets and liabilities partially offset by higher net income after considering non-cash adjustments ~~and by cash used in working capital assets and liabilities~~ as compared to the ~~nine months ended September 30, 2020.~~2021 period.

Net cash ~~provided by (used in)~~from investing activities

Net cash provided by investing activities was ~~$116.5~~less than $0.1 million ~~during~~for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to $6.9 million of cash ~~used~~provided for the three months ended March 31, 2021. The year over year change in investing ~~activities of $2.4 million during the nine months ended September 30, 2020. The change reflected~~cash flows is primarily attributable to proceeds of $7.3 million from the sale of Osmolex product rights in January 2021 ~~and proceeds from~~unique to the ~~sale of the Legacy Business in August,~~ 2021 ~~together with~~period, partially offset by significantly lower purchases of property, plant and equipment ~~during~~in the ~~nine months ended September 30, 2021.~~2022 period.

Net cash ~~provided by (used in)~~from financing activities

Net cash used in financing activities was ~~$191.9~~$0.8 million ~~as compared to net cash provided by financing activities of $6.8~~and $0.2 million ~~during~~for the ~~nine~~three months ended ~~September~~March ~~30,~~31, 2022 and 2021, ~~and 2020,~~ respectively. The year over year change in financing cash flows largely reflects the ~~higher~~ prepayment of ~~term~~insurance financing loans ~~during the second and third quarters~~ of ~~2021 as compared~~$0.9 million, unique to the ~~prior year period and the net proceeds raised from equity offerings in January, 2020.~~2022 period.

~~Contractual Obligations~~

There have been no material changes outside the ordinary course of our business in our contractual obligations during the nine months ended September 30, 2021 from those as of December 31, 2020 as set forth in our filing on Form 8-K on

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~~September 8, 2021. We believe the aggregate amount of potential future milestone payments are currently immaterial to our financial statements.~~

~~Critical Accounting Estimates~~

~~The significant accounting policies and bases of presentation are described in Note 2,~~ ~~Basis of Presentation and~~~~Summary of Significant Accounting Policies~~ ~~to our condensed consolidated financial statements included elsewhere in this report.~~

~~Summary of Significant Accounting Policies.~~ The preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures in the notes thereto. Some of these estimates can be subjective and complex. Although we believe that our estimates and assumptions are reasonable, there may be other reasonable estimates or assumptions that differ significantly from ours. Further, our estimates and assumptions are based upon information available at the time they were made. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have considered the impact of COVID-19 in the estimates within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from those estimates.

In order to understand our condensed consolidated financial statements, it is important to understand our critical accounting estimates. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition, results of operations or cash flows. We believe the following accounting policies and estimates to be critical:

~~Revenue Recognition~~

~~Product Sales~~—Revenue is recognized at the point in time when our performance obligations with our customers have been satisfied. At contract inception, we determine if the contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue at the point in time when the entity satisfies a performance obligation.

Revenue is recorded at the transaction price, which is the amount of consideration we expect to receive in exchange for transferring products to a customer. We determine the transaction price based on fixed consideration. In determining the transaction price, a significant financing component does not exist since the customer pays for the product in advance of the transfer of the product.

~~Royalty Revenue~~—For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied).

~~Licensing Revenue~~— We recognize development and regulatory milestone revenue from milestone events under our license with Santen that have been achieved and the Company is reasonably certain such revenues would not have to be reversed.

~~Freight~~—We record amounts billed to customers for shipping and handling as revenue, and record shipping and handling expenses related to product sales as selling, general and administrative expenses. We account for shipping and

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handling activities related to customers as costs to fulfill the promise to transfer the associated products. When shipping and handling costs are incurred after a customer obtains control of the products, we also have elected to account for these as costs to fulfill the promise and not as a separate performance obligation.

~~Valuation of long-lived assets~~

~~As of September 30, 2021, our combined long-lived assets balance, including property, plant and equipment and finite-lived intangible assets, is $0.9 million.~~

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Factors that we consider in deciding when to perform an impairment review include significant changes in our forecasted projections for the asset or asset group for reasons including, but not limited to, significant under-performance of a product in relation to expectations, significant changes or planned changes in our use of the assets, significant negative industry, or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group.

Our long-lived intangible assets, which consist of distribution rights, product rights, tradenames and developed technology, are initially recorded at fair value upon acquisition. To the extent they are deemed to have finite lives, they are then amortized over their estimated useful lives using either the straight-line method or based on the expected pattern of cash flows. Factors giving rise to our initial estimate of useful lives are subject to change. Significant changes to any of these factors may result in a reduction in the useful life of the asset and an acceleration of related amortization expense, which could cause our operating income, net income, and net income per share to decrease.

Recoverability of an asset that will continue to be used in our operations is measured by comparing the carrying amount of the asset to the forecasted undiscounted future cash flows related to the asset. In the event the carrying amount of the asset exceeds its undiscounted future cash flows and the carrying amount is not considered recoverable, impairment may exist. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the statements of operations.

~~Goodwill and indefinite-lived intangible assets~~

Goodwill and indefinite-lived intangible assets are assessed for impairment on an annual basis as of October 1st of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired.

~~Goodwill Impairment Assessment~~—We are organized in one reporting unit and evaluate goodwill for our company as a whole. Under the authoritative guidance issued by the Financial Accounting Standards Board, or FASB, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. We perform our goodwill impairment tests by comparing the fair value and carrying amount of our reporting unit. Any goodwill impairment charges we recognize for our reporting unit are equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit’s carrying amount exceeds its fair value.

The goodwill impairment test requires us to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the carrying value exceeds its fair value, an impairment charge is recorded for the difference. If the carrying value recorded is less than the fair value calculated then no impairment loss is recognized. The fair value of our reporting unit is determined using an income approach that utilizes a discounted cash flow model or, where appropriate, the market approach, or a combination thereof. The discounted cash flow models are dependent upon our estimates of future cash flows and other factors. Our estimates of future cash flows are based on a comprehensive product by product forecast over a five-year period and involve assumptions concerning (i) future

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operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions, all which may differ from actual future cash flows.

During the nine months ended September 30, 2021 we assessed goodwill for indications of impairment and based on this assessment of indications performed, we determined that no additional evaluation was necessary and we did not recognize an impairment charge. A sustained decline in our market capitalization, even if due to macroeconomic or industry-wide factors, could put pressure on the carrying value of our goodwill and cause us to conduct additional impairment tests. A determination that all or a portion of our goodwill is impaired, although a non-cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.

Assumptions related to future operating performance are based on management’s annual and ongoing budgeting, forecasting and planning processes and represent our best estimate of the future results of our operations as of a point in time. These estimates are subject to many assumptions, such as the economic environments in which we operate, demand for the products and competitor actions. Estimated future cash flows are discounted to present value using a market participant, weighted average cost of capital. The financial and credit market volatility directly impacts certain inputs and assumptions used to develop the weighted average cost of capital such as the risk-free interest rate, industry beta, debt interest rate and our market capital structure. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the resulting estimated fair values and the amounts of related goodwill impairments, if any.

~~IPR&D Intangible Asset Impairment Assessment~~—IPR&D, which are indefinite-lived intangible assets representing the value assigned to acquired Research and Development, or R&D, projects that principally represent rights to develop and sell a product that we have acquired which has not yet been completed or approved. These assets are subject to impairment testing until completion or abandonment of each project. The fair value of our indefinite-lived intangible assets is determined using an income approach that utilizes a discounted cash flow model and requires the development of significant estimates and assumptions involving the determination of estimated net cash flows for each year for each project or product (including net revenues, cost of sales, R&D costs, selling and marketing costs and other costs which may be allocated), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, and competitive trends impacting each asset and related cash flow stream as well as other factors. The major risks and uncertainties associated with the timely and successful completion of the IPR&D projects include legal risk, market risk and regulatory risk. If applicable, upon abandonment of the IPR&D product, the assets are reduced to zero. Upon approval of the products in development for sale and placement into service, the associated IPR&D intangible assets will be placed into service and subject to amortization as an intangible asset. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.

If the fair value of the IPR&D is less than its carrying amount, an impairment loss is recognized for the difference. Beginning in 2018, we have been assessing for indications of impairment of IPR&D assets quarterly. Based on results of the assessment of impairment indications performed, we determined that the fair value of our IPR&D asset was in excess of its carrying value and, accordingly, no impairment charge was recognized in the three month period ending September 30, 2021.

~~Income Taxes~~

Income taxes are recorded under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

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Deferred income tax assets are reduced, as is necessary, by a valuation allowance when we determine it is more-likely-than-not that some or all of the tax benefits will not be realizable in the future. Realization of the deferred tax assets is dependent on a variety of factors, some of which are subjective in nature, including the generation of future taxable income, the amount and timing of which are uncertain. In evaluating the ability to recover the deferred tax assets, we consider all available positive and negative evidence, including cumulative income in recent fiscal years, the forecast of future taxable income exclusive of certain reversing temporary differences and significant risks and uncertainties related to our business. In determining future taxable income, management is responsible for assumptions utilized including, but not limited to, the amount of U.S. federal, state and international pre-tax operating income, the reversal of certain temporary differences, carryforward periods available to us for tax reporting purposes, the implementation of feasible and prudent tax planning strategies and other relevant factors. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying business. We assess the need for a valuation allowance each reporting period and would record any material changes that may result from such assessment to income tax expense in that period.

~~We account for uncertain tax positions in accordance with ASC 740-10,~~ ~~Accounting for Uncertainty in Income Taxes.~~ We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The evaluation of unrecognized tax benefits is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate unrecognized tax benefits and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. The liabilities for unrecognized tax benefits can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the more-likely-than-not threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax provision (benefit).

The most significant tax jurisdictions are Ireland, the United States, Argentina, and Hungary. Significant estimates are required in determining the provision for income taxes. Some of these estimates are based on management’s interpretations of jurisdiction-specific tax laws or regulations and the likelihood of settlement related to tax audit issues. Various internal and external factors may have favorable or unfavorable effects on the future effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, changes in the international organization, likelihood of settlement, and changes in overall levels of income before taxes.

As of September 30, 2021, the Company had federal and state net operating loss carryover of $29.1 million and net operating loss carryovers in certain foreign tax jurisdictions of approximately $3.7 million which will begin to expire in 2022. At September 30, 2021, we had total tax credit carryovers of approximately $6.7 million, primarily consisting of Federal Orphan Drug Tax Credit carryovers. These credit carryovers are expected to be fully realized prior to their expiration, beginning in 2035.

We make an evaluation at the end of each reporting period as to whether or not some or all of the undistributed earnings of our subsidiaries are indefinitely reinvested. While we have concluded in the past that some of such undistributed earnings are indefinitely reinvested, facts and circumstances may change in the future. Changes in facts and circumstances may include a change in the estimated capital needs of our subsidiaries, or a change in our corporate liquidity requirements. Such changes could result in our management determining that some or all of such undistributed earnings are no longer indefinitely reinvested. In that event, we would be required to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely reinvested outside the relevant tax jurisdiction. Any future foreign withholding or income taxes associated with the undistributed earnings are not anticipated to be material.

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~~Share-based Compensation~~

Prior to the consummation of our initial public offering, or IPO our employees were eligible to receive awards from the Osmotica Holdings S.C.Sp. 2016 Equity Incentive Plan. Prior to the completion of our IPO, the board of directors approved a new equity-based incentive compensation plan, which took effect prior to the completion of our initial public offering. Therefore, employees are now eligible to receive awards under our 2018 Equity Incentive Plan.

Our share-based compensation cost will be measured at the grant date based on the fair value of the award and will be recognized as expense over the requisite service period, which will generally represent the vesting period. We will use the Black Scholes valuation model for estimating the fair value on the date of grant of stock options. The fair value of stock option awards will be affected by our valuation assumptions, the volatility of equity comparables, the expected term of the options, the risk-free interest rate, expected dividends and other objective and subjective variables.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~We are exposed~~There have been no significant changes to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to materialthe disclosures about market risk ~~with respect to~~included in our ~~cash and cash equivalents.~~

~~Through~~Annual Report on Form 10-K for the operation of our subsidiaries based in Argentina and Hungary, we are exposed to foreign exchange rate risks. In addition to the operations of our foreign subsidiaries, we also contract with vendors that are located outside the United States, and in some cases make payments denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. We do not currently hedge our foreign currency exchange rate risk. As of September 30, 2021, our liabilities denominated in foreign currencies were not material.

As of September 30, 2021, we had cash and cash equivalents of $8.4 million. We do not engage in any hedging activities against changes in interest rates. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an immediate 10% increase in interest rates would have a significant impact on the realized value of our investments.

Inflation generally affects us by increasing our cost of labor, API and clinical trials. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the nine monthsyear ended ~~September 30,~~December 31, 2021.

Item 4. Controls and Procedures

Our principal executive officer and our principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. 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 ~~September 30, 2021,~~March 31, 2022, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

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Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The information under the caption entitled “Legal Proceedings” set forth in Note 1211, “Commitments and Contingencies,” in the accompanying notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

~~In addition to the risk factors in~~ ~~our Current Report on form 8-K filed with the SEC on September 8, 2021~~, we are also subject to the risk factors below, which should be considered carefully in evaluating our risk profile. The following risk factors should be read in conjunction with the risk factors described in ~~our Current Report on form 8-K filed with the SEC on September 8, 2021. Except as set forth below, there~~There have been no material changes from the risk factors described in our ~~Current~~Annual Report on ~~form 8-K filed with~~Form 10-K for the ~~SEC on September 8, 2021~~

Our ability to continue our operations requires that we raise additional capital and our operations could be curtailed or discontinued if we are unable to obtain the additional funding as or when needed.

Following the divestiture of the Legacy Business we lost substantially all of our revenue generating assets, and our business plan is now focused on the launch of Upneeq, which does not generate sufficient cash flows to fund the Company’s operating needs. We will require additional capital to fund our operating needs, including the commercialization of Upneeq, interest on our secured notes and other activities. Accordingly, we expect to incur significant expenditures and operating losses in the future. These conditions give rise to substantial doubt as to our ability to operate as a going concern as our current sources of liquidity will not be sufficient to meet our obligations through the next 12 months. In addition, we are subject to certain minimum liquidity levels under our Note Purchase Agreement with Athyrium ~~which may further restrict our operations and require us to obtain additional funding sooner.~~ Our ability to continue as a going concern will require us to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets. We may seek to raise additional capital through sales of our common stock, including through equity sales agreements with broker/dealers or other public or private equity financings, through new debt facilities, including convertible debt or through a sale of a portion or all rights to any of our assets. We cannot provide assurance that we will receive cash proceeds from any of these potential sources or to the extent cash proceeds are received, that such proceeds would be sufficient to support our current operating plan or allow to continue as a going concern. Additional funds may not be available when we need them on terms that are acceptable to us or at all and the terms of any such financings may impose operating restrictions on us that limit or restrict our ability to operate our business, which could adversely affect our ability to pursue the commercialization of Upneeq and other activities on our intended timeline or at all.

~~We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks.~~

Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information technology systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors, from attacks by malicious third parties. Such

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attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. As a global pharmaceutical company, our systems are subject to frequent attacks. For example, we were recently subject to an attack involving the Conti ransomware strain. We were able to restore our systems, but we are still investigating the data that may have been accessed by the attacker. Due to the nature of some of the attacks and potential attacks on our systems, there is a risk that such attacks may remain undetected for a period of time. Service interruptions could also result from intentional or accidental physical damage to our systems infrastructure maintained by us or by third parties. Maintaining the secrecy of this confidential, proprietary, or trade secret information is important to our competitive business position. While we have taken steps to protect such information and invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other reason, could enable others to produce competing products, use our proprietary technology or information, or adversely affect our business or financial condition. Further, any such interruption, security breach, loss or disclosure of confidential information, could result in financial, legal, business, and reputational harm to us and could have a material adverse effect on our business, financial position, results of operations or cash flow.year ended December 31, 2021.

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Item 6. Exhibits.



EXHIBIT 10.1	-	~~Note Purchase~~Amendment to License Agreement, ~~dated October 1, 2021,~~effective as of March 31, 2022, by and between ~~Osmotica~~RVL Pharmaceuticals, Inc. and Santen Pharmaceutical ~~Corp., Osmotica Pharmaceuticals plc, Osmotica Holdings US LLC, Athyrium Opportunities IV Acquisition LP and the Purchasers from time to time party thereto~~Co. Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on ~~October 6, 2021,~~April 4, 2022, Commission File ~~No.001-38709)~~

~~EXHIBIT 10.2~~		Share Subscription Agreement dated October 1, 2021, between Osmotica Pharmaceticals plc and Athyrium Opportunities IV Acquisition LP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 6, 2021, Commission File No.001-38709)No. 001-38709)

EXHIBIT 31.1	-	Principal Executive Officer ~~Certification Pursuant to Securities Exchange Act Rules 13a—14~~ and ~~15d—14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~EXHIBIT 31.2~~	-	Principal Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a—14 and 15d—14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 32.1	-	Principal Executive Officer ~~Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~EXHIBIT 32.2~~	-	and Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 101.INS	-	Inline XBRL Instance Document.

EXHIBIT 101.SCH	-	Inline XBRL Taxonomy Extension Schema Document.

EXHIBIT 101.CAL	-	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

EXHIBIT 101.DEF	-	Inline XBRL Taxonomy Extension Definition Linkbase Document.

EXHIBIT 101.LAB	-	Inline XBRL Taxonomy Extension Label Linkbase Document.

EXHIBIT 101.PRE	-	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

EXHIBIT 104*104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)

* Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission upon request.

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SIGNATURES

Pursuant to the requirements 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.

	~~Osmotica~~RVL Pharmaceuticals plc

Dated: ~~November 15, 2021~~May 12, 2022	By:	/s/ Brian Markison
		Brian Markison
		Chief Executive Officer and Principal Financial Officer

~~Dated: November 15, 2021~~	~~By:~~	~~/s/ Andrew Einhorn~~
		~~Andrew Einhorn~~
		~~Chief Financial Officer~~

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	September 30, 2021
Cash proceeds	$	111,848
Less: transaction costs		(6,335)
Less: net assets transferred		(101,140)
Gain on sale, pre-tax	$	4,373


	Three Months Ended September 30,				Nine Months Ended September 30,
Pharmaceutical Products	2021		2020		2021		2020
Upneeq	$	2,196	$	52	$	4,451	$	52
Osmolex		—		534		—		946
Net product sales		2,196		586		4,451		998
Royalty revenue		—		165		190		629
Licensing revenue		—		25,000		10,000		25,000
Total revenues	$	2,196	$	25,751	$	14,641	$	26,627


			Discounts
	Commercial		and
	Rebates		Allowances		Total
Balance at January 1, 2020	$	7	$	2	$	9
Provision		56		14		70
Charges processed		(59)		(15)		(74)
Balance at December 31, 2020	$	4	$	1	$	5
Provision		—		158		158
Charges processed		(4)		(159)		(163)
Balance at September 30, 2021	$	—	$	—	$	—


	Goodwill
January 1, 2020	$	55,847
Impairments		0
December 31, 2020		55,847
Impairments		0
September 30, 2021	$	55,847


	September 30, 2021
									Weighted
									Average
									Remaining
	Gross						Net		Amortization
	Carrying		Accumulated				Carrying		Period
	Amount		Amortization		Impairment		Amount		(Years)
IPR&D	$	35,090	$	—	$	(7,880)	$	27,210	Indefinite Lived
	$	35,090	$	—	$	(7,880)	$	27,210


	Intangible Assets		Total
January 1, 2020	$	64,000	$	64,000
Amortization		—		—
Impairments		(28,910)		(28,910)
December 31, 2020		35,090		35,090
Amortization		—		—
Impairments		(7,880)		(7,880)
September 30, 2021	$	27,210	$	27,210


	Nine Months Ended September 30, 2021
	Impairment
Asset/Asset Group	Charge		Reason For Impairment
In-Process R&D
Arbaclofen ER	$	7,880	Delay in anticipated commercialization of the product candidate, if approved.
Total Impairment Charges for nine months ended September 30, 2021	$	7,880