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Self-administered topicals, which include topical antiperspirants, some of which are prescription only, containing metal salts like aluminum that block the release of sweat to the skin surface by clogging the opening of the duct and Qbrexza® (glycopyrronium), approved in June 2018 by the FDA for the topical treatment of primary axillary hyperhidrosis in adult and pediatric patients nine years of age and older. For decades, topical antiperspirants containing metal salts have been the most widely used treatment option for hyperhidrosis. Over-the-counter (“OTC”) antiperspirants contain low concentrations of metal salts and are generally well-tolerated but limited in efficacy. Prescription antiperspirants containing higher concentrations of metal salts are typically recommended as the treatment of choice when OTC antiperspirants are ineffective. However, these are only marginally more effective, and their tolerability is limited by skin irritation associated with increased metal salt concentrations, which react with water to form irritating hydrochloric acid on the skin. Qbrexza is administered by prescription using a single-use cloth pre-moistened with the active ingredient, 2.4% glycopyrronium solution, packaged in individual pouches. Qbrexza inhibits the action of acetylcholine on sweat glands, thereby reducing sweating. While Qbrexza has shown to be effective in treating primary axillary hyperhidrosis, we believe that there is room in the market for products with improved efficacy and/or tolerability profiles.

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Injectable, systemic, and other treatments that block activation of the sweat glands. Therapeutic options for patients who are not satisfied with topical therapies are largely limited to more cumbersome or invasive treatment strategies directed either to blocking the activation of, destroying, or removing altogether the sweat glands. Intradermal injections of botulinum toxin type A, or BOTOX®, a neurotoxin that blocks the release of acetylcholine, are effective but can be painful, costly, and must be administered by a physician with patients receiving on average 20 to 40 injections to each

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Surgical and other procedures intended to destroy or remove sweat glands. Some patients with severe hyperhidrosis may choose to be treated with invasive surgical techniques that involve removal of sweat glands or destruction of nerves that transmit activating signals to the glands. Surgery is a significant and costly permanent undertaking that can be associated with numerous severe side effects, including increased compensatory sweat production in other body areas.

•	The synthesis of a retrometabolic drug is achieved by starting with a known inactive metabolite of a known active drug (e.g., glycopyrrolate).

•	The inactive, or less active, metabolite is then structurally modified to an active form (an analogue of active drug in this case; glycopyrrolate) that will undergo a predictable one-step transformation back into the inactive metabolite in vivo.

•	Thus, the retrometabolic drug concept is based upon predictable metabolic deactivation processes by enzymes found predominantly in the systemic circulation.

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

•	Non-Surgical Office-Based Procedures. Office-based procedures have been approved for the treatment of hyperhidrosis, including intradermal injections of BOTOX®, marketed by Allergan plc., and MiraDry®, a microwave-based treatment marketed by Miramar Labs, Inc.

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

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•	timely and successful completion of Phase 3 clinical trials in the United States not yet initiated, which may be significantly costlier than we currently anticipate and/or produce results that do not achieve the endpoints of the trials or which are ultimately deemed not to be clinically meaningful;

•	whether we are required by the FDA or similar foreign regulatory agencies to conduct additional clinical trials beyond those currently planned to support the approval and commercialization of sofpironium bromide;

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

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ability of third parties with which we contract to manufacture consistently adequate clinical trial and commercial supplies of sofpironium bromide, to remain in good standing with regulatory agencies and to develop, validate and maintain or supervise commercially viable manufacturing processes that are compliant with FDA-regulated Current Good Manufacturing Practices, (“cGMPs”), and the product’s package insert;

•	a continued acceptable safety profile during clinical development and following approval of sofpironium bromide;

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

•	ability to commercialize sofpironium bromide successfully in the United States and internationally, if approved for marketing, sale and distribution in such countries and territories, whether alone or in collaboration with Kaken or others;

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

•	existence of a regulatory and legal environment conducive to the success of sofpironium bromide;

•	ability to price sofpironium bromide to recover our development costs and generate a satisfactory profit margin; and

•	our ability and our partners’ ability to establish and enforce intellectual property rights in and to sofpironium bromide, including but not limited to patents and licenses.

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•	patient demand for approved products that treat hyperhidrosis;

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

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

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

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

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

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

•	insurers’ and physicians’ willingness to see hyperhidrosis as a disease worth treating and for which reimbursement will be made available for treatment;

•	proper administration of sofpironium bromide;

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

•	limitations or contraindications, warnings, precautions or approved indications for use different than those sought by us that are contained in any final FDA-approved labeling for sofpironium bromide;

•	any FDA requirement to undertake a risk evaluation and mitigation strategy, or results from any post-marketing surveillance studies that FDA may require as a condition of product approval;

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

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

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

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

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

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

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

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

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

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

•	failure of sofpironium bromide, if approved, to achieve commercial success;

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

•	the results of current and any future clinical trials of sofpironium bromide;

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

•	announcements of any dilutive equity financings;

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

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

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

•	failure to elicit meaningful stock analyst coverage and downgrades of our stock by analysts; and

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

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•	authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

•	providing for a classified board of directors with staggered terms;

•	requiring supermajority stockholder voting to effect certain amendments to our current certificate of incorporation and bylaws;

•	eliminating the ability of stockholders to call special meetings of stockholders; and

•	establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

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

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

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

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

•	commence criminal investigations and prosecutions;

•	debar certain healthcare professionals;

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

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

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

•	impose other civil or criminal penalties;

•	suspend or cancel any ongoing clinical trials;

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

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

•	refuse to permit drugs or precursor chemicals to be imported or exported to or from the United States;

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

•	change or restrict our product labeling; or

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

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

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

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

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•	decreased demand for our product candidates;

•	impairment of our business reputation;

•	product recall or withdrawal from the market or labeling, marketing or promotional restrictions;

•	substantial costs of any related litigation or similar disputes;

•	distraction of management’s attention and other resources from our primary business;

•	significant delay in product launch;

•	debarment of our clinical trial investigators or other related healthcare practitioners working with our company;

•	substantial monetary awards to patients or other claimants against us that may not be covered by insurance;

•	withdrawal of reimbursement or formulary inclusion; or

•	loss of revenue.

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•	our partners’ ability to execute their responsibilities in a timely, cost-efficient, and compliant manner;

•	reduced control over supply, delivery, and manufacturing schedules;

•	price increases and product reliability;

•	manufacturing deviations from internal or regulatory specifications;

•	quality or integrity incidents;

•	the failure of partners to perform their obligations for technical, market, legal or other reasons;

•	misappropriation of our current or future product candidates; and

•	other risks in potentially meeting our current and future product commercialization schedule or satisfying the requirements of our end-users.

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•	failure of our manufacturers to follow cGMP or other legal requirements or mishandling of or adulterating product while in production or in preparation for transit;

•	inability of our contract suppliers and manufacturers to efficiently and cost-effectively increase and maintain high yields and batch quality, consistency, and stability;

•	difficulty in establishing optimal drug delivery substances and techniques, production and storage methods and packaging and shipment processes;

•	challenges in designing effective drug delivery substances and techniques especially in light of competitor options;

•	transportation and import/export risk, particularly given the global nature of our supply chain;

•	delays in analytical results or failure of analytical techniques that we depend on for quality control/assurance and release of a product;

•	natural disasters, strikes and labor disputes, epidemics or pandemics, war and terrorism, financial distress, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations of our contract manufacturers and suppliers; and

•	latent defects that may become apparent after a product has been released and even sold and used and that may result in recall and destruction of the product.

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•	initiate and complete our two pivotal Phase 3 clinical trials for sofpironium bromide in the United States;

•	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.

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•	communicating with appropriate internal personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost;

•	estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and

•	periodically confirming the accuracy of our estimates with service providers and making adjustments, if necessary.

•	payments to CROs in connection with preclinical and toxicology studies and clinical trials;

•	payments to investigative sites in connection with clinical trials;

•	payments to CMOs in connection with the production of clinical trial materials; and

•	professional service fees for consulting and related services.

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Brickell Biotech, Inc. (the “Company” or “Brickell”) is a clinical-stage pharmaceutical company focused on the development of innovative and differentiated prescription therapeutics for the treatment of debilitating skin diseases. The Company’s pipeline consists of potential novel therapeutics for hyperhidrosis and other prevalent dermatological conditions. The Company’s pivotal Phase 3-ready clinical-stage product candidate, sofpironium bromide, is a proprietary new molecular 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, and other research and development.

On August 31, 2019, the Company, then known as Vical Incorporated (“Vical”), and Brickell Biotech, Inc., a then privately-held Delaware corporation that began activities in September 2009 (“Private Brickell”), completed a recapitalization in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated June 2, 2019, as further amended on August 20, 2019 and on August 30, 2019 (the “Merger Agreement”), by and among Vical, Vical Subsidiary, Inc., a wholly-owned subsidiary of Vical (“Merger Sub”), and Private Brickell. Pursuant to the Merger Agreement, Merger Sub merged with and into Private Brickell, with Private Brickell surviving as a wholly-owned subsidiary of Vical (the “Merger”). Additionally, on August 31, 2019, immediately after the completion of the Merger, the Company changed its name from “Vical Incorporated” to “Brickell Biotech, Inc.” and Private Brickell changed its name from “Brickell Biotech, Inc.” to “Brickell Subsidiary, Inc.”

The accompanying consolidated financial statements and related notes reflect the historical results of Private Brickell prior to the Merger and of the combined company following the Merger, and do not include the historical results of Vical prior to the completion of the Merger. These financial statements and related notes should be read in conjunction with the audited financial statements of Private Brickell for the year ended December 31, 2018, included in the Company’s Form 8-K/A filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2020.

On August 31, 2019, in connection with, and prior to the consummation of the Merger, Vical effected a reverse stock split of its common stock, par value $0.01 per share, at a ratio of 1-for-7 (the “Reverse Stock Split”). Unless otherwise noted herein, references to share and per-share amounts give retroactive effect to the Reverse Stock Split. On August 31, 2019, all shares of preferred stock of Private Brickell converted into shares of common stock of Private Brickell on a one-for-one basis.

At the effective date of the Merger, the Company issued shares of its common stock to Private Brickell stockholders, at an exchange rate of approximately 2.4165 shares of common stock in exchange for each share of Private Brickell common stock outstanding immediately prior to the Merger (the “Exchange Ratio”). The exchange rate was calculated by a formula that was determined through arms-length negotiations between Vical and Private Brickell. Unless otherwise noted herein, references to share and per-share amounts give retroactive effect to the Reverse Stock Split and the Exchange Ratio, which was effected upon the Merger.

Immediately following the consummation of the Merger, there were 7,810,680 shares of the Company’s common stock issued and outstanding, with Private Brickell’s former securityholders beneficially owning approximately 57% of the outstanding shares of common stock and Vical’s former securityholders beneficially owning approximately 43% of the outstanding shares of common stock.

Liquidity and Capital Resources

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. 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 year ended December 31, 2019, the Company had a net loss of $23.9 million and net cash used in operating activities of $36.0 million. As of December 31, 2019, the Company had cash, cash equivalents, and marketable securities of $11.7 million, and an accumulated deficit of $85.0 million.

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The Company believes that its cash, cash equivalents, and marketable securities as of December 31, 2019, combined with the refundable prepaid research and development expenses and periodic sales of the Company’s common stock under the Purchase Agreement (see Note 12. “Subsequent Events”), are sufficient to fund its operations for at least the next 12 months from the issuance of these consolidated financial statements. In order to sell additional shares of common stock under the Purchase Agreement, Lincoln Park Capital Fund, LLC (“Lincoln Park”) will need to purchase shares of common stock from the Company, subject to the conditions under the Purchase Agreement, and the Company will be required to have an additional effective registration statement. The Company has filed a registration statement on Form S-3 covering the resale of the initial shares sold to Lincoln Park, which management will request the SEC to declare effective following the filing of this Form 10-K. If the Company is unable to raise additional capital, including under the Purchase Agreement, the Company expects to conserve resources, including reducing cash compensation arrangements to management and further reductions in operating expenditures. 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 beyond the sale of additional shares of common stock to Lincoln Park will be required in the future to proceed with the Company’s current and proposed research activities, including conducting the pivotal Phase 3 clinical trials of sofpironium bromide.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Brickell Subsidiary, Inc., and are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. All significant intercompany balances 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.

The Merger has been accounted for as a recapitalization. Prior to the Merger, Vical wound down its pre-merger business assets and liabilities. The owners and management of Private Brickell have actual and effective voting and operating control of the combined company. In the Merger transaction, Vical is the accounting acquiree and Private Brickell is the accounting acquirer. A recapitalization is equivalent to the issuance of stock by the private operating company for the net monetary assets of the accounting acquiree accompanied by a recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or intangible assets are recorded. 

In connection with the Merger, 3,367,988 shares of common stock were transferred to the existing Vical stockholders and the Company assumed approximately $36.1 million in net tangible assets from Vical, which were recorded as additional paid-in capital. The following table summarizes the net assets acquired based on their estimated fair values immediately prior to the Merger (in thousands):

Cash and cash equivalents	$	13,017
Marketable securities	23,959
Prepaid expenses and other current assets	1,474
Accrued liabilities	(2,357		)
Net acquired tangible assets	$	36,093

In connection with the Merger, the Company assumed warrants previously held by Vical, which provide the warrantholder the right to purchase 891,582 shares of common stock at an exercise price of $0.07 (the “Vical Warrants”). The Vical Warrants were classified as equity. In December 2019, warrants to purchase 670,288 shares of common stock were exercised for proceeds of $47 thousand.

The combined company assumed all the outstanding options, under Vical’s equity incentive plan (the “Vical Plan”) with such options representing the right to purchase a number of shares of Brickell common stock previously represented by such options, as adjusted for the recapitalization.

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Use of Estimates

The Company’s consolidated financial statements are prepared in accordance with US 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.

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 production of 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 alliance management, 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 United States 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 complete clinical studies and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be at terms acceptable by the Company.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less from date of purchase to be cash equivalents. Cash equivalents, which are stated at cost, consist primarily of amounts held in short-term money market accounts with highly rated financial institutions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances in several accounts with two financial institutions which, from time to time, are in excess of federally insured limits.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation. Expenditures for major betterments and additions are charged to the asset accounts, while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Depreciation expense amounted to approximately $28 thousand and $49 thousand for the years ended December 31, 2019 and 2018, respectively.

Long-Lived Assets

The Company’s intangible assets are considered indefinite-lived and are not amortized, but are tested for impairment on an annual basis, as well as between annual tests if changes in circumstances indicate a reduction in the fair value of the in-process research and development (“IPR&D”) projects below their respective carrying amounts. In connection with any impairment assessment, the fair value of the intangible assets as of the date of assessment is compared to the carrying value of the intangible asset. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives.

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During the year ended December 31, 2019, the Company recorded within general administrative expenses a $0.4 million impairment charge related to two early-stage product candidates associated with the rights to an IPR&D molecular compound in the Phase 1 stage of development and with the rights to a RORg inhibitor associated with the topical treatment of mild-to-moderate psoriasis. These early-stage product candidates were acquired in 2015 in transactions that were accounted for as business combinations. Impairment was determined to have occurred in 2019 as changes in management’s plans indicated a reduction in the fair value of the IPR&D projects below their respective carrying amounts. These early-stage product candidates previously had contingent liabilities of $0.1 million associated with achieving certain future development milestones. The $0.1 million change in the fair value of the contingent consideration was recorded as general and administrative expense during the year ended December 31, 2019.

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 is established to distinguish 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), and establishes a classification of fair value measurements for disclosure purposes.

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 tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

	December 31, 2019
	Level 1				Level 2				Level 3
Assets:
Money market funds	$	7,232			$	—			$	—
U.S. treasuries	4,497				—				—
Total	$	11,729			$	—			$	—

	December 31, 2018
	Level 1				Level 2				Level 3
Assets:
Money market funds	$	8,067			$	—			$	—
Liabilities:
Redeemable convertible preferred stock warrant liability	$	—			$	—			$	242
Contingent consideration	—				—				145
Total	$	—			$	—			$	387

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The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows (in thousands):

	Derivative Liability				Common Stock Warrant Liability				Redeemable Convertible Preferred Stock Warrant Liability				Contingent Consideration Liabilities
Fair value as of December 31, 2018	$	—			$	—			$	242			$	145
Fair value of financial instruments issued	1,442				1,492				—				—
Change in fair value	11				17				(240		)		(145		)
Reclassification to equity	(1,453		)		(1,509		)		(2		)		—
Fair value as of December 31, 2019	$	—			$	—			$	—			$	—

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 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).

U.S. Treasuries—The Company has designated its investments in U.S. treasury securities as available-for-sale securities and accounts for them at their respective fair values. The securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are readily available for use in current operations are classified as short-term available-for-sale marketable securities and are reported as a component of current assets in the consolidated balance sheets (Level 1 of the fair value hierarchy).

Securities that are classified as available-for-sale are measured at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders’ equity until their disposition. The Company reviews available-for-sale securities at the end of each period to determine whether they remain available-for-sale based on its then current intent. The cost of securities sold is based on the specific identification method. The securities are subject to a periodic impairment review. An impairment charge would occur when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.

As of December 31, 2019, the Company’s available-for-sale securities had an amortized cost of $4.5 million, fair value of $4.5 million, and an unrealized gain of $3 thousand. Because the securities were acquired in August 2019 in connection with the Merger, there were no related balances as of December 31, 2018.

Contingent Consideration—These amounts represented future payments in conjunction with various business combinations related to the acquisition of certain early-stage pipeline assets. These assets were impaired during the year ended December 31, 2019, and therefore, the likelihood of future development and regulatory milestones and other potential future payments related to these assets was considered to be remote. The Company evaluated its estimates of the fair value of contingent consideration on a quarterly basis. The fair value of the contingent consideration was determined with the assistance of a third-party valuation firm applying the income approach. This approach estimated the fair value of the contingent consideration related to the achievement of future development and regulatory milestones by assigning an achievement probability and date of expected completion to each potential milestone and discounting the associated cash payment to its present value using a risk-adjusted rate of return. The probability of success of each milestone assumed that the prerequisite developmental milestones were successfully completed and was based on the asset’s current stage of development and anticipated regulatory requirements. The probability of success for each milestone was determined by multiplying the preceding probabilities of success. At December 31, 2018, the unobservable inputs (Level 3 of the fair value hierarchy) to the valuation models that have the most significant effect on the fair value of the Company’s contingent consideration were the probabilities that certain in-process development projects would meet specified development milestones, including ultimate approval by the FDA, with individual cumulative probabilities ranging from 2.1% to 20.9%. Other unobservable inputs used in this approach include risk-adjusted discount rates ranging from 15.5% to 27.1% and estimates of the timing of the achievement of the various product development, regulatory approval, and sales milestones.

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Redeemable Convertible Preferred Stock Warrant Liability—These amounts represented potential future obligations to transfer assets to the holders at a future date. The Company remeasured these warrants to current fair value at each balance sheet date, and any change in fair value was recognized as a change in fair value of warrant liability in the consolidated statements of operations. The Company estimated the fair value of these warrants at December 31, 2018 using the Black-Scholes option-pricing model (Level 3 of the fair value hierarchy table). These warrants converted from warrants exercisable for redeemable convertible preferred stock to common stock in August 2019 in connection with the Merger (see further discussion in “Note 6. Note Payable”).

Inputs used to determine estimated fair value of the warrant liabilities included the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends, and the expected volatility of the underlying stock. The most significant unobservable inputs used in the fair value measurement of the convertible preferred stock warrant liability were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term resulted in a directionally similar impact to the fair value measurement. The fair value of the outstanding warrants was remeasured for the following period end using the Black-Scholes option-pricing model with the following assumptions:

	2018
Expected term (in years)	7.1
Expected volatility	30.00	%
Risk free interest rate	2.59	%
Expected dividend yield	—	%

The fair value of the shares of the convertible preferred stock underlying the preferred stock warrants was historically determined with the assistance of a third-party valuation firm. Because there had been no public market for the Company’s convertible preferred stock, the third-party valuation firm determined fair value of the convertible preferred stock at each balance sheet date by considering a number of objective and subjective factors, including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors.

Remaining Term. The Company derived the expected term based on the time from the balance sheet date until the preferred stock warrant’s expiration date.

Expected Volatility. Since the Company was previously a private entity prior to the Merger with no historical data regarding the volatility of its preferred stock, the expected volatility used was based on volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, and size.

Risk-free Interest Rate. The risk-free interest rate was based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the warrants.

Expected Dividend Rate. The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future and, therefore, used an expected dividend rate of zero in the valuation model.

Derivative Liability—These amounts represented potential future obligations to transfer assets to the holders at a future date. The fair value of the derivative liability has historically been determined with the assistance of a third-party valuation firm (Level 3 of the fair value hierarchy table) (see further discussion in “Note 5 Convertible Promissory Notes”). At the inception of the liability, there was no public market for the Company’s common stock, and a third-party valuation firm determined fair value of the stock by considering a number of objective and subjective factors, including valuation of comparable companies, sales of common stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors. The derivative liability was marked-to-market each measurement period and any change in fair value was recorded in the consolidated statements of operations. In August 2019, in connection with the Merger, the derivative liability was reclassified to equity in the consolidated balance sheet (see further discussion in “Note 5. Convertible Promissory Notes”).

Common Stock Warrant Liability—These amounts represented potential future obligations to transfer assets to the holders at a future date. The fair value of the warrants was historically determined with the assistance of a third-party valuation firm (Level 3 of the fair value hierarchy table) (see further discussion in Note 5). At the inception of the liability, there was no public market

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for the Company’s common stock, and a third-party valuation firm determined fair value of the stock by considering a number of objective and subjective factors, including valuation of comparable companies, sales of common stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors. The warrant liability was remeasured to fair value at each balance sheet date, and any change in fair value was recognized as a change in fair value of warrant liability in the consolidated statements of operations. The Company estimated the fair value of these warrants using the Black-Scholes option-pricing model. In August 2019, in connection with the Merger, the warrant liability was reclassified to equity in the consolidated balance sheet (see further discussion in “Note 5. Convertible Promissory Notes”).

Inputs used to determine estimated fair value of the warrant liabilities included the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends, and the expected volatility of the underlying stock. The most significant unobservable inputs used in the fair value measurement of the warrant liability were the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term resulted in a directionally similar impact to the fair value measurement.

Leases

On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be presented in accordance with the Company’s historical accounting under ASC Topic 840, Leases. ASC 842 had an impact on the Company’s consolidated balance sheets but did not have an impact on the Company’s net loss.

Under ASC 842, the Company determines if an arrangement is a lease at inception. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected the practical expedient not to recognize on the balance sheet leases with terms of one-year or less and not to separate lease components and non-lease components for long-term real-estate leases. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company estimates the incremental borrowing rate based on industry peers in determining the present value of lease payments. The Company’s facility operating lease has one single component. The lease component results in a right-of-use asset being recorded on the balance sheet, which is amortized as lease expense on a straight-line basis in the Company’s consolidated statements of operations.

Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock was classified as a mezzanine instrument outside of the Company’s capital accounts. Accretion of redeemable convertible preferred stock included the greater of an adjustment to fair market value or the accrual of dividends on and accretion of issuance costs of the Company’s redeemable convertible preferred stock. The carrying values of the redeemable convertible preferred stock were increased or reduced by periodic accretion or reduction to their respective redemption values from the date of issuance to August 31, 2019, the date that all outstanding shares of redeemable convertible preferred stock converted into shares of common stock. The carrying value adjustments were recorded as charges against additional paid-in capital balance.

Preferred stock issuance costs represent costs related to the Company’s issuance of redeemable convertible preferred stock. These amounts were included as a reduction of redeemable convertible preferred stock and were amortized over the estimated redemption period until its conversion to common stock in August 2019. For the year ended December 31, 2019 and 2018, amortization of preferred stock issuance costs amounted to approximately $0.1 million and $40 thousand, respectively.

Redeemable Convertible Preferred Stock Warrants

The Company accounted for warrants to purchase shares of its redeemable convertible preferred stock as liabilities at their estimated fair value because the underlying shares were redeemable, which obligated the Company to transfer assets to the holders at a future date. The warrants were subject to remeasurement to fair value at each balance sheet date, and any fair value adjustments were recognized as change in fair value of redeemable convertible preferred stock warrant liability in the consolidated statements of operations. The Company continued to adjust the liability for changes in fair value until the conversion of the

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redeemable convertible preferred stock into common stock in August 2019. At that time, the redeemable convertible preferred stock warrant liability was adjusted to fair value in the consolidated statements of operations with the final fair value reclassified to equity.

Revenue Recognition

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 contracts with customers the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance 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’s drug candidates have not been approved for sale by the FDA or any other country’s regulatory authority, and the Company has not generated or recognized any revenue from the sale of products.

In March 2015, the Company entered into a license, development, and commercialization agreement (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 (formerly BBI-4000), a topical anticholinergic, 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 and, until such time, if any, as Kaken elects to establish its own source of supply of drug product, Kaken can purchase product supply from the Company to perform all non-clinical studies, and Phase 1 and Phase 2 clinical trials in Japan at cost. Kaken is 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 United States.

The Company evaluates collaboration arrangements to determine whether units of account within the collaboration arrangement exhibit the characteristics of a vendor and customer relationship. The Company determined that the licenses transferred to Kaken in exchange for the upfront fees were representative of this type of a relationship. 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 revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other performance obligations, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition on a prospective basis.

Under Topic 606, the Company evaluated the terms of the Kaken Agreement and the transfer of intellectual property and manufacturing rights (the “license”) was identified as the only performance obligation as of the inception of the agreement. The Company concluded that the license for the intellectual property was distinct from its ongoing supply obligations. The Company further determined that the transaction price under the arrangement was comprised of the $11.0 million upfront payment. The future potential milestone amounts were not included in the transaction price, as they were all determined to be fully constrained. As part of its evaluation of the development and regulatory milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals, each of which is uncertain at this time. The Company will re-evaluate the transaction price each quarter and as uncertain events are resolved or other changes in circumstances occur. Future potential milestone amounts would be recognized as revenue from collaboration arrangements, if unconstrained. The remainder of the arrangement, which largely consisted of both parties incurring costs in their respective territories, provides for the reimbursement of the ongoing supply costs. These costs were representative of a collaboration arrangement outside of the scope of Topic 606 as it does not have the characteristics of a vendor and customer relationship. Reimbursable program costs are recognized proportionately with the delivery of drug substance and are accounted for as reductions to research and development expense and are excluded from the transaction price.

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Under Topic 606, the entire transaction price of $11.0 million was allocated to the license performance obligation. The license was deemed to be delivered in 2015 in connection with the execution of the Kaken Agreement and upon transfer of the underlying intellectual property the performance obligation was fully satisfied. As a result, a cumulative adjustment to reduce deferred revenue and the corresponding sublicensing costs of $2.7 million was recorded upon the adoption of Topic 606 on January 1, 2018. As of December 31, 2019, the Company does not have a deferred revenue or deferred sublicensing costs balance related to the upfront fee on the consolidated balance sheet.

In May 2018, the Company entered into an amendment to the Kaken Agreement (as further amended, “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 NDA for sofpironium bromide. These clinical trials have a benefit to Kaken and have the characteristics of a vendor and customer relationship. The Company has accounted for these under the provisions of Topic 606. This Kaken R&D Payment will be initially recognized using an input method over the average estimated performance period of 1.45 years in proportion to the cost incurred. 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 150 basis points.

Consequently, during the year ended December 31, 2019 and 2018, the Company recognized revenue of $7.9 million and $5.9 million, respectively, related to the Kaken R&D Payment. As of December 31, 2019 and 2018, the Company had a deferred revenue balance related to the Kaken R&D Payment of $1.8 million and $9.7 million, respectively, which is recorded in deferred revenue, current portion and net of current portion, on the accompanying consolidated balance sheets.

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 associated milestone value 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 milestones and any related constraint, and if necessary, adjust 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 or other revenues and earnings in the period of adjustment.

In October 2017, the Company entered into an amendment to the Kaken Agreement, pursuant to which, the Company granted Kaken a prepayment option (the “Kaken Option”) on 50% of the Initiation of Phase 3 milestone (the “Phase 3 Milestone”). The Kaken Option was exercisable by Kaken within 25 business days of receipt of the BBI-4000-CL-203 study topline results. In December 2017, Kaken exercised the Kaken Option and paid the Company $5.0 million (the “Kaken Option Payment”). Upon receipt of the non-refundable Kaken Option Payment, the Company provided Kaken the right to negotiate an exclusive license to develop, manufacture and commercialize each of the Company’s other product candidates in Japan (“ROFN Agreement”). Under the ROFN Agreement, following the completion of any Initial Proof of Concept Clinical Trial (“Initial POC”) for the Company’s other product candidates, the Company must provide Kaken with certain information relating to the results of the clinical trial (“Initial POC Package”). The ROFN Agreement is exercisable by Kaken within 30 days of receipt of the Initial POC Package. In December 2017, the Company recognized collaboration revenue related to the Kaken Agreement of $5.0 million, in connection with the Kaken Option. Additionally, the Company recognized sublicensing costs of $1.0 million, which are included in general and administrative expenses.

The Kaken Agreement was further amended in March 2018 to accelerate payment of the Phase 3 Milestone. The Phase 3 Milestone was modified to be due upon the successful completion of the End of Phase 2 Meeting with the PMDA by Kaken on March 8, 2018, as determined by Kaken in its reasonable discretion (the “Third Milestone”). In March 2018, Kaken triggered the Third Milestone and paid the Company $5.0 million (the “Third Milestone Payment”). Upon receipt of the non-refundable Third Milestone Payment, the ROFN Agreement was amended (the “Amended ROFN Agreement”) to grant an additional option to exercise upon completion of a Subsequent Clinical Trial (first clinical trial after the Initial POC) for the Company’s other product

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candidates. The Company has determined that the ROFN Agreement is not a material right and has not allocated transaction price to this provision. As of December 31, 2019, Kaken has not exercised the Amended ROFN Agreement. In March 2018, the Company recognized collaboration revenue related to the Kaken Agreement of $5.0 million in connection with the Third Milestone. Additionally, the Company recognized sublicensing costs of $1.0 million, which are included in general and administrative expenses.

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 recognized 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). To date, the Company has not recognized any royalty revenue from any collaborative arrangement.

Under collaborative arrangements, the Company has been reimbursed for a portion of the Company’s research and development expenses, including costs of drug supplies. When the research and development services are performed under a reimbursement or cost sharing model with a collaboration partner, the Company records these reimbursements as a reduction of research and development expense in the Company’s consolidated statements of operations.

Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net 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 earnings 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 and warrants, using the treasury stock method, and redeemable convertible preferred stock, 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 purchased from the exercise of stock options or 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:

	Year Ended December 31,
	2019			2018
Warrants to purchase common stock	720,982			55,344
Options to purchase common stock	525,665			376,299
Redeemable convertible preferred stock (as converted into common stock)	—			1,256,466
Warrants to purchase redeemable convertible preferred stock (as converted into common stock)	—			9,005
Total	1,246,647			1,697,114

Segment Data

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is identifying, developing and commercializing innovative and differentiated therapeutics for the treatment of skin diseases. No revenue from sales of product has been generated since inception, and all tangible assets are held in the United States.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends certain disclosure requirements over Level 1,

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Level 2, and Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2018-13, but does not anticipate it will have a material impact on its disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 is aimed at making leasing activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective approach. The adoption did not have a material impact on the Company’s consolidated statements of operations. The new standard has required the Company to establish liabilities and corresponding right-of-use assets on its consolidated balance sheet for operating leases of $0.2 million that existed as of the January 1, 2019 adoption date. The impact on the consolidated balance sheets as of January 1, 2019 was as follows (in thousands):

Balance Sheet		Topic 840 January 1, 2019				Topic 842 January 1, 2019				Impact of Adoption
Operating lease right-of-use asset		$	—			$	219			$	219
Lease liability, current portion		—				(68		)		(68		)
Lease liability, net of current portion		—				(151		)		(151		)

Accrued liabilities consisted of the following (in thousands):

	December 31,
	2019				2018
Accrued contracted research and development services	$	4,532			$	847
Accrued professional fees	1,788				1,269
Accrued compensation	59				569
Accrued note payable issuance costs	—				587
Total	$	6,379			$	3,272

In March 2019, the Company initiated a convertible promissory notes offering pursuant to which the Company issued unsecured convertible promissory notes (the “Prom Notes”), bearing interest at 12.00% with a maturity of one year and convertible into shares of Series C-1 redeemable convertible preferred stock or the most senior preferred equity outstanding at the time of conversion at the option of the holder at a conversion price of $31.05 per share. In addition, the Prom Notes were automatically convertible upon closing of a qualified financing of at least $15.0 million before maturity at a conversion price equal to 80% of the effective price per share paid in the qualified financing, but not to exceed $38.82 per share. Through August 31, 2019, the Company had raised an aggregate principal amount of $7.4 million in Prom Notes, including $1.7 million from certain of the Company’s management and board of directors. On August 31, 2019, immediately prior to the Merger, the Prom Notes and related accrued interest converted into 1,069,740 shares of Private Brickell common stock at a conversion price of $7.54 per share (the “Conversion”).

The Prom Notes also provided for the issuance of warrants at 50% coverage, to acquire 490,683 shares of common stock. The warrants are exercisable for a term of five years at an exercise price of $10.36. Prior to the Merger, the warrants were exercisable at an exercise price of $42.70 or 10% premium to the effective price per share paid in a qualified financing. The Company evaluated the various financial instruments under ASC 480 and ASC 815 and determined the warrants required fair value accounting. The fair value of the warrants was recorded as a warrant liability upon issuance. The fair value of the warrants on the dates of issuance of $1.5 million was determined with the assistance of a third-party valuation firm. The fair value of the warrants was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the Prom Notes based on the effective interest method.

At inception of the Prom Notes offering, the Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815 and determined that the embedded conversion features should be classified as a derivative because

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the exercise price of the Prom Notes are subject to a variable conversion rate. The Company determined that the variable conversion feature was a redemption feature that was not clearly and closely related to the Prom Notes and was therefore required to be bifurcated. In accordance with AC 815, the Company bifurcated the conversion feature of the Prom Notes and recorded a derivative liability.

The embedded derivative for the Prom Notes was carried on the Company’s consolidated balance sheet at fair value. The derivative liability was marked-to-market each measurement period and any change in fair value was recorded as a component of the statements of operations. The fair value of the derivative liabilities on the date of issuance of $1.4 million was determined with the assistance of a third-party valuation firm. The fair value of the conversion feature was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the Prom Notes based on the effective interest method.

The Company evaluated the conversion option to discern whether a beneficial conversion feature existed based upon comparing the effective exercise price of the convertible notes to the fair value of the shares they were convertible into. The Company concluded no beneficial conversion feature existed. During the year ended December 31, 2019, the Company recognized $2.0 million of interest expense, including $0.8 million of accretion of discounts using an effective interest rate of 12.00%.

As a result of the Conversion on August 31, 2019, the Prom Notes payable, warrant liability, and derivative liability balances were reclassified to equity in the consolidated balance sheets. A gain of $2.3 million resulted from the conversion of the Prom Notes, which is included in the gain on extinguishment line in the consolidated statements of operations.

On February 18, 2016, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc. (the “Lender”) under which the Company borrowed $7.5 million upon the execution of the Loan Agreement on February 18, 2016. The interest rate applicable to each tranche was variable based upon the greater of either (i) 9.2% and (ii) the sum of (a) the Prime Rate as reported in The Wall Street Journal minus 3.5%, plus (b) 9.2%; notwithstanding the above, such rate could not exceed the permissible rates of interest on commercial loans under the laws of the State of California. Payments under the Loan Agreement were interest only until June 1, 2017, followed by equal monthly payments of principal and interest through the maturity date of September 1, 2019. The Company was required to make an end of term payment of 4.5% of the sum of (i) term loan advances, plus (ii) 50% of the aggregate unfunded term loan commitments. The Loan Agreement was further amended in December 2017, March 2018, and July 2018 (as further amended, “Loan Agreement”) to provide for an additional combined interest-only period of eight months, and the outstanding loan balance continued to be paid in equal monthly installments of principal and interest. As a result of the amendments, the Company was required to increase the end-of-term payment by $0.1 million. At the inception of the loan and the following amendment dates, the Company paid the Lender aggregate facility fees of $0.2 million in connection with the Loan Agreement.

In connection with the Loan Agreement, the Company issued warrants to the Lender, which are exercisable for 9,005 shares of common stock at a per share exercise price of $33.31 (the “Hercules Capital Warrants”). The Hercules Capital Warrants will terminate, if not earlier exercised, on February 18, 2026. The fair value of the Hercules Capital Warrants was recorded at inception as a redeemable convertible preferred stock warrant liability upon issuance. The fair value of the Hercules Capital Warrants on the date of issuance of $0.3 million was determined using the Black-Scholes option-pricing model and was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the loan based on the effective interest method.

On September 3, 2019, the Company repaid the remaining outstanding loan balance of $2.6 million and an associated accrued interest and aggregate end-of-term payment of $0.6 million, and the Loan Agreement was terminated. At the effective time of the Merger, the warrant liability was reclassified to equity in the consolidated balance sheet. As of December 31, 2019, there were no remaining unaccreted debt discounts and issuance costs.

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

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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, by calculating the present value of lease payments, discounted at 12.0%, the Company’s estimated incremental borrowing rate, over the 2.8 years expected remaining term. As the Company’s lease does not provide an implicit rate, the Company estimated the incremental borrowing rate based on industry peers. Industry peers consist of several public companies in the biotechnology industry with comparable characteristics, including clinical trials progress and therapeutic indications. Amortization of the operating lease right-of-use asset for the Boulder Lease amounted to $0.1 million for the year ended December 31, 2019, and was included in operating expense. As of December 31, 2019, the remaining lease term was 1.8 years.

The terms of the Boulder Lease provide for rental payments on a monthly basis on a graduated scale. Lease expense for the years ended December 31, 2019 and 2018 was $0.1 million.

The following is a summary of the contractual obligations related to operating lease commitments as of December 31, 2019 and the effect such obligations are expected to have on the liquidity and cash flows in future periods (in thousands):

Less than 1 year		$	84
1-3 years		77
3-5 years		—
More than 5 years		—
Imputed interest		(10		)
Total		$	151

Common Stock

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 has reserved authorized shares of common stock for future issuance at December 31, 2019 as follows:

	December 31, 2019
Common stock options outstanding	1,793,602
Common stock warrants	720,982
Options available for grant under the Vical Plan	86,584
Options available for grant under the 2009 Plan	59,011
Total	2,660,179

Preferred Stock

In August 2019, in conjunction with the Merger, all outstanding shares of redeemable convertible preferred stock converted into shares of common stock at a ratio of 1:1 and were immediately exchanged for common stock at an Exchange Ratio of 2.4165 as a result of the Merger.  

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Redeemable convertible preferred stock consisted of the following prior to the conversion on August 31, 2019 (in thousands, except share data):

	Preferred Shares Authorized			Preferred Shares Issued and Outstanding			Par Value				Carrying Value				Common Stock Issued Upon Conversion
Series A	1,162,505			401,309			$	4			$	12,164			401,309
Series B	882,216			286,151			3				10,084				286,151
Series C	869,565			256,583			3				11,630				256,583
Series C-1	1,531,942			312,423			3				14,138				312,423
	4,446,228			1,256,466			$	13			$	48,016			1,256,466

Redeemable convertible preferred stock consisted of the following as of December 31, 2018 (in thousands, except share data):

	Preferred Shares Authorized			Preferred Shares Issued and Outstanding			Par Value				Carrying Value				Common Stock Issuable Upon Conversion
Series A	1,162,505			401,309			$	4			$	16,098			401,309
Series B	882,216			286,151			3				13,011				286,151
Series C	869,565			256,583			3				13,018				256,583
Series C-1	1,268,657			312,423			3				16,163				312,423
	4,182,943			1,256,466			$	13			$	58,290			1,256,466

As of December 31, 2019, the Company had no outstanding shares of redeemable convertible preferred stock and had not designated the rights, preferences, or privileges of any class or series of preferred stock. Although, the Company’s board of directors has the authority, at its discretion, to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion right, voting rights, terms of redemption, liquidation preferences, and the number of shares constituting any class or series of preferred stock, without further vote or action by the stockholders.

Equity Incentive Plans

The Company’s 2009 Equity Incentive Plan, as amended and restated (the “2009 Plan”), provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors, and consultants of the Company. At December 31, 2019, the total shares authorized under the 2009 Plan were 1,634,655 shares. The board of directors or a designated committee of the board of directors is responsible for the administration of the 2009 Plan and determines the term, exercise price, and vesting terms of each option. Options granted under the 2009 Plan have an exercise price equal to the market value of the common stock at the date of grant and expire ten years from the date of grant. At December 31, 2019, a total of 59,011 shares were available for grant under the 2009 Plan.

In connection with the Merger, the Company adopted Vical’s Equity Incentive Plan (the “Vical Plan”). At December 31, 2019, the total shares authorized under the Vical Plan were 413,710 shares. The Vical Plan, as amended, provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors, and consultants of the Company. The plan provides for the grant of incentive and nonstatutory stock options and the direct award or sale of shares, including restricted stock. The exercise price of stock options must equal at least the fair market value of the underlying common stock on the date of grant. The maximum term of options granted under the plan is ten years. The Vical Plan also limits the number of options that may be granted to any plan participant in a single calendar year to 1,300,000 shares. At December 31, 2019, a total of 86,584 shares were available for grant under the Vical Plan.

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A summary of stock option activity under the 2009 Plan and the Vical Plan is as follows, as converted associated with stock split and conversion:

	Shares			Weighted Average Exercise  Price				Total Intrinsic Value				Weighted Average Remaining Contractual Life  (In Years)
Outstanding at December 31, 2018	696,842			$	13.21
Acquired under Vical Plan	184,087			$	75.98
Granted	1,088,260			$	4.67
Exercised	—			$	—
Forfeited or expired	(175,587	)		$	28.22
Outstanding at December 31, 2019	1,793,602			$	13.00			$	4,971			8.49
Options vested and exercisable at December 31, 2019	525,665			$	28.41			$	73,878			5.97

Share-based Compensation Expense

Total stock-based compensation expense related to stock options granted under the 2009 Plan and the Vical Plan was allocated as follows (in thousands):

	Year Ended December 31,
	2019				2018
Research and development	$	349			$	340
General and administrative	1,183				371
Total stock-based compensation expense	$	1,532			$	711

As of December 31, 2019, the Company had $5.7 million of total unrecognized share-based compensation expense, which is expected to be recognized over a period of approximately 3.32 years years.

Fair Value Assumptions

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock-based awards. The determination of the fair value of stock-based awards on the date of grant using an option-pricing model is affected by the value of the Company’s stock price, as well as assumptions regarding subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends.

Because the Company has a limited history of stock purchase and sale activity, the Company estimates expected volatility of the common stock by using the average share fluctuations of companies similar in size, operations, and life cycle. The expected term of stock options granted to employees, including members of the board of directors, is determined as the midpoint between the vesting date and the contractual end of the option grant. The expected term of all other stock options granted is based on the Company’s historical share option exercise experience, which approximates the midpoint between the vesting date and the contractual end of the option grant. The risk-free interest rates used in the valuation model are based on U.S. Treasury yield issues in effect at the time of grant for a period commensurate with the expected term of the grant. The Company does not anticipate paying any dividends in the foreseeable future and therefore uses an expected dividend yield of zero.

Management has estimated a forfeiture rate of 7% based on past experience, forfeiture rates, and the individuals receiving the options. The Company monitors actual forfeiture experience and periodically updates forfeiture estimates based on actual experience.

Stock Options Granted to Employees

During the year ended December 31, 2019 and 2018, the Company granted 982,890 stock options and 252,681 stock options, respectively, to employees and non-employee directors to purchase shares of common stock with a weighted-average grant date

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fair value of $3.24 and $4.16 per share, respectively, and a weighted-average exercise price of $4.58 and $5.68 per share, respectively.

The assumptions used to calculate the fair value of stock options granted to employees and non-employee directors under the 2009 Plan are as follows, presented on a weighted average basis:

	Year Ended December 31,
	2019			2018
Expected term (in years)	6.1			6.1
Expected volatility	83.22	%		85.43	%
Risk free interest rate	1.44	%		2.77	%
Expected dividend yield	—	%		—	%

Stock Options Granted to Non-employees

During the year ended December 31, 2019 and 2018, the Company granted 105,370 stock options and 15,188 stock options, respectively, to persons other than employees and non-employee members of the Company’s board of directors with a weighted-average exercise price of $5.53 and $5.68 per share, respectively.

The assumptions used to calculate the fair value of stock options granted to non-employees under the 2009 Plan are as follows, presented on a weighted average basis:

	Year Ended December 31,
	2019			2018
Expected term (in years)	6.02			9.96
Expected volatility	82.82	%		86.17	%
Risk free interest rate	1.49	%		2.69	%
Expected dividend yield	—	%		—	%

During the years ended December 31, 2019 and 2018, the Company recorded no income tax benefits for the net operating losses incurred in each year, due to its uncertainty of realizing a benefit from those items.

A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31,
	2019			2018
Federal statutory income tax rate	21.00	%		21.00	%
State taxes, net of federal benefit	3.16			3.71
Research and development tax credits	3.25			8.77
Permanent differences and other	(2.51	)		2.36
Transaction costs	(1.88	)		—
Stock-based compensation	(1.02	)		—
Change in tax rate	0.02			1.80
Change in deferred tax asset valuation allowance	(22.02	)		(37.64	)
Effective income tax rate	—	%		—	%

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Approximate deferred tax assets (liabilities) resulting from timing differences between financial and tax bases were associated with the following items (in thousands):

	Year Ended December 31,
	2019				2018
Net operating loss carryforwards	$	82,703			$	8,918
Research and development credit	15,509				3,207
Depreciable assets	10,443				—
Accrued expenses	719				—
Deferred revenue	449				2,040
Net book value of intangible assets	415				75
Stock-based compensation	332				520
Other	63				514
Net deferred tax asset	110,633				15,274
Less: valuation allowance	(110,633		)		(15,274		)
Net deferred tax assets	$	—			$	—

At December 31, 2019, the Company had deferred tax assets of $110.6 million. Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation allowance has been established to offset the net deferred tax asset.

As of December 31, 2019 and 2018, the Company had available federal NOL carryforwards of approximately $403.9 million and $36.4 million, respectively. The NOL generated in 2019 of $25.1 million and 2018 of $2.4 million will carry forward indefinitely and be available to offset up to 80% of future taxable income each year. NOLs generated prior to 2018 will expire from 2019 through 2038. In addition, the Company had federal research and development credits and orphan drug credit carryforwards of $30.3 million and $3.2 million as of December 31, 2019 and 2018, respectively, to reduce future federal income taxes, if any. These carryforwards expire from 2019 through 2038 and are subject to review and possible adjustment by the IRC. The Company also has available state NOL carryforwards of approximately $350.6 million and $31.0 million as of December 31, 2019 and 2018, respectively, which expire from 2028 to 2038. In addition, through the Merger, the Company acquired Vical’s California research and development credits of approximately $9.3 million as of December 31, 2019 and 2018, to reduce future California income tax, if any. The California research and development credits do not expire. 

Pursuant to Sections 382 and 383 of the Internal Revenue Code “IRC,” annual use of the Company’s net operating loss (“NOL”) and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Vical completed a Section 382 analysis through December 31, 2011 and as a result of an ownership change on December 29, 2006, the Company estimates that $89.3 million of Vical’s acquired NOL carryforwards were effectively eliminated under Section 382 for federal tax purposes. The Company also estimates $10.8 million of Vical’s acquired research and development credits and other tax credits were effectively eliminated under Section 383 for federal purposes. Accordingly, after consideration of these limitations, the Company recorded federal and state NOL carryforward of $253.1 million and $291.5 million, respectively, and federal and state credit carryforwards of $24.6 million as a result of the Merger. Vical has not conducted a Section 382 study for periods between December 31, 2011 and the date of the Merger. As such, the Company cannot provide any assurance that a change in ownership within the meaning of the IRC has not occurred between those dates. There is a risk that additional changes in ownership could have occurred between those dates.

It is further noted, the Company has not completed an IRC 382 and 383 analysis to determine if a change in ownership has incurred since the inception of the Company. If a change in ownership were to have occurred, additional NOL and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

All federal and state NOL and credit carryforwards listed above are reflected before the reduction for amounts effectively eliminated under Sections 382 and 383. Based upon statute, federal and state NOLs and credits are expected to expire as follows (in thousands):

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Expiration Date:	Federal NOLs				State NOLs				Federal R&D Credit				Federal Orphan Drug Credit				State R&D Credit
2020	$	13,311			$	—			$	334			$	2,288			$	—
2021	9,866				—				334				1,962				—
2022	24,100				—				483				1,610				—
2023	24,743				—				322				929				—
2024	26,332				—				213				663				—
2025 and thereafter	242,941				350,557				7,387				13,813				—
Indefinite	62,618				—				—				—				9,265
Totals	$	403,911			$	350,557			$	9,073			$	21,264			$	9,265

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2019 and 2018. Management reevaluates the positive and negative evidence at each reporting period. The Company’s valuation allowance increased by approximately $95.4 million for year ended December 31, 2019, which includes a full valuation allowance against the acquired deferred tax assets from the Merger. For the year ended December 31, 2018, the valuation allowance increased by $3.5 million.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the Company believes that it has appropriate support for the positions taken on its tax returns, the Company regularly assesses the potential outcome of examinations by tax authorities in determining the adequacy of its provision for income taxes. Before the merger, the Company had no material unrecognized tax benefits and no adjustments to its financial positions. However, the Merger brought with it certain unrecognized tax benefits.

As a result of the Merger, the Company acquired gross unrecognized tax benefits with a balance of $21.7 million as of December 31, 2019. The Company does not anticipate any significant decreases in its unrecognized tax benefits over the next 12 months. The Company’s policy is to recognize the interest expense and/or penalties related to income tax matters as a component of income tax expense. The Company had no accrual for interest or penalties on its balance sheets at December 31, 2019 and 2018, and has not recognized interest and/or penalties in its statements of operations for the years ended December 31, 2019 and 2018.

As of December 31, 2019, the Company’s U.S. federal and state tax returns remain subject to examination by tax authorities beginning with the tax year ended December 31, 2016. However, due to NOLs and credit carryforwards being generated and carried forward from prior tax years, substantially all tax years may also be subject to examination.

This information has been prepared on a basis consistent with that of the audited consolidated financial statements. We believe that all necessary adjustments, consisting of normal recurring accruals and adjustments, have been included to present fairly the quarterly financial data. The results of historical periods are not necessarily indicative of the results of operations for any future period.

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The table below summarizes the Company’s unaudited consolidated quarterly operating results for the year ended December 31, 2019:

	For the Quarters Ended
	March				June				September				December
	(unaudited, in thousands, except per share data)
Collaboration revenue	$	3,492			$	2,573			$	1,183			$	669
Loss from operations	$	(4,593	)		$	(2,979	)		$	(6,055	)		$	(10,841	)
Net loss	$	(4,580	)		$	(3,654	)		$	(4,781	)		$	(10,862	)
Net income (loss) attributable to common stockholders	$	5,939			$	(3,817	)		$	(4,863	)		$	(10,862	)
Basic net income (loss) per common share attributable to common stockholders	$	10.08			$	(6.49	)		$	(1.65	)		$	(1.38	)
Diluted net loss per common share attributable to common stockholders	$	(2.48	)		$	(6.49	)		$	(1.65	)		$	(1.38	)

The table below summarizes the Company’s unaudited consolidated quarterly operating results for the year ended December 31, 2018:

	For the Quarters Ended
	March				June				September				December
	(unaudited, in thousands, except per share data)
Collaboration revenue	$	5,000			$	373			$	3,042			$	2,473
Income (loss) from operations	$	764			$	(3,315	)		$	(2,299	)		$	(3,601	)
Net income (loss)	$	527			$	(3,552	)		$	(2,541	)		$	(3,670	)
Net loss attributable to common stockholders	$	(2,713	)		$	(4,417	)		$	(3,507	)		$	(4,535	)
Basic and diluted net loss per common share attributable to common stockholders	$	(4.63	)		$	(7.53	)		$	(5.98	)		$	(7.72	)

Private Placement Offerings

On February 17, 2020, the Company and 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 agreed to purchase, and the Company agreed to sell, upon the terms and subject conditions stated therein (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. 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 the February 28, 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 off of 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

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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.

The Company agreed with Lincoln Park that it will not enter into any “variable rate” transactions with any third party 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.

Actual sales of shares of common stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The Company expects that any net proceeds received by the Company from such sales to Lincoln Park will be used for research and development, working capital and general corporate purposes.

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.

Amended and Restated License Agreement with Bodor

On February 17, 2020, the Company, Brickell Subsidiary, Inc., 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 Bodor license agreement, dated December 15, 2012, entered into between the Company 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 technology 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. In exchange for entering into the Amended and Restated License Agreement, settling the previously disclosed dispute, and resolving the associated litigation between the Company and Bodor, the Company made an upfront payment of $1.0 million in cash to Bodor following the execution of the Amended and Restated License Agreement and the Settlement Agreement. The Company is required to further pay Bodor (i) a specified percentage of all royalties received from covered sales in territories pursuant to the Kaken Agreement; (ii) a modified percentage of any sublicensing income the Company receives pursuant to the Kaken Agreement; (iii) a low single-digit royalty related to a newly filed provisional patent application anywhere outside of the territories in the Kaken Agreement by the Company; and (iv) a specified cash amount following the occurrence of certain new milestone events.

The Company also agreed to issue to Bodor shares of its common stock upon the occurrence of certain new milestone events, as further described in the Amended and Restated License Agreement. The Amended and Restated License Agreement also imposes various diligence, sublicensing, milestone, royalty, notice, disbursement, dispute resolution and other obligations and restrictions on the Company. Consistent with the original license agreement, if the Company were to fail to comply with its material obligations under the Amended and Restated License Agreement, and if the Company does not successfully cure such alleged breach, then Bodor maintains the right to terminate the license, subject to the dispute procedures as set forth therein, in which event the Company might not be able to develop or market sofpironium bromide for its licensed use, if such termination is deemed valid.

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