SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value per share	BBI	The Nasdaq Stock Market LLC

Indicate by check mark whether the ~~registrant~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth ~~company~~.company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule ~~12b–2~~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 ☒

~~Indicate the number~~

As of November 3, 2021, there were 115,048,346 shares ~~outstanding of each~~ of the ~~issuer’s classes of~~registrant’s common stock ~~as of the latest practicable date.~~

~~Total shares of common stock outstanding at October 15, 2017: 12,606,447~~

outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements that involve substantial risks and uncertainties for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report other than statements of historical fact, including statements relating to future financial, business, and/or research and clinical performance, conditions, plans, prospects, trends, or strategies and other such matters, including without limitation, our strategy; future operations; future financial position; future liquidity; future revenue; projected expenses; results of operations; the anticipated timing, scope, design, progress, results, and/or reporting of data of ongoing and future non-clinical and clinical trials; intellectual property rights, including the validity, term, and enforceability of such; the expected timing and/or results of regulatory submissions and approvals; and prospects for commercializing any of Brickell’s product candidates, or research collaborations with, or actions of, its partners, including in Japan, South Korea, the United States (“U.S.”), or any other country. The words “may,” “could,” “should,” “might,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “potential,” “will,” evaluate,” “advance,” “aim,” “help,” “progress,” “select,” “initiate,” “looking forward,” and similar expressions and their variants, are intended to identify forward-looking statements. Such statements are based on management’s current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. Unless otherwise mentioned or unless the context requires otherwise, all references in this Quarterly Report to “Brickell,” “Brickell Subsidiary,” “Company,” “we,” “us,” and “our,” or similar references, refer to Brickell Biotech, Inc. and its consolidated subsidiaries.

We based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report, in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II, Item 1A. “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, and under a similar heading in any other periodic or current report we may file with the U.S. Securities and Exchange Commission (the “SEC”) in the future. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge quickly and from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement.

You should read carefully the factors described in Part II, Item 1A, “Risk Factors” in this Quarterly Report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised to consult any further disclosures we make on related subjects in our future public filings and on our website.

RISK FACTORS SUMMARY

Our business, financial condition, and operating results may be affected by a number of factors, whether currently known or unknown. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, let alone combined with any of the others, could materially and adversely affect our business, financial condition, results of operations, and stock price. We have provided a summary of some of these risks below, with a more detailed explanation of those and other risks applicable to the Company in Part II, Item 1A. “Risk Factors” in this Quarterly Report.

•Our business depends on the successful continued financing, clinical development, regulatory approval, and commercialization of our pipeline assets.

•Clinical drug development for sofpironium bromide and our other pipeline assets is expensive, time-consuming, and uncertain.

•Kaken Pharmaceutical Co., Ltd. (“Kaken”) substantially controls the development and commercialization of sofpironium bromide in Japan and certain other Asian countries and may make decisions regarding product development, regulatory strategy, and commercialization that may not be in our best interests. Kaken may be unable to secure an appropriate local business partner (if desirable) and/or obtain approval of the drug in the ex-Japan Asian markets over which it has rights.

•If we or any partners with which we may collaborate to market and sell sofpironium bromide are unable to achieve and maintain medical insurance coverage and adequate levels of reimbursement for this late-stage compound following its regulatory approval and usage by patients, our commercial success may be hindered severely. Kaken may not be able to maintain adequate pricing in Japan for sofpironium bromide given that country’s more restrictive price controls than the U.S.

•Even if sofpironium bromide obtains regulatory approval outside Japan, and despite our partner Kaken launching the drug as ECCLOCK® in Japan in 2020, it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.

•Sofpironium bromide, where approved, will face significant competition and its failure to compete effectively may prevent it from achieving significant market penetration.

•We may face generic competition for sofpironium bromide, which could expose us to litigation or adversely affect our business, financial condition, operating results, and prospects.

•If clinical research organizations (“CROs”) and other third parties do not meet our requirements or otherwise conduct clinical trials for our pipeline assets as required or are unable to staff or supply our trials, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our pipeline assets at all or in the time frames currently planned for.

•We currently have limited marketing capabilities and no sales organization. If we are unable to generate adequate financing, establish sales and marketing capabilities on our own or through third parties, or are delayed in establishing these capabilities, we will be unable to successfully commercialize our product candidates, if approved, or generate meaningful product revenue.

•We will need to raise substantial additional financing in the future to fund our operations, which may not be available to us on favorable terms, or at all.

•If the holders of our company’s stock options and warrants exercise their rights to purchase our common stock, the ownership of our stockholders will be diluted.

•We may never obtain regulatory approval to commercialize any of our product candidates in the U.S., or anywhere else in the world other than Japan, and any products approved for sale will be subject to continued regulatory review and compliance obligations and there could be further restrictions on post-approval activities, including commercialization efforts. In obtaining regulatory approval, we will need to negotiate an appropriate product label

(aka package insert) with the regulators, which will determine the extent of our allowed promotional activities, and this label could be restrictive or prohibitory with regard to subject matter we believe is necessary to maximize the commercial success of sofpironium bromide.

•Major public health issues, and specifically the pandemic caused by the spread of COVID-19 and COVID-19 variants, and the impact as certain markets emerge from the pandemic, especially in terms of constraints on supply chains and human resource availability, and different degrees of success various countries experience in rolling out their vaccine campaigns, could have an adverse impact on our financial condition and results of operations and other aspects of our business and that of our suppliers, contractors, and business partners.

•We have sponsored or supported and may in the future sponsor or support clinical trials for our product candidates outside the U.S. and Japan, and the Food and Drug Administration (“FDA”), Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”), and applicable foreign regulatory authorities may not accept data from such trials; in addition, we may not be allowed alone or with local country business partners to obtain regulatory approval for our product candidates without first conducting clinical trials in each of these other countries.

•We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

•We may be subject to risks related to pre-approval promotion or off-label use, or unauthorized direct-to-consumer advertising, of our product candidates.

•Healthcare reform measures, including price controls or restricted access, could hinder or prevent the commercial success of our product candidates in any country.

•We are and may be subject to stricter healthcare laws, regulation, and enforcement, and our failure to comply with those laws could expose us to liability or adversely affect our business, financial condition, operating results, and prospects.

•We rely completely on third-party contractors to supply, manufacture, and distribute clinical drug supplies and to help prepare for a possible launch for our product candidates, including certain sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing, and distribution, and possibly sales and promotion, if any of our product candidates receive regulatory approval; and we expect to rely on third parties for supply, manufacturing, and distribution of preclinical, clinical, and commercial supplies, and possibly sales and promotion, of any future product candidates.

•Manufacturing and supply of the active pharmaceutical ingredients (“API”) and other substances and materials used in our product candidates and finished drug products is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality control and assurance, and distribution supply chain, as well as the potential for latent defects after products have been manufactured and distributed.

•We may not be able to finance or acquire additional pipeline or marketed assets to grow or sustain our company business.

•We may not be able to obtain, afford, maintain, or enforce global patent rights or other intellectual property rights that cover sofpironium bromide, our autoimmune and neuroinflammatory portfolio, and related technologies (and any other product candidates) that are of sufficient type, breadth, and term.

•We may not be able to protect our intellectual property rights meaningfully throughout the world.

•If we fail to comply with our obligations under our intellectual property license agreements, we could lose license rights that are important to our business. Additionally, these agreements may be subject to disagreement over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology, or other key aspects of product development and/or commercialization, or increase our financial or other obligations to our licensors.

ITEM 1.FINANCIAL STATEMENTS

~~VICAL INCORPORATED~~




	September 30, 2021		December 31, 2020

Assets
Current assets:
Cash and cash equivalents	$	21,383	$	30,115

Prepaid expenses and other current assets	2,668		3,415
Total current assets	24,051		33,530
Property and equipment, net	65		30
Operating lease right-of-use asset	72		74

Total assets	$	24,188	$	33,634
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,338	$	568
Accrued liabilities	2,809		5,420
Lease liability, current portion	55		74



Note payable, current portion	—		291

Total current liabilities	4,202		6,353
Lease liability, net of current portion	18		—




Note payable, net of current portion	—		146
Total liabilities	4,220		6,499

Commitments and contingencies (Note 5)	0		0
Stockholders’ equity:
Common stock, $0.01 par value, 300,000,000 and 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 88,732,346 and 53,551,461 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	887		536
Additional paid-in capital	158,381		132,492

Accumulated deficit	(139,300)		(105,893)
Total stockholders’ equity	19,968		27,135
Total liabilities and stockholders’ equity	$	24,188	$	33,634

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

statements.

~~VICAL INCORPORATED~~


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Collaboration revenue	$	—	$	142	$	—	$	1,795
Royalty revenue	132		—		300		—
Total revenue	132		142		300		1,795

Operating expenses:
Research and development	10,222		1,281		25,112		6,657
General and administrative	3,269		3,211		9,127		8,713
Total operating expenses	13,491		4,492		34,239		15,370
Loss from operations	(13,359)		(4,350)		(33,939)		(13,575)
Investment and other income, net	107		24		597		27

Interest expense	(1)		—		(65)		—




Net loss	$	(13,253)	$	(4,326)	$	(33,407)	$	(13,548)




Net loss per share, basic and diluted	$	(0.16)	$	(0.15)	$	(0.47)	$	(0.82)

Weighted-average shares used to compute net loss per share, basic and diluted	83,378,318		28,107,785		70,959,097		16,475,843

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

statements.

~~VICAL INCORPORATED~~

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

statements.

~~VICAL INCORPORATED~~


	Common Stock		Additional Paid-In-Capital			Accumulated Other Comprehensive Gain (Loss)		Accumulated Deficit		Total Stockholders’ Equity
		Shares			Par Value
Balance, December 31, 2020		53,551,461	$	536		$	132,492	$	—	$	(105,893)	$	27,135

Issuance of common stock upon exercise of warrants		12,444,887	124			8,845		—		—		8,969
Issuance of common stock, net of issuance costs of $50		1,083,548	11			1,617		—		—		1,628
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes		96,350	1			(53)		—		—		(52)
Stock-based compensation		—	—			469		—		—		469

Net loss		—	—			—		—		(9,005)		(9,005)
Balance, March 31, 2021		67,176,246	672			143,370		—		(114,898)		29,144



Common stock issued, net of issuance costs of $259		4,768,976	47			3,890		—		—		3,937
Stock-based compensation		—	—			421		—		—		421

Net loss		—	—			—		—		(11,149)		(11,149)
Balance, June 30, 2021		71,945,222	719			147,681		—		(126,047)		22,353
Issuance of common stock under license agreement		2,816,901	28			1,943		—		—		1,971


Common stock issued, net of issuance costs of $757		13,970,223	140			7,980		—		—		8,120
Stock-based compensation		—	—			777		—		—		777

Net loss		—	—			—		—		(13,253)		(13,253)
Balance, September 30, 2021		88,732,346	$	887		$	158,381	$	—	$	(139,300)	$	19,968



	Common Stock		Additional Paid-In-Capital		Accumulated Other Comprehensive Gain (Loss)		Accumulated Deficit		Total Stockholders’ Equity
		Shares									Par Value
Balance, December 31, 2019		8,480,968	$	85	$	92,497	$	(28)	$	(84,980)		$	7,574
Issuance of common stock and common stock purchase warrants, net of offering costs of $10		950,000	10		1,980		—		—			1,990
Issuance of common stock upon exercise of warrants		221,293	2		13		—		—			15
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes		19,643	—		(13)		—		—			(13)

Stock-based compensation		—	—		403		—		—			403
Unrealized gain on available-for-sale marketable securities		—	—		—		28		—			28
Net loss		—	—		—		—		(4,103)			(4,103)
Balance, March 31, 2020		9,671,904	97		94,880		—		(89,083)			5,894
Issuance of common stock upon exercise of warrants		2,202,863	22		(15)		—		—			7
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes		6,673	—		(4)		—		—			(4)
Common stock and warrants issued, net of issuance costs of $1,443		14,790,133	148		18,531		—		—			18,679
Stock-based compensation		—	—		453		—		—			453
Net loss		—	—		—		—		(5,119)			(5,119)
Balance, June 30, 2020		26,671,573	267		113,845		—		(94,202)			19,910
Issuance of common stock upon exercise of warrants		1,113,424	11		(10)		—		—			1
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes		56,221	—		(22)		—		—			(22)
Common stock issued, net of issuance costs of $261		3,400,418	34		2,562		—		—			2,596
Stock-based compensation		—	—		553		—		—			553
Net loss		—	—		—		—		(4,326)			(4,326)
Balance, September 30, 2020		31,241,636	$	312	$	116,928	$	—	$	(98,528)		$	18,712

See accompanying notes to these condensed consolidated financial statements.

See accompanying notes to these condensed consolidated financial ~~statements~~

statements.

~~VICAL INCORPORATED~~

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Brickell Biotech, Inc. (the “Company” or “Brickell”) is a clinical-stage pharmaceutical company striving to transform patient lives by developing innovative and differentiated prescription therapeutics for the treatment of dermatologic, autoimmune, and other debilitating diseases. The Company’s pipeline combines a potential best-in-class, late-stage program for the treatment of hyperhidrosis with a novel, cutting-edge platform and development-stage candidates with broad potential in autoimmune and neuroinflammatory disorders. The Company’s strategy includes in-licensing, acquiring, developing, and commercializing innovative pharmaceutical products that it believes can meaningfully benefit patients who are suffering from chronic, debilitating diseases that are underserved by available therapies.

The Company’s most advanced product candidate, sofpironium bromide, is a new chemical entity that belongs to a class of medications called anticholinergics. The Company has developed sofpironium bromide, 15% as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary hyperhidrosis, also known as excessive underarm sweating. In October 2021, the Company reported positive topline results of its United States (“U.S.”) Phase 3 pivotal clinical program for sofpironium bromide gel, 15% for the treatment of primary axillary hyperhidrosis, which achieved statistical significance on all primary and secondary efficacy endpoints and was generally well-tolerated. Sofpironium bromide gel, 5% is approved in Japan for the same indication under the brand name ECCLOCK®. The Company’s operations to date have been limited to business planning, raising capital, developing its pipeline assets (in particular sofpironium bromide), identifying and in-licensing product candidates, conducting clinical trials, and other research and development.

Liquidity and Capital Resources

The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to in-license and develop product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the nine months ended September 30, ~~2017~~

~~(Unaudited)~~

1.	~~BASIS OF PRESENTATION~~

~~Vical Incorporated, or~~2021, the Company had a ~~Delaware corporation, was incorporated~~net loss of $33.4 million and net cash used in ~~April 1987~~operating activities of $31.4 million. As of September 30, 2021, the Company had cash and ~~has devoted substantially all~~cash equivalents of ~~its resources since that time to its research~~$21.4 million and ~~development programs.~~ an accumulated deficit of $139.3 million.

The Company ~~researches~~believes that its cash and ~~develops biopharmaceutical products, including those based on its patented DNA delivery technologies, for~~cash equivalents as of September 30, 2021, combined with the ~~prevention and treatment~~net proceeds of ~~serious or life-threatening diseases.~~

~~All~~$8.9 million received from the subsequent sale of the Company’s ~~potential products~~common stock in a public offering (see Note 8. “Subsequent Events”), are ~~in research and development phases. No revenues have been generated from the sale of any such products, nor are any such revenues expected~~sufficient to fund its operations for at least the next ~~several years. The Company earns revenue~~12 months from ~~research and development agreements with pharmaceutical collaborators and from contract manufacturing agreements. Most~~the issuance of the Company’s product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. There can be no assurance that the Company’s research and development efforts, or those of its collaborators, will be successful.these condensed consolidated financial statements. The Company expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and ~~not generate positive cash flows from operations for at least~~development activities. Additional funding will be required in the ~~next several years. No assurance can be given that~~future to continue with the Company’s planned development and other activities.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company ~~can generate sufficient product revenue to become profitable or generate positive cash flows from operations.~~

~~The unaudited financial statements at September 30, 2017,~~ and ~~for the three~~its wholly-owned subsidiary, Brickell Subsidiary, Inc., and ~~nine months ended September 30, 2017~~are presented in U.S. dollars and ~~2016,~~ have been prepared in accordance ~~with the rules and regulations of the Securities and Exchange Commission, or SEC, and~~ with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable torules and regulations of the SEC for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial ~~statements.~~information normally included in financial statements prepared

in accordance with U.S. GAAP have been condensed or omitted. These ~~unaudited~~condensed consolidated financial statements have been prepared on the same basis as the ~~audited~~annual financial statements ~~included in the Company’s Annual Report on Form 10-K~~ and, ~~include all adjustments, consisting of only normal recurring accruals, which~~ in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary ~~to present fairly~~for a fair presentation of the Company’s financial ~~position as of the interim date and~~information. The results of operations for the ~~interim periods presented. Interim results~~three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for athe full year ending December 31, 2021, for any other interim period, or for any other future ~~periods.~~period. The ~~preparation~~condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in 1 operating segment and, accordingly, no segment disclosures have been presented herein. The Company’s management performed an evaluation of its activities through the date of filing of these financial statements and concluded that there are no subsequent events requiring disclosure, other than as disclosed.

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires ~~management~~it to make estimates and assumptions that affect the reported amounts of assets and liabilities and ~~disclosures~~disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~Actual results could differ materially from those estimates. These unaudited financial statements should be read in conjunction with~~Although these estimates are based on the Company’s ~~audited financial statements for~~knowledge of current events and actions it may take in the ~~year ended December 31, 2016, included~~future, actual results may ultimately differ from these estimates and assumptions.

Risks and Uncertainties

The Company’s business is subject to significant risks common to early-stage companies in the pharmaceutical industry including, but not limited to, the ability to develop appropriate formulations, scale up and produce the compounds; dependence on collaborative parties; uncertainties associated with obtaining and enforcing patents and other intellectual property rights; clinical implementation and success; the lengthy and expensive regulatory approval process; compliance with regulatory and other legal requirements; competition from other products; uncertainty of broad adoption of its ~~Annual Report on Form 10-K filed with~~approved products, if any, by physicians and patients; significant competition; ability to manage third-party manufacturers, suppliers, contract research organizations, business partners and other alliances; and obtaining additional financing to fund the ~~SEC.~~

~~Cash, Cash Equivalents~~Company’s efforts.

The product candidates developed by the Company require approvals from the U.S. Food and ~~Marketable Securities~~

~~Cash~~Drug Administration (“FDA”) and ~~cash equivalents consist of cash and highly liquid securities with original maturities at~~foreign regulatory agencies prior to commercial sales in the ~~date of acquisition of ninety days~~U.S. or ~~less and~~foreign jurisdictions, respectively. There can be ~~liquidated without prior notice or penalty. Investments with an original maturity of more than ninety days are considered marketable securities~~no assurance that the Company’s current and ~~have been classified by management as available-for-sale. These investments are classified as current assets, even though~~future product candidates will receive the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary. Such investments are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Realized gains and losses from the sale of available-for-sale securities or the amounts, net of tax, reclassified out of accumulated other comprehensive income (loss), if any, are determined on a specific identification basis.

~~Restricted Cash~~

The Company was required to maintain a letter of credit securing an amount equal to twelve months of the then current monthly installment of base rent for the original term of the lease for its facilities, which ended on August 31, 2017. In July 2016, the term of the lease was extended for 16 months through December 2018. During the extended term,necessary approvals. If the Company is required to maintain a letter of credit securing an amount equal to $0.2 million. As of September 30, 2017, and December 31, 2016, restricted cash of $0.2 million and $3.3 million, respectively, was pledged as collateral for the letter of credit.

~~Revenue Recognition~~

~~Revenue~~denied approval or approval is recognized when the four basic criteria of revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Certain portions of the Company’s revenue are generated through manufacturing contracts and stand-alone license agreements.

~~Contract Manufacturing Revenue~~

Revenue associated with contract manufacturing services is recognized once the service has been rendered and/or upon shipment (or passage of title) of the product to the customer. On occasion, the Company recognizes revenue on a “bill-and-hold” basis. Revenue is recognized for such “bill-and-hold” arrangements in accordance with the authoritative guidance, which requires, among other things, the existence of a valid business purpose for the arrangement, that the “bill-and-hold” arrangement is at the request of the customer, that title and risk of ownership pass to the customer, that the product is complete and ready for shipment, a fixed delivery date that is reasonable and consistent with the customer’s business practices, that the product has been separated from the Company’s inventory, and that no further performance obligations by the Company exist.

~~Multiple-Element Arrangements~~

The Company has entered into multiple-element arrangements. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverabledelayed, it may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The delivered item(s) must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the Company’s control.

A delivered item is considered a separate unit of accounting when the delivered item has value to the partner on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of research expertise in this field in the general marketplace. Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence, or VSOE, of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, the Company uses its best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement. If facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of drug products, the license is identified as a separate unit of accounting and the amounts allocated to the license are recognized upon the delivery of the license, assuming the other revenue recognition criteria have been met. However, if the amounts allocated to the license through the relative selling price allocation exceed the upfront license fee, the amount recognized upon the delivery of the license is limited to the upfront fee received. If facts and circumstances dictate that the license does not have standalone value, the transaction price, including any upfront license fee payments received, are allocated to the identified separate units of accounting and recognized as those items are delivered.

The terms of the Company’s collaboration agreements provide for milestone payments upon achievement of certain regulatory and commercial events. Under the Milestone Method, the Company recognizes consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following criteria: 1) The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, 2) The consideration relates solely to past performance, and 3) The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company.

~~Contract Services and Royalty Revenue~~

The Company recognizes revenues from contract services during the period in which the related expenditures are incurred and related payments for those services are received or collection is reasonably assured. Royalties to be received based on sales of licensed products by the Company’s collaborators incorporating the Company’s licensed technology are recognized when received.

~~Manufacturing and Production Costs~~

Manufacturing and production costs include expenses related to manufacturing contracts and expenses for the production of plasmid DNA for use in the Company’s research and development efforts. Manufacturing expenses related to manufacturing contracts

are deferred and expensed when the related revenue is recognized. Deferred contract costs were $9.6 million and $5.5 million at September 30, 2017 and December 31, 2016, respectively. Production expenses related to the Company’s research and development efforts are expensed as incurred.

~~Net Loss Per Share~~

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and any assumed issuance of common stock under RSUs as the effect would be antidilutive. Common stock equivalents of 3,260 and 17,065 for the three months ended September 30, 2017 and 2016, respectively, were excluded from the calculation because of their antidilutive effect. Common stock equivalents of 1,087 and 9,800 for the nine months ended September 30, 2017 and 2016, respectively, were excluded from the calculation because of their antidilutive effect.

~~Stock-Based Compensation~~

The Company records its compensation expense associated with stock options and other forms of equity compensation based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. Stock-based compensation includes amortization related to stock option awards based on the estimated grant date fair value. Stock-based compensation expense related to stock options is recognized ratably over the vesting period of the option. In addition, the Company records expense related to RSUs granted based on the fair value of those awards on the grant date. The fair value related to the RSUs is amortized to expense over the vesting term of those awards. Forfeitures of stock options and RSUs are recognized as they occur.

Stock-based compensation expense for a stock-based award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

~~Recent Accounting Pronouncements~~

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and require separate accounting (performance obligations), how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2018.

The Company is in the process of evaluating the impact of adopting the new revenue guidance on the Company’s financial position, results of operations, cash flows and related disclosures. Based on the Company’s initial assessment, the Company plans to adopt this new standard using the modified retrospective method which may result in a cumulative effect adjustment as of the date of adoption. At this time, management does not expect the adoption of the new guidance to have a material ~~impact on revenue recognition related to contracts with remaining performance obligations upon the adoption of the standard. The~~adverse impact on the Company’s business and its financial statements is not expected to be material because, based upon the preliminary analysis of material contracts under the new revenue recognition standard, management has determined the recognition and allocation of revenue upon the delivery or completion of the Company’s performance obligations are consistent with those under the current revenue recognition model. condition.

The Company expects to ~~complete~~incur substantial operating losses for the next several years and will need to obtain additional financing in order to develop and, if successful, commercialize its ~~assessment process, including finalizing a transition method for adoption, in the fourth quarter of 2017 and expects to complete its implementation process prior~~product candidates. There can be no assurance that such financing will be available or will be at terms acceptable to the ~~adoption of this ASU on January 1, 2018.~~

~~In February 2016,~~Company.

Fair Value Measurements

Fair value is the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months and will require both lessees and lessors to disclose certain key information about lease transactions. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the effectprice that the ~~adoption of the new guidance will have on its financial statements and related disclosures.~~

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amended guidance simplifies the accounting for share-based payment transactions and became effective for annual periods beginning after December 15, 2016. The Company ~~adopted this standard during the first~~

~~quarter of 2017 and elected to recognize forfeitures as they occur. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.~~

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard in the third quarter of 2017 on a retrospective basis and has presented the cash flow statement in accordance with the new guidance. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures.

2.	~~STOCK-BASED COMPENSATION~~

~~Total stock-based compensation expense was allocated to research and development, manufacturing and production and general and administrative expense as follows (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Research and development

$
61

$
69

$
184

$
228

Manufacturing and production

30

25

95

89

General and administrative

92

119

332

487

Total stock-based compensation expense

$
183

$
213

$
611

$
804

During the nine months ended September 30, 2017 and 2016, the Company granted stock-based awards with a total estimated value of $0.7 million and $0.6 million, respectively. At September 30, 2017, total unrecognized estimated compensation expense related to unvested stock-based awards granted prior to that date was $0.7 million, which is expected to be recognized over a weighted-average period of 1.3 years. Stock-based awards granted during the nine months ended September 30, 2017 and 2016, were equal to 5.1% and 3.1%, respectively, of the outstanding shares of common stock at the end of the applicable period.

3.	~~MARKETABLE SECURITIES, AVAILABLE FOR SALE~~

~~The following is a summary of available-for-sale marketable securities (in thousands):~~

September 30, 2017

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Market
Value

U.S. treasuries

$
18,495

$
—

$
11

$
18,484

Certificates of deposit

4,145

—

—

4,145

$
22,640

$
—

$
11

$
22,629

December 31, 2016

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Market
Value

U.S. treasuries

$
23,295

$
—

$
18

$
23,277

Certificates of deposit

7,275

—

—

7,275

$
30,570

$
—

$
18

$
30,552

At September 30, 2017, none of these securities were scheduled to mature outside of one year. The Company did not realize any gains or losses on sales of available-for-sale securities for the nine months ended September 30, 2017. As of September 30, 2017, none of the securities had been in a continuous material unrealized loss position longer than one year.

4.	~~OTHER BALANCE SHEET ACCOUNTS~~

~~Accounts payable and accrued expenses consisted of the following (in thousands):~~

September 30,

December 31,

2017

2016

Employee compensation

$
2,045

$
2,518

Clinical trial accruals

1,005

446

Accounts payable

610

326

Deferred rent

—

223

Other accrued liabilities

418

614

Total accounts payable and accrued expenses

$
4,078

$
4,127

5.	~~LONG-TERM INVESTMENTS~~

As of September 30, 2017, the Company held an auction rate security with a par value of $2.5 million. This auction rate security has not experienced a successful auction since the liquidity issues experienced in the global credit and capital markets in 2008. As a result, the security is classified as a long-term investment as it is scheduled to mature in 2038. The security was rated A- by Standard and Poor’s as of September 30, 2017. The security continues to pay interest according to its stated terms.

The valuation of the Company’s auction rate security is subject to uncertainties that are difficult to predict. The fair value of the security is estimated utilizing a discounted cash flow analysis. The key drivers of the valuation model include the expected term, collateral underlying the security investment, the creditworthiness of the counterparty, the timing of expected future cash flows, discount rates, liquidity and the expected holding period. The security was also compared, when possible, to other observable market data for securities with similar characteristics. As of September 30, 2017, the inputs used in the Company’s discounted cash flow analysis assumed an interest rate of 3.085%, an estimated redemption period of five years and a discount rate of 1.00%. Based on the valuation of the security, the Company has recognized cumulative losses of $0.4 million as of September 30, 2017, none of which were realized during the three months ended September 30, 2017. The losses when recognized are included in investment and other income. The market value of the security has partially recovered. Included in other comprehensive income are unrealized gains of $95,000 and $109,000 for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the Company had recorded cumulative unrealized gains of $0.4 million. The resulting carrying value of the auction rate security at September 30, 2017, was $2.2 million. Any future decline in market value may result in additional losses being recognized.

6.	~~FAIR VALUE MEASUREMENTS~~

~~The Company measures fair value as an exit price, representing the amount that~~ would ~~be received~~receive to sell an asset or ~~paid~~pay to transfer a liability in a timely transaction with an ~~orderly transaction~~independent counterparty in the principal market, or in the absence of a principal market, the most advantageous market for the asset or liability. A three-tier hierarchy distinguishes between ~~market participants at~~(1) inputs that reflect the ~~measurement date. As such, fair value is a market-based measurement that should be determined based on~~ assumptions ~~that~~ market participants would use in pricing an asset or ~~liability. Fair value measurements are~~liability developed based on ~~a three-tier fair value~~market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or

liability developed based on the best information available in the circumstances (unobservable inputs). The hierarchy ~~which prioritizes~~is summarized in the ~~inputs used in measuring fair value as follows:~~

three broad levels listed below:

Level ~~1: Observable inputs such as quoted prices in active markets;~~

~~Level 2: Inputs, other than the~~ 1—quoted prices in active markets ~~that are~~for identical assets and liabilities

Level 2—other significant observable ~~either directly or indirectly;~~inputs (including quoted prices for similar assets and

liabilities, interest rates, credit risk, etc.)

Level ~~3: Unobservable~~3—significant unobservable inputs (including the Company’s own assumptions in ~~which there is little or no market data, which require~~determining the ~~reporting entity to develop its own assumptions.~~

The following table sets forth the fair value of the Company’s financial assets measured at fair value ~~are classified~~on a recurring basis based on the three-tier fair value hierarchy (in thousands):


	Level 1 (1)



	September 30, 2021		December 31, 2020
Assets:
Money market funds	$	13,643	$	29,182

(1) No assets as of each respective date were identified as Level 2 or 3 based on the three-tier fair value hierarchy. The Company had no financial liabilities measured at fair value on a recurring basis as of each respective date.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating the fair values of each class of financial instrument disclosed herein:

Money Market Funds—The carrying amounts reported as cash and cash equivalents in the ~~table below in one~~condensed consolidated balance sheets approximate their fair values due to their short-term nature and/or market rates of ~~the three categories described above (in thousands):~~

Fair Value Measurements

September 30, 2017

Level 1

Level 2

Level 3

Total

Certificates of deposit

$
4,145

$
—

$
—

$
4,145

Money market funds

4,987

—

—

4,987

U.S. treasuries

18,484

—

—

18,484

Auction rate securities

—

—

2,189

2,189

$
27,616

$
—

$
2,189

$
29,805

Fair Value Measurements

December 31, 2016

Level 1

Level 2

Level 3

Total

Certificates of deposit

$
7,275

$
—

$
—

$
7,275

Money market funds

1,171

—

—

1,171

U.S. treasuries

23,277

—

—

23,277

Auction rate securities

—

—

2,046

2,046

$
31,723

$
—

$
2,046

$
33,769

~~The Company’s investments in U.S. treasury securities, certificates~~interest (Level 1 of ~~deposit and money market funds are valued based on publicly available quoted market prices for identical securities as of September 30, 2017. The Company determines~~ the fair value hierarchy).

The Company currently recognizes revenue primarily from licensing and royalty fees received under the Kaken Agreement described below, of ~~corporate bonds~~which the terms of the agreement include non-refundable upfront fees, funding of research and development activities, payments based upon achievement of milestones, and royalties on net product sales.

In March 2015, the Company entered into a license, development, and commercialization agreement (as amended, the “Kaken Agreement”) with Kaken Pharmaceutical Co., Ltd. (“Kaken��). Under the Kaken Agreement, the Company granted to Kaken an exclusive right to develop, manufacture, and commercialize the Company’s sofpironium bromide compound in Japan and certain other Asian countries (the “Territory”). In exchange, Kaken paid the Company an upfront, non-refundable payment of $11.0 million (the “upfront fee”). In addition, the Company was entitled to receive aggregate payments of up to $10.0 million upon the achievement of specified development milestones, and $30.0 million upon the achievement of commercial milestones, as well as tiered royalties based on a percentage of net sales of licensed products in the Territory. The Kaken Agreement further provides that Kaken will be responsible for funding all development and commercial costs for the program in the Territory. Kaken was also required to enter into negotiations with the Company, to supply the Company, at cost, with clinical supplies to perform Phase 3 clinical trials in the U.S.

In May 2018, the Company entered into an amendment to the Kaken Agreement, pursuant to which the Company received an upfront non-refundable fee of $15.6 million (the “Kaken R&D Payment”), which was initially recorded as deferred revenue, to provide the Company with research and development funds for the sole purpose of conducting certain clinical trials and other ~~government-sponsored enterprise~~such research and development activities required to support the submission of a new drug application for sofpironium bromide. Upon receipt of the Kaken R&D Payment on May 31, 2018, a milestone payment originally due upon the first commercial sale in Japan was removed from the Kaken Agreement and all future royalties to the Company under the Kaken Agreement were reduced by 150 basis points. During the three and nine months ended September 30, 2020, the Company recognized revenue of $0.1 million and $1.8 million, respectively, related ~~securities~~to the Kaken R&D Payment. The Kaken R&D Payment was recognized in full by the end of the third quarter of 2020.

The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that it determines are within the scope of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), the ~~aid of valuations provided by third parties using proprietary valuation models~~Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and ~~analytical tools. These valuation models~~(v) recognize revenue when (or as) the Company satisfies the performance obligations. At contract inception, the Company assesses the goods or services promised within each contract and ~~analytical tools use market pricing~~assesses whether each promised good or ~~similar instruments~~service is distinct and determines those that are ~~both objective and publicly available, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and/or offers.~~performance obligations. The Company ~~validates~~then recognizes as revenue the ~~valuations~~amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To date, the Company has not received approval for any drug candidates from ~~its primary pricing vendors for its Level 2 securities by examining~~ the ~~inputs used in~~FDA.

At contract inception, the Company assesses the goods or services promised within each contract, determines those that ~~vendor’s pricing process~~are performance obligations, and ~~determines~~assesses whether ~~they are reasonable and observable.~~each promised good or service is distinct. The Company ~~also compares~~then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. The Company utilizes judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Licenses of Intellectual Property

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit from the license.

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission) is included in the transaction price. Milestone payments that are not within the Company or the Company’s collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those ~~valuations~~approvals are received. The transaction price is then allocated to ~~recent reported trades~~each performance obligation on a relative stand-alone selling price basis, for ~~those securities. As~~which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of ~~September 30, 2017~~each subsequent reporting period, the Company re-

evaluates the probability of achievement of such development milestones and ~~December 31, 2016,~~any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration, and other revenues and earnings in the period of adjustment and future periods through the end of the performance obligation period. To date, Kaken has paid the Company $10.0 million in milestone payments under the Kaken Agreement.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Prior to November 2020, the Company had not recognized any royalty revenue from any collaboration arrangement. In September 2020, Kaken received regulatory approval in Japan to manufacture and market sofpironium bromide gel, 5% (ECCLOCK®) for the treatment of primary axillary hyperhidrosis. During the three and nine months ended September 30, 2021, the Company recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan of $0.1 million and $0.3 million, respectively. No royalty revenue was recognized in the corresponding 2020 periods.

Research and Development

Research and development costs are charged to expense when incurred and consist of costs incurred for independent and collaboration research and development activities. The major components of research and development costs include formulation development, clinical studies, clinical manufacturing costs, in-licensing fees for development-stage assets, salaries and employee benefits, toxicology studies, allocations of various overhead and occupancy costs. Research costs typically consist of applied research, preclinical, and toxicology work. Pharmaceutical manufacturing development costs consist of product formulation, chemical analysis, and the transfer and scale-up of manufacturing at contract manufacturers. Assets acquired (or in-licensed) that are utilized in research and development that have no ~~investments~~alternative future use are expensed as incurred.

From time to time, the Company may have certain contingent liabilities that arise in ~~Level 2 securities.~~the ordinary course of business. The Company ~~did~~accrues a liability for such matters when it is probable that future expenditures will be made and can be reasonably estimated. The Company expects that contingencies related to regulatory approval milestones will only become probable once such regulatory outcome is achieved.

Clinical Trial Accruals

Expense accruals related to clinical trials are based on the Company’s estimates of services received and efforts expended pursuant to contracts with multiple research institutions and third-party clinical research organizations that conduct and manage clinical trials on the Company’s behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing costs, the Company estimates the period over which services will be performed and the level of effort to be expended in each period based upon patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Any estimates of the level of services performed or the costs of these services could differ from actual results.

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. When the effects are not ~~transfer~~anti-dilutive, diluted earnings per share is computed by dividing the Company’s net income by the weighted average number of common shares outstanding and the

impact of all potentially dilutive common shares. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are anti-dilutive for all periods presented.

The following table sets forth the potential common shares excluded from the calculation of diluted net loss per share because their inclusion would be anti-dilutive:


	Three and Nine Months Ended September 30,
		2021	2020
Outstanding warrants		27,944,544	19,556,108
Outstanding options		7,089,524	4,743,537
Unvested restricted stock units		47,435	204,233



Total		35,081,503	24,503,878

The Company accounts for leases under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 842 (“ASC 842”). Under ASC 842, the Company determines if an arrangement is a lease at inception. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company does not currently hold any ~~investments between level categories~~financing leases. The Company has elected the practical expedient not to recognize on the balance sheet leases with terms of one year or less and not to separate lease components and non-lease components for long-term real estate leases. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company estimates the incremental borrowing rate based on industry peers in determining the present value of lease payments. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics. The Company’s facility operating lease has one single component. The lease component results in a right-of-use asset being recorded on the balance sheet, which is amortized as lease expense on a straight-line basis in the Company’s condensed consolidated statements of operations.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the adoption of recently issued standards has had or may have a material impact on the Company's condensed consolidated financial statements or disclosures.

NOTE 3. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):




	September 30, 2021		December 31, 2020
Accrued compensation	$	1,255	$	1,369
Accrued contracted research and development services	1,242		3,733

Accrued professional fees	312		318



Total	$	2,809	$	5,420

NOTE 4. NOTE PAYABLE

On April 15, 2020, the Company executed an unsecured promissory note to IberiaBank (the “PPP Loan”) pursuant to the U.S. Small Business Administration’s Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company used the PPP Loan proceeds in the principal amount of $0.4 million and bearing interest at a fixed rate of 1.00% per annum to cover payroll costs and certain other permitted costs in accordance with the relevant terms and conditions of the CARES Act. In January 2021, the Company applied for forgiveness of the full amount of the PPP Loan, which was forgiven in full in June 2021. As a result, during the nine months ended September 30, ~~2017. The valuation~~2021, the Company recognized a gain on extinguishment of ~~the Company’s investments in auction rate securities, which includes significant unobservable inputs, is more fully described in Note 5.~~

~~Activity for assets measured at fair value using significant unobservable inputs (Level 3) is presented~~debt of approximately $0.4 million in the ~~table below (in thousands):~~

condensed consolidated statements of operations within the line “Investment and other income, net.”

Balance at December 31, 2016

$
2,046

Total unrealized gains, excluding tax impact, included in other comprehensive loss

143

Balance at September 30, 2017

$
2,189

Total gains or losses for the period included in net loss attributable to the change in
unrealized gains or losses relating to assets still held at the reporting date

$
—

7.	~~COMMITMENTS AND CONTINGENCIES~~

NOTE 5. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company may become a party to additional lawsuits involving various matters. The Company is unaware of any such lawsuits presently pending against it which, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

The Company prosecutes its intellectual property vigorously to obtain the broadest valid scope for its patents. Due to uncertainty of the ultimate outcome of these matters, the impact on future operating results or the Company’s financial condition is not subject to reasonable estimates.

8.	~~ASTELLAS OUT-LICENSE AGREEMENTS~~

~~In July 2011,~~August 2016, the Company entered into ~~license agreements with Astellas Pharma Inc., or Astellas, granting Astellas exclusive, worldwide, royalty-bearing licenses under certain of~~a multi-year, noncancelable lease for its Colorado-based office space, which was amended in June 2021 to, among other things, extend the ~~Company's know-how and intellectual property~~lease term to ~~develop and commercialize certain products containing plasmids encoding certain forms of cytomegalovirus, glycoprotein B and/or phosphoprotein 65, including ASP0113 (TransVax™~~December 31, 2022 (as amended, the “Boulder Lease”) ~~but excluding CyMVectin™~~.

Under the terms of the ~~agreements,~~Boulder Lease, the Company may, at its option, renew the Boulder Lease for 2 additional terms of three years each. Upon adoption of ASC 842 and subsequent modification of the Boulder Lease, the Company recognized a right-of-use asset and corresponding lease liability for the lease. Minimum base lease payments under the lease agreement are recognized on a straight-line basis over the full term of the lease. In addition to base rental payments included in the contractual obligations table below, the Company is ~~performing~~responsible for its pro rata share of the operating expenses for the building, which includes common area maintenance, utilities, property taxes, and insurance. Operating lease cost for the three months ended September 30, 2021 and 2020 was $16 thousand and $23 thousand, respectively. Lease expense for each of the nine months ended September 30, 2021 and 2020 was approximately $0.1 million.

The following is a summary of the contractual obligations related to operating lease commitments as of September 30, 2021, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):

License and Development Agreement with Voronoi

On August 27, 2021, the Company entered into a License and Development Agreement (the “Voronoi License Agreement”) with Voronoi Inc. (“Voronoi”), pursuant to which the Company acquired exclusive, worldwide rights to research, develop, and commercialize novel therapeutics generated from a proprietary DYRK1A inhibitor platform. In accordance with the terms of the Voronoi License Agreement, in exchange for the license rights, the Company made a one-time payment of $2.5 million in cash and issued $2.0 million, or 2,816,901 shares, of its common stock to Voronoi. As a result, the Company recorded $4.8 million in research and development ~~services~~expenses during the three and ~~manufacturing services~~nine months ended September 30, 2021.

With respect to the first-generation compounds arising from the DYRK1A inhibitor platform, the Voronoi License Agreement provides that the Company will make payments to Voronoi of up to $211.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. With

respect to the second-generation compounds arising from the DYRK1A inhibitor platform, the Company will make payments to Voronoi of up to $107.5 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Voronoi License Agreement provides that the Company will pay Voronoi tiered royalty payments ranging from low single digits up to 10% of net sales of products arising from the DYRK1A inhibitor platform. All of the contingent payments and royalties are payable in cash except for $1.0 million of the development and regulatory milestone payments, which amount is payable in shares of the Company’s common stock. Under the terms of the Voronoi License Agreement, the Company will be responsible for, and bear the future costs of, worldwide development and commercialization of all the licensed compounds.

Amended and Restated License Agreement with Bodor

In February 2020, the Company, together with Brickell Subsidiary and Bodor Laboratories, Inc. and Dr. Nicholas S. Bodor (collectively, “Bodor”) entered into an amended and restated license agreement (the “Amended and Restated License Agreement”). The Amended and Restated License Agreement supersedes the License Agreement, dated December 15, 2012, entered into between Brickell Subsidiary and Bodor, as amended by Amendment No. 1 to License Agreement, effective as of October 21, 2013, and Amendment No. 2 to License Agreement, effective as of March 31, 2015.

The Amended and Restated License Agreement retains with the Company a worldwide, exclusive license to develop, manufacture, market, sell, and sublicense products containing the proprietary compound sofpironium bromide based upon the patents referenced in the Amended and Restated License Agreement for a defined field of use. As of September 30, 2021, under the original License Agreement and the Amended and Restated License Agreement, the Company had remaining obligations to pay Bodor (i) a royalty on sales of product outside the Territory, including a low single-digit royalty on sales of certain product not covered by the patent estate licensed from Bodor; (ii) approximately 50 to 55% of all royalties the Company receives from Kaken for sales of product within the Territory; (iii) a percentage of non-royalty sublicensing income the Company receives from Kaken or other sublicensees; and (iv) up to an aggregate of $0.8 million (plus an additional $0.1 million for approvals of additional products) in cash payments and $1.0 million of shares of the Company’s common stock upon the achievement of certain regulatory milestones.

Under the terms of the Amended and Restated License Agreement, the Company made a $0.5 million milestone payment to Bodor following the closing of a public offering in June 2020 and accrued an additional $1.0 million related to its plan to initiate its U.S. Phase 3 pivotal program in the fourth quarter of 2020. As a result, the Company recorded $1.5 million as research and development expense in the condensed consolidated statements of operations during the nine months ended September 30, 2020. No similar or associated research and development expense was incurred in the three or nine months endedSeptember 30, 2021, but the Company paid Bodor the applicable amount with respect to the royalties it received from Kaken for sales of ECCLOCK in Japan during those periods.

NOTE 6. CAPITAL STOCK

On April 19, 2021, following approval by the Company’s stockholders, the Company filed an amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware that increased the number of the Company’s authorized shares of common stock, par value $0.01 per share, from 100,000,000 to 300,000,000. Each share of the Company’s common stock is entitled to one vote, and the holders of the Company’s common stock are ~~being~~entitled to receive dividends when and as declared or paid by its board of directors. The Company had reserved authorized shares of common stock for future issuance at September 30, 2021 as follows:


			September 30, 2021
Common stock warrants			27,944,544
Common stock options outstanding			7,089,524
Shares available for grant under the Omnibus Plan			3,615,201
Shares available for grant under the Employee Stock Purchase Plan			2,600,000
Unvested restricted stock units			47,435


Total			41,296,704

Public Offerings of Common Stock and Warrants

In July 2021, the Company completed a sale of 12,983,871 shares of its common stock at a public offering price of $0.62 per share in an underwritten public offering (the “July 2021 Offering”). The July 2021 Offering resulted in net proceeds of approximately $7.3 million, after deducting underwriting discounts and commissions and offering expenses. The Company is using the net proceeds from the July 2021 Offering for research and development, including clinical trials, working capital, and general corporate purposes.

In October 2020, the Company completed a sale of 19,003,510 shares of its common stock, and, to certain investors, pre-funded warrants to purchase 1,829,812 shares of its common stock, and accompanying common stock warrants to purchase up to an aggregate of 20,833,322 shares of its common stock (the “October 2020 Offering”). Each share of common stock and pre-funded warrant to purchase one share of the Company’s common stock was sold together with a common warrant to purchase one share of the Company’s common stock. The public offering price of each share of the Company’s common stock and accompanying common warrant was $0.72 and $0.719 for each pre-funded warrant and accompanying common warrant, respectively. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The common warrants are exercisable at a price of $0.72 per share of the Company’s common stock and will expire five years from the date of issuance. The pre-funded warrants were exercised in October 2020 at an exercise price of $0.001 per share of the Company’s common stock. The October 2020 Offering resulted in net proceeds of approximately $13.7 million to the Company after deducting underwriting commissions and discounts and other offering expenses of $1.3 million and excluding the proceeds from the exercise of the warrants. During the nine months ended September 30, 2021, 12,427,387 common warrants associated with the October 2020 Offering were exercised at a weighted-average exercise price of $0.72 per share, resulting in aggregate proceeds of approximately $8.9 million.

In June 2020, the Company completed a sale of 14,790,133 shares of its common stock, and, to certain investors, pre-funded warrants to purchase 2,709,867 shares of its common stock, and accompanying common stock warrants to purchase up to an aggregate of 17,500,000 shares of its common stock (the “June 2020 Offering”) (and together with the October 2020 Offering, the “2020 Offerings”). Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $1.15 and $1.149 for each pre-funded warrant and accompanying common warrant, respectively. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The pre-funded warrants were exercised in the third quarter of 2020 at an exercise price of $0.001 per share of common stock. The common warrants were immediately exercisable at a price of $1.25 per share of common stock and will expire five years from the date of issuance. The June 2020 Offering resulted in approximately $18.7 million of net proceeds to the Company after deducting underwriting commissions and discounts and other offering expenses of $1.4 million and excluding the proceeds from the exercise of the warrants. Certain officers of the Company participated in the June 2020 Offering by ~~Astellas.~~purchasing an aggregate purchase price of $0.2 million of the Company's common stock and warrants. During the nine months ended September 30, 2021, 17,500 common

warrants associated with the June 2020 Offering were exercised at a weighted-average exercise price of $1.25 per share, resulting in aggregate proceeds of approximately $22 thousand.

The Company is using the net proceeds from the 2020 Offerings for research and development, including clinical trials, working capital, and general corporate purposes.

At Market Issuance Sales Agreements

In March 2021, the Company entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) and William Blair & Company, L.L.C. (“William Blair”) as the Company’s sales agents (the “Agents”). Pursuant to the terms of the 2021 ATM Agreement, the Company may sell from time to time through the Agents shares of its common stock having an aggregate offering price of up to $50.0 million. Such shares are issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-254037). Sales of the shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by the Company and the Agents. Under the terms of the 2021 ATM Agreement, the Company may also sell the shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to an Agent as principal would be pursuant to the terms of a separate placement notice between the Company and such Agent. During the three months ended September 30, ~~2017 and 2016,~~2021, the Company ~~recognized $3.1~~sold 486,352 shares of common stock under the 2021 ATM Agreement at a weighted-average price of $0.86 per share, for aggregate net proceeds of $0.4 million, ~~and $2.3 million, respectively, of revenue related~~after giving effect to ~~these contract services.~~a 3% commission to the Agents. During the nine months ended September 30, ~~2017 and 2016,~~2021, the Company ~~recognized $9.1 million and $9.8 million, respectively,~~sold 4,449,828 shares of ~~revenue related to these contract services. The Company also recognized $0.2 million and $1.2 million in license revenue~~common stock under the ~~Astellas agreements during~~2021 ATM Agreement at a weighted-average price of $0.89 per share, for aggregate net proceeds of $3.8 million, after giving effect to a 3% commission to the ~~nine months ended~~Agents. As of September 30, ~~2017 and 2016, respectively.~~

9.	~~STOCKHOLDERS’ EQUITY~~

~~On August 1, 2016,~~2021, approximately $46.0 million of shares of common stock were remaining, but had not yet been sold by the Company ~~entered into a stock purchase agreement with AnGes, Inc., or AnGes, an existing stockholder, to purchase 1,841,420 shares of~~under the ~~Company’s common stock in a private placement. The shares were sold at a price of $4.24 per share. Gross proceeds totaled approximately $7.8 million. The private placement closed on August 2, 2016.~~

The shares are subject to a two-year lock-up period in which they may not be sold and AnGes has agreed to not increase its ownership position beyond 19.9% and to refrain from taking certain other actions with respect to the Company’s stock, subject to certain conditions. AnGes is entitled to have a representative attend meetings of the Company’s Board of Directors in a non-voting capacity and may in the future be entitled to have a representative appointed to the Company’s Board of Directors, subject to certain conditions. AnGes has also agreed to vote its shares in accordance with the recommendations of the Company’s Board of Directors for so long as it continues to hold a specified percentage of the Company’s outstanding common stock. The Company also agreed under certain circumstances in the future to register the shares for resale by AnGes.

2021 ATM Agreement.

In ~~October 2016,~~April 2020, the Company entered into an ~~At-The-Market~~At Market Issuance Sales Agreement or(the “2020 ATM Agreement”) with Oppenheimer as the Company’s sales agent. Pursuant to the terms of the 2020 ATM Agreement, ~~with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.), or BP, under which~~ the Company may ~~issue and~~ sell upfrom time to ~~$10.0 million of~~time through Oppenheimer shares of its common stock having an aggregate offering price of up to $8.0 million. Such shares are issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-236353). Sales of the shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by the Company and Oppenheimer. Under the terms of the 2020 ATM Agreement, the Company may also sell the shares from time to ~~time.~~time to Oppenheimer as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to Oppenheimer as principal would be pursuant to the terms of a separate placement notice between the Company and Oppenheimer. During the three months ended September 30, ~~2017, the Company sold 320,983 shares~~2021, no sales of common stock under the 2020 ATM Agreement ~~and received gross proceeds of $824,759.~~occurred. During the nine months ended September 30, ~~2017,~~2021, the Company sold ~~450,883~~1,089,048 shares of common stock under the 2020 ATM Agreement at a weighted-average price of $1.55 per share, for aggregate net proceeds of approximately $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of September 30, 2021, approximately $2.6 million of shares of common stock were remaining, but had not yet been sold by the Company under the 2020 ATM Agreement.

Private Placement Offerings

In February 2020, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and the Company sold, (i) an aggregate of 950,000 shares of common stock (the “Common Shares”); (ii) a warrant to initially purchase an aggregate of up to 606,420 shares of common stock at an exercise price of $0.01 per share (the “Series A Warrant”); and (iii) a

warrant to initially purchase an aggregate of up to 1,556,420 shares of common stock at an exercise price of $1.16 per share (the “Series B Warrant,” and together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $28.0 million in the aggregate of shares of common stock. In order to retain maximum flexibility to issue and sell up to the maximum of $28.0 million of the Company’s common stock under the Purchase Agreement, the Company sought and, at its annual meeting on April 19, 2021, received, stockholder approval for the sale and issuance of common stock in connection with the Purchase Agreement under Nasdaq Listing Rule 5635(d). Sales of common stock by the Company will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on August 14, 2020 (the “Commencement Date”).

Following the Commencement Date, under the Purchase Agreement, on any business day selected by the Company, the Company may direct Lincoln Park to purchase up to 100,000 shares of common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 125,000 shares, provided that the closing sale price of the common stock is not below $3.00 on the purchase date; and (ii) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, the Company may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of common stock. During the three months ended September 30, 2021, the Company sold to Lincoln Park 500,000 shares under the ~~ATM~~Purchase Agreement ~~and received gross~~at a weighted-average price of $0.81 per share, for aggregate net proceeds of ~~$1,139,871.~~

~~10.~~

~~RELATED PARTY TRANSACTION~~

On April 4, 2017, the Company entered into a research collaboration agreement with AnGes. As of the date of the transaction, AnGes held 18.6% of the outstanding stock of the Company. Pursuant to the collaboration agreement, AnGes agreed to make a non-refundable payment to the Company of $750,000 and the Company agreed to conduct certain research activities related to a development program targeting chronic hepatitis B. In exchange for the payment, AnGes received an option to negotiate exclusive rights in Japan related to the program. The parties also agreed to share the costs of prosecuting and maintaining intellectual property rights arising from the research program after such costs reach a specified limit. The decision to sell, license or sublicense rights is a contingent event within the Company’s control. There are no guarantees for any outcomes of the research activities, no purchase obligations required by the Company and no debt or equity arrangements connected with the research activities. There are no other written or oral side agreements between the Company and AnGes that indicate that the funding of the research activities will be repaid. The Company is responsible for the conduct of the research activities. The upfront payment received was deferred and will be recognized as contract revenue as the related research costs are incurred. The deferred revenue is classified as a current liability.$0.4 million. During the nine months ended September 30, ~~2017~~2021, the Company ~~recognized $0.4~~sold to Lincoln Park 1,300,000 shares under the Purchase Agreement at a weighted-average price of $0.81 per share, for aggregate net proceeds of $1.0 million. As of September 30, 2021, approximately $26.9 million of ~~contract revenue related~~shares of common stock were remaining, but had not yet been sold by the Company under the Purchase Agreement.

The Company agreed with Lincoln Park that it will not enter into any “variable rate” transactions with any third party, subject to certain exceptions, for a period defined in the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty.

The Securities Purchase Agreement, the Purchase Agreement, and the Registration Rights Agreement contain customary representations, warranties, agreements, and conditions to completing future sale transactions, indemnification rights, and obligations of the parties.

Under the Company’s amended and restated certificate of incorporation, the Company’s board of directors has the authority to issue up to 5,000,000 shares of preferred stock with a par value of $0.01 per share, at its discretion, in one or more classes or series and to fix the powers, preferences and rights, and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, without further vote or action by the Company’s stockholders. As of September 30, 2021, the Company had no shares of preferred stock outstanding and had not designated the rights, preferences, or privileges of any class or series of preferred stock.

NOTE 7. STOCK-BASED COMPENSATION

Equity Incentive Plans

On April 20, 2020, the Company’s stockholders approved the 2020 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”), which replaced, with respect to new award grants, the Company’s 2009 Equity Incentive Plan, as amended and restated (the “2009 Plan”), and the Vical Equity Incentive Plan (the “Vical Plan”) (collectively, the “Prior Plans”) that were previously in effect. Following the approval of the Omnibus Plan on April 20, 2020, no additional grants will be made pursuant to the Prior Plans, but awards outstanding under those plans as of that date remain outstanding in accordance with their terms. On August 31, 2020 and April 19, 2021, the Company’s stockholders approved increases in the number of shares of common stock authorized for issuance under the Omnibus Plan by 4,500,000 and 4,000,000 shares, respectively, and as of September 30, 2021, 9,125,000 shares were authorized and 5,757,267 shares were subject to outstanding awards under the Omnibus Plan. As of September 30, 2021, 3,615,201 shares remained available for grant under the Omnibus Plan.

2009 Equity Incentive Plan

The 2009 Plan was replaced by the Omnibus Plan on April 20, 2020, and as a result, as of September 30, 2021, there were no remaining shares available for new grants under the 2009 Plan. However, as of September 30, 2021, 1,262,512 shares were subject to outstanding awards under the 2009 Plan, which awards remain outstanding in accordance with their terms.

Vical Equity Incentive Plan

In connection with the merger in 2019, the Company adopted the Vical Plan, which was replaced by the Omnibus Plan on April 20, 2020. As a result, as of September 30, 2021, there were no remaining shares available for new grants under the Vical Plan. However, as of September 30, 2021, 117,180 shares were subject to outstanding awards under the Vical Plan, which awards remain outstanding in accordance with their terms.

Employee Stock Purchase Plan

On April 19, 2021, the Company’s stockholders approved the Brickell Biotech, Inc. Employee Stock Purchase Plan (the “ESPP”), which had a first eligible purchase period commencing on July 1, 2021. The ESPP allows qualified employees to purchase shares of the Company’s common stock at a price per share equal to 85% of the lower of: (i) the closing price of the Company’s common stock on the first trading day of the applicable purchase period or (ii) the closing price of the Company’s common stock on the last trading day of the applicable purchase period. New six-month purchase periods begin each January 1 and July 1. As of September 30, 2021, the Company had 2,600,000 shares available for issuance under the ESPP.

Stock-Based Compensation Expense

Total stock-based compensation expense reported in the condensed consolidated statements of operations was allocated as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	161	$	98	$	358	$	270
General and administrative	616		455		1,309		1,139
Total stock-based compensation expense	$	777	$	553	$	1,667	$	1,409

NOTE 8. SUBSEQUENT EVENTS

Public Offering of Common Stock

In October 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with William Blair, as representative of the several underwriters named in Schedule 1 thereto, pursuant to which the Company issued and sold, in an underwritten public offering (the “October 2021 Offering”), 26,316,000 shares (the “Base Shares”) of the Company’s common stock. In addition, the underwriters have a 30-day option to purchase 3,947,400 additional shares of common stock on the same terms (the “Option Shares,” and together with the Base Shares, the “Shares”). The offering price to the public in the October 2021 Offering was $0.38 per Share, and the underwriters agreed to purchase the Shares from the Company pursuant to the Underwriting Agreement at a price of $0.3534 per Share, representing an underwriting discount of seven percent (7.0%). The October 2021 Offering resulted in net proceeds of approximately $8.9 million, after deducting the underwriting discount and offering expenses payable by the Company. The Company anticipates using the net proceeds from the October 2021 Offering for research and development, including clinical trials, working capital, business development, and general corporate purposes.

The Underwriting Agreement also contains representations, warranties, indemnification, and other provisions customary for transactions of this ~~collaboration agreement.~~

nature. Pursuant to the Underwriting Agreement, the Company and its directors and officers agreed, for a period of 90 days, subject to certain exceptions, not to offer, sell, pledge, or otherwise dispose of the Company’s common stock and other of the Company’s securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock, without the prior written consent of William Blair.

I~~TEM 2.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a clinical-stage pharmaceutical company striving to transform patient lives by developing innovative and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding our business, our financial position, the research and development of biopharmaceutical products based on our patented DNA delivery and other technologies, the funding of our research and development efforts, and other statements describing our goals, expectations, intentions or beliefs. Such statements reflect our current views and assumptions and are subject to risks and uncertainties, particularly those inherent in the process of developing and commercializing biopharmaceutical products based on our patented DNA delivery and other technologies. Actual results could differ materially from those projected herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, and in our subsequent filings with the SEC, and those identified in Part II, Item 1A of this Report under the caption “Risk Factors”. As a result, you are cautioned not to rely on these forward-looking statements. We disclaim any duty to update any forward-looking statement to reflect events or circumstances that occur after the date on which such statement is made.

~~Overview~~

We research and develop biopharmaceutical products, including those based on our patented DNA delivery technologies, for the prevention and treatment of serious or life-threatening diseases. We currently have three active product development programs, independent or partnered, in the clinical testing stage in the area of infectious disease comprised of:

An ongoing Phase 3 trial of ASP0113 for prevention of cytomegalovirus, or CMV, reactivation in hematopoietic stem cell transplant, or HCT, recipients in collaboration with Astellas Pharma Inc., or Astellas. Enrollment of the trial was completed in September 2016 with a total of 515 subjects. Dosing in the trial was completed in April of 2017 and the one-year follow-up period was completed in September 2017. The primary endpoint of the trial is a composite of overall mortality and CMV end organ disease which will be assessed one year after transplantation. Astellas expects top-line data to be available in the first quarter of 2018. We and Astellas continue to make progress towards a potential Biologics License Application, or BLA, filing with the U.S. Food and Drug Administration, or FDA. Astellas has indicated that, if approved, it would seek to commercialize ASP0113 in North America, Europe, and Asia.

•

An ongoing Phase 2 trial of VCL-HB01, our therapeutic DNA vaccine for reduction of genital herpes lesion recurrences caused by herpes simplex virus type 2, or HSV-2, infection. Recruitment into the Phase 2 trial of VCL-HB01 has been completed with a total of 261 subjects enrolled at 15 U.S. clinical sites. The four-dose vaccination series was completed in July 2017, and all active subjects are currently being monitored for lesion recurrences during a 12-month follow-up period. VCL-HB01 is formulated with Vaxfectin^® and encodes two full-length HSV-2 antigens gD and UL46, designed to reduce recurrences in patients with symptomatic genital HSV-2 infection. Healthy adult subjects, 18 to 50 years of age, have been randomized 2:1 to receive either vaccine or placebo to evaluate in a double blinded fashion the efficacy and safety of the vaccine. The primary endpoint of the study is annualized lesion recurrence rate which is a clinically meaningful endpoint for both patients and treating physicians as it provides important information on the number of recurrences over time in this chronic disease setting. We expect to deliver top-line data during the second quarter of 2018.

A completed first-in-human Phase 1 trial of our novel antifungal VL-2397. The randomized, double-blind, placebo-controlled trial evaluated safety, tolerability and pharmacokinetics of single and multiple ascending doses of intravenous VL-2397 in 96 healthy volunteers. Results pointed to a favorable safety and pharmacokinetic profile for VL-2397. The full data set was presented as one of four presentations at the ASM Microbe 2017 conference in June. The FDA has advised us that VL‑2397 would be eligible for a Limited Use Indication, or LUI, approval in invasive aspergillosis patients for whom alternative regimens are not available, assuming a successful outcome of a single Phase 2 trial carried out in accordance with a protocol and statistical analysis plan consistent with the FDA’s advice. The final determination of whether VL-2397 is approvable will be made by the FDA after review of all relevant data. We plan to initiate a Phase 2 trialdifferentiated prescription therapeutics for the treatment of ~~invasive aspergillosis~~dermatologic, autoimmune, and other debilitating diseases. Our pipeline combines a potential best-in-class, late-stage program for the treatment of hyperhidrosis with a novel, cutting-edge platform and development-stage candidates with broad potential in ~~acute leukemia~~autoimmune and neuroinflammatory disorders. Our executive management team and board of directors bring extensive experience in product development and global commercialization, having served in leadership roles at large global pharmaceutical companies and biotechs that have developed and/or launched successful products, including several that were first-in-class and/or achieved iconic status, such as Cialis®, Taltz®, Gemzar®, Prozac®, Cymbalta®, and Juvederm®. Our strategy is to leverage this experience to in-license, acquire, develop, and commercialize innovative pharmaceutical products that we believe can meaningfully benefit patients who are suffering from chronic, debilitating diseases that are underserved by available therapies.

Hyperhidrosis Program

Sofpironium Bromide Overview

Sofpironium bromide is a new chemical entity that belongs to a class of medications called anticholinergics. Anticholinergics block the action of acetylcholine, a chemical that transmits signals within the nervous system that are responsible for a range of bodily functions, including activation of the sweat glands. Sofpironium bromide was retrometabolically designed. Retrometabolic drugs are designed to exert their action locally and ~~allogeneic hematopoietic cell transplant recipients~~are potentially rapidly metabolized into a less active form once absorbed into the blood. We have developed sofpironium bromide gel, 15% as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary hyperhidrosis, also known as excessive underarm sweating. Sofpironium bromide gel, 15% has completed a U.S. Phase 3 pivotal clinical program (also referred to as our “Cardigan Studies”) for the treatment of primary axillary hyperhidrosis, and sofpironium bromide gel, 5% is approved in Japan for the same indication under the brand name ECCLOCK®.

Hyperhidrosis is a debilitating, life-altering medical condition of sweating beyond what is physiologically required for thermoregulation of the body. Primary axillary hyperhidrosis is believed to be caused by an overactive cholinergic response of the sweat glands and affects an estimated 15.3 million, or 4.8%, of the U.S. population, and 12.76% of the population in Japan. According to a 2016 update on the prevalence and severity of hyperhidrosis in the U.S., axillary hyperhidrosis, which is the targeted first potential indication for sofpironium bromide, is the most common occurrence of hyperhidrosis, affecting approximately 65% of patients, or an estimated 10 million individuals, in the U.S.

U.S. Phase 3 Pivotal Cardigan Studies

Our U.S. Phase 3 pivotal clinical program for sofpironium bromide gel, 15% was comprised of two pivotal clinical studies. The Cardigan I and Cardigan II studies enrolled 350 subjects and 351 subjects, respectively, who were nine years of age and older with primary axillary hyperhidrosis. The Cardigan Studies were multicenter, randomized, double-blinded, vehicle (placebo)-controlled, evaluating the efficacy and safety of topically applied sofpironium bromide gel, 15%. Subjects applied sofpironium bromide gel, 15% or placebo to their underarms once daily at bedtime for six consecutive weeks, with a two-week post-treatment follow-up. The co-primary efficacy endpoints of the Cardigan Studies included the proportion of subjects achieving at least a 2-pointimprovement on the Hyperhidrosis Disease Severity Measure-Axillary© (HSDM-Ax) scale, a proprietary and validated patient-reported outcome measure, and change in gravimetric sweat production (“GSP”), each from baseline to end of treatment (“EOT”).

In October 2021, we reported positive topline results from both Cardigan Studies, which achieved statistical significance on all primary and secondary efficacy endpoints. In the Cardigan I and II Studies, sofpironium bromide gel, 15% was generally well-tolerated. We expect that the results from the Cardigan Studies, along with all previously completed clinical studies with sofpironium bromide, will form the basis of a prospective U.S. new drug application (“NDA”) for sofpironium bromide gel, 15%, which we anticipate submitting to the FDA in mid-2022.

Cardigan Studies Efficacy Results*

All primary and secondary efficacy endpoints demonstrated statistically significant differences between sofpironium bromide gel, 15% (SB) and vehicle (or placebo), as follows:

Cardigan I

Cardigan II

Co-Primary Efficacy Endpoints

SB
(n=173)

Vehicle
(n=177)

p-value

SB
(n=180)

Vehicle
(n=171)

p-value

•Proportion of subjects achieving at least a 2-point improvement in the HDSM-Ax score from baseline to EOT

49.3%

29.4%

p<0.001

63.9%

47.0%

p=0.003

•Change in GSP3 from baseline to EOT (in mg)

-129.5

-99.3

p=0.002

-145.9

-131.7

p=0.030


	Cardigan I			Cardigan II
Secondary Efficacy Endpoints	SB (n=173)	Vehicle (n=177)	p-value	SB (n=180)	Vehicle (n=171)	p-value
•Proportion of subjects achieving at least a 1-point improvement in the HDSM-Ax score from baseline to EOT	82.8%	69.5%	p=0.005	89.9%	80.8%	p=0.020
•Proportion of subjects achieving at least a 2‑point improvement in the HDSM-Ax score and at least a 70% reduction in GSP from baseline to EOT	32.1%	10.2%	p<0.0001	35.5%	21.4%	p=0.006
•Proportion of subjects achieving at least a 1‑point improvement in the HDSM-Ax score and at least a 50% reduction in GSP from baseline to EOT	54.3%	33.3%	p<0.001	68.7%	54.6%	p=0.014

* Intent-to-Treat analysis population

Cardigan Studies Safety Results

In the Cardigan Studies, sofpironium bromide gel, 15% was generally well-tolerated. The Treatment-Emergent Adverse Events (“TEAEs”) were mild or moderate in severity and transient in nature. Overall, 89% of patients who were randomized to sofpironium gel, 15% in the studies completed the full six weeks of treatment. Common adverse events (incidence ≥2%) observed in the sofpironium bromide gel, 15% treatment group in the Cardigan I and II studies were dry mouth (11.6%, 17.2%), blurred vision (5.2%, 11.7%), application site pain (6.4%, 10.0%), application site erythema (5.2%, 7.8%), mydriasis (7.5%, 5.0%), application site pruritis (6.4%, 2.2%), application site dermatitis (5.8%, 5.6%), urinary retention (1.2%, 3.3%), application site irritation (1.2%, 3.3%), dry eye (0.6%, 3.3%), headache (1.2%, 2.2%), constipation (0.6%, 2.2%) and urinary hesitation (0.6%, 2.2%), respectively. Five (2.9%) and nine (5.0%) subjects who received sofpironium bromide gel, 15%, discontinued the Cardigan I and II studies, respectively, due to a TEAE. No treatment-related serious adverse events were reported.

U.S. Phase 3 Open-Label Long-Term Safety Study

In July 2020, we completed our U.S. Phase 3 open-label long-term safety study (“LTSS”) evaluating the safety and efficacy of sofpironium bromide gel, 5% and 15% for 48 weeks of treatment in 300 patients aged nine years or older with primary axillary hyperhidrosis. Patients were randomized to receive either sofpironium bromide gel, 5% or 15% in a 1:2 ratio. Subjects applied the assigned investigational product once daily at bedtime to

both axillae for 48 weeks, followed by a four-week post-treatment follow-up. A total of 190 patients completed the full study duration of 52 weeks.

Overall, the safety, tolerability, and efficacy results for sofpironium bromide gel, 5% and 15% in the LTSS were consistent with prior clinical experience and no unexpected safety findings were observed. There were no clinically significant changes in laboratory parameters or vital signs over 48 weeks of treatment.

Collaboration with Kaken in Asia

Under our License, Development, and Commercialization Agreement with Kaken, dated March 31, 2015 (as amended, the “Kaken Agreement”), we and Kaken have completed multiple clinical trials of sofpironium bromide gel involving over 1,690 subjects in the U.S. and Japan. These trials evaluated the potential safety, tolerability, pharmacokinetics, and efficacy of sofpironium bromide gel in adult and pediatric patients with primary axillary hyperhidrosis and healthy adult subjects.

In September 2020, Kaken received regulatory approval in Japan to manufacture and market sofpironium bromide gel, 5% under the brand name ECCLOCK for the once-daily treatment of primary axillary hyperhidrosis. Japan is the first country to approve sofpironium bromide, which also marks the first approval of a topical prescription product for the treatment of primary axillary hyperhidrosis in Japan. This approval was based on the results of Kaken’s Japanese pivotal Phase 3 registration study of sofpironium bromide gel, 5% in 281 patients with primary axillary hyperhidrosis.

In November 2020, Kaken launched commercial sales of ECCLOCK in Japan. This marked the first commercialization of sofpironium bromide for any indication worldwide. Under the Kaken Agreement, we are entitled to receive commercial milestone payments, as well as tiered royalties based on a percentage of net sales of ECCLOCK in Japan. As a result, beginning in the fourth quarter of ~~2017.~~ 2020, we have recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan. To help ensure patient safety, Japanese law generally restricts new pharmaceutical products to 14-day prescriptions for one year from the first day of the month that government-approved pricing for the product to be launched is listed. This means that in the first year of launch, patients must return to see their prescribing physician in person to obtain a refill lasting another two weeks in duration. In addition to Japan, Kaken has rights to develop and commercialize sofpironium bromide in South Korea, China, and certain other Asian countries, and we are entitled to receive royalties based on a percentage of Kaken’s net sales in these countries.

In June 2021, Kaken initiated a Japanese Phase 1 clinical study to assess the pharmacokinetics, safety, and efficacy of sofpironium bromide gel in patients with primary palmoplantar hyperhidrosis, or excessive sweating from the palms and soles, for which there are currently no approved topical prescription treatment options in Japan (or anywhere else in the world).

Together with Kaken, we were granted by the Japanese Patent Office a composition of matter patent with claims directed to the novel polymorphic, or crystalline, forms of sofpironium bromide that are being commercialized by Kaken in Japan and would be by us in the U.S. subject to our own ongoing development efforts. This patent is expected to provide additional protection for these newly developed and distinct forms in certain countries around the world, including Japan, potentially through at least 2040.

DYRK1A Inhibitor Platform

Development of DYRK1A Inhibitors

On August 27, 2021, we entered into a License and Development Agreement (the “Voronoi License Agreement”) with Voronoi Inc. (“Voronoi”), pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize novel therapeutics generated from a proprietary DYRK1A inhibitor

platform. These novel DYRK1A inhibitors aim to restore immune balance in patients whose immune system has become dysregulated. Based on the promising preclinical efficacy data generated to date on these novel DYRK1A inhibitor programs, we believe this platform has the potential to offer first-in-class, new and potent therapies across a wide array of autoimmune and inflammatory diseases.

The ~~FDA~~initial lead program that we expect to advance is BBI-02, a Phase 1-ready, highly selective, and orally bioavailable DYRK1A inhibitor that has ~~granted~~demonstrated promising results in various preclinical models, including atopic dermatitis and rheumatoid arthritis. In these models, BBI-02 showed encouraging decreases in disease severity and reduction of pro-inflammatory cytokines compared to current standard-of-care agents, such as Janus kinase (JAK) inhibitors and anti-tumor necrosis factor (TNF) biologics. Notably, many current therapies for autoimmune disorders are broadly immunosuppressant, which may lead to severe side effects, such as increased infection risk. In contrast, preclinical data have shown BBI-02 to drive regulatory T-cell differentiation while dampening pro-inflammatory TH17 cells and MyD88/IRAK4-related signaling pathways. Regulatory T cells serve to maintain tolerance and keep the autoreactive, pro-inflammatory T cells in check, thus inhibiting autoimmune disease and limiting chronic inflammation. The myeloid differentiation primary response 88 (“MyD88”) protein is normally spliced into a long form and a short form. DYRK1A inhibition shifts the balance to produce more MyD88 short form, which leads to IRAK4, a protein kinase involved in signaling immune responses from toll-like receptors, not being phosphorylated and so appears to deactivate downstream cascades of certain pro-inflammatory cytokines. Based on current understanding, this inhibition of the release of excess cytokines can be achieved by re-establishing the role of MyD88 short form as a negative regulator of this pathway. Unlike many existing therapies, as well as those currently being investigated, BBI-02 may have the ability to target both the adaptive and innate immune imbalance simultaneously, potentially resulting in, or substantially achieving, restoration of immune homeostasis that, if proven, would represent a paradigm shift in the treatment of certain autoimmune and inflammatory diseases.

We intend to progress BBI-02 into a Phase 1 clinical study in Canada in the first half of 2022, with topline results expected by the end of 2022. In addition, throughout 2022 we expect to conduct formulation development activities for BBI-03, a topically applied preclinical DYRK1A inhibitor, and to select and initiate development of a lead next-generation candidate from the platform for the potential treatment of neuroinflammatory and/or autoimmune diseases.

BBI-02 and BBI-03 are covered by a composition of matter patent issued in the U.S., Japan, China, and other key countries through at least 2038, subject to patent term extensions that may be available depending on how these early-stage assets are developed, as well as pending applications for this and other patents elsewhere.

Significant Financing and Licensing Arrangements

Public Offerings of Common Stock and Warrants

In October 2021, we completed the sale of 26,316,000 shares of our common stock (the “October 2021 Offering”). The October 2021 Offering resulted in net proceeds of approximately $8.9 million, after deducting the underwriting discount and offering expenses payable by us. In addition, the underwriters have a 30-day option to purchase 3,947,400 additional shares of common stock on the same terms. We anticipate using the net proceeds from the October 2021 Offering for research and development, including clinical trials, working capital, business development, and general corporate purposes. Pursuant to the October 2021 Offering, we and our directors and officers agreed, for a period of 90 days, subject to certain exceptions, not to offer, sell, pledge, or otherwise dispose of our common stock and other of our securities that we or they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock, without the prior written consent of William Blair & Company, L.L.C. (“William Blair”).

In July 2021, we completed the sale of 12,983,871 shares of our common stock (the “July 2021 Offering”). The July 2021 Offering resulted in net proceeds of approximately $7.3 million, after deducting underwriting discounts and commissions and offering expenses. We are using the net proceeds from the July 2021 Offering for research and development, including clinical trials, working capital, and general corporate purposes.

In October 2020, we completed the sale of 19,003,510 shares of our common stock, and, to certain investors, pre-funded warrants to purchase 1,829,812 shares of our common stock, and accompanying common stock warrants to purchase up to an aggregate of 20,833,322 shares of our common stock (the “October 2020 Offering”). The October 2020 Offering resulted in net proceeds of approximately $13.7 million to us ~~qualified infectious disease~~after deducting underwriting commissions and discounts and other offering expenses of $1.3 million and excluding the proceeds from the exercise of the warrants. During the nine months ended September 30, 2021, 12,427,387 common warrants associated with the October 2020 Offering were exercised at a weighted-average exercise price of $0.72 per share, resulting in aggregate proceeds of approximately $8.9 million.

In June 2020, we completed the sale of 14,790,133 shares of our common stock, and, to certain investors, pre-funded warrants to purchase 2,709,867 shares of our common stock, and accompanying common warrants to purchase up to an aggregate of 17,500,000 shares of our common stock (the “June 2020 Offering”) (and together with the October 2020 Offering, the “2020 Offerings”). The June 2020 Offering resulted in approximately $18.7 million of net proceeds after deducting underwriting commissions and discounts and other offering expenses of $1.4 million and excluding the proceeds from the exercise of the warrants. During the nine months ended September 30, 2021, 17,500 common warrants associated with the June 2020 Offering were exercised at a weighted-average exercise price of $1.25 per share, resulting in aggregate proceeds of approximately $22 thousand.

We are using the proceeds from the 2020 Offerings for research and development, including clinical trials, working capital, and general corporate purposes. For additional information regarding the 2020 Offerings, see Note 6. “Capital Stock” of the notes to our condensed consolidated financial statements included in this Quarterly Report.

At Market Issuance Sales Agreements

In March 2021, we entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) and William Blair as our sales agents (the “Agents”). Pursuant to the terms of the 2021 ATM Agreement, we may sell from time to time through the Agents shares of our common stock having an aggregate offering price of up to $50.0 million. Such shares are issued pursuant to our shelf registration statement on Form S-3 (Registration No. 333-254037). Sales of shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by us and the Agents. Under the terms of the 2021 ATM Agreement, we may also sell the shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to an Agent as principal would be pursuant to the terms of a separate placement notice between us and such Agent. During the nine months ended September 30, 2021, we sold 4,449,828 shares under the 2021 ATM Agreement at a weighted-average price of $0.89 per share, for aggregate net proceeds of $3.8 million, after giving effect to a 3% commission to the Agents. As of September 30, 2021, approximately $46.0 million of shares of common stock were remaining, but had not yet been sold under the 2021 ATM Agreement.

In April 2020, we entered into an At Market Issuance Sales Agreement (the “2020 ATM Agreement” and, together with the 2021 ATM Agreement, the “ATM Agreements”) with Oppenheimer as our sales agent. Pursuant to the terms of the 2020 ATM Agreement, we may sell from time to time through Oppenheimer shares of our common stock having an aggregate offering price of up to $8.0 million. Such shares are issued pursuant to our shelf registration statement on Form S-3 (Registration No. 333-236353). Sales of the shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by us and Oppenheimer. Under the terms of the 2020 ATM Agreement, we may also sell the shares from time

to time to Oppenheimer as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to Oppenheimer as principal would be pursuant to the terms of a separate placement notice between us and Oppenheimer. During the nine months ended September 30, 2021, we sold 1,089,048 shares under the 2020 ATM Agreement at a weighted-average price of $1.55 per share, for aggregate net proceeds of approximately $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of September 30, 2021, approximately $2.6 million of shares of common stock were remaining, but had not yet been sold under the 2020 ATM Agreement.

Private Placement Offerings

In February 2020, we and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and we sold, (i) an aggregate of 950,000 shares of common stock (the “Common Shares”), (ii) a warrant to initially purchase an aggregate of up to 606,420 shares of common stock at an exercise price of $0.01 per share (the “Series A Warrant”), and (iii) a warrant to initially purchase an aggregate of up to 1,556,420 shares of common stock at an exercise price of $1.16 per share (the “Series B Warrant” and, together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.

Under the terms and subject to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $28.0 million in the aggregate of shares of our common stock. In order to retain maximum flexibility to issue and sell up to the maximum of $28.0 million of our common stock under the Purchase Agreement, we sought and, at our annual meeting on April 19, 2021, received, stockholder approval for the sale and issuance of common stock in connection with the Purchase Agreement under Nasdaq Listing Rule 5635(d). Sales of common stock by us will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing on August 14, 2020 (the “Commencement Date”).

Following the Commencement Date, under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 100,000 shares of our common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 125,000 shares, provided that the closing sale price of the common stock is not below $3.00 on the purchase date; and (ii) the Regular Purchase may be increased to up to 150,000 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, we may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of our common stock. During the nine months ended September 30, 2021, we sold to Lincoln Park 1,300,000 shares under the Purchase Agreement at a weighted-average price of $0.81 per share, for aggregate net proceeds of $1.0 million. As of September 30, 2021, approximately $26.9 million of shares of common stock were remaining, but had not yet been sold under the Purchase Agreement.

We agreed with Lincoln Park that we will not enter into any “variable rate” transactions with any third party, subject to certain exceptions, for a period defined in the Purchase Agreement. We have the right to terminate the Purchase Agreement at any time, at no cost or penalty.

License and Development Agreement with Voronoi

On August 27, 2021, we entered into the Voronoi License Agreement with Voronoi, pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize novel therapeutics generated from a proprietary DYRK1A inhibitor platform. In accordance with the terms of the Voronoi License Agreement, in exchange for the license rights, we made a one-time payment of $2.5 million in cash and issued $2.0 million, or 2,816,901 shares, of our common stock to Voronoi. As a result, we recorded $4.8 million in research and development expenses during the three and nine months ended September 30, 2021.

With respect to the first-generation compounds arising from the DYRK1A inhibitor platform, the Voronoi License Agreement provides that we will make payments to Voronoi of up to $211.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. With respect to the second-generation compounds arising from the DYRK1A inhibitor platform, we will make payments to Voronoi of up to $107.5 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Voronoi License Agreement provides that we will pay Voronoi tiered royalty payments ranging from low single digits up to 10% of net sales of products arising from the DYRK1A inhibitor platform. All of the contingent payments and royalties are payable in cash except for $1.0 million of the development and regulatory milestone payments, which amount is payable in shares of our common stock. Under the terms of the Voronoi License Agreement, we will be responsible for, and bear the future costs of, worldwide development and commercialization of all the licensed compounds.

Amended and Restated License Agreement with Bodor

In February 2020, we, together with Brickell Subsidiary and Bodor Laboratories, Inc. and Dr. Nicholas S. Bodor (collectively, “Bodor”) entered into an amended and restated license agreement (the “Amended and Restated License Agreement”), which supersedes the License Agreement, dated December 15, 2012, entered into between Brickell Subsidiary and Bodor, as amended by Amendment No. 1 to License Agreement, effective as of October 21, 2013, and Amendment No. 2 to License Agreement, effective as of March 31, 2015.

The Amended and Restated License Agreement retains with us a worldwide, exclusive license to develop, manufacture, market, sell and sublicense products containing the proprietary compound sofpironium bromide based upon the patents referenced in the Amended and Restated License Agreement for a defined field of use. As of September 30, 2021, under the original License Agreement and the Amended and Restated License Agreement, we had remaining obligations to pay Bodor (i) a royalty on sales of product outside Kaken’s territory, including a low single-digit royalty on sales of certain product not covered by the patent estate licensed from Bodor; (ii) approximately 50 to 55% of all royalties we receive from Kaken for sales of product within its territory; (iii) a percentage of non-royalty sublicensing income we receive from Kaken or ~~QIDP, Orphan Drug~~other sublicensees; and ~~Fast Track designations~~(iv) up to an aggregate of $0.8 million (plus an additional $0.1 million for approvals of additional products) in cash payments and $1.0 million of shares of our common stock upon the achievement of certain regulatory milestones.

Under the terms of the Amended and Restated License Agreement, we made a $0.5 million milestone payment to Bodor following the closing of a public offering in June 2020 and accrued an additional $1.0 million related to our plan to initiate our U.S. Phase 3 pivotal program in the fourth quarter of 2020. As a result, we recorded $1.5 million as research and development expenses in the condensed consolidated statements of operations during the nine months ended September 30, 2020. No similar or associated research and development expense was incurred in the three or nine months ended September 30, 2021, but we paid Bodor the applicable amount with respect to ~~VL-2397~~the royalties we received from Kaken for ~~the treatment~~sales of ~~invasive aspergillosis.~~

ECCLOCK in Japan during those periods.

Financial Overview

~~Product Development~~

~~We, together with~~

Our operations to date have been limited to business planning, raising capital, developing our ~~licensees~~pipeline assets (in particular sofpironium bromide), identifying and ~~collaborators, are developing a number of DNA-based vaccines~~in-licensing product candidates, conducting clinical trials, and other ~~therapeutics for the prevention or treatment of infectious diseases. The table below summarizes our independent programs~~research and ~~corporate and government collaborations.~~

development activities.

~~Product/Concept~~	~~Intended Use~~	~~Development Status~~¹	~~Lead Developer~~
~~Independent Programs~~
~~VCL-HB01 therapeutic vaccine for HSV-2~~	~~Reduce lesion recurrence~~	~~Phase 2~~	~~Vical~~
~~VL-2397 antifungal~~	~~Treatment of invasive fungal infections~~	~~Phase 1 complete~~	~~Vical~~
~~CyMVectin™ prophylactic~~ ~~vaccine for CMV~~	~~Prevent fetal transmission of CMV during~~ ~~pregnancy~~	~~Preclinical~~	~~Vical~~
~~Corporate Collaborations~~
~~ASP0113 therapeutic vaccine~~ ~~for CMV~~	~~Protect against reactivation of infection after HCT~~	~~Phase 3~~	~~Astellas~~
~~ONCEPT~~^® ~~therapeutic cancer~~ ~~vaccine encoding human~~ ~~tyrosinase~~	~~Adjunct treatment to increase survival~~ ~~time of dogs with oral melanoma~~	~~Marketed in the~~ ~~United States~~	~~Merial~~

“Preclinical” (or “nonclinical”) indicates that a specific product candidate in a nonclinical setting has shown functional activity that is relevant to a targeted medical need, and is advancing toward initial human clinical testing. “Phase 1” clinical trials are typically conducted with a small number of patients or healthy subjects to evaluate safety, determine a safe dosage range, identify side effects, and, if possible, gain early evidence of effectiveness. “Phase 2” clinical trials are conducted with a larger group of patients to evaluate effectiveness of an investigational product for a defined patient population, and to determine common short-term side effects and risks associated with the product candidate. “Phase 3” clinical trials involve large scale, multi-center, comparative trials that are conducted with patients afflicted with a target disease to evaluate the overall benefit-risk relationship of the investigational product and to provide an adequate basis for product labeling.

~~Research, Development and Manufacturing Programs~~

To date, we have ~~not~~financed operations primarily through funds received ~~revenues~~ from the sale of common stock and warrants, convertible preferred stock, debt and convertible notes, payments received under license and collaboration agreements, and cash and investments acquired in connection with the merger pursuant to which Private Brickell became a wholly-owned subsidiary of Brickell Biotech, Inc. (formerly Vical Incorporated) in 2019 (the “Merger”). Other than through our ~~independently developed pharmaceutical~~sublicense of rights to sofpironium bromide to Kaken in Japan, we do not have any products approved for sale and have ~~received minimal revenues from the sale~~not generated any product sales. Since inception, we have incurred operating losses. We recorded a net loss of ~~commercially marketed products by our licensees. We earn revenues by performing services under research~~$33.4 million and ~~development and manufacturing contracts and from licensing access to our proprietary technologies. Revenues by source were as follows (in millions):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

Source

2017

2016

2017

2016

Astellas supply and services contract

$
3.1

$
2.3

$
9.1

$
9.8

Astellas license

—

0.3

0.2

1.2

Other contracts, licenses and royalties

0.2

—

0.6

0.4

Total revenues

$
3.3

$
2.6

$
9.9

$
11.4

~~Research, development, manufacturing and production costs by major program, as well as other costs, were as follows (in millions):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

Program

2017

2016

2017

2016

CMV

$
2.6

$
1.5

$
7.1

$
7.2

HSV-2

0.8

1.2

4.6

2.4

VL-2397

1.1

0.9

1.9

2.6

Other research, development, manufacturing and production

0.3

—

1.0

0.2

Total research, development, manufacturing and production

$
4.8

$
3.6

$
14.6

$
12.4

~~Our current development focus includes our novel DNA vaccines for CMV and HSV-2, and our antifungal~~$13.5 million for the ~~treatment of invasive fungal infections.~~

~~These programs will require significant additional funds to advance through development to commercialization. From inception through~~nine months ended September 30, ~~2017,~~2021 and 2020, respectively. As of September 30, 2021, we had ~~spent approximately $25.2 million on our HSV-2 program, $124.1 million on our CMV programs and $8.7 million on our VL-2397 program.~~

We have other product candidates in the research stage. It can take many years to develop product candidates from the initial decision to screen product candidates, perform preclinical and safety studies, and perform clinical trials leading up to possible approvalan accumulated deficit of a product by the FDA or comparable foreign agencies. The outcome of the research is unknown until each stage of the testing is completed, up through and including registration-enabling clinical trials. Accordingly, we are unable to predict which potential product candidates we may proceed with, the time and cost to complete development, and ultimately whether we will have a product approved by the FDA or comparable foreign agencies.

~~As a result, we~~$139.3 million. We expect to ~~incur substantial~~continue incurring significant expenses and operating losses for at least the next several years ~~due primarily~~as we:

• prepare and submit an NDA for sofpironium bromide gel, 15% to the ~~advancement~~FDA;

• conduct certain pre-commercialization activities related to sofpironium bromide gel, 15%;

• initiate a Phase 1 clinical trial for BBI-02;

• advance research and development-related activities to develop and expand our product pipeline;

• maintain, expand, and protect our intellectual property portfolio for all our assets;

• hire additional staff, including clinical, regulatory, quality, alliance management, scientific, and management personnel; and

• add operational and finance personnel to support product and business development efforts and to support operating as a public company.

We do not expect to generate significant revenue unless and until we successfully complete development of, obtain marketing approval for, and commercialize product candidates, either alone or in collaboration with third parties. We expect these activities may take several years and our success in these efforts is subject to significant uncertainty. We expect we will need to raise substantial additional capital prior to the regulatory approval and commercialization of any of our product candidates. Until such time, if ever, that we generate substantial product revenues, we expect to finance our operations through public or private equity or debt financings, collaborations or licenses, or other available financing transactions. However, we may be unable to raise additional funds through these or other means when needed.

Key Components of Operations

Revenue

Revenue generally consists of revenue recognized under our strategic collaboration agreements for the development and commercialization of our product candidates. Our strategic collaboration agreements generally outline overall development plans and include payments we receive at signing, payments for the achievement of certain milestones, and royalties. For these activities and payments, we utilize judgment to assess the nature of the performance obligations to determine whether the performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. Prior to 2020, we had not recognized any royalty revenue from any collaboration arrangement. Beginning during the three months ended December 31, 2020, and continuing in the nine months ended September 30, 2021, pursuant to the Kaken Agreement, we recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan, and we expect to continue to recognize such royalties going forward. Other than the revenue we may generate in connection with this agreement, we do not expect to generate any revenue

from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaboration agreements with third parties.

Research and Development Expenses

Research and development expenses principally consist of payments to third parties known as CROs and upfront in-licensing fees of development-stage assets. CROs help plan, organize, and conduct clinical and nonclinical studies under our direction. Personnel costs, including wages, benefits, and share-based compensation, related to our research and development staff in support of product development activities are also included, as well as costs incurred for supplies, preclinical studies and toxicology tests, consultants, and facility and related overhead costs.

Below is a summary of our research and development ~~programs,~~expenses related to sofpironium bromide and our DYRK1A inhibitor platform by categories of costs for the ~~cost~~periods presented. To date, the expenses associated with our DYRK1A inhibitor platform primarily relate to upfront in-licensing fees. The other expenses category includes travel, lab and office supplies, clinical trial management software, license fees, and other miscellaneous expenses. We expect our research and development expenses related to sofpironium bromide to decrease in future periods given the end of ~~preclinical studies and~~our Phase 3 clinical trials ~~spending~~ for ~~outside services, costs related~~sofpironium bromide. In the upcoming quarters, we expect to ~~maintaining our intellectual property portfolio, costs due to manufacturing activities, costs~~incur research and development expense related to our ~~facilities,~~DYRK1A inhibitor platform and ~~possible advancement toward commercialization activities.~~

programs as we initiate our Phase 1 clinical trial for BBI-02 and begin other research and development-related activities, though at levels consistent with expenditures for development of early-stage assets.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(in thousands)




Direct program expenses related to
Sofpironium bromide	$	4,185	$	409	$	17,735	$	4,140
DYRK1A inhibitor platform	4,827		—		4,827		—

Personnel and other expenses
Salaries, benefits, and stock-based compensation	637		758		1,573		2,233
Regulatory and compliance	513		79		884		137
Other expenses	60		35		93		147

Total research and development expenses	$	10,222	$	1,281	$	25,112	$	6,657

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, including wages, benefits, and share-based compensation, related to our executive, sales, marketing, finance, and human resources personnel, as well as professional fees, including legal, accounting, and sublicensing fees.

Other Income, Net

Other income, net consists primarily of a gain on extinguishment of debt recognized in June 2021 as a result of the forgiveness of an outstanding loan that we received under the Paycheck Protection Program (the “PPP Loan”). Other income, net also consists of interest income, interest expense, and various income or expense

items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds. Interest expense is comprised of interest incurred related to a note payable. Our interest income varies each reporting period depending on our average cash balances during the period and market interest rates. We expect interest income to fluctuate in the future with changes in average cash balances and market interest rates.

Critical Accounting Policies and Estimates

~~The preparation and presentation of~~

We have prepared the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires ~~that management~~us to make ~~a number of~~estimates, assumptions, and ~~estimates~~judgments that affect the reported amounts of assets, liabilities, ~~revenues~~expenses, and ~~expenses in our~~related disclosures at the date of the condensed consolidated financial statements, and ~~accompanying notes. Management bases~~the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its critical estimates, including those related to revenue recognition, accrued research and development expenses, warrants, and stock-based compensation. We base our estimates on our historical ~~information~~experience and on assumptions ~~believed to be reasonable. Although these estimates~~that we believe are ~~based on management’s best knowledge of current events and circumstances that may impact us in the future, they are inherently uncertain and~~reasonable; however, actual results may differ materially from these ~~estimates.~~

Our critical accounting policies are those that affect our financial statements materially and involve a significant level of judgment by management. Our critical accounting policies regarding revenue recognition are inestimates under different assumptions or conditions.

There were no changes during the following areas: license and royalty agreements, manufacturing contracts and contract services. Our critical accounting policies also include recognition of research and development expenses and the valuation of long-lived and intangible assets.

~~There have been no material changes~~nine months ended September 30, 2021 to our critical accounting policies ~~and estimates~~ as ~~compared to those discussed~~disclosed in ~~our Annual Report on~~the 2020 Form ~~10-K for the fiscal year ended December 31, 2016.~~

~~Recent Accounting Pronouncements~~

10-K. For information on ~~the recent~~our significant accounting ~~pronouncements which may impact our business, see~~policies, please refer to Note 12 of the ~~Notes~~notes to ~~Financial Statements~~our condensed consolidated financial statements included elsewhere in this Quarterly Report.

Recent Accounting Pronouncements

Unless otherwise discussed elsewhere in this Quarterly Report, we believe that the impact of recently issued guidance to be adopted in the future is not expected to have a material impact on our condensed consolidated financial statements upon adoption.

Results of Operations

Comparison of the Three Months Ended September 30, ~~2017, Compared with Three Months Ended~~2021 and 2020


	Three Months Ended September 30,
	2021		2020
	(in thousands)
Revenue	$	132	$	142


Research and development expenses	(10,222)		(1,281)
General and administrative expenses	(3,269)		(3,211)





Total other income, net	106		24
Net loss	$	(13,253)	$	(4,326)

Revenue

Revenue decreased by $10.0 thousand for the three months ended September 30, ~~2016~~

~~Total Revenues. Total revenues~~2021 compared to the three months ended September 30, 2020. Revenue in 2021 consisted of royalty revenue recognized related to sales of ECCLOCK in Japan by Kaken, while revenue in 2020 was driven by collaboration revenue recognized for research and development activities under the Kaken Agreement pursuant to which Kaken provided research and development funding to us. The decrease in collaboration revenue recognized was primarily attributable to our Phase 3 open-label long-term safety study of sofpironium bromide gel and other ancillary clinical studies that were concluded or winding down by the end of the first quarter of 2020. Conducting these studies was the basis for revenue recognition over time, through the third quarter of 2020, of a $15.6 million research and

development payment received from Kaken in the second quarter of 2018. Beginning during the three months ended December 31, 2020, and continuing in 2021, pursuant to the Kaken Agreement, we recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan, and we expect to continue to recognize such royalties on Kaken’s net sales going forward.

Research and Development

Research and development expenses increased ~~$0.6 million, or 22.6%, to $3.2~~by $8.9 million for the three months ended September 30, ~~2017, from $2.6~~2021 compared to the three months ended September 30, 2020, which was primarily due to a $4.8 million expense recorded related to the upfront payment in cash and shares of our common stock under the Voronoi License Agreement and an increase of $3.8 million in clinical costs related to our U.S. Phase 3 pivotal clinical program for sofpironium bromide.

General and Administrative Expenses

General and administrative expenses increased by $0.1 million for the three months ended September 30, ~~2016. This increase was primarily due~~2021 compared to ~~an increase in the revenue recognized under our supply and services agreement with Astellas related to an increase in the ongoing manufacturing validation activities for ASP0113.~~

~~Research and Development Expenses. Research and development expenses increased $0.4 million, or 15.6%, to $3.0 million for~~ the three months ended September 30, ~~2017, from $2.6 million for the three months ended September 30, 2016. This increase was primarily due to costs associated~~2020, remaining generally consistent with the ~~preparation for~~comparable period.

Comparison of the ~~initiation of our VL-2397 Phase 2 clinical trial.~~

~~Manufacturing and Production Expenses~~. Manufacturing and production expenses increased $0.8 million, or 79.1%, to $1.8 million for the three months ended September 30, 2017, from $1.0 million for the three months ended September 30, 2016. This increase was primarily due to a net decrease in deferred costs capitalized during the three months ended September 30, 2017 related to materials manufactured under our supply agreement with Astellas.

~~General and Administrative Expenses. General and administrative expenses increased $18,000, or 1.1%, to $1.6 million for the three months ended September 30, 2017, from $1.6 million for the three months ended September 30, 2016.~~

~~Investment and Other Income, Net. Investment and other income, net, increased $45,000 to $93,000 for the three months ended September 30, 2017, from $48,000 for the three months ended September 30, 2016.~~

Nine Months Ended September 30, ~~2017, Compared with Nine Months Ended September 30, 2016~~

~~Total Revenues. Total revenues~~2021 and 2020


	Nine Months Ended September 30,
		2021		2020
		(in thousands)
Revenue		$	300	$	1,795


Research and development expenses		(25,112)		(6,657)
General and administrative expenses		(9,127)		(8,713)






Total other income, net		532		27
Net loss		$	(33,407)	$	(13,548)

Revenue

Revenue decreased by $1.5 ~~million, or 13.2%, to $9.9~~ million for the nine months ended September 30, ~~2017,~~2021, compared to the nine months ended September 30, 2020. Revenue in 2021 consisted of royalty revenue recognized related to sales of ECCLOCK in Japan by Kaken, while revenue in 2020 was driven by collaboration revenue recognized for research and development activities under the Kaken Agreement pursuant to which Kaken provided research and development funding to us. The decrease in collaboration revenue recognized was primarily attributable to our Phase 3 open-label long-term safety study of sofpironium bromide gel and other ancillary clinical studies that were concluded or winding down by the end of the first quarter of 2020. Conducting these studies was the basis for revenue recognition over time, through the third quarter of 2020, of a $15.6 million research and development payment received from ~~$11.4~~Kaken in the second quarter of 2018. Beginning in late 2020, and continuing in the nine months ended September 30, 2021, pursuant to the Kaken Agreement, we recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan, and we expect to continue to recognize such royalties on Kaken’s net sales going forward.

Research and Development Expenses

Research and development expenses increased by $18.5 million for the nine months ended September 30, ~~2016. This decrease~~2021, compared to the nine months ended September 30, 2020, which was primarily due to ~~a decrease in revenue recognized for the manufacture of ASP0113 material, which was partially offset by~~ an increase of $13.6 million in ~~service revenues~~clinical costs related to our U.S. Phase 3 pivotal clinical program for sofpironium bromide and

a $4.8 million expense recorded related to the upfront payment in cash and shares of our common stock under ~~our supply~~the Voronoi License Agreement.

General and ~~services agreement with Astellas.~~

~~Research~~Administrative Expenses

General and ~~Development Expenses. Research and development~~administrative expenses increased ~~$2.6 million, or 34.7%, to $10.0~~by $0.4 million for the nine months ended September 30, ~~2017, from $7.4~~2021, compared to the nine months ended September 30, 2020. The increase was primarily due to higher compensation and administrative expenses.

Total Other Income, Net

Total other income, net increased by $0.5 million for the nine months ended September 30, ~~2016. This increase was primarily due~~2021 compared to ~~an increase in costs related to our ongoing HSV-2 Phase 2 clinical trial which was initiated in September 2016.~~

~~Manufacturing and Production Expenses. Manufacturing and production expenses decreased $0.4 million, or 7.3%, to $4.7 million for~~ the nine months ended September 30, ~~2017,~~2020. The increase was primarily due to a gain on extinguishment of debt of approximately $0.4 million that resulted from ~~$5.1 million~~the forgiveness of the PPP Loan in June 2021.

Liquidity and Capital Resources

We have incurred significant operating losses and have an accumulated deficit as a result of ongoing efforts to in-license and develop our product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the nine months ended September 30, ~~2016. This decrease was primarily due to~~2021 and 2020, we had a net ~~decrease in deferred costs capitalized during the nine months ended~~loss of $33.4 million and $13.5 million, respectively. As of September 30, ~~2017 related to materials manufactured under our supply agreement with Astellas.~~

~~General and Administrative Expenses. General and administrative expenses decreased $0.6 million, or 11.1%, to $4.7 million for the nine months ended~~2021, we had an accumulated deficit of $139.3 million. As of September 30, ~~2017, from $5.3~~2021, we had cash and cash equivalents of $21.4 million ~~for the nine months ended September 30, 2016. This decrease was primarily due~~compared to ~~a decrease in legal fees, audit fees and facility related costs.~~

~~Investment and Other Income, Net. Investment and other income, net, increased $72,000 to $273,000 for the nine months ended September 30, 2017, from $201,000 for the nine months ended September 30, 2016.~~

~~Liquidity and Capital Resources~~

$30.1 million as of December 31, 2020. Since ~~our~~ inception, we have financed our operations primarily through ~~private placements~~funds received from the sale of common stock and ~~public offerings of equity securities,~~warrants, convertible preferred stock, debt, and ~~revenues from~~convertible notes, payments received under license and collaboration agreements, and cash and investments acquired in the Merger.

We believe that our ~~operations. Cash,~~cash and cash equivalents ~~marketable securities, and long-term investments, including restricted cash, totaled $35.2 million at~~as of September 30, ~~2017, compared~~2021, combined with ~~$41.0~~the net proceeds of $8.9 million received from the sale of our common stock in a public offering in October 2021, will be sufficient to fund our operations for at ~~December 31, 2016.~~least the next 12 months, through the potential sofpironium bromide NDA to the FDA, which is expected to occur in mid-2022, as well as the receipt of the Phase 1 topline results for BBI-02, which are anticipated by year-end 2022. We expect to continue to incur additional substantial losses in the foreseeable future as a result of our research and development activities. Additional funding will be required in the future to continue with our planned development and other activities.

Cash Flows

Since inception, we have primarily used our available cash to fund expenditures related to product discovery and development activities. The ~~decrease~~following table sets forth a summary of cash flows for the periods presented:



	Nine Months Ended September 30,
	2021		2020


	(in thousands)
Net cash provided by (used in):
Operating activities	$	(31,350)	$	(15,283)
Investing activities	(36)		4,500
Financing activities	22,654		23,725
Total	$	(8,732)	$	12,942

Operating Activities

Net cash used in ~~our cash, cash equivalents and marketable securities for~~operating activities of $31.4 million during the nine months ended September 30, ~~2017, was primarily the result of the use of cash~~2021 increased compared to ~~fund our operations.~~

~~Net cash used in operating activities was $6.9~~$15.3 million ~~and $6.6 million for~~during the nine months ended September 30, ~~2017~~2020, which was primarily attributable to an increase in cash used to support our operating activities, including but not limited to, our clinical trials, an increase in research and ~~2016, respectively.~~development activities, and general working capital requirements. The $16.1 million increase was impacted by an increase in net loss of $19.9 million, partially offset by the net effect of changes in working capital of $2.0 million and an increase in non-cash operating expenses of $1.8 million, which primarily consisted of $2.0 million in expense for the issuance of our common stock under the Voronoi License Agreement and a $0.4 million gain on extinguishment of the PPP Loan.

Investing Activities

Net cash ~~used in operating~~provided by investing activities ~~for~~during the nine months ended September 30, ~~2017,~~2021 decreased by $4.5 million compared ~~with the prior year period, was primarily the result of an increase in our net loss which was offset by an increase in deferred revenue and a decrease in the collections of accounts receivables.~~

~~Net cash provided by (used in) investing activities was $7.8 million and $(6.1) million for~~to the nine months ended September 30, ~~2017 and 2016, respectively.~~2020. The ~~increase~~decrease in net cash provided by investing activities ~~for~~was primarily the result of a $4.5 million reduction in maturities of marketable securities.

Financing Activities

Net cash provided by financing activities of $22.7 million during the nine months ended September 30, ~~2017,~~2021 decreased compared ~~with the prior year period, was primarily the result of a net increase in the maturities of marketable securities.~~

~~Net cash provided by financing activities was $1.1~~to $23.7 million ~~and $7.7 million for~~during the nine months ended September 30, ~~2017 and 2016, respectively.~~2020. The decrease ~~in net cash provided by financing activities for the nine months ended September 30, 2017, compared with the prior year period,~~ was primarily ~~the result~~related to a reduction of ~~$7.7~~$11.3 million in net proceeds from offerings of common stock and warrants and $0.4 million in proceeds received from the ~~sale of common stock to AnGes in August 2016,~~PPP Loan, which was partially offset by ~~$1.1~~higher net proceeds received of $8.9 million from the exercise of warrants and $1.8 million in ~~net proceeds from the sale~~sales of our common stock under ~~our at-the-market sales agreement during the 2017 period.~~

~~A discussion of our exposure to auction rate securities is included in Part I, Item 3 of this Report under the heading “Quantitative and Qualitative Disclosures About Market Risk.”~~

In the long-term, we expect to incur substantial additional research and development expenses, manufacturing and production expenses, and general and administrative expenses, including increases in costs related to personnel, preclinical and clinical testing, outside services, facilities, intellectual property and possible commercialization. Our future capital requirements will depend on many

factors, including continued scientific progress in our research and development programs, the scope and results of preclinical testing and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting, enforcing and defending patent claims, the impact of competing technological and market developments, the cost of manufacturing scale-up and validation, and possible commercialization activities and arrangements. We may seek additional funding through research and development relationships with suitable potential corporate collaborators. We may also seek additional funding through public or private financings. For example, in August 2016, we sold 1,841,420 shares of our common stock to AnGes in a private placement for gross proceeds of approximately $7.8 million. We currently have on file an effective shelf registration statement that allows us to raise up to $98.9 million from the sale of common stock, preferred stock, debt securities and/or warrants. In October 2016, we also entered into an At-The-Market Issuance Sales Agreement, or the ATM Agreement, with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.), or BP, under which we may issue and sell up to $10.0 million of shares of our common stock from time to time. Under the ATM Agreement, we may deliver placement notices that will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, any limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. Subject to the terms and conditions of the ATM Agreement, BP may sell the shares only by methods deemed to be an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, including without limitation sales made directly through the Nasdaq Capital Market, on any other existing trading market for our common stock or to or through a market maker. BP will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares in accordance with the terms of the ATM Agreement and any applicable placement notice. The ATM Agreement may be terminated by us upon prior notice to BP or by BP upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse effect on our Company. We have no obligation to sell any shares under the ATM Agreement, and both we and BP may at any time suspend the sale of shares under the ATM Agreement. During the three months ended September 30, 2017, we sold 320,983 shares under the ATM Agreement and received gross proceeds of $824,759. ~~During the nine months ended September 30, 2017, we sold 450,883 shares under the ATM Agreement and received gross proceeds of $1,139,871.~~

~~Despite our current shelf registration statement~~Agreements and the ATM Agreement, additional financing through these or other means may not be available on favorable terms or at all. If additional financing is not available, we anticipate that our available cash and existing sources of funding will be adequate to satisfy our cash needs at least through December 31, 2018.

~~Contractual Obligations~~

Under our pre-existing license agreements, we are required to make certain payments to CytRx in connection with the development and commercialization of our products licensed by Astellas. In addition, certain technology license agreements require us to make other payments if we or our sublicensees advance products through clinical development. For programs developed with the support of U.S. government funding, the U.S. government may have rights to resulting products without payment of royalties to us.

We may be required to make future payments to our licensors based on the achievement of milestones set forth in various in-licensing agreements, including our in-license agreement with Astellas related to VL-2397. In most cases, these milestone payments are based on the achievement of development or regulatory milestones, including the exercise of options to obtain licenses related to specific disease targets, commencement of various phases of clinical trials, filing of product license applications, approval of product licenses from the FDA or a foreign regulatory agency, and the first commercial sale of a related product. Payment for the achievement of milestones under our in-license agreements is highly speculative and subject to a number of contingencies.

The aggregate amount of additional milestone payments that we could be required to pay under our active in-license agreements in place at September 30, 2017, is approximately $106.0 million. These amounts assume that all remaining milestones associated with the milestone payments are met. In the event that product license approval for any of the related products is obtained, we may be required to make royalty payments in addition to these milestone payments. Although we believe that some of the milestones contained in our in-license agreements may be achieved, it is highly unlikely that a significant number of them will be achieved. Because the milestones are contingent, we are not in a position to reasonably estimate how much, if any, of the potential milestone payments will ultimately be paid, or when. Additionally, under the in-license agreements, many of the milestone events are related to progress in clinical trials which will take several years to achieve.

In addition, we have undertaken certain commitments under license agreements with collaborators, and under indemnification agreements with our officers and directors. Under the license agreements with our collaborators, we have agreed to continue to maintain and defend the patent rights licensed to the collaborators and, in the case of our agreements with Astellas, have agreed to undertake certain development and manufacturing activities. Under the indemnification agreements with our officers and directors, we have agreed to indemnify those individuals for any expenses and liabilities in the event of a threatened, pending or actual investigation, lawsuit, or criminal or investigative proceeding.

Purchase Agreement.

We have employment agreements that contain severance arrangements with our chief executive officer, or CEO, and our four other executives. Under the agreement with our CEO, we are obligated to pay severance if we terminate the CEO’s employment without “cause,” or if the CEO resigns for “good reason,” as defined in the agreement, within the periods set forth therein. The severance for the CEO consists of continued base salary payments at the then-current rate, including the payment of health insurance premiums for 18 months, plus a payment equal to one and one-half times the CEO’s cash bonus in the previous year. In addition, the CEO receives accelerated vesting on all his unvested stock awards as if he had remained employed by us for 18 months from the date of termination. In the event that the termination occurs within 24 months of a “change in control,” as defined in the agreement, the severance for the CEO consists of a lump sum payment equal to 24 months of base salary at the then-current rate, the payment of health insurance premiums for 18 months, plus a payment equal to one and one-half times the CEO’s cash bonus in the previous year. In addition, all outstanding unvested stock awards will vest immediately. Under the agreements with our other four executives, we are obligated to pay severance if we terminate the executive’s employment without “cause,” or if the executive resigns for “good reason,” as defined in the agreements, within the periods set forth therein. The severance for the other executives consists of a lump-sum payment equal to 12 months of base salary at the then-current rate, including the payment of health insurance premiums for 12 months, plus a payment equal to the executive’s cash bonus in the previous year. In addition, the executive receives accelerated vesting on all his unvested stock awards as if he had remained employed by us for 12 months from the date of termination. In the event that the termination occurs within 12 months of a “change in control,” as defined in the agreements, the severance for the other executives consists of a lump sum payment equal to 18 months of base salary at the then-current rate, the payment of health insurance premiums for 12 months, plus a payment equal to the executive’s cash bonus in the previous year. In addition, all outstanding unvested stock awards will vest immediately. The maximum payments due under these employment agreements would have been $3.7 million if each such officer was terminated at September 30, 2017.

~~Off-Balance Sheet Arrangements~~

~~As of September 30, 2017, we did not have any off-balance sheet arrangements.~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are ~~subject to interest rate risk. Our investment portfolio is maintained in accordance with our investment policy which defines allowable investments, specifies credit quality standards~~a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and limits the credit exposure of any single issuer. Our investment portfolio consists of cash equivalents, both restricted and non-restricted, marketable securities and long-term investments. The average maturity of our investments, excluding our auction rate securities, is approximately three months. Our investments are ~~classified as available-for-sale securities.~~

To assess our interest rate risk, we performed a sensitivity analysis projecting an ending fair value of our cash equivalents and current marketable securities using the following assumptions: a three-month average maturity and a 150-basis‑point increase in interest rates. This pro forma fair value would have been $0.1 million lower than the reported fair value of our investments at September 30, 2017.

Our investment securities consist of auction rate securities, corporate debt securities and government agency securities. As of September 30, 2017, our long-term investments included a (at par value) $2.5 million auction rate security secured by municipal bonds. At September 30, 2017, the auction rate security we held maintained a Standard and Poor’s credit rating of A-. The auction rate security is a debt instrument with a long-term maturity and with an interest rate that is reset in short intervals through auctions. The conditions in the global credit markets have prevented some investors from liquidating their holdings of auction rate securities because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If there is insufficient demand for the securities at the time of an auction, the auction may not be completed and the interest rates may be reset to predetermined higher rates. When auctions for these securities fail, the investments may not be readily convertible to cash until a future auction of these investments is successful or they are redeemed or mature.

~~Since February 2008, there has been insufficient demand at auction for our auction rate security held at September 30, 2017. As a result, this security is currently not liquid, and we could be~~ required to ~~hold it until it is redeemed by~~provide the issuer or to maturity. As of September 30, 2017, we had recognized $0.4 million of losses related to the auction rate security by adjusting its carrying value. The market value of the security has partially recovered from the lows that created the losses. As of September 30, 2017, we had recorded cumulative unrealized gains of $0.4 million. Any future decline in market value may result in additional losses being recognized.

information under this item.

The valuation of our auction rate security is subject to uncertainties that are difficult to predict. The fair value of the security is estimated utilizing a discounted cash flow analysis or other type of valuation model as of September 30, 2017. The key drivers of the valuation model include the expected term, collateralization underlying the security investment, the creditworthiness of the counterparty, the timing of expected future cash flows, discount rates, and the expected holding period. This security was also compared, when possible, to other observable market data for securities with similar characteristics.

In the event we need to access the funds that are not currently liquid, we will not be able to do so without the possible loss of principal, until a future auction for these investments is successful or they are redeemed by the issuer or they mature. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them until 2038 when they mature. We do not anticipate a need to access these funds for operational purposes for the foreseeable future. We will continue to monitor and evaluate these investments on an ongoing basis for impairment. Based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Quarterly Report. Based on this evaluation, our

principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective and were operating at a reasonable assurance level as of September 30, ~~2017.~~

2021.

Changes in Internal Control over Financial Reporting

Management has determined that there were no significant changes in our internal control over financial reporting that occurred during the three months ended September 30, ~~2017,~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

P~~ART~~

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our Company, nor is any such litigation threatened as of the date of this filing.

ITEM 1A. RISK FACTORS

~~You should consider carefully the risks described below, together with all~~

Our business, financial condition, and operating results may be affected by a number of ~~the other information included in this Report, and in our other filings with the SEC, before deciding~~factors, whether ~~to invest in or continue to hold our common stock. The risks described below are all material risks~~ currently known ~~expected~~ or ~~reasonably foreseeable by us. If any~~unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these ~~risks actually occur,~~factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations, and stock price. The following information should be read in conjunction with Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements (Unaudited)” of this Quarterly Report.

Risks Related to Our Business Operations

Our business depends on the successful continued financing, clinical development, regulatory approval, and commercialization of our pipeline assets.

The successful development, regulatory approval, and commercialization of our pipeline assets, which include sofpironium bromide, require significant additional financing and depend on a number of factors, including but not limited to the following:

•timely and successful completion of clinical trials for our product candidate portfolio, which may be significantly costlier than we currently anticipate, especially in a pandemic, and/or ~~cash flow could~~produce results that do not achieve the endpoints of the trials or which are ultimately deemed not to be ~~seriously harmed. This could cause~~clinically meaningful;

•whether we are required by the ~~trading~~FDA or similar foreign regulatory agencies to conduct additional clinical trials beyond the recently completed U.S. Phase 3 pivotal clinical program to support the approval and commercialization of sofpironium bromide;

•achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our and their contractual obligations and with all regulatory and legal requirements applicable to them and to our pipeline assets;

•ability of third parties with which we contract to manufacture consistently adequate commercial supplies of sofpironium bromide or potential clinical trial supplies for development of our pipeline assets, to remain in good standing with regulatory agencies and to develop, validate, and maintain or supervise commercially viable manufacturing processes that are compliant with FDA-regulated current good manufacturing practices and other requirements, to hire and retain a sufficient and qualified workforce, and to manage their own supply chain to comply with their contractual obligations to us, which supply chains and workforce availability have been constrained during the ongoing COVID-19 pandemic;

•a continued acceptable safety and tolerability profile during clinical development of our pipeline assets and especially following any commercial approval of sofpironium bromide;

•ability to obtain favorable labeling for sofpironium bromide through regulators that allows for successful commercialization, given the drug may be marketed only to the extent approved by these regulatory authorities (unlike with most other industries);

•ability to commercialize sofpironium bromide successfully in the U.S. and outside Japan, if approved for marketing, sale, and distribution in such countries and territories, whether alone or in collaboration with Kaken or others;

•ability of Kaken to commercialize sofpironium bromide successfully in Japan now that it has been approved and is being marketed;

•acceptance by physicians, insurers and payors, and patients of the quality, benefits, safety, and efficacy of our pipeline assets, if and where approved, including relative to alternative and competing treatments and the next best standard of care;

•existence of a regulatory, pricing and reimbursement, and legal environment conducive to the success of sofpironium bromide and our other pipeline assets;

•ability to price ofour pipeline assets to recover our development costs and generate a satisfactory profit margin;

•our ability and our partners’ ability to establish and enforce intellectual property rights in and to sofpironium bromide and our other pipeline assets, including but not limited to patents, regulatory exclusivity rights, trademarks, copyrights, and licenses; and

•our ability to raise capital to commercialize sofpironium bromide, which will be limited if our common stock ~~to decline, resulting in a loss of all or part of your investment.~~

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.

~~(*)None of our independently developed product candidates has been approved for sale, and we have a limited number of independently developed product candidates in clinical trials.~~ price does not appreciate.

If we do not ~~develop commercially successful products,~~achieve one or more of these factors, many of which are beyond our reasonable control, in a timely manner or at all, we ~~may~~could experience significant delays or an inability to obtain regulatory approvals or commercialize sofpironium bromide or our other pipeline assets. Although we anticipate submitting an NDA for sofpironium bromide gel, 15% to the FDA in mid-2022, there can be ~~forced to curtail~~no assurance that it will receive the necessary approvals. If approval is denied or ~~cease operations.~~

All of our independently developed product candidates are either in research or development. We must conduct a substantial amount of additional research and development before any U.S. or foreign regulatory authority will approve any of our product candidates. Limited data exist regarding the efficacy of DNA vaccines or therapeutics compared with conventional vaccines or therapeutics. Results of our research and development activities may indicate that our product candidates are unsafe or ineffective. In this case, we may stop development and regulatory authorities will not approve them. For example, in 2013 we ceased development of Allovectin^®~~, an investigational intratumoral cancer immunotherapy, following negative results from a Phase 3 trial.~~

We initiated a Phase 2 clinical trial of VCL-HB01, our HSV-2 vaccine in September 2016, but the results of the Phase 2 clinical trial may not be positive and the favorable results or trends observed in our previously completed Phase 1/2 clinical trial may not continue in the Phase 2 clinical trial. The Phase 2 clinical trial of VCL-HB01 and any future trials, including our planned Phase 2 clinical trial of VL-2397, may not demonstrate sufficient safety or efficacy to support further product development. Because we have a limited number of independent clinical-stage product candidates, if we experience a significant delay, set-back or failure in the development of any of our product candidates,delayed, it ~~could~~would have a material adverse impact on ~~our business prospects.~~

All of the product candidates we are developing independently will require significant costs to advance through the development stages. If such product candidates are advanced through clinical trials, the results of such trials may not support approval by the FDA or comparable foreign agencies. us.

Even if approved, our products may not be commercially successful, particularly if they do not gain market acceptance among physicians, patients, healthcare payers and relevant medical communities. If we fail to develop and commercialize our product candidates,regulatory approvals are obtained, we may never be ~~forced~~able to ~~curtail~~successfully commercialize sofpironium bromide or ~~cease operations.~~

~~(*)Our clinical trials or those of our partners may fail to demonstrate adequately the safety and efficacy of~~ any of our ~~product candidates, which would prevent or delay regulatory approval and commercialization.~~

~~Before obtaining regulatory approvals for~~other pipeline assets. Accordingly, we cannot assure that we will be able to generate sufficient revenue through the ~~commercial~~ sale of sofpironium bromide, or any other asset, to continue our ~~product candidates, we must demonstrate through lengthy, complex~~business.

Clinical drug development for sofpironium bromide and ~~expensive preclinical testing and clinical trials that~~ our ~~product candidates are both safe and effective for use in each target indication. Clinical testing~~other pipeline assets is expensive, time-consuming, and ~~can take many years~~uncertain.

Clinical development for sofpironium bromide and our other pipeline assets is expensive, time-consuming, difficult to ~~complete,~~design and implement, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. We and our licensees have in the past suffered significant setbacks in advanced clinical trials due to lack of efficacy, notwithstanding promising results in earlier trials. For example, in 2013 we ceased development of Allovectin^®, an investigational intratumoral cancer immunotherapy, following negative results from a Phase 3 trial. In June 2015, we announced that our HSV-2 product candidates did not meet the primary endpoint in a Phase 1/2 clinical study. In September 2016, we and Astellas announced ASP0113 did not meet its primary endpoint in a Phase 2 clinical study evaluating the safety and efficacy of ASP0113 versus placebo in kidney transplant patients receiving an organ from a CMV-seropositive donor. Most product candidates that commence clinical trials are never approved ~~as products.~~

~~There~~by regulatory authorities for commercialization, and of those that are approved, many do not cover their costs of development or ever generate a ~~number of factors that could cause a clinical study to fail or be delayed, including:~~

~~the clinical study may not be designed properly~~profit. In addition, we, any partner with which we currently or may ~~produce negative~~in the future collaborate, the FDA, a local or ~~inconclusive results;~~

~~regulators, monitoring boards~~central institutional review board, or other ~~entities~~regulatory authorities, including state and local agencies and counterpart agencies in foreign countries, may ~~not grant permission~~suspend, delay, extend, require modifications, or add additional requirements to ~~start a clinical study or require that we hold, suspend~~ or terminate our clinical ~~research for safety, ethical or regulatory reasons, including adverse events, or AEs, reported during the trial;~~

trials at any time.

In the case of sofpironium bromide, we are seeking to deliver sufficient concentrations of API, absorbed from the skin surface through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect, in this case treatment of primary axillary hyperhidrosis. The topical route of administration may ~~encounter~~involve new dosage forms, which can be difficult to develop and manufacture and may raise novel regulatory issues and result in development or review delays or inability to get the investigational drug approved for use.

The rest of our pipeline for autoimmune and neuroinflammatory diseases is still too early in ~~reaching~~clinical development to know whether they will progress past Phase 1 clinical trials.

We currently do not have in place a commercial supply agreement with ~~regulators~~Kaken or any other party and our inability to execute one in a timely manner could have a material adverse impact on ~~final clinical study design;~~

our business even if sofpironium bromide is approved for use by the FDA in the U.S.

At this time, we ~~may decide,~~do not have a commercial supply agreement for drug substance and product components for sofpironium bromide with Kaken or ~~regulators may require us, to conduct additional preclinical testing or clinical studies;~~

~~enrollment in our clinical studies may be slower than we anticipate;~~

~~we may encounter delays in engaging prospective clinical research organizations~~other suppliers, and ~~clinical trial sites to conduct our clinical studies or may have disagreements with these entities;~~

~~the cost of our clinical studies may be greater than we anticipate;~~

we may not be able to ~~raise funding necessary~~enter into such an agreement with acceptable terms, on a timely basis, or at all. Our inability to ~~initiate~~ enter into an adequate commercial supply agreement at the right time for sofpironium bromide for the U.S. and other markets outside of Japan and certain other Asian countries would materially impact our business.

Kaken substantially controls the development and commercialization of sofpironium bromide in Japan and certain other Asian countries and may make decisions regarding product development, regulatory strategy, and commercialization that may not be in our best interests. Kaken may be unable to secure an appropriate local business partner (if desirable) and/or ~~complete~~obtain approval of the drug in the ex-Japan Asian markets over which it has rights.

The Kaken Agreement granted Kaken an exclusive license in Japan and certain rights to additional Asian countries to develop and commercialize sofpironium bromide. Under the terms of the Kaken Agreement, as amended, we received an upfront payment, development milestones, and research and development payments and have received and are eligible to receive future milestones and royalties based on a percentage of net sales.

Kaken has final decision-making authority for the overall regulatory, development, and commercialization strategy for sofpironium bromide, market access activities, pricing and reimbursement activities, promotion, distribution, packaging, sales, and safety and pharmacovigilance in Japan and certain other Asian countries. In exercising its final decision-making authority in such territories, Kaken may make decisions regarding product development or regulatory strategy based on its determination of how best to preserve and extend regulatory approvals in these territories for sofpironium bromide, which may delay or prevent achieving regulatory approval for sofpironium bromide in Kaken’s territories, as well as by us in the U.S. and the other territories where we maintain exclusive rights. Additionally, Kaken is responsible for conducting certain API-related activities (chemistry, manufacturing, and controls) that will be required for FDA approval in the U.S., and as a result, we are reliant on Kaken to execute successfully, in a timely, compliant, and efficient manner, such activities on our ~~on-going~~ behalf. To the extent Kaken experiences delays and/or ~~planned clinical studies;~~difficulties in performing its development activities, this could prevent or cause substantial delays in our ability to seek approval for sofpironium bromide gel in the U.S. and

other territories in which we maintain exclusive rights.

In September 2020, Kaken received approval of an NDA in Japan for the manufacturing and marketing of sofpironium bromide gel, 5% under the brand name ECCLOCK for the treatment of primary axillary hyperhidrosis, and in November 2020, Kaken launched commercial sales of ECCLOCK in Japan. Beginning in January 2021, Kaken would have paid us royalties on net sales, but instead offset amounts we owed Kaken under a Clinical Supply Agreement that we entered into with Kaken in July 2019, which offsets were completed in the second quarter of 2021, after we fully paid the remaining amounts we owed Kaken. Despite Kaken receiving regulatory approval and commencing commercial activities in Japan, we cannot provide any assurance that an NDA in any other Asian markets will be approved or that regulatory approvals in other Asian countries

~~the supply or quality of our product candidates~~will occur. We will not receive additional milestone or other ~~materials necessary~~payments from Kaken if Kaken does not continue to ~~conduct our clinical studies may~~ be ~~insufficient, inadequate~~successful in its development, regulatory, or ~~delayed.~~

~~If initiation or completion of our clinical studies or those of our collaborators are delayed, our development costs may increase,~~commercial activities, if the approval ~~process~~is withdrawn for ~~our product candidates would be delayed,~~ any ~~periods during~~reason, or if Kaken is unable to maintain an adequate price for ECCLOCK in Japan.

If we or any partners with which we may ~~have the exclusive right~~collaborate to ~~commercialize~~market and sell sofpironium bromide are unable to achieve and maintain medical insurance coverage and adequate levels of reimbursement for this late-stage compound following its regulatory approval and usage by patients, our ~~product candidates~~commercial success may be ~~reduced~~hindered severely. Kaken may not be able to maintain adequate pricing in Japan for sofpironium bromide given that country’s more restrictive price controls than the U.S.

If sofpironium bromide only becomes available by prescription, successful sales by us or by any partners with which we collaborate may depend on managed care approvals and ~~our competitors~~the availability of adequate reimbursement from third-party payors, as patients would then be forced to pay for the drug out-of-pocket if coverage and associated reimbursement are denied. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the U.S., and private third-party payors is often critical to new product acceptance regardless of how well the product works. Coverage decisions may ~~have~~depend on clinical and economic standards that disfavor new drug products when more ~~time~~established or lower-cost therapeutic alternatives are already available or subsequently become available, even if these alternatives are not as safe and effective or may be affected by the budgets and demands on the various entities responsible for providing health insurance to ~~bring products~~patients who will use sofpironium bromide. If insurers and payors decide that hyperhidrosis itself is not a disease they are willing to ~~market~~extend coverage to, which could happen if they only think the treatment improves quality of life, then coverage and reimbursement for sofpironium bromide may be denied, or ~~establish market positions.~~

at least severely restricted. In this case, patients would be forced to pay for sofpironium bromide out-of-pocket for cash, which they may not be willing or able to do. Even if we obtain coverage for sofpironium bromide, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients may not use sofpironium bromide unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of sofpironium bromide.

In addition, the market for sofpironium bromide will depend significantly on access to third-party payors’ drug formularies or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies and there may be time limitations on when a new drug may even ~~if clinical trials are successfully completed, we cannot guarantee that~~be eligible for formulary inclusion. Also, third-party payors may refuse to include sofpironium bromide in their formularies or otherwise restrict patient access to sofpironium bromide when a less costly generic equivalent or other treatment alternative is available in the FDA or foreign regulatory authorities will interpret the results as sufficient to demonstrate that a product is safe and efficacious, and more trials could be required before we submit our product candidates for approval. To the extent that the resultsdiscretion of the ~~trials~~formulary.

Third-party payors, whether foreign or domestic, or governmental or commercial, are ~~not satisfactory~~developing increasingly sophisticated methods of controlling healthcare costs. In the U.S., although private third-party payors tend to follow Medicare and Medicaid practices, no uniform or consistent policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor as well as state to state. Consequently, the ~~FDA~~coverage determination process is often uncertain and a time-consuming and costly process that must be played out across many jurisdictions and different entities and which will require us to provide scientific, clinical, and health economics support for the use of sofpironium bromide compared to current alternatives and do so to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained and in what amount or ~~foreign regulatory authorities~~time frame.

Further, we believe that future coverage and reimbursement likely will be subject to increased restrictions both in the U.S. and in international markets, potentially based on changes in law and/or payor practices. Third-party

coverage and reimbursement for ~~support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which~~sofpironium bromide may not be available ~~to us, to conduct additional trials~~or adequate in ~~support of potential approval of~~either the U.S. or international markets, which could harm our ~~product candidates.~~

~~(*) Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their~~business, financial condition, operating results, and prospects.

After receiving regulatory approval ~~limit~~in 2020 for ECCLOCK from Japanese regulators, Kaken applied for and received pricing approval in Japan, which is required by law to do before selling. On November 18, 2020, ECCLOCK was placed on Japan’s National Health Insurance drug reimbursement price list. To curb increasing healthcare expenditures, Japanese regulators require a biennial drug price review process. The nature of this review is highly regulated, with downward pricing pressures, and could adversely impact the pricing of ECCLOCK over time in Japan and the resulting royalties payable to us. If Kaken is unable to maintain the current price for ECCLOCK, or is unable to increase the price in future years, this would have a negative impact on sales in Japan.

Even if sofpironium bromide obtains regulatory approval outside Japan, and despite our partner Kaken launching the drug as ECCLOCK in Japan in 2020, it may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial ~~profile~~success.

The commercial success of sofpironium bromide, if and as approved, will depend significantly on the broad adoption and use of it by physicians and patients for approved ~~labeling, or result~~indications, and may not be commercially successful even though the drug is shown to be safe and effective. The degree and rate of physician and patient adoption of sofpironium bromide, if approved, especially in ~~significant negative consequences following marketing approval, if any.~~

~~There is risk~~the U.S., will depend on a number of factors, including but not limited to:

•patient demand for approved products that ~~our product candidates may induce AEs, many of which may be unknown at this time. If an unacceptable frequency and/or severity of AEs are reported in clinical studies for our product candidates,~~ treat hyperhidrosis;

•our ability to ~~obtain regulatory approval~~market and sell the drug, including through direct-to-consumer advertising and non-traditional sales strategies;

•our ability to manage the ongoing COVID-19 pandemic to supply/manufacture sofpironium bromide commercially, and otherwise market and sell sofpironium bromide while the pandemic continues in effect, and the short- and long-term consequences of such pandemic if and as certain markets improve;

•the safety and effectiveness of sofpironium bromide, and ease of use, compared to other available hyperhidrosis therapies, whether approved or used by physicians off-label;

•the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for sofpironium bromide;

•the cost of treatment with sofpironium bromide in relation to alternative hyperhidrosis treatments and willingness to pay for sofpironium bromide, if approved, on the part of patients;

•overcoming physician or patient biases toward particular therapies for the treatment of hyperhidrosis and achieving acceptance by physicians, major operators of clinics and patients of sofpironium bromide as a safe, effective, and economical hyperhidrosis treatment;

•patients’ perception of hyperhidrosis as a disease and one for which medical treatment may be ~~negatively impacted. Even~~appropriate and a prescription therapy may be available;

•insurers’ and physicians’ willingness to see hyperhidrosis as a disease worth treating and for which reimbursement will be made available for treatment, or, if ~~we receive regulatory approval, AEs associated~~limited or no reimbursement is available, the degree to which patients will be willing to purchase sofpironium bromide treatment out-of-pocket;

•proper administration of sofpironium bromide;

•patient satisfaction with the results and administration of sofpironium bromide and overall treatment experience;

•limitations or contraindications, warnings, precautions, or approved indications for use different than those sought by us that are contained in any ~~approved products could have significant negative consequences, including:~~

final FDA-approved labeling for sofpironium bromide;

~~regulatory authorities may approve the product only with~~•any FDA requirement to undertake a risk evaluation and mitigation strategy, ~~(REMS), potentially with~~or results from any post-marketing surveillance studies that FDA may require as a condition of product approval;

•the effectiveness of our sales, marketing, pricing, reimbursement and access, government affairs, legal, medical, public relations, compliance, chemistry, manufacturing and controls, and distribution efforts;

•adverse publicity about sofpironium bromide or favorable publicity about competitive products;

•new government regulations and programs, including price controls and/or public or private institutional limits or prohibitions on ways to commercialize drugs, such as increased scrutiny on direct-to-consumer advertising of pharmaceuticals or restrictions on ~~distribution~~sales representatives to market pharmaceuticals; and

•potential product liability claims or other ~~elements~~product-related litigation or litigation related to ~~assure safe~~licensing and or other commercial matters associated with sofpironium bromide.

If sofpironium bromide is approved for use ~~(ETASU);~~

~~regulatory authorities may withdraw their approval~~but fails to achieve the broad degree of ~~the product~~physician and patient adoption necessary for commercial success, or ~~impose restrictions on its distribution in a form~~our stock price does not increase to adequate levels to allow for financing of a ~~modified REMS;~~

~~regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;~~

~~we may be required to change the way the product is administered or to conduct additional clinical studies;~~

~~we could be sued~~commercial launch and ~~held liable for harm caused to patients; and~~

~~our reputation may suffer.~~

Any of these events could prevent us from achieving or maintaining regulatory approvals or market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.

We are dependent on our out-license agreements with Astellas to further develop and commercialize ASP0113. The failure to maintain these agreements, or the failure of Astellas to perform its obligations under these agreements, could negatively impact our business.

Pursuant to the terms of our out-license agreements with Astellas, we granted to Astellas exclusive worldwide rights to develop and commercialize certain products, including ASP0113 but excluding CyMVectin™, for the control and prevention of CMV infection in immunocompromised patients, including transplant recipients and transplant donors, and pursuant to the terms of our supply and services agreement with Astellas, we are ~~obligated~~unable to ~~perform certain development activities~~secure necessary funds from other sources, then our operating results and ~~supply Astellas with its product requirements for development and initial commercialization activities. Consequently,~~financial condition will be adversely affected, which may delay, prevent, or limit our ability to generate ~~any revenues~~revenue and continue our business.

Major public health issues, and specifically the pandemic caused by the spread of COVID-19 and COVID-19 variants, and the impact as certain markets emerge from ~~ASP0113 depends~~the pandemic, especially in terms of constraints on ~~Astellas’ ability to develop, obtain regulatory approvals for~~supply chains and ~~successfully commercialize ASP0113. We~~human resource availability, and different degrees of success various countries experience in rolling out their vaccine campaigns,could have ~~limited control over the amount~~an adverse impact on our financial condition and ~~timing of resources that Astellas will dedicate to these efforts. For example, based on the~~ results of operations and other aspects of our business and that of our suppliers, contractors, and business partners.

The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 variants and the ~~Phase 2 clinical trial evaluating ASP0113~~actions to contain COVID-19 or treat its impact, among others, and even as or after the pandemic subsides, how long it takes for global supply chains to handle the pent-up demand for goods and services and the shutdowns associated around the world with those supply chains, and worker eagerness to return to the workforce and/or change employment patterns.

The effects of the COVID-19 pandemic could delay or interrupt our business operations. Ongoing materials required for an eventual NDA for submission to the FDA, study monitoring, and data analysis may be paused or delayed due to changes in ~~kidney transplant patients, Astellas has informed us that they do not plan to pursue further clinical development~~hospital or university policies, federal, state, or local regulations, prioritization of ~~ASP0113 in solid organ transplant indications.~~

~~We are subject to a number of other risks associated with our dependence on our out-license agreements with Astellas, including:~~

~~Astellas may not comply with applicable regulatory guidelines with respect to developing or commercializing ASP0113, which could adversely impact sales or future development of ASP0113;~~

Wehospital resources toward pandemic efforts, worker and ~~Astellas could disagree as to future development plans and Astellas may delay, fail to commence or stop future clinical trials~~supplier patterns, or other ~~development;~~

~~There may be disputes between us~~reasons related to, or as a consequence of, the pandemic. Some participants and Astellas, including disagreements regarding the license agreements or supply agreement, that may result in (1) the delay of or failure to achieve developmental, regulatory and commercial objectives that would result in milestone or royalty payments, (2) the delay or termination of any future development or commercialization of ASP0113, and/or (3) costly litigation or arbitration that diverts our management’s attention and resources;

Astellas may not provide us with timely and accurate information regarding development, sales and marketing activities or supply forecasts, which could adversely impact our ability to comply with our service and supply obligations to Astellas and manage our own inventory of ASP0113, as well as our ability to generate accurate financial forecasts;

~~Business combinations or significant changes in Astellas’ business strategy may adversely affect Astellas’ ability or willingness to perform its obligations under our license agreements;~~

Astellas may not properly defend our intellectual property rights, or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential litigation;

The royalties we are eligible to receive from Astellas may be reduced based upon Astellas’ and our ability to maintain or defend our intellectual property rights and the presence of generic competitors;

Limitations on our or an acquirer’s ability to maintain or pursue development or commercialization of products that are competitive with ASP0113 could deter a potential acquisition of us that our stockholders may otherwise view as beneficial; and

If Astellas is unsuccessful in developing, obtaining regulatory approvals for or commercializing ASP0113, we may not receive any additional milestone or royalty payments under the license agreements and our business prospects and financial results may be materially harmed.

The out-license agreements and supply and services agreement are subject to early termination, including through Astellas’ right to terminate upon advance notice to us if Astellas reasonably determines that further development and/or commercialization will not be beneficial for Astellas. If the agreements are terminated early, weclinical investigators may not be able to ~~find another collaborator for the commercialization and further development of ASP0113 on acceptable terms,~~comply with clinical trial protocols. For example, quarantines or ~~at all,~~other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and we may be unable to ~~pursue continued development~~ complete our clinical trials. Further, if our operations are adversely impacted, we risk a delay, default, and/or ~~commercialization of ASP0113 on~~nonperformance under existing agreements, which may increase our ~~own.~~

Our revenues partially depend on the development and commercialization of products in collaboration with others to whom we have licensed our technologies. If our other collaborators or licensees do not successfully develop and commercialize products covered by these arrangements, or if we are unable to find collaborators or licensees in the future, wecosts. These cost increases may not be ~~able to derive~~

~~revenues from these arrangements, we may lose opportunities to validate our DNA delivery technologies,~~fully recoverable or ~~we may be forced to curtail our development and commercialization efforts in these areas.~~

In addition to our out-license agreements with Astellas, we have licensed, and may continue to license, our technologies to corporate collaborators and licensees for the research, development and commercialization of specified product candidates. Our revenues partially depend upon the ability of these collaborators and licensees to successfully develop and commercialize productsadequately covered by these arrangements. In addition, our licensee Astellas has product candidates in advanced stages of clinical development, for which we believe regulatory approval would provide important further validation of our DNA delivery technologies. The developmentinsurance. Infections and ~~commercialization efforts of our collaborators and licensees are subject~~deaths related to the ~~same risks~~pandemic may disrupt the U.S.’ and ~~uncertainties described above~~other countries’ healthcare and healthcare regulatory systems. Such disruptions could

divert healthcare resources away from, or materially delay FDA or other regulatory review and/or approval with respect to, our ~~independently developed~~clinical trials. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates.

~~Some collaborators~~

We currently rely on third parties, such as contract laboratories, contract research organizations, medical institutions, and clinical investigators to conduct studies and clinical trials for our pipeline assets. If these third parties themselves are adversely impacted by restrictions or ~~licensees may not succeed in their product development efforts. It is possible that~~disruptions resulting from the COVID-19 pandemic, we will likely experience delays, and/or realize additional costs. As a result, our ~~collaborators or licensees may be unable~~efforts to obtain regulatory ~~approval~~approvals for, and to commercialize, our therapeutic candidates may be delayed or otherwise adversely impacted.

The spread of ~~product candidates using our technologies or successfully market~~COVID-19, which has caused a broad impact globally, including restrictions on travel and ~~commercialize any such products for which regulatory approval is obtained. Other collaborators or licensees may not devote sufficient time or resources to the programs covered~~quarantine policies put into place by ~~these arrangements,~~businesses and wegovernments, negative supply chain impacts, and worker unavailability, may have ~~limited or no control over~~a material economic effect on our business. While the ~~time or resources allocated~~potential economic impact brought by, ~~these collaborators or licensees to these programs. The occurrence~~and the duration of, any of these events may cause us to derive little or no revenue from these arrangements, lose opportunities to validate our DNA delivery technologies, or force us to curtail or cease our development and commercialization efforts in these areas.

Our collaborators and licensees may breach or terminate their agreements with us, including some that may terminate their agreements without cause at any time subject to certain prior written notice requirements, and wethe pandemic may be ~~unsuccessful~~difficult to assess or predict, it has already caused, and is likely to result in ~~entering into~~further, significant disruption of global financial and maintaining other collaborative arrangements for the development and commercialization of products using our technologies. If we are unable to maintain existing collaboration arrangements or enter into new ones,distribution markets, which may reduce our ability to ~~generate licensing, milestone~~access capital either at all or ~~royalty revenues would be~~on favorable terms. In addition, a recession, depression, or other sustained adverse market event resulting from the spread of COVID-19 could materially ~~impaired.~~

~~Some~~and adversely affect our business and the value of our ~~independent product candidates~~common stock.

The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and ~~some~~subject to change. We cannot predict the full extent of ~~those under development by~~potential delays or impacts on our sublicensees incorporate technologies we have licensed from others. If we are unable to retain rights to use these technologies, we or our sublicensees may not be able to market products incorporating these technologies on a commercially feasible basis, if at all.

~~We have licensed certain technologies from corporate collaborators~~business and research institutions, and sublicensed certain of such technologies to others, for use in the research, development and commercialization of product candidates. Our product development efforts and thosethat of our ~~sublicensees partially depend upon continued access to~~key partners like Kaken, our clinical trials, our research programs, healthcare systems, or the global economy as a whole. However, these ~~technologies. For example, we or our licensors may breach or terminate our agreements, or disagree on interpretations of those agreements, which~~effects could prevent continued access to these technologies. If we were unable to resolve such matters on satisfactory terms, or at all, we or our sublicensees may be unable to develop and commercialize our products, and we may be forced to curtail or cease operations.

We licensed rights to patents and know-how for VL-2397 from Astellas pursuant to an in-license agreement that contains obligations to pay Astellas regulatory and sales milestone payments relating to VL-2397, as well as royalties on net sales of VL-2397. If we fail to make a required payment to Astellas or otherwise materially breach our in-license agreement with Astellas and do not cure the failure within the required time period, Astellas may be able to terminate the license to the VL-2397 patents and know-how, which would have a material adverse effect on our business, financial condition, ~~and~~ results of ~~operations.~~

(*operations, and cash flows.

Sofpironium bromide, where approved, will face significant competition and its failure to compete effectively may prevent it from achieving significant market penetration.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition, less effective patent terms, and a strong emphasis on developing newer, fast-to-market proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing, and marketing of healthcare products competitive with those that we are developing, including sofpironium bromide. We face competition from a number of sources, such as pharmaceutical companies, generic drug companies, biotechnology companies, and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, regulatory expertise, clinical trial expertise, intellectual property portfolios, more international reach, experience in obtaining patents and regulatory approvals for product candidates and other resources than us. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces, and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, sofpironium bromide, where approved, may compete with other dermatological products, including over-the-counter (“OTC”) treatments, for a share of some patients’, or payors’, discretionary budgets and for physicians’ attention within their clinical practices.

We anticipate that sofpironium bromide would compete with other therapies currently used for hyperhidrosis, including but not limited to:

•Self-Administered Treatments. Self-administered treatments, such as OTC and prescription topical antiperspirants, and Qbrexza® (glycopyrronium) 2.4% topical cloth. Oral and compounded topical anticholinergics also may be used off-label.

•Non-Surgical Office-Based Procedures. Office-based procedures have been approved by the FDA for certain uses and which may be used, on-or off-label, to treat hyperhidrosis, including intradermal injections of BOTOX®, marketed by Allergan plc, and MiraDry®, a microwave-based treatment marketed by Miramar Labs, Inc.

•Surgical Treatments. Surgical treatments include techniques for the removal of sweat glands, such as excision, curettage, and liposuction. Surgical procedures, such as endoscopic thoracic sympathectomy, are also used to destroy nerves that transmit activating signals to sweat glands.

To compete successfully in this market, we will have to provide an attractive and cost-effective alternative to these existing and other new therapies. Such competition could lead to reduced market share for sofpironium bromide and contribute to downward pressure on the pricing of sofpironium bromide, which could harm our business, financial condition, operating results, and prospects.

In some international markets, due to different regulatory requirements than in the U.S., there may be more dermatological products available for use than in the U.S., and there may be fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market them. As a result, we could face more competition in these markets than in the U.S.

We may face generic competition for sofpironium bromide, which could expose us to litigation or adversely affect our business, financial condition, operating results, and prospects.

Upon expiration of patent protection (including applicable extensions) in the U.S. (and any other countries where patent coverage exists, such as Japan) for sofpironium bromide, we could lose a significant portion of then-existing sales of sofpironium bromide in a short period of time from generic competition, which would reduce existing sales and could expose us to litigation, adversely affecting our business, financial condition, operating results, and prospects. Further, other therapies used for hyperhidrosis that would compete with sofpironium bromide could lose their patent protection at any time, increasing the risk of generic competition, which could reduce existing sales and adversely affect our business, financial condition, operating results, and prospects.

Additionally, we could face what is known as a paragraph IV filing as part of a generic drug manufacturer’s abbreviated new drug application (“ANDA”). ANDAs allow generic drug manufacturers to gain approval for generic drugs without completing their own costly clinical trials by showing that the generic form shares “bio-equivalence” with the branded drug (in this example, sofpironium bromide) under patent protection. In a paragraph IV filing, the applicant asserts that the patent they are targeting is (i) invalid, (ii) not infringed by their product, or (iii) not enforceable as written. Once an ANDA is filed, the patent holder has a defined period in which to respond and bring a counterclaim against the generic drug manufacturer if it wishes to challenge the filing. Should we be subject to a paragraph IV filing for sofpironium bromide, we could lose our existing patent protection for sofpironium bromide significantly earlier than expected, which would have a negative impact on our business, financial condition, operating results, and prospects.

If CROs and other third parties do not meet our requirements or otherwise conduct clinical trials for our pipeline assets as required or are unable to staff or supply our trials,we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, our pipeline assets at all or in the time frames currently planned for.

We have ~~a history of net losses. We~~in the past relied, and expect to continue to ~~incur net losses~~rely, on third-party CROs to conduct and oversee our clinical trials for pipeline assets and other aspects of product development. We also rely on various medical institutions, clinical investigators, and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s regulations and good clinical practice (“GCP”) requirements, which are an international standard meant to protect the rights and health of patients and

to define the roles of clinical trial sponsors, administrators and monitors, and state regulations governing the handling, storage, security and recordkeeping for drug and biologic products. These CROs and other third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We rely heavily on these parties for the execution of our clinical trials and preclinical studies and control only certain aspects of their activities. We and our CROs and other third-party contractors are required to comply with GCP and current good laboratory practice (“GLP”) requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities. Regulatory authorities enforce these GCP and GLP requirements through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP and GLP requirements, or reveal noncompliance from an audit or inspection, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us to perform additional clinical trials before approving our or our partners’ marketing applications. We cannot assure that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical or preclinical trials comply with applicable GCP and GLP requirements, or that our CROs and other third-party contractors are otherwise compliant with applicable laws despite their contractual assurances to us. In addition, our clinical trials generally must be conducted with product produced under Current Good Manufacturing Practice (“cGMP”) regulations. Our failure, or the failure by our CROs and other third-party contractors, to comply with these regulations and policies, or to obtain supply of key items in sufficient quantities, in a timely manner or at all, may require us to extend or repeat clinical trials, which would delay or halt the regulatory approval process, or could cause us to fail to meet certain contractual obligations, including but not limited to milestone commitments, with licensors of our portfolio assets like Bodor and Voronoi.

If any of our CROs or clinical trial sites terminate their involvement in one of our clinical trials for any reason, including but not limited to impacts caused by the ongoing COVID-19 pandemic, we may not be able to enter into arrangements with alternative CROs or clinical trial sites, or do so on commercially reasonable terms, and in a satisfactory timeframe. If our relationship with clinical trial sites is terminated, we may experience the loss of follow-up information on patients enrolled in our clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and could receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

We currently have limited marketing capabilities and no sales organization. If we are unable to generate adequate financing, establish sales and marketing capabilities on our own or through third parties, or are delayed in establishing these capabilities, we will be unable to successfully commercialize our product candidates, if approved, or generate meaningful product revenue.

We currently have limited marketing capabilities and no sales organization and limited cash runway. To commercialize our product candidates, if approved, in the U.S., Australia, Canada, the European Union, Latin America, Africa, the Middle East, and other jurisdictions we seek to enter, we must continue to obtain additional financing, build our marketing, sales, distribution, managerial, and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not ~~achieve~~be successful in doing any of these. Although our employees have experience in the marketing, sale, and distribution of pharmaceutical products, and business development activities involving external alliances, from prior employment at other companies, we as a company have no prior experience in the commercial launch, marketing, sale, and distribution of pharmaceutical products, and there are significant risks involved in building and managing a sales organization, including our ability to fund costs and expenses of a sales organization and its activities, hire, retain, and incentivize qualified individuals, generate sufficient sales leads, or ~~maintain profitability.~~

contract for a sales force and in either case, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team so they operate in an effective and compliant way. Any failure or delay in the development of our internal (or external contracted-for) sales, marketing, distribution, and

pricing/reimbursement/access capabilities would impact adversely the commercialization of these products. In addition, we may need more than one approved and marketed product to sustain employing an internal salesforce.

To ~~date,~~commercialize sofpironium bromide in the rest of the world, we may be able to leverage the current (and only) regulatory approval in Japan and/or commercial infrastructure of our partner, Kaken, which will provide us with resources and expertise in certain areas that are greater than we could initially provide ourselves. We may choose to collaborate with additional third parties in various countries, including the U.S., that have direct sales forces, commercial and regulatory capacities, and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We may not ~~sold,~~ have sufficient financial resources to enter into and pay for such arrangements, and/or ~~received~~we may not be able to find adequate business partners in these other countries. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. The inability to commercialize successfully our product candidates, either on our own or through collaborations with one or more third parties, would harm our business, financial condition, operating results, and prospects.

Our business and operations would suffer in the event of system failures, illegal stock trading or manipulation by external parties, cyber-attacks, or a deficiency in or exploitation of our cyber-security.

We rely on cloud-based software to provide the functionality necessary to operate our company, utilizing what is known as “software as a service” (“SaaS”). SaaS allows users like us to connect to and use cloud-based applications over the Internet, such as email, calendaring, and office tools. SaaS provides us with a complete software solution that we purchase on a subscription basis from a cloud service provider. Despite our efforts to protect confidential and sensitive information from unauthorized disclosure across all our platforms, and similar efforts by our cloud service provider(s) and our other third-party contractors, consultants and vendors, whether information technology (“IT”) providers or otherwise, including but not limited to our CROs, law firms, accountants, and even the government regulators who we rely on to advance our business, this information, and the systems used to store and transmit it, are vulnerable to damage from computer viruses, unauthorized access, computer hacking or breaches, natural disasters, epidemics and pandemics, terrorism, war, labor unrest, and telecommunication and electrical failures. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, or other illegal acts, including by computer hackers, foreign governments, and cyber-terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. Other emerging threats we face include: phishing, account takeover attacks, data breach or theft (no matter where the data are stored), loss of control, especially in SaaS applications, over which users have access to what data and level of access, new malware, zero-day threats, and threats within our own organization. In addition, and probably exacerbated by the COVID-19 pandemic and increased remote working arrangements, malicious cyber actors may increase malware and ransom campaigns and phishing emails targeting teleworkers as well as company systems, preying on the uncertainties surrounding COVID-19 or other world trends and events, which exposes us to additional cybersecurity risks, or may try to illegally obtain inside information to manipulate our stock price. If such an event were to occur and cause interruptions in our operations, or substantial manipulation of our stock price, it could result in a material disruption of our development programs and our business operations. In addition, since we sponsor clinical trials, any breach that compromises patient data and identities, thereby causing a breach of privacy, could generate significant reputational damage and legal liabilities and costs to recover and repair, including affecting trust in us to recruit for future clinical trials. For example, the loss or theft of clinical trial data from completed, ongoing, or future clinical trials could result in delays in our regulatory approval efforts, stock manipulation, and significantly increase our costs to ~~sell,~~recover or reproduce the data. To the extent that any ~~pharmaceutical products.~~ disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur liability or suffer from stock price volatility or decline, and the further development and commercialization of our products and product candidates could be delayed.

We may be adversely affected by natural disasters and other catastrophic events and by man-made problems such as war or terrorism or labor disruptions that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate office is located in Boulder, Colorado, near a major flood and blizzard zone and in an area prone to wildfires. If a disaster, power outage, or other event occurred that prevented us from using all or a significant portion of our office, that damaged critical infrastructure, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a period of time. Our contract manufacturers’ and suppliers’ facilities are located in multiple locations where other natural disasters or similar events, such as tornadoes, earthquakes, storms, fires, explosions or large-scale accidents or power outages, could severely disrupt our operations, could expose us to liability and could have a material adverse effect on our business, financial condition, operating results, and prospects. All of the aforementioned risks may be further increased if we do not ~~expect~~implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans prove to ~~sell~~be inadequate.

Risks Related to Our Liquidity, Financial Matters, and Our Common Stock

We will need to raise substantial additional financing in the future to fund our operations, which may not be available to us on favorable terms or at all.

We will require substantial additional funds to develop and, if successful, commercialize our product candidates. Our future capital requirements will depend upon a number of factors, including but not limited to: the number and timing of future product candidates in the pipeline; progress with and results from preclinical testing and clinical trials; the ability to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in preparing, filing, acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; compliance with our material contracts including the licensing agreements for sofpironium bromide and our autoimmune and neuroinflammatory portfolio; the time and costs involved in obtaining regulatory approvals and favorable reimbursement or formulary acceptance for such product candidates; and overall stock market conditions, global business trends, our stock price performance, and our ability to generate funding under these and other conditions.

Raising additional capital may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit our ability to achieve our business objectives. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, our stockholders’ ownership interests in our company will be diluted. In addition, any debt financing may subject us to fixed payment obligations and covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish certain valuable intellectual property or other rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us in one or more countries.

Our ability to raise additional funds is uncertain and is limited given our small market capitalization and current stock price. Even if sufficient funding is available, there can be no assurance that it will be available on terms acceptable to us or our stockholders.

Our operating results and liquidity needs could be affected negatively by global market fluctuations and economic downturns.

Our operating results and liquidity could be affected negatively by global economic conditions generally, both in the U.S. and elsewhere around the world, including but not limited to that related to the ongoing COVID-19 pandemic, and global IT threats. The market for discretionary pharmaceutical products, medical devices, and procedures may be particularly vulnerable to unfavorable economic or other conditions. Some patients may consider sofpironium bromide as discretionary, and if full reimbursement for the product is not available, demand for the product may be tied to the discretionary, out-of-pocket cash-spending levels of our targeted patient populations. Domestic and international equity and debt markets have experienced and may in the future experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets again become volatile, or a bear market ensues in the U.S. stock market, including as a result of the COVID-19 pandemic or other stimulus, our operating results and liquidity could be affected adversely by those factors in many ways, including weakening demand for sofpironium bromide, making it more difficult for us to raise funds if necessary, and our stock price may decline.

Our stock price and volume of shares traded have been and may continue to be highly volatile, and our common stock may continue to be illiquid.

The market price of our common stock has been subject to significant fluctuations, including after reporting positive topline results of our U.S. Phase 3 pivotal clinical program for sofpironium bromide. The closing price of our common stock fluctuated from $4.69 per share as of September 3, 2019, the first trading date of our operating as a publicly-traded company, to $0.399 per share as of October 28, 2021. Market prices for securities of biotechnology and other life sciences companies historically have been particularly volatile and subject even to large daily price swings. In addition, there has been limited liquidity in the trading market for our securities, which may adversely affect stockholders. Some of the factors that may cause the market price of our common stock to continue to fluctuate include, but are not limited to:

•negative reaction by stockholders concerned about our ability to obtain sufficient funds to commercialize sofpironium bromide, if it is approved, given the positive results of the Phase 3 pivotal clinical program;

•our need for additional potential financings to raise funds to commercialize our pipeline assets, which could result in significant additional share dilution;

•material developments in, or the conclusion of, any litigation to enforce or defend any intellectual property rights or defend against the intellectual property rights of others;

•our inability to increase our share price to at least ~~the next several years. Our net losses were approximately $9.0 million, $9.2 million and $16.5 million~~$1.00 per share for the ~~years ended December 31, 2016, 2015~~frequency and ~~2014, respectively.~~duration required by The Nasdaq Capital Market to stay listed on this stock exchange and the impact that this lower price may have on investors, including our inability to address the remedial conditions laid out by The Nasdaq Stock Market LLC (“Nasdaq”) in our current notice of non-compliance in this regard;

•the entry into, or termination of, or breach by us or our partners of material agreements, including key commercial partner or licensing agreements, including the Kaken and/or Voronoi Agreements;

•our ability to obtain timely regulatory approvals for sofpironium bromide or future product candidates, and delays or failures to obtain such approvals;

•failure of sofpironium bromide, if approved in the U.S., to achieve commercial success;

•issues in manufacturing or the supply chain for sofpironium bromide or future product candidates;

•the results of any future clinical trials of sofpironium bromide or our other pipeline assets;

•failure of other product candidates, if approved, to achieve commercial success;

•announcements of any dilutive equity financings;

•announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships, or capital commitments;

•the introduction of technological innovations or new therapies or formulations that compete with sofpironium bromide or our other pipeline assets;

•lack of commercial success of competitive products or products treating the same or similar indications;

•failure to elicit meaningful stock analyst coverage and downgrades of our stock by analysts, or to obtain more institutional shareholders; and

•the loss of key employees and/or inability to recruit the necessary talent for new positions or to replace exiting employees.

Moreover, the stock markets in general have experienced substantial volatility in our industry, especially for microcap biotechnology companies, and such volatility has often been unrelated to the operating performance of individual companies or a certain industry segment, such as the ongoing reaction of global markets to the COVID-19 pandemic and other economic disruptions or concerns. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation and could expose us to liability or impact negatively our business, financial condition, operating results, and prospects.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.

Our operations to date have been limited primarily to business planning, raising capital, developing our pipeline assets (in particular sofpironium bromide), identifying and in-licensing product candidates, conducting clinical trials, and other research and development activities. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market. Our revenue and profitability will depend on development funding for our product portfolio, the achievement of sales milestones and royalties under the Kaken Agreement, our ability to satisfy the development and regulatory milestones under the Voronoi Agreement, as well as our ability to do the same with regard to any potential future collaboration and license agreements, overall sales of sofpironium bromide and any future products, if approved, and our ability to maintain all of our product licenses. Any upfront and milestone payments either owed by or to us may vary significantly from product to product, period to period, and country to country, and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change

over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict.

We are a “smaller reporting company” and the reduced disclosure and governance requirements applicable to smaller reporting companies may make our common stock less attractive to some investors.

We qualify as a “smaller reporting company” under Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are entitled to rely on certain exemptions and reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements, in our SEC filings. These exemptions and decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our common stock price may be more volatile.

If the holders of our company’s stock options and warrants exercise their rights to purchase our common stock, the ownership of our stockholders will be diluted.

If the holders of our outstanding stock options and warrants exercise their rights to acquire our common stock and service conditions related to restricted stock units are met, the percentage ownership of our stockholders existing prior to the exercise of such rights will be diluted. As of September 30, ~~2017,~~2021, we had ~~incurred cumulative net losses totaling approximately $423.0 million. Moreover,~~outstanding warrants to purchase (i) one share of our common stock at an exercise price of $0.07 per share; (ii) 490,683 shares of our common stock at an exercise price of $10.36 per share; (iii) 9,005 shares of our common stock at an exercise price of $33.31 per share; (iv) 1,556,420 shares of our common stock at an exercise price of $1.16 per share; (v) 17,482,500 shares of our common stock at an exercise price of $1.25 per share; and (vi) 8,405,935 shares of our common stock at an exercise price of $0.72 per share. As of September 30, 2021, we ~~expect that~~also had 7,089,524 options issued and outstanding to purchase our ~~net losses will continue~~common stock at a weighted-average exercise price of $3.21 per share and ~~may increase for the foreseeable future.~~ 47,435 shares of common stock underlying unvested restricted stock units outstanding.

We may not be able to ~~achieve projected results if we generate lower revenues or receive lower investment income than expected, or we incur greater expenses than expected, or all of~~access the ~~above. Currently our revenues are largely dependent on manufacturing and research services performed~~full amounts available under ~~our license agreement~~the Purchase Agreement with Astellas. That revenue may decrease once the ASP0113 trials are complete or in the event that the development of the ASP0113 program ceases. If this were to occur and if we are unable to enter into additional manufacturing services arrangements with other parties, our revenues from manufacturing activities would not cover our costs of maintaining our manufacturing capabilities,Lincoln Park, which could ~~increase~~prevent us from accessing the capital we need to continue our ~~net losses. We may never generate sufficient product revenue to become profitable. We also expect to have quarter-to-quarter fluctuations in revenues, expenses, and losses, some of~~operations, which could ~~be significant.~~

have an adverse effect on our business.

~~(*)We may need additional capital in~~On February 17, 2020, we entered into the ~~future. If additional capital is not available, we may have~~Purchase Agreement with Lincoln Park pursuant to ~~curtail or cease operations.~~

~~We may need~~which Lincoln Park agreed to raise more money to continue the research and development necessary to bring our products to market and to establish marketing and additional manufacturing capabilities. We may seek additional funds through public and private stock offerings, government contracts and grants, arrangements with corporate collaborators, borrowings under lines of credit or other sources. We currently have on file a shelf registration statement that allowspurchase from us ~~to raise~~ up to an aggregate of ~~$98.9~~$28.0 million of our common stock (subject to certain limitations) from time to time over the ~~sale~~36-month period commencing on August 14, 2020. As of September 30, 2021, approximately $26.9 million of shares of common stock ~~preferred~~were remaining, but had not yet been sold, under the Purchase Agreement. All remaining funds available under the Purchase Agreement are subject to the satisfaction of certain conditions specified in the Purchase Agreement, including that our common stock ~~debt securities and/or warrants. However,~~remains listed on The Nasdaq Capital Market, the effectiveness of a registration statement relating to the resale of the shares to be sold to Lincoln Park under the Purchase Agreement and that no event of default has occurred under the Purchase Agreement. Additionally, depending upon the prevailing market price of our common stock, we may not be able to ~~raise additional funds on favorable terms, or at all. Conditions~~sell shares to Lincoln Park if such a sale would result in us issuing to Lincoln Park more than 9.99% of our shares outstanding prior to entering into the ~~credit markets and~~Purchase Agreement. In the ~~financial services industry may make equity and debt financing more difficult to obtain, and may negatively impact our ability to complete financing transactions. To the extent~~event that we ~~raise additional funds~~are unable to satisfy the conditions specified, the purchase commitment made by ~~issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants, such as limitations on our ability~~Lincoln Park will be unavailable to ~~incur additional indebtedness~~us and ~~other operating restrictions that could adversely impact our ability~~Lincoln Park will not be required to ~~conduct our business.~~

In October 2016, we also entered into an At-The-Market Issuance Sales Agreement, or the ATM Agreement, with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.), or BP, under which we may issue and sell up to $10.0 million ofpurchase any shares of our common stock. If obtaining funding from Lincoln Park were to prove unavailable, we will need to secure other sources of funding in order to continue with our proposed development activities and launch and commercialize any product candidates for which we receive regulatory approval. Additionally, even if we are able to sell all shares under the Purchase Agreement, we will still need additional capital to fully implement our business, operating, and development plans.

Our failure to maintain compliance with Nasdaq continued listing requirements could result in the delisting of our common stock.

Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. On June 17, 2021, we received a notice from the Listing Qualifications Department of the Nasdaq informing us that because the closing bid price for our common stock listed on Nasdaq was below $1.00 per share for 30 consecutive business days, we were not in compliance with the minimum closing bid price requirement for continued listing on The Nasdaq Capital Market under Nasdaq Marketplace Rule 5550(a)(2) (the “Rule”). In accordance with Nasdaq’s listing rules, we have a period of 180 calendar days, or until December 13, 2021, to regain compliance with the Rule. If at any time ~~to time. As of September 30, 2017, there was $8.9 million~~during this 180-day period, the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation that we have achieved compliance with the Rule.

The notice also disclosed that in the event we do not regain compliance with the Rule by December 13, 2021, we may be eligible for additional time. To qualify for additional time, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we meet these requirements, Nasdaq will inform us that we have been granted an additional 180 calendar days. However, if it appears to Nasdaq that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide notice that our securities will be subject to delisting. We intend to continue to monitor the bid price for our common stock between now and December 13, 2021, and will consider available options to resolve the deficiency and regain compliance with the Rule, including seeking stockholder approval of a reverse split of our common stock in order to increase the trading price of our common stock in compliance with The Nasdaq Capital Market rules. There is no assurance, however, that we will be eligible for an additional compliance period or that our common stock will not be delisted from Nasdaq.

The perception among investors that we are at a heightened risk of delisting could negatively affect the market price and trading volume of our common stock. If our common stock is delisted from Nasdaq, the delisting could: substantially decrease trading in our common stock; adversely affect the market liquidity of our common stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws; adversely affect our ability to issue additional securities or obtain additional financing in the future on acceptable terms, if at all; result in the potential loss of confidence by investors, suppliers, partners, and employees and fewer business development opportunities; and result in limited news and analyst coverage. Additionally, the market price of our common stock may decline further, and shareholders may lose some or all of their investment.

We do not anticipate paying any dividends in the foreseeable future.

Our current expectation is that we will retain any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our shares will be your sole source of gain, if any, for the foreseeable future.

Our ability to use our net operating loss carryforwards and other tax assets to offset future taxable income may be subject to certain limitations.

As of December 31, 2020, we had approximately $420.8 million of federal and $382.7 million of state net operating loss (“NOL”) carryforwards available to ~~be sold under~~offset future taxable income, of which $91.8 million will carryforward indefinitely and the ~~BP ATM Agreement. However, BP is not obligated to sell any shares that we may request to be sold,~~remainder expiring in varying amounts beginning in 2021 for federal and ~~any attempt to sell shares under this facility,~~state purposes if ~~made, may not be successful or generate sufficient proceeds to meet our capital requirements.~~

~~If we are unable to obtain additional funds, we may have to scale back our development~~unused. Utilization of ~~new products, reduce our workforce or license to others products or technologies that we otherwise would seek to commercialize ourselves. The amount of money we may need would depend~~these NOLs depends on many factors, ~~including:~~

including our future income, which cannot be assured. Under the U.S. Tax Cuts and Jobs Acts (“Tax Act”), U.S. federal NOLs incurred in 2018 and

~~The progress~~

later years may be carried forward indefinitely, but our ability to utilize such U.S. federal NOLs to offset taxable income is limited to 80% of the current-year taxable income. It is uncertain if and to what extent various states within the U.S. will conform to the Tax Act. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986 and corresponding provisions of state law, if a corporation undergoes an “ownership change” (which is generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We have not determined whether we have experienced Section 382 ownership changes in the past and if a portion of our ~~research~~NOLs is therefore subject to an annual limitation under Section 382. Therefore, we cannot provide any assurance that a change in ownership within the meaning of the Internal Revenue Code of 1986 and ~~development programs;~~

~~The scope~~corresponding provisions of state law has not occurred in the past, and ~~results~~there is a risk that changes in ownership could have occurred. We may experience ownership changes as a result of subsequent changes in our stock ownership, as a result of offerings of our ~~preclinical studies and clinical trials;~~

~~The amount~~stock or subsequent shifts in our stock ownership, some of which may be outside of our ~~legal expenses~~control. In that case, the ability to use NOL carryforwards to offset future taxable income will be limited following any such ownership change and ~~any settlement or damages payments associated~~could be eliminated. If eliminated, the related asset would be removed from the deferred tax asset schedule with ~~litigation;~~a corresponding reduction in the valuation allowance on our financial statements.

Risks Related to Legal, Regulatory, and

Compliance Matters

~~The time and costs involved in: obtaining necessary regulatory approvals; filing, prosecuting and enforcing patent claims; scaling up our manufacturing capabilities; and the commercial arrangements we~~We may ~~establish.~~

~~Impose costly procedures on our activities and those of our collaborators and licensees;~~

~~Delay or prevent our receipt of developmental or commercial milestones from our collaborators and licensees;~~

~~Diminish any competitive advantages that we or our products attain; or~~

~~Otherwise negatively affect our results of operations and cash flows.~~

The research, testing, manufacturing, safety surveillance, efficacy, quality assurance and control, recordkeeping, labeling, packaging, storage, approval, sale, marketing, distribution, import, export, and reporting of safety and other post-market information related to our ~~ability~~investigational drug products are subject to ~~obtain~~extensive regulation by the FDA and other regulatory authorities in the U.S. and foreign countries, and such regulations differ from country to country and frequently are revised.

Although we anticipate submitting an NDA for sofpironium bromide gel, 15% to the FDA in mid-2022, there can be no assurance that it will receive the necessary approvals. If approval inis denied or delayed, it would have a ~~timely manner,~~material adverse impact on us.

Even after we or our partners achieve regulatory approval for a product candidate, if ~~at all, which in turn would delay~~any, we or ~~prevent us from commercializing those products. Similarly,~~ our ~~lack of experience~~partners will be subject to continued regulatory review and compliance obligations, including on how the product is commercialized. For example, with respect to ~~obtaining regulatory approvals in countries other than~~our product candidates for the ~~United States~~U.S., the FDA may ~~impede our ability~~impose significant restrictions on the approved indicated use(s) for which the product may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials, to ~~commercialize our products in those countries.~~

The FDA and comparable foreign regulatory bodies will regulate separately each product containing a particular gene depending on its intended use. Presently, to commercialize any product we and our collaborators and licensees must file a regulatory application for each proposed use. We and our collaborators and licensees must conduct clinical studies to demonstratemonitor the safety and efficacy of the product ~~necessary~~or include in the approved label restrictions on the product and how it may be used or sold. We also will be subject to ~~obtain~~ongoing FDA ~~or foreign~~obligations and continued regulatory ~~authority approval. The results obtained so far~~review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, pharmacovigilance and adverse event reporting, storage, advertising, promotion, and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports, registration, continued compliance with cGMP requirements and with the FDA’s GCP requirements and GLP requirements, which are regulations and guidelines enforced by the FDA for all of our product candidates in ~~our~~clinical and preclinical development, and for any clinical trials ~~and~~

that we conduct post-approval, as well as continued compliance with the FDA’s laws

governing commercialization of ~~our collaborators~~the approved product, including but not limited to the FDA’s Office of Prescription Drug Promotion’s regulation of promotional activities and ~~licensees~~direct-to-consumer advertising, fraud and abuse, antikickback, product sampling, debarment, scientific speaker engagements and activities, formulary interactions as well as interactions with healthcare practitioners, including various conflict-of-interest reporting requirements for any healthcare practitioners we may use as consultants, and laws relating to the pricing of drug products, including federal “best price” regulations that if not ~~be replicated~~met can prohibit us from participating in ~~ongoing~~federal reimbursement programs like Medicare or ~~future trials, or~~Medicaid. To the ~~results~~extent that a product candidate is approved for sale in other countries, we may be subject to ~~varying interpretation~~similar or more onerous (e.g., prohibition on ~~whether they are sufficient to support approval for commercialization. This may prevent any of our product candidates from receiving approval for commercial sale.~~

~~We anticipate~~direct-to-consumer advertising and price controls that we would commercially manufacture the drug substance for the ASP0113 program if it is approved for marketing. Therefore, our manufacturing facilities will have to be approved by the FDA pursuant to inspections conducted after we submit an application for regulatory approval. If we cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA, we willdo not be able to secure and/or maintain regulatory approval for our manufacturing facilities. If the FDA does not approve our facilities for the manufacture of our product candidates or if it withdraws any such approvalexist in the ~~future, our ability to develop, obtain regulatory approval for or market our product candidates will be adversely affected.~~

~~If any of our product candidates receive regulatory approval, the FDA or other foreign regulatory agencies may still impose significant~~U.S.) restrictions ~~on the indicated uses or marketing of our product candidates or impose ongoing~~and requirements ~~for potentially costly post-approval studies.~~ imposed by laws and government regulators, and even private institutions, in those countries.

In addition, ~~regulatory agencies~~manufacturers of drug and biologic products and their facilities are subject ~~a product, its manufacturer and the manufacturer’s facilities~~ to continual review and periodic ~~inspections.~~inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, ~~or a product class, including AEs~~such as adverse events of unanticipated severity or frequency, or problems with the manufacturing, processing, distribution, or storage facility where, or processes by which, the product is ~~manufactured,~~made, a regulatory agency may impose restrictions on that product or ~~product class, our collaborators and licensees or~~ us, including requesting that we initiate a product recall, or requiring notice to physicians or the public, withdrawal of athe product from the ~~market. Our~~market, or suspension of manufacturing.

If we, our partners, our product candidates, ~~will also~~or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

•impose restrictions on the sale, marketing, advertising, or manufacturing of the product, or amend, suspend, or withdraw product approvals, or revoke necessary licenses;

•mandate modifications to or prohibit promotional and other product-specific materials or require us to provide corrective information to healthcare practitioners and other customers and/or patients, or in our advertising and promotion;

•require us or our partners to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions, penalties for noncompliance and, in extreme cases, require an independent compliance monitor to oversee our activities;

•issue warning letters, bring enforcement actions, initiate surprise inspections, issue show cause notices or untitled letters describing alleged violations, which may be publicly available;

•commence criminal investigations and prosecutions;

•debar certain healthcare professionals;

•exclude us from participating in or being eligible for government reimbursement and formulary inclusion;

•initiate audits, inspections, accounting and civil investigations, or litigation;

•impose injunctions, suspensions, or revocations of necessary approvals or other licenses;

•impose other civil or criminal penalties;

•suspend or cancel any ongoing clinical trials;

•place restrictions on the kind of promotional activities that can be done;

•delay or refuse to approve pending applications or supplements to approved applications filed by us or our potential partners;

•refuse to permit drugs or precursor chemicals to be imported or exported to or from the U.S.;

•suspend or impose restrictions on operations, including costly new manufacturing requirements;

•change or restrict our product labeling; or

•seize or detain products or require us or our partners to initiate a product recall.

The regulations, policies, or guidance of the FDA, Japan’s PMDA, and other applicable government agencies may change quickly, and new or additional statutes or government laws or regulations may be enacted, including at federal, state, and local levels, or case law may issue, which can differ by geography and could prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities, including commercialization efforts. We cannot predict the likelihood, nature, or extent of adverse government regulations that may arise from future legislation or administrative action, or judicial outcomes based on litigation, either in the U.S. or abroad. If we are not able to achieve and maintain regulatory or other legal compliance, we may not be permitted to commercialize our product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.

We have sponsored or supported and may in the future sponsor or support clinical trials for our product candidates outside the U.S. and Japan, and the FDA, PMDA, and applicable foreign regulatory authorities may not accept data from such trials; in addition, we may not be allowed alone or with local country business partners to obtain regulatory approval for our product candidates without first conducting clinical trials in each of these other countries.

We have sponsored or supported and may in the future choose to sponsor or support one or more of our clinical trials outside of the U.S. Although the FDA or applicable foreign regulatory authorities may accept data from clinical trials conducted outside the U.S. or the applicable jurisdiction, acceptance of such study data by the FDA or applicable foreign regulatory authorities may be subject to ~~ongoing~~certain conditions or exclusions. Where data from foreign clinical trials are intended to serve as the basis for marketing approval in the U.S., the FDA will not approve the application on the basis of foreign data alone unless such data are applicable to the U.S. population and U.S. medical practice; the studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory bodies have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or applicable foreign regulatory authorities will accept data from trials conducted outside of the U.S. or the applicable home country. If the FDA or applicable foreign regulatory authority does not accept such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our business plan.

We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.

We face an inherent risk of product liability or similar causes of action as a result of the clinical testing (and use) of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and ~~other~~is manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory ~~agency requirements~~authority and notwithstanding that we comply

with applicable laws on promotional activity. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse, or abuse associated with our product candidates could result in actual or perceived injury to a patient that may or may not be reversible or potentially even cause death. We cannot offer any assurance that we will not face product liability or other similar suits in the future or that we will be successful in defending them, nor can we assure that our insurance coverage will be sufficient to cover our liability under any such cases.

In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies, or others selling or otherwise coming into contact with our product candidates, among others, and under some circumstances even government agencies. If we cannot successfully defend against product liability or similar claims, we will incur substantial liabilities, reputational harm, and possibly injunctions and punitive actions. In addition, regardless of merit or eventual outcome, product liability claims may result in:

•withdrawal or delay of recruitment or decreased enrollment rates of clinical trial participants;

•termination or increased government regulation of clinical trial sites or entire trial programs;

•the inability to commercialize, or restrictions on commercializing, our product candidates;


FORWARD-LOOKING STATEMENTS				3
RISK FACTORS SUMMARY				4
PART I. FINANCIAL INFORMATION					6

	ITEM 1. Financial Statements (Unaudited)		3 6

		~~Balance Sheets (unaudited) as of September 30, 2017 and December 31, 2016~~			3

		~~Statements of Operations (unaudited) for the three and nine months ended September 30, 2017 and 2016~~			4

		~~Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2017 and 2016~~			5

	~~Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016~~	6

	~~Notes to Financial Statements (unaudited)~~	7

	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14 24

	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		19 37

	ITEM 4. Controls and Procedures		20 37

PART II. OTHER INFORMATION
		ITEM 1. Legal Proceedings			39
		ITEM 1A. Risk Factors			21 39
		ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			69
		ITEM 3. Defaults Upon Senior Securities		69
		ITEM 4. Mine Safety Disclosures		69
		ITEM 5. Other Information		69
		ITEM 6. Exhibits			33 70

~~SIGNATURE~~		34

	September 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	10,210		$	5,069
Marketable securities, available-for-sale		22,629			30,552
Restricted cash		192			3,311
Deferred contract costs		9,574			5,513
Receivables and other assets		2,745			3,422
Total current assets		45,350			47,867
Long-term investments		2,189			2,046
Property and equipment, net		598			1,173
Intangible assets, net		730			810
Other assets		747			388
Total assets	$	49,614		$	52,284
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	4,078		$	4,127
Deferred revenue		7,803			3,018
Total current liabilities		11,881			7,145
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.01 par value, 50,000 shares authorized, 11,548 and 11,052 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		115			111
Additional paid-in capital		460,501			458,881
Accumulated deficit		(423,010	)		(413,878	)
Accumulated other comprehensive income		127			25
Total stockholders' equity		37,733			45,139
Total liabilities and stockholders' equity	$	49,614		$	52,284

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues:
Contract revenue	$	3,188		$	2,310		$	9,458		$	10,028
License and royalty revenue		52			332			408			1,340
Total revenues		3,240			2,642			9,866			11,368
Operating expenses:
Research and development		3,004			2,599			9,943			7,380
Manufacturing and production		1,778			993			4,689			5,060
General and administrative		1,639			1,621			4,739			5,330
Total operating expenses		6,421			5,213			19,371			17,770
Loss from operations		(3,181	)		(2,571	)		(9,505	)		(6,402	)
Other income:
Investment and other income, net		93			48			273			201
Net loss	$	(3,088	)	$	(2,523	)	$	(9,232	)	$	(6,201	)
Basic and diluted net loss per share	$	(0.27	)	$	(0.24	)	$	(0.82	)	$	(0.64	)
Weighted average shares used in computing basic and diluted net loss per share		11,458			10,453			11,237			9,647

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(3,088	)	$	(2,523	)	$	(9,232	)	$	(6,201	)
Other comprehensive gain (loss):
Unrealized gain (loss) on available-for-sale and long-term marketable securities:
Unrealized gain (loss) arising during holding period, net of tax benefit (expense) of $10 and $(7) for three months ended September 30, 2017 and 2016, respectively, and $49 and $56 for nine months ended September 30, 2017 and 2016, respectively		34			(22	)		102			121
Other comprehensive gain (loss)		34			(22	)		102			121
Total comprehensive loss	$	(3,054	)	$	(2,545	)	$	(9,130	)	$	(6,080	)

	Nine Months Ended
	September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(9,232	)	$	(6,201	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		722			836
Write-off of abandoned patents		—			374
Compensation expense related to stock options and awards		611			804
Changes in operating assets and liabilities:
Deferred contract costs		(4,061	)		(3,527	)
Receivables and other assets		319			1,625
Accounts payable and accrued expenses		174			65
Deferred revenue		4,785			(138	)
Deferred rent		(223	)		(416	)
Net cash used in operating activities		(6,905	)		(6,578	)
Cash flows from investing activities:
Maturities of marketable securities		20,016			19,215
Purchases of marketable securities		(12,175	)		(25,078	)
Purchases of property and equipment		(27	)		(230	)
Net cash provided by (used in) investing activities		7,814			(6,093	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		1,116			7,759
Payment of withholding taxes for net settlement of restricted stock units		(3	)		(13	)
Net cash provided by financing activities		1,113			7,746
Net increase (decrease) in cash, cash equivalents and restricted cash		2,022			(4,925	)
Cash, cash equivalents and restricted cash at beginning of period		8,380			16,696
Cash, cash equivalents and restricted cash at end of period	$	10,402		$	11,771

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

September 30, 2017	Amortized Cost		Unrealized Gain		Unrealized Loss		Market Value
U.S. treasuries	$	18,495	$	—	$	11	$	18,484
Certificates of deposit		4,145		—		—		4,145
	$	22,640	$	—	$	11	$	22,629

December 31, 2016	Amortized Cost		Unrealized Gain		Unrealized Loss		Market Value
U.S. treasuries	$	23,295	$	—	$	18	$	23,277
Certificates of deposit		7,275		—		—		7,275
	$	30,570	$	—	$	18	$	30,552

	Fair Value Measurements
September 30, 2017	Level 1		Level 2		Level 3		Total
Certificates of deposit	$	4,145	$	—	$	—	$	4,145
Money market funds		4,987		—		—		4,987
U.S. treasuries		18,484		—		—		18,484
Auction rate securities		—		—		2,189		2,189
	$	27,616	$	—	$	2,189	$	29,805

Balance at December 31, 2016	$	2,046
Total unrealized gains, excluding tax impact, included in other comprehensive loss		143
Balance at September 30, 2017	$	2,189
Total gains or losses for the period included in net loss attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—


2021 (remaining three months)	$	5
2022	73

Total maturities	78
Less imputed interest	(5)
Present value of lease liability	$	73

~~Exhibit~~ ~~Number~~	~~Description of Document~~

~~3.1(1)~~		~~Restated Certificate of Incorporation. (P)~~
~~3.2(2)~~ ×		~~Amended and Restated Bylaws.~~ Filed herewith.
~~3.3(3)~~ †		~~Certificate of Amendment to Restated Certificate of Incorporation.~~ Certain confidential information contained in this agreement has been omitted because it (i) is not material. and (ii) would be competitively harmful if publicly disclosed.
~~3.4(4)~~ *		~~Certificate of Amendment to Restated Certificate of Incorporation.~~
~~3.5(5)~~	~~Certificate of Amendment to Restated Certificate of Incorporation.~~
~~3.6(6)~~	~~Certificate of Amendment to Restated Certificate of Incorporation.~~
~~4.1(1)~~	~~Specimen Common Stock Certificate. (P)~~
~~10.1(7)~~	~~Amended and Restated Stock Incentive Plan of Vical Incorporated.~~
~~31.1~~	Certification of Vijay B. Samant, Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2~~	Certification of Anthony A. Ramos, Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1~~	~~Certification of Vijay B. Samant, Chief Executive Officer,~~This certification is being furnished pursuant to 18 U.S.C. Section 1350 ~~as adopted pursuant to~~and is not being filed for purposes of Section ~~906~~18 of the ~~Sarbanes-Oxley~~Exchange Act and is not to be incorporated by reference into any filing of ~~2002.~~ the Registrant, whether made before or after the date hereof.
~~32.2~~		~~Certification of Anthony A. Ramos, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~	~~XBRL Instance Document.~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase.~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~