bbi-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2021


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

For the transition period from to

Commission File Number: 000-21088

BRICKELL BIOTECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

93-0948554

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

5777 Central Avenue,

Boulder,

80301

(Address of principal executive offices)

(Zip Code)

(720) 505-4755

(Registrant’s telephone number, including area code)

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


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: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 7, 2021, there were 67,181,746 shares of the registrant’s common stock outstanding.

BRICKELL BIOTECH, INC.

FORM 10-Q

INDEX


FORWARD-LOOKING STATEMENTS		3
RISK FACTORS SUMMARY		4
PART I. FINANCIAL INFORMATION		6
	ITEM 1. Financial Statements (Unaudited)	6






	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	31
	ITEM 4. Controls and Procedures	31
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings	33
	ITEM 1A. Risk Factors	33
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
	ITEM 3. Defaults Upon Senior Securities	64
	ITEM 4. Mine Safety Disclosures	64
	ITEM 5. Other Information	64
	ITEM 6. Exhibits	64

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 studies 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, the United States (“U.S.”) or any other country. The words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “predict,” “potential,” “opportunity,” “goals,” “looking forward” or “should,” and similar expressions 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 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, 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 financing, clinical development, regulatory approval, and commercialization of sofpironium bromide.

•We previously have not conducted a pivotal Phase 3 clinical trial ourselves and may be unable to successfully do so for sofpironium bromide.

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

•Use of patient-reported outcome (“PRO”) assessments and gravimetric assessments in sofpironium bromide clinical trials may delay or adversely impact the development of sofpironium bromide gel or clinical trial results or increase our development costs.

•Sofpironium bromide may cause undesirable side effects or have other unexpected properties that could delay or prevent its regulatory approval, limit the commercial profile of an approved label, or result in post-approval regulatory action.

•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 compound following regulatory approval and usage by patients, our commercial success may be hindered severely.

•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, if 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 third-party clinical research organizations (“CROs”) and other third parties do not meet our requirements or otherwise conduct our sofpironium bromide clinical trials as required or are unable to staff our trials, or do not effectively and timely enroll patients in these trials, particularly the ongoing U.S. registration trials, we may not be able to satisfy our contractual obligations or obtain regulatory approval for, or commercialize, sofpironium bromide at all or in the time frames currently planned for.

•If we are unable to 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 product revenue.

•We will need to raise substantial additional financing in the future to fund our operations and/or prepare a new drug application (“NDA”) submission in the U.S. for sofpironium bromide, 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, 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.

•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 for our product candidates, including certain sole-source suppliers and manufacturers; we intend to rely on third parties for commercial supply, manufacturing, and distribution 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 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, maintain, or enforce global patent rights or other intellectual property rights that cover sofpironium bromide and related technologies (and any other product candidates) that are of sufficient breadth and term.

•We may not be able to protect our intellectual property rights 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 increase our financial or other obligations to our licensors.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)




	March 31, 2021		December 31, 2020

Assets
Current assets:
Cash and cash equivalents	$	34,781	$	30,115

Prepaid expenses and other current assets	3,997		3,489
Total current assets	38,778		33,604
Property and equipment, net	73		30


Total assets	$	38,851	$	33,634
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,557	$	568
Accrued liabilities	4,661		5,420
Lease liability, current portion	52		74



Note payable, current portion	111		291

Total current liabilities	9,381		6,353





Note payable, net of current portion	326		146
Total liabilities	9,707		6,499

Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock, $0.01 par value, 100,000,000 shares authorized at March 31, 2021 and December 31, 2020; 67,176,246 and 53,551,461 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	672		536
Additional paid-in capital	143,370		132,492

Accumulated deficit	(114,898)		(105,893)
Total stockholders’ equity	29,144		27,135
Total liabilities and stockholders’ equity	$	38,851	$	33,634

See accompanying notes to these condensed consolidated financial statements.

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended March 31,
		2021		2020
Revenue
Collaboration revenue		$	—	$	1,046
Royalty revenue		17		—
Total revenue		17		1,046

Operating expenses:
Research and development		6,052		2,664
General and administrative		2,967		2,481
Total operating expenses		9,019		5,145
Loss from operations		(9,002)		(4,099)
Investment and other income (loss), net		31		(4)

Interest expense		(34)		—




Net loss		$	(9,005)	$	(4,103)




Net loss per common share attributable to common stockholders, basic and diluted		$	(0.15)	$	(0.45)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted		61,163,581		9,106,209

See accompanying notes to these condensed consolidated financial statements.

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)


	Three Months Ended March 31,
		2021		2020
Net loss		$	(9,005)	$	(4,103)
Other comprehensive income:
Unrealized gain on available-for-sale marketable securities arising during holding period, net of tax benefit of $0		—		28


Total comprehensive loss		$	(9,005)	$	(4,075)

See accompanying notes to these condensed consolidated financial statements.

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	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		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

See accompanying notes to these condensed consolidated financial statements.

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(9,005)	$	(4,103)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	469		403

Depreciation	1		3
Reduction of discount on marketable securities	—		25











Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(530)		483
Accounts payable	3,985		(1,108)
Accrued liabilities	(811)		(1,268)



Deferred revenue	—		(1,045)

Net cash used in operating activities	(5,891)		(6,610)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(40)		—
Maturities of marketable securities	—		4,500

Net cash provided by (used in) investing activities	(40)		4,500

CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds from the exercise of warrants	8,969		15
Proceeds from the issuance of common stock and warrants, net of offering costs	1,628		1,990





Net cash provided by financing activities	10,597		2,005

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,666		(105)
CASH AND CASH EQUIVALENTS—BEGINNING	30,115		7,232
CASH AND CASH EQUIVALENTS—ENDING	$	34,781	$	7,127

See accompanying notes to these condensed consolidated financial statements.

BRICKELL BIOTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Brickell Biotech, Inc. (the “Company” or “Brickell”) is a clinical-stage pharmaceutical company focused on the development of innovative and differentiated prescription therapeutics for debilitating skin diseases with a focus on our lead asset for the treatment of hyperhidrosis. The Company’s pivotal Phase 3 clinical-stage investigational product candidate, sofpironium bromide, is a new chemical entity that belongs to a class of medications called anticholinergics. The Company intends to develop sofpironium bromide as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary hyperhidrosis. The Company’s operations to date have been limited to business planning, raising capital, developing its pipeline assets (in particular sofpironium bromide), identifying 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 develop product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the three months ended March 31, 2021, the Company had a net loss of $9.0 million and net cash used in operating activities of $5.9 million. As of March 31, 2021, the Company had cash and cash equivalents of $34.8 million and an accumulated deficit of $114.9 million.

The Company believes that its cash and cash equivalents as of March 31, 2021 are sufficient to fund its operations for at least the next 12 months from the issuance of 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 development activities. Additional funding will be required in the future to continue with the Company’s planned development and commercial-related activities.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Brickell Subsidiary, Inc., and are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021, for any other interim period, or for any other future period. The 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 one 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.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Although these estimates are based on the Company’s knowledge of current events and actions it may take in the future, actual results may ultimately differ from these estimates and assumptions.

Reclassification

During the three months ended March 31, 2021, the Company aligned its accounting policy to conform the presentation of certain other current assets. Prior periods have been reclassified to conform to the current period presentation. The reclassification had no impact on total operating costs, loss from operations, net loss, loss per share, or total equity.

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 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 Company’s efforts.

The product candidates developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies prior to commercial sales in the U.S. or foreign jurisdictions, respectively. There can be no assurance that the Company’s current and future product candidates will receive the necessary approvals. If the Company is denied approval or approval is delayed, it may have a material adverse impact on the Company’s business and its financial condition.

The Company expects to 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 product candidates. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

Fair Value Measurements

Fair value is the price that the Company would receive to sell an asset or pay to transfer a liability in a timely transaction with an 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 (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on 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 is summarized in the three broad levels listed below:

Level 1—quoted prices in active markets for identical assets and liabilities

Level 2—other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.)

Level 3—significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities)

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


	Level 1 (1)



	March 31, 2021		December 31, 2020
Assets:
Money market funds	$	33,252	$	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 condensed consolidated balance sheets approximate their fair values due to their short-term nature and/or market rates of interest (Level 1 of the fair value hierarchy).

Revenue Recognition

The Company currently recognizes revenue primarily from licensing and royalty fees received under the Kaken Agreement described below, of 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 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 months ended March 31, 2020, the Company recognized revenue

of $1.0 million related 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 we determine are within the scope of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (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 assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company 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. To date, the Company has not received approval for any drug candidates from the FDA.

At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when 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, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit from the license.

Milestones

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 approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and 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.

Royalties

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 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% for the treatment of primary axillary (underarm) hyperhidrosis. During the three months ended March 31, 2021, the Company recognized royalty revenue earned on a percentage of net sales of sofpironium bromide in Japan of approximately $17 thousand.

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, 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.

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.

Net Income (Loss) per Common Share

Basic and diluted net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares.

Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period, including stock options, restricted stock units, and warrants, using the treasury stock method, and redeemable convertible preferred stock and convertible promissory notes, using the if-converted method. In computing diluted earnings per share, the average stock price for the period is used in determining the number of shares assumed to be issued from the exercise of stock options, the vesting of restricted stock units, or the exercise of warrants. Potentially dilutive common share equivalents are excluded from the diluted earnings per share computation in net loss periods because their effect would be anti-dilutive.

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


	Three Months Ended March 31,
		2021	2020
Outstanding warrants		27,944,544	2,662,529
Outstanding options		4,679,697	1,654,198
Unvested restricted stock units		47,435	201,488



Total		32,671,676	4,518,215

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“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 have 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):




	March 31, 2021		December 31, 2020
Accrued contracted research and development services	$	3,319	$	3,733
Accrued compensation	685		1,369

Accrued professional fees	657		318



Total	$	4,661	$	5,420

NOTE 4. NOTE PAYABLE

Paycheck Protection Program

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”), which is reported in the condensed consolidated balance sheet as of March 31, 2021, within the current and long-term note payable line items. A PPP loan is for the purpose of helping businesses keep their workforce employed during the novel Coronavirus crisis. The Company used the PPP Loan proceeds to cover payroll costs and certain other permitted costs in accordance with the relevant terms and conditions of the CARES Act.

The PPP Loan is in the principal amount of $0.4 million and bears interest at a fixed rate of 1.00% per annum. In March 2021, IberiaBank and the Company agreed to extend the maturity date of the PPP Loan from November 15, 2022 to April 15, 2025 in accordance with the Paycheck Protection Program Flexibility Act of 2020. The PPP Loan requires equal monthly payments of principal and interest, commencing on either (1) the date the Small Business Administration remits the Company’s loan forgiveness amount to IberiaBank or (2) 10 months after the end of the Company’s loan forgiveness covered period. The PPP Loan may be prepaid by the Company at any time prior to maturity without penalty. The Company evaluated the uses of proceeds under the PPP Loan with respect to the relevant terms and conditions of the CARES Act and believes that the full amount of the loan is subject to forgiveness. In January 2021, the Company applied for forgiveness of the full amount of the PPP Loan, which has not yet been granted.

NOTE 5. COMMITMENTS AND CONTINGENCIES

Operating Leases

In August 2016, the Company entered into a five-year lease for office space in Boulder, Colorado that expires on October 31, 2021 (the “Boulder Lease”) subject to the Company’s option to renew the Boulder Lease for two additional terms of three years each. Pursuant to the Boulder Lease, the Company leased 3,038 square feet of space in a multi-suite building. Rent payments under the Boulder Lease included base rent of $4,430 per month during the first year of the Boulder Lease with an annual increase of 3.5%, and additional monthly fees to cover the Company’s share of certain facility expenses, including utilities, property taxes, insurance, and maintenance, which were $2,160 per month during the first year of the Boulder Lease.

The Company recognized a right-of-use asset and corresponding lease liability on January 1, 2019 under the adoption and terms of FASB Accounting Standards Codification (“ASC”) Topic 842, Leases. Amortization of the operating lease right-of-use asset for the Boulder Lease amounted to less than $0.1 million for each of the three months ended March 31, 2021 and 2020, which was included in operating expense. The terms of the Boulder Lease provide for monthly rental payments on a graduated scale. Lease expense for each of the three months ended March 31, 2021 and 2020 was less than $0.1 million.

The following is a summary of the contractual obligations related to operating lease commitments as of March 31, 2021, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):


Less than 1 year	$	54



Imputed interest	(2)
Total	$	52

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 March 31, 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 Kaken’s territory, including a low single-digit royalty on sales of certain product not covered by the patent estate licensed from Bodor; (ii) a specified percentage of all royalties the Company receives from Kaken for sales of product within its 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 and other milestones.

NOTE 6. CAPITAL STOCK

Common 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 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 March 31, 2021 as follows:


			March 31, 2021
Common stock warrants			27,944,544
Common stock options outstanding			4,679,697



Unvested restricted stock units			47,435




Total			32,671,676

Public Offerings of Common Stock and Warrants

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 three months ended March 31, 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 purchasing an aggregate purchase price of $0.2 million of the Company's common stock and warrants. During the three months ended March 31, 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 April 2020, the Company entered into an At Market Issuance Sales Agreement (the “2020 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) as the Company’s sales agent. Pursuant to the terms of the 2020 ATM Agreement, the Company may sell from time to 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 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 March 31, 2021, the Company sold 1,083,548 shares under the 2020 ATM Agreement at a weighted-average price of $1.55 per share, for aggregate net proceeds of $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of March 31, 2021, $2.6 million of shares of common stock were remaining, but had not yet been sold by the Company under the 2020 ATM Agreement.

In March 2021, the Company entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement”) with Oppenheimer and William Blair & Company, L.L.C. 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 if any, 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. Through the date of filing of this Quarterly Report, no sales under the 2021 ATM Agreement had occurred.

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, if any, 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. As of March 31, 2021, the Company had not made any sales of its common stock 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.

Preferred Stock

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 March 31, 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

2020 Omnibus Plan

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, the Company’s stockholders approved an increase in the number of shares of common stock authorized for issuance under the Omnibus Plan by 4,500,000 shares. As of March 31, 2021, 5,125,000 shares were authorized under the Omnibus Plan and 3,340,767 shares were subject to outstanding awards under the Omnibus Plan. As of March 31, 2021, 2,025,028 shares remained available for grant under the Omnibus Plan, subject to limitations as a result of the limited number of available shares due to the Company’s number of authorized shares of common stock at that date. On April 19, 2021, the Company’s stockholders approved an increase in the number of shares of common stock authorized for issuance under the Omnibus Plan by an additional 4,000,000 shares.

2009 Equity Incentive Plan

The 2009 Plan was replaced by the Omnibus Plan on April 20, 2020, and as a result, as of March 31, 2021, there were no remaining shares available for new grants under the 2009 Plan. However, as of March 31, 2021, 1,268,381 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 March 31, 2021, there were no remaining shares available for new grants under the Vical Plan. However, as of March 31, 2021, 117,984 shares were subject to outstanding awards under the Vical Plan, which awards remain outstanding in accordance with their terms.

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 March 31,
		2021		2020
Research and development		$	109	$	104
General and administrative		360		299
Total stock-based compensation expense		$	469	$	403

NOTE 8. SUBSEQUENT EVENTS

On April 19, 2021, the Company’s stockholders approved the Brickell Biotech, Inc. Employee Stock Purchase Plan (the “ESPP”), which has a first eligible purchase period commencing on July 1, 2021. The ESPP will allow 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 July 1 and January 1.

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

Overview

We are a clinical-stage pharmaceutical company focused on the development of innovative and differentiated prescription therapeutics for debilitating skin diseases with a focus on our lead asset for the treatment of hyperhidrosis. 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 pivotal Phase 3 clinical-stage investigational product candidate, 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 are potentially rapidly metabolized to a less active form once absorbed into the blood. This proposed mechanism of action may potentially allow for highly effective doses to be used while limiting systemic side effects. We intend to develop sofpironium bromide as a potential best-in-class, self-administered, once daily, topical therapy for the treatment of primary axillary (underarm) hyperhidrosis.

Hyperhidrosis is a life-altering condition of sweating beyond what is physiologically necessary for thermoregulation of the body. It 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. According to a 2016 update on the prevalence and severity of hyperhidrosis in the U.S. by Doolittle et al., 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.

Our Clinical Programs

U.S. Pivotal Phase 3 Cardigan I and II Clinical Studies

Based on the positive results in the clinical trials for sofpironium bromide gel conducted globally to date by us and Kaken, our development partner in Asia, we initiated during the fourth quarter of 2020 two U.S. pivotal Phase 3 clinical trials (also referred to as our “Phase 3 Program” or “Cardigan Studies”).

In October 2020, we initiated our first of two U.S. pivotal Phase 3 clinical studies (the “Cardigan I Study”), and in December 2020 we initiated the second U.S. pivotal Phase 3 clinical study (the “Cardigan II Study” and, together with the Cardigan I Study, the “Cardigan Studies”), both evaluating the efficacy and safety of topically applied sofpironium bromide gel, 15% for the treatment for primary axillary hyperhidrosis. The Cardigan Studies are multicenter, randomized, double-blinded, vehicle (placebo)-controlled Phase 3 clinical studies and are each expected to enroll up to 350 subjects aged nine years and older with primary axillary hyperhidrosis. Subjects will apply sofpironium bromide or vehicle once daily at bedtime to their underarms for six consecutive weeks, with a two-week post-treatment follow-up. The co-primary efficacy endpoints of the Cardigan Studies include the proportion of subjects achieving at least a 2-point improvement on the Hyperhidrosis Disease Severity Measure-Axillary© (“HDSM-Ax”) scale, a proprietary and validated PRO measure, and change in gravimetric sweat production (“GSP”), each from baseline to end of treatment. In addition, safety and tolerability assessments will be performed throughout both studies.

As of the date of filing of this Quarterly Report, we have completed enrollment in the Cardigan I Study and surpassed 70% enrollment in the Cardigan II Study. We remain on track to complete enrollment for the Cardigan II Study in the third quarter of 2021 and to announce topline results from the Cardigan Studies in the fourth quarter of 2021, and if successful, the results from the Cardigan Studies are expected to form the basis of a prospective NDA submission in the U.S. for sofpironium bromide gel, 15% for the treatment of primary axillary hyperhidrosis in 2022.

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 visit. This study was not conducted as a conventional Phase 3 open-label extension study where patients from pivotal studies roll over into an open-label extension study, thus the LTSS provides a more complete clinical data set evaluating treatment-naïve primary axillary hyperhidrosis patients who received sofpironium bromide gel for 48 weeks. A total of 190 patients completed the full study duration of 52 weeks.

The treatment-related treatment-emergent adverse events (“TEAEs”) for sofpironium bromide gel, 5% (22.5%) and 15% (50.8%) were mostly mild or moderate in severity and transient in nature. The most common and expected treatment-related TEAEs reported were blurred vision (4.9%; 18.8%), dry mouth (8.8%; 16.8%), pruritis (5.9%; 14.7%), pain (3.9%; 14.7%), dermatitis (5.9%; 9.1%), erythema (4.9%; 7.6%), irritation (4.9%; 5.6%), mydriasis (1.0%; 5.1%) and urinary retention (2.9%; 3.6%). The patient discontinuations due to treatment-related TEAEs included blurred vision (2.0%; 7.1%), pruritis (0%; 2.0%), dermatitis (1.0%; 2.0%), dry mouth (0%; 1.5%), pain (0%; 1.5%), erythema (1.0%; 0.5%), irritation (0%; 1.0%), urinary hesitation (1.0%; 0%) and mydriasis (0%; 0.5%). Overall, TEAEs and discontinuations demonstrated decreased incidence over time as patients in the long-term study acclimated to treatment. No treatment-related serious adverse events were observed in adult and pediatric patients and no new safety signals emerged.

With respect to studied efficacy, the 5% and 15% gel groups exhibited clinically meaningful improvement in axillary hyperhidrosis severity as measured by the HDSM-Ax scale. For both 5% and 15% dose groups, responders with a 1-point (86.1%; 85.8%) and 2-point (69.4%; 61.9%) improvement on the HDSM-Ax PRO scale showed a gradual and continual improvement in sweat severity through the 48 weeks of treatment.

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 our development partner in Asia, Kaken, have completed multiple clinical trials of sofpironium bromide gel that encompass over 1,300 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 presentation 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 which all primary and secondary efficacy endpoints demonstrated statistically significant differences (p<0.05) between sofpironium bromide gel and vehicle. In addition, sofpironium bromide gel, 5% was observed to be safe and generally well tolerated in this study, as well as in the accompanying 52-week long-term safety extension study with 185 patients in Japan.

In November 2020, Kaken launched commercial sales of ECCLOCK® in Japan. This marked the first commercialization of sofpironium bromide 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 sofpironium bromide gel in Japan. As a result, beginning during the three months ended December 31, 2020, we recognized royalty revenue earned on a percentage of net sales of sofpironium bromide 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 a government-approved pricing for the product to be launched is listed. This means that in the first year of launch patients must go back to see their prescribing physician in person to obtain any refill longer than two weeks duration.

In addition, 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.

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, including Japan, potentially through 2040.

AnGes Collaboration Agreement

In September 2020, we entered into a collaboration agreement with AnGes, Inc. (“AnGes”) relating to the development and potential commercialization of AnGes’ proprietary investigational adjuvanted plasmid DNA vaccine intended to prevent COVID-19. Under the terms of the collaboration agreement, AnGes will continue to lead the development of its vaccine candidate in Japan, and we will provide information and know-how that could be relevant to such development efforts. If AnGes obtains positive results from its clinical studies in Japan and we are able to satisfy certain conditions, including raising the required development funding, we would have the right to lead the development efforts in the U.S. and certain emerging markets. If ultimately approved for sale in the applicable jurisdictions, AnGes would have commercial rights to the vaccine in Japan and we would have commercial rights in the U.S. and certain emerging markets on terms and conditions to be agreed with AnGes prior to any launch of a vaccine product. AnGes completed a Phase 1/2 study and is currently conducting a Phase 2/3 clinical study with its vaccine candidate in Japan. If the development process continues based on this effort, a larger Phase 3 registration study will be required for any regulatory approval.

Significant Financing and Licensing Arrangements

Public Offerings of Common Stock and Warrants

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”). 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 our common stock. The public offering price of each share of 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 our 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 our common stock. The October 2020 Offering resulted in net proceeds of approximately $13.7 million to us 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 three months ended March 31, 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”). Each share of common stock and pre-funded warrant to purchase one share of our common stock was sold together with a common warrant to purchase one share of our 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 our common stock. The common warrants were immediately exercisable at a price of $1.25 per share of our 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 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 three months ended March 31, 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.

At Market Issuance Sales Agreements

In April 2020, we entered into an At Market Issuance Sales Agreement (the “2020 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) as our sales agent. Pursuant to the terms of the 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 three months ended March 31, 2021, we sold 1,083,548 shares under the 2020 ATM Agreement at a weighted-average price of $1.55 per share, for aggregate net proceeds of $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of March 31, 2021, $2.6 million of shares of common stock were remaining, but had not yet been sold under the 2020 ATM Agreement. Subsequent to March 31, 2021, and through the date of filing of this Quarterly Report, we sold 5,500 shares of common stock under the 2020 ATM Agreement at a weighted-average price of $1.16 per share, for aggregate net proceeds of $6 thousand.

In March 2021, we entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement” and, together with the 2020 ATM Agreement, the “ATM Agreements”) with Oppenheimer and William Blair & Company, L.L.C. 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, if any, 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. Through the date of filing of this Quarterly Report, no sales under the 2021 ATM Agreement had occurred.

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, if any, 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. As of March 31, 2021, we have not made any sales of our common stock 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.

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 March 31, 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) a specified percentage 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 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 our common stock upon the achievement of certain regulatory and other milestones.

Financial Overview

Our operations to date have been limited to business planning, raising capital, developing our pipeline assets (in particular sofpironium bromide), identifying product candidates, conducting clinical trials, and other research and development. To date, we have financed operations primarily through funds received 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”). We do not have any products approved for sale and have not generated any product sales. Since inception, we have incurred operating losses. We recorded a net loss of $9.0 million and $4.1 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $114.9 million. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:

• execute our two pivotal Phase 3 clinical trials for sofpironium bromide in the U.S.;

• contract to manufacture product candidates;

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

• maintain, expand, and protect our intellectual property portfolio;

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

• add operational and finance personnel to support product 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 three months ended March 31, 2021, pursuant to the Kaken Agreement, we recognized royalty revenue earned on a percentage of net sales of sofpironium bromide 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. These 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 expenses related to sofpironium bromide by categories of costs for the periods presented. 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 to increase in future periods during the execution of our Phase 3 program for sofpironium bromide.


	Three Months Ended March 31,
			2021		2020

		(in thousands)




Direct program expenses related to sofpironium bromide			$	5,436	$	1,767
Personnel and other expenses
Salaries, benefits, and stock-based compensation			476		763
Regulatory and compliance			127		54
Other expenses			13		80
Total research and development expenses			$	6,052	$	2,664

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 (Expense), Net

Other income (expense), net consists primarily 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 will vary 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

We have prepared the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, and 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 experience and on assumptions that we believe are reasonable; however, actual results may differ materially from these estimates under different assumptions or conditions.

There were no changes during the three months ended March 31, 2021 to our critical accounting policies as disclosed in the 2020 Form 10-K. For information on our significant accounting policies, please refer to Note 2 of the notes to 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 March 31, 2021 and 2020


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Revenue		$	17	$	1,046


Research and development expenses		(6,052)		(2,664)
General and administrative expenses		(2,967)		(2,481)






Total other expense, net		(3)		(4)
Net loss		$	(9,005)	$	(4,103)

Revenue

Revenue decreased by $1.0 million for the three months ended March 31, 2021, compared to the three months ended March 31, 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 to us

research and development funding. The decrease in 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 the three months ended March 31, 2021, pursuant to the Kaken Agreement, we recognized royalty revenue earned on a percentage of net sales of sofpironium bromide in Japan, and we expect to continue to recognize such royalties on Kaken’s net sales going forward. Despite recognizing such royalty revenue, we did not receive any cash related to such royalties because Kaken instead offset amounts we owed it under the Clinical Supply Agreement.

Research and Development Expenses

Research and development expenses increased by $3.4 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, which was primarily due to an increase in clinical costs related to sofpironium bromide. We began incurring greater research and development costs upon the initiation of our Phase 3 Cardigan Studies in the fourth quarter of 2020. Our Phase 3 open-label, long-term safety study of sofpironium bromide gel and other ancillary clinical studies were concluded or winding down by the end of the first quarter of 2020.

General and Administrative Expenses

General and administrative expenses increased by $0.5 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. The increase was primarily due to increases in compensation-related expense of $0.2 million and professional fees of $0.2 million.

Liquidity and Capital Resources

We have incurred significant operating losses and have an accumulated deficit as a result of ongoing efforts to develop our product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the three months ended March 31, 2021 and 2020, we had a net loss of $9.0 million and $4.1 million, respectively. As of March 31, 2021, we had an accumulated deficit of $114.9 million. As of March 31, 2021, we had cash and cash equivalents of $34.8 million compared to $30.1 million as of December 31, 2020. Since inception, we have financed our operations primarily through funds received 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 the Merger.

We believe that our cash and cash equivalents as of March 31, 2021 are sufficient to fund our operations for at least the next 12 months from the issuance of this Quarterly Report. 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 commercial-related activities.

Cash Flows

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



	Three Months Ended March 31,
	2021		2020


	(in thousands)
Net cash provided by (used in):
Operating activities	$	(5,891)	$	(6,610)
Investing activities	(40)

SEC Form 10-Q filed by Brickell Biotech, Inc.