bbi-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)


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

For the quarterly period ended June 30, 2022


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

For the transition period from to

Commission File Number: 000-21088

BRICKELL BIOTECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

93-0948554

(State or other jurisdiction of incorporation or organization)

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

5777 Central Avenue,

Boulder,

80301

(Address of principal executive offices)

(Zip Code)

(720) 505-4755

(Registrant’s telephone number, including area code)

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


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

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

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

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


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

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

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

As of August 11, 2022, there were 2,873,965 shares of the registrant’s common stock outstanding.

EXPLANATORY NOTE

Brickell Biotech, Inc. (the “Company”) is filing this Amendment No. 1 (this “Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was originally filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2022 (the “Original 10-Q”), to amend and restate certain items in the Company’s condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, condensed consolidated statements of operations and condensed consolidated statements of redeemable preferred stock and stockholders’ equity for the three and six months ended June 30, 2022 and 2021, related notes, and certain other related matters in the Original 10-Q.

Background of Restatement

Subsequent to the filing of the Original 10-Q, the Company determined that certain of the information in the Original 10-Q had not been appropriately adjusted for the 1-for-45 reverse stock split that the Company had effected on July 5, 2022, after the end of the period covered by, but prior to the filing of, the Original Form 10-Q as required by Accounting Standards Codification 260 and related guidance. Accordingly, the Company is restating the interim financial statements in the Original 10-Q to adjust retroactively common stock share, per-share amounts, and other related balances and computations for the reverse stock split. In addition, because the par value per share of the Company’s common stock was not changed by the reverse stock split, historical amounts for common stock par value and additional paid-in capital have been adjusted retroactively to reflect the reverse stock split.

Updates to Management’s Discussion and Analysis of Financial Condition and Results of Operations, Controls and Procedures, and Risk Factor Disclosures

All common stock share, per-share amounts, and other related balances and computations presented in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors” give effect to the 1-for-45 reverse stock split of the Company’s outstanding shares of common stock that occurred on July 5, 2022.

In addition, the Company’s management has concluded that in light of the presentation error described above, a material weakness exists in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as of June 30, 2022, as further discussed in Part I, Item 4, “Controls and Procedures.”

Items Amended in this Form 10-Q/A

This Form 10-Q/A sets forth the Original 10-Q, as modified and superseded where necessary to reflect the restatement and the related internal control considerations. Accordingly, the following items included in the Original 10-Q have been amended:

•Part I, Item 1, Financial Statements

•Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations

•Part I, Item 4, Controls and Procedures

•Part II, Item 1A, Risk Factors

Additionally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is including with this Form 10-Q/A currently dated certifications from its principal executive officer and principal financial officer as Exhibits 31.1, 31.2 and 32.1.

Except as described above, this Form 10-Q/A does not amend, update, or change any other disclosures in the Original 10-Q. This Form 10-Q/A does not reflect events occurring after the filing of the Original 10-Q, and, except as expressly described above, does not modify or update any other disclosures in the Original 10-Q.

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FORWARD-LOOKING STATEMENTS

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

We based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and business development activities, pipeline legal status, short-term and long-term business operations and objectives, employees, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report, in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and under a similar heading in any other periodic or current report we may file with the SEC in the future. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge quickly and from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business and operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement.

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

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BRICKELL BIOTECH, INC.

FORM 10-Q/A

INDEX


FORWARD-LOOKING STATEMENTS		4
RISK FACTORS SUMMARY		6
PART I. FINANCIAL INFORMATION		7
	ITEM 1. Financial Statements (Restated)	7






	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	43
	ITEM 4. Controls and Procedures	43
PART II. OTHER INFORMATION		45
	ITEM 1. Legal Proceedings	45
	ITEM 1A. Risk Factors	45
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	75
	ITEM 3. Defaults Upon Senior Securities	75
	ITEM 4. Mine Safety Disclosures	75
	ITEM 5. Other Information	75
	ITEM 6. Exhibits	76

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RISK FACTORS SUMMARY

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

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

•Clinical drug development for our pipeline assets is expensive, time-consuming, and uncertain. Any data resulting from our trials may not be favorable for further development.

•Our inability to maintain compliance with continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”), including if we are unable to maintain the required minimum closing bid price of our common stock, could result in the delisting of our common stock.

•Major public health issues, and specifically the pandemic and related impacts caused by the ongoing spread of COVID-19 and COVID-19 variants, including in terms of constraints on supply chains and human resource availability, could have an adverse impact on our financial condition and results of operations and other aspects of our business and that of our suppliers, contractors, and business partners.

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

•We rely and expect to continue to rely on third-party contractors for supply, manufacture, and distribution of preclinical, clinical, and commercial supplies, and possibly sales and promotion, of any future product candidates.

•We may not be able to obtain, afford, maintain, enforce, or protect our intellectual property rights covering our product candidates, including our autoimmune and inflammatory portfolio, and related technologies, that are of sufficient type, breadth, and term throughout the world.

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

•Our receipt of future payments from Botanix SB Inc. (“Botanix”) is contingent on various factors outside of our control, including the successful development, regulatory approval, and commercialization of sofpironium bromide gel, 15%, by Botanix outside of Japan, the successful continued commercialization of sofpironium bromide gel, 5% (“ECCLOCK®”) by Kaken Pharmaceutical Co., Ltd. (“Kaken”) in Japan, and the sufficiency of funds to pay us and Bodor Laboratories, Inc. (“Bodor”), the licensor of this product.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (RESTATED)

(in thousands, except share and per share data)

(unaudited)




	June 30, 2022		December 31, 2021

Assets
Current assets:
Cash and cash equivalents	$	14,480	$	26,884

Prepaid expenses and other current assets	3,771		2,716
Total current assets	18,251		29,600
Property and equipment, net	45		58
Contract asset, net of current portion	181		—
Operating lease right-of-use asset	30		59

Total assets	$	18,507	$	29,717
Liabilities, redeemable preferred stock, and stockholders’ equity
Current liabilities:
Accounts payable	$	1,263	$	1,605
Accrued liabilities	1,571		3,136
Lease liability, current portion	36		69





Total current liabilities	2,870		4,810








Commitments and contingencies (Note 7)

Redeemable preferred stock, $0.01 par value, 5,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 1 and 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	—		—
Stockholders’ equity:
Common stock, $0.01 par value, 300,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 2,690,360 and 2,652,828 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	27		27
Additional paid-in capital	171,534		170,247

Accumulated deficit	(155,924)		(145,367)
Total stockholders’ equity	15,637		24,907
Total liabilities, redeemable preferred stock, and stockholders’ equity	$	18,507	$	29,717

See accompanying notes to these condensed consolidated financial statements.

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BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue
Contract revenue	$	4,315	$	—	$	4,315	$	—
Royalty revenue	—		151		92		168
Total revenue	4,315		151		4,407		168

Operating expenses:
Research and development	1,865		8,838		7,878		14,890
General and administrative	3,908		2,891		7,394		5,858
Total operating expenses	5,773		11,729		15,272		20,748
Loss from operations	(1,458)		(11,578)		(10,865)		(20,580)
Other income	313		459		314		490

Interest expense	(2)		(30)		(6)		(64)




Net loss attributable to common stockholders	$	(1,147)	$	(11,149)	$	(10,557)	$	(20,154)




Net loss per common share attributable to common stockholders, basic and diluted	$	(0.43)	$	(7.29)	$	(3.98)	$	(14.03)

Weighted-average shares used to compute net loss per common share attributable to common stockholders, basic and diluted	2,655,251		1,530,142		2,654,046		1,436,591

See accompanying notes to these condensed consolidated financial statements.

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BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (RESTATED)

(in thousands, except share data)

(unaudited)


	Series A Redeemable Preferred Stock			Common Stock			Additional Paid-In-Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Par Value		Shares	Par Value



















Balance, December 31, 2021	—	$	—	2,652,828	$	27	$	170,247	$	(145,367)	$	24,907






Stock-based compensation	—	—		—	—		551		—		551

Net loss	—	—		—	—		—		(9,410)		(9,410)
Balance, March 31, 2022	—	—		2,652,828	27		170,798		(154,777)		16,048
Issuance of redeemable preferred stock	1	—		—	—		—		—		—



Common stock issued, net of issuance costs of $46	—	—		31,557	—		131		—		131

Issuance of common stock for cash under employee stock purchase plan	—	—		5,975	—		29		—		29
Stock-based compensation	—	—		—	—		576		—		576

Net loss	—	—		—	—		—		(1,147)		(1,147)
Balance, June 30, 2022	1	$	—	2,690,360	$	27	$	171,534	$	(155,924)	$	15,637














































Balance, December 31, 2020	—	$	—	1,190,032	$	12	$	133,016	$	(105,893)	$	27,135

Issuance of common stock upon exercise of warrants	—	—		276,553	3		8,966		—		8,969
Issuance of common stock, net of issuance costs of $50	—	—		24,079	—		1,628		—		1,628
Issuance of common stock upon restricted stock unit settlement, net of shares withheld for taxes	—	—		2,141	—		(52)		—		(52)
Stock-based compensation	—	—		—	—		469		—		469

Net loss	—	—		—	—		—		(9,005)		(9,005)
Balance, March 31, 2021	—	—		1,492,805	15		144,027		(114,898)		29,144



Common stock issued, net of issuance costs of $259	—	—		105,977	1		3,936		—		3,937
Stock-based compensation	—	—		—	—		421		—		421

Net loss	—	—		—	—		—		(11,149)		(11,149)
Balance, June 30, 2021	—	$	—	1,598,782	$	16	$	148,384	$	(126,047)	$	22,353

See accompanying notes to these condensed consolidated financial statements.

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BRICKELL BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,557)	$	(20,154)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	1,127		890
Depreciation	13		8

Gain on loan extinguishment	—		(437)













Changes in operating assets and liabilities:
Prepaid expenses and other current assets, including long-term portion of contract asset	(1,240)		(1,092)
Accounts payable	(342)		1,932
Accrued liabilities	(1,510)		(1,352)





Net cash used in operating activities	(12,509)		(20,205)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	—		(36)


Net cash used in investing activities	—		(36)

CASH FLOWS FROM FINANCING ACTIVITIES:


Proceeds from the issuance of common stock, net of issuance costs	131		5,565
Payments of taxes related to net share settlement of equity awards	(55)		—
Proceeds from the issuance of commons stock under employee stock purchase program	29		—
Proceeds from the exercise of warrants	—		8,969





Net cash provided by financing activities	105		14,534

NET DECREASE IN CASH AND CASH EQUIVALENTS	(12,404)		(5,707)
CASH AND CASH EQUIVALENTS—BEGINNING	26,884		30,115
CASH AND CASH EQUIVALENTS—ENDING	$	14,480	$	24,408



Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Forgiveness of Paycheck Protection Program loan	$	—	$	437

See accompanying notes to these condensed consolidated financial statements.

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BRICKELL BIOTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Brickell Biotech, Inc. (the “Company” or “Brickell”) is a clinical-stage pharmaceutical company striving to transform patient lives by developing innovative and differentiated prescription therapeutics for the treatment of autoimmune, inflammatory, and other debilitating diseases. Brickell’s pipeline consists of several development-stage candidates and a cutting-edge platform with broad potential in autoimmune and inflammatory disorders. This includes: BBI-02, a novel, clinical-stage, potential first-in-class, oral DYRK1A inhibitor with strong preclinical validation for treatment of autoimmune and inflammatory diseases, such as atopic dermatitis, rheumatoid arthritis, and type 1 diabetes; BBI-10, a novel, preclinical-stage oral Stimulator of Interferon Genes (STING) inhibitor that has demonstrated dose-dependent cytokine reduction in nonclinical studies providing proof of mechanism for the potential treatment of autoinflammatory and rare genetic diseases; and a platform of next-generation DYRK, CDC2-like kinase (CLK), Leucine-Rich Repeat Kinase 2 (LRRK2), and TTK protein kinase (TTK), also known as Monopolar spindle 1 (Mps1) kinase, inhibitors with the potential to produce treatments for autoimmune, inflammatory, and other debilitating conditions. Brickell’s executive management team and board of directors bring extensive experience in product development and global commercialization, having served in senior leadership roles at large global pharmaceutical companies and biotechs that have developed and/or launched successful products, including several that were first-in-class and/or achieved iconic status, such as Cialis®, Taltz®, Gemzar®, Prozac®, Cymbalta®, Juvederm®, Pluvicto®, and Sofpironium Bromide. Brickell’s strategy is to leverage this experience to in-license, acquire, develop, and commercialize innovative pharmaceutical products that Brickell believes can meaningfully benefit patients who are suffering from chronic, debilitating diseases that are underserved by available therapies.

Reverse Stock Split (Restated)

On July 5, 2022, the Company effected a 1-for-45 reverse stock split of outstanding shares of its common stock. All common stock share, per-share amounts, and other related balances and computations reported as of and prior to June 30, 2022 in the condensed consolidated financial statements and notes reflect the adjusted common stock share, per-share amounts, and other related balances and computations that were effective on and after July 5, 2022. Additional details of the reverse stock split are reported in Note 8. “Capital Stock.”

Liquidity and Capital Resources

The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to in-license and develop product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the six months ended June 30, 2022, the Company had a net loss of $10.6 million and net cash used in operating activities of $12.5 million. As of June 30, 2022, the Company had cash and cash equivalents of $14.5 million and an accumulated deficit of $155.9 million.

The Company believes that its cash and cash equivalents as of June 30, 2022, combined with $2.0 million from expected near-term payments from Botanix SB Inc. (“Botanix”) under the Asset Purchase Agreement (as defined in Note 4. “Strategic Agreements”), will be sufficient to fund its operations for at least the next 12 months. The Company expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. Additional funding will be required in the future to continue with the Company’s planned development and other activities. However, the Company may be unable to raise additional funds, which would have a negative impact on the Company’s business, financial condition, and the Company’s ability to develop its pipeline. To the extent that additional funds are raised through the sale of equity, the issuance of securities will result in dilution to the Company’s stockholders.

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NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On July 5, 2022, the Company effected a 1-for-45 reverse stock split of outstanding shares of its common stock. Accordingly, all references to common stock share, per-share amounts, and other related balances and computations in the accompanying condensed consolidated financial statements and related notes have been adjusted to reflect the reverse stock split, on a retroactive basis, unless indicated otherwise.

Subsequent to the filing of the Original 10-Q, the Company determined that certain components of the Company’s equity and disclosures of common stock share, per-share amounts, and other related balances and computations in the Original 10-Q should have been adjusted for the 1-for-45 reverse stock split that the Company had effected on July 5, 2022, after the end of the period covered by, but prior to the filing of, the Original Form 10-Q. Accordingly, all common stock share, per-share amounts, and other related balances and computations have been restated in the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, condensed consolidated statements of operations and condensed consolidated statements of redeemable preferred stock and stockholders’ equity for the three- and six-month periods ended June 30, 2022 and 2021, and certain notes related thereto. Because the par value per share of the Company’s common stock was not changed by the reverse stock split, historical amounts for common stock par value and additional paid-in capital have been adjusted retroactively to reflect the reverse stock split in the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, and in the condensed consolidated statements of redeemable preferred stock and stockholders’ equity for the three- and six-month periods ended June 30, 2022 and 2021.

The following table illustrates the impact of the restatement of basic and diluted net loss per common share attributable to common stockholders on the condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
As previously reported	$	(0.01)	$	(0.16)	$	(0.09)	$	(0.31)
Adjustment	$	(0.42)	$	(7.13)	$	(3.89)	$	(13.72)
As restated	$	(0.43)	$	(7.29)	$	(3.98)	$	(14.03)

The following table illustrates the impact of the restatement of common stock par value and additional paid-in capital on the condensed consolidated balance sheets:


	June 30, 2022				December 31, 2021
	Common Stock		Additional Paid-In Capital		Common Stock		Additional Paid-In Capital
As previously reported	$	1,211	$	170,350	$	1,194	$	169,080
Adjustment	(1,184)		1,184		(1,167)		1,167
As restated	$	27	$	171,534	$	27	$	170,247

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Brickell Subsidiary, Inc. (“Brickell Subsidiary”), and are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the

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United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the Company’s financial information. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022, for any other interim period, or for any other future period. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue 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 produce the compounds; dependence on collaborative parties; uncertainties associated with obtaining and enforcing patents and other intellectual property rights; clinical implementation and success; the lengthy and expensive regulatory approval process; compliance with regulatory and other legal requirements; competition from other products; uncertainty of broad adoption of its approved products, if any, by physicians and patients; significant competition; ability to manage third-party manufacturers, suppliers, contract research organizations, business partners and other alliances; and obtaining additional financing to fund the Company’s efforts.

The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to develop its product candidates. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

Fair Value Measurements

Fair value is the price that the Company would receive to sell an asset or pay to transfer a liability in a timely transaction with an independent counterparty in the principal market, or in the absence of a principal market, the most advantageous market for the asset or liability. A three-tier hierarchy distinguishes between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs). The hierarchy is summarized in the three broad levels listed below:

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

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

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

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


	Level 1



	June 30, 2022		December 31, 2021
Assets:
Money market funds	$	13,480	$	25,875

Fair Value of Financial Instruments

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

Money Market Funds—The carrying amounts reported as cash and cash equivalents in the condensed consolidated balance sheets approximate their fair values due to their short-term nature and/or market rates of interest (Level 1 of the fair value hierarchy).

The carrying values of cash equivalents, other current assets, accounts payable, and accrued liabilities approximate fair value due to the short-term maturity of those items.

Revenue Recognition

The Company has recognized revenue primarily from royalty fees received under the Kaken Agreement and upfront fees, research reimbursements, and sublicense income received under the Asset Purchase Agreement described in Note 4. “Strategic Agreements.” The terms of the agreements may include non-refundable upfront fees, funding of research and development activities, payments based upon achievement of milestones, and various sales-based payments.

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. In determining the appropriate amount of revenue to be recognized, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. At contract inception, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company utilizes judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of

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measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Contract Revenue

The Company evaluates its contracts, including asset sale arrangements that involve the Company’s rights to intellectual property, to determine whether they are outputs of the Company’s ordinary activities and whether the counterparty meets the definition of a customer. If the arrangement is determined to be a contract with a customer and the goods or services sold are determined to be distinct from other performance obligations identified in the arrangement, the Company recognizes revenue primarily from non-refundable upfront fees, milestone payments, and sales-based payments allocated to the goods or services when (or as) control is transferred to the customer, and the customer can use and benefit from the goods or services.

Licenses of Intellectual Property

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

Milestones

At the inception of each arrangement that includes milestone payments (variable consideration), excluding sales-based milestone payments discussed below, 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. The most likely amount method is generally utilized when there are only two possible outcomes and represents the Company’s best estimate of the single most likely outcome to be achieved. If it is probable that a significant revenue reversal would not occur, the variable consideration for the associated milestone is included in the transaction price. Milestone payments contingent on regulatory approvals that are not within the Company and the Company’s collaboration partner’s control, as applicable, are generally not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the variable consideration. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue in the period of adjustment.

Sales-Based Payments

For license arrangements that include sales-based payments such as royalties or milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the sales-based payments relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the sales-based payment has been allocated has been satisfied (or partially satisfied). Sales-based payments received under license arrangements are recorded as royalty revenue in the Company’s condensed consolidated statements of operations.

For non-license arrangements that include sales-based payments, including earnout payments and milestone payments based on the level of sales, the Company estimates the sales-based payments (variable consideration) to be achieved and recognizes revenue to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company may use either the most likely amount, as described above, or the expected value method, in making such estimates based on the nature of the payment to be received and whether there is a wide range of outcomes or only two possible outcomes. The expected value method represents the sum of probability-weighted amounts in a range of possible consideration amounts. The Company bases its estimates using the applicable method described above on factors such as, but not limited to,

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required regulatory approvals, historical sales levels, market events and projections, and other factors as appropriate. The Company updates its estimates at each reporting period based on actual results and future expectations as necessary.

Contract Asset

For non-license arrangements involving the upfront sale and transfer of the Company’s intellectual property rights, the Company recognizes estimated variable consideration as revenue as discussed above before the customer pays consideration or before payment is due. The excess revenue recognized is presented as a contract asset on the Company’s condensed consolidated balance sheets. Actual amounts paid or due by the customer are recorded as a reduction to the contract asset. Any revisions to the Company’s estimated revenue based on actual results and future expectations are recognized as an adjustment to the contract asset.

Research and Development

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

The Company has entered into and may continue to enter into licensing or subscription arrangements to access and utilize certain technology. In each case, the Company evaluates if the license agreement results in the acquisition of an asset or a business. To date, none of the Company’s license agreements have been considered an acquisition of a business. For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments made before product approval that do not meet the definition of a derivative, are immediately recognized as research and development expenses when they are paid or become payable, provided there is no alternative future use of the rights in other research and development projects.

Clinical Trial Accruals

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

Net Loss per Share (Restated)

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

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

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


	Three and Six Months Ended June 30,
		2022	2021
Outstanding warrants		621,063	621,063
Outstanding options		232,084	149,248
Unvested restricted stock units		—	1,054


Total		853,147	771,365

Leases

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

Redeemable Preferred Stock

The Company issued one share of redeemable preferred stock in May 2022. The redeemable preferred stock contained provisions that required redemption under circumstances that were outside of the Company’s control and was classified as a mezzanine instrument outside of the Company’s capital accounts. The share of redeemable preferred stock was sold to one investor for $10 and was subsequently redeemed in July 2022, as described further in Note 8. “Capital Stock.”

New Accounting Pronouncements

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

NOTE 4. STRATEGIC AGREEMENTS

Exclusive License and Development Agreement with Carna

On February 2, 2022, the Company entered into an Exclusive License Agreement (the “Carna License Agreement”) with Carna Biosciences, Inc. (“Carna”), pursuant to which the Company acquired exclusive, worldwide rights to research, develop, and commercialize Carna’s portfolio of novel STING inhibitors. In accordance with the terms of the Carna License Agreement, in exchange for the licensed rights, the Company

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made a one-time cash payment of $2.0 million, which was recorded as research and development expenses in the condensed consolidated statements of operations during the six months ended June 30, 2022.

The Carna License Agreement provides that the Company will make success-based payments to Carna of up to $258.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Carna License Agreement provides that the Company will pay Carna tiered royalty payments ranging from mid-single digits up to 10% of net sales. All of the contingent payments and royalties are payable in cash in U.S. Dollars. Under the terms of the Carna License Agreement, the Company is responsible for, and bears the future costs of, all development and commercialization activities, including patenting, related to all the licensed compounds. As of June 30, 2022 and through the date of this Quarterly Report, the Company has not yet made any payments or recorded any liabilities related to the specified development, regulatory, and commercial milestones or royalties on net sales pursuant to the Carna License Agreement.

License and Development Agreement with Voronoi (Restated)

On August 27, 2021, the Company entered into a License and Development Agreement (the “Voronoi License Agreement”) with Voronoi Inc. (“Voronoi”), pursuant to which the Company acquired exclusive, worldwide rights to research, develop, and commercialize BBI-02, a novel, clinical-stage, potential first-in-class, oral DYRK1A inhibitor, and other next-generation kinase inhibitors. In accordance with the terms of the Voronoi License Agreement, in exchange for the licensed rights, the Company made a one-time payment of $2.5 million in cash and issued $2.0 million, or 62,597 shares, of its common stock to Voronoi.

With respect to BBI-02, the Voronoi License Agreement provides that the Company will make payments to Voronoi of up to $211.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. With respect to the next-generation compounds arising from the novel kinase inhibitor platform, the Company will make payments to Voronoi of up to $107.5 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Voronoi License Agreement provides that the Company will pay Voronoi tiered royalty payments ranging from low-single digits up to 10% of net sales of products arising from the DYRK1A inhibitor programs and next-generation kinase inhibitor platform. All of the contingent payments and royalties are payable in cash in U.S. Dollars, except for $1.0 million of the development and regulatory milestone payments, which amount is payable in equivalent shares of the Company’s common stock. Under the terms of the Voronoi License Agreement, the Company is responsible for, and bears the future costs of, all development and commercialization activities, including patenting, related to all the licensed compounds. As of June 30, 2022 and through the date of this Quarterly Report, the Company has not yet made any payments or recorded any liabilities related to the specified development, regulatory, and commercial milestones or royalties on net sales pursuant to the Voronoi License Agreement.

Asset Purchase Agreement with Botanix

On May 3, 2022 (the “Effective Date”), the Company and Brickell Subsidiary entered into an asset purchase agreement with Botanix and Botanix Pharmaceuticals Limited (the “Asset Purchase Agreement”), pursuant to which Botanix acquired and assumed control of all rights, title, and interests to assets primarily related to the proprietary compound sofpironium bromide that were owned and/or licensed by the Company or Brickell Subsidiary (the “Assets”). The Company had previously entered into a License Agreement with Bodor Laboratories, Inc. (“Bodor”), dated December 15, 2012 (last amended in February 2020) that provided the Company with a worldwide exclusive license to develop, manufacture, market, sell, and sublicense products containing sofpironium bromide through which the Assets were developed (the “Amended and Restated License Agreement”). As a result of the Asset Purchase Agreement, Botanix is now responsible for all further research, development, and commercialization of sofpironium bromide globally and replaced the Company as the exclusive licensee under the Amended and Restated License Agreement.

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In accordance with the sublicense rights provided to the Company under the Amended and Restated License Agreement, the Company also previously entered into a License, Development, and Commercialization Agreement with Kaken Pharmaceutical Co., Ltd. (“Kaken”), dated as of March 31, 2015 (as amended in May 2018, the “Kaken Agreement”), under which the Company granted to Kaken an exclusive right to develop, manufacture, and commercialize the sofpironium bromide compound in Japan and certain other Asian countries (the “Territory”). In exchange for the sublicense, the Company was entitled to receive aggregate payments of up to $10.0 million upon the achievement of specified development milestones, which was earned and received in 2017 and 2018, and up to $19.0 million upon the achievement of sales-based milestones, as well as tiered royalties based on a percentage of net sales of licensed products in the Territory. In September 2020, Kaken received regulatory approval in Japan to manufacture and market sofpironium bromide gel, 5% (ECCLOCK®) for the treatment of primary axillary hyperhidrosis, and as a result, the Company began recognizing royalty revenue earned on a percentage of net sales of ECCLOCK in Japan. Pursuant to the Asset Purchase Agreement, the Kaken Agreement was also assigned to Botanix, which replaced the Company as the exclusive sub-licensor to Kaken. During the three and six months ended June 30, 2022, prior to entering into the Asset Purchase Agreement, the Company recognized royalty revenue of $0 and $0.2 million, respectively, under the Kaken Agreement. During the three and six months ended June 30, 2021, the Company recognized royalty revenue of $0.1 million and $0.2 million, respectively.

The Company determined that the development of and ultimate sale and assignment of rights to the Assets is an output of the Company’s ordinary activities and Botanix is a customer as it relates to the sale of the Assets and related activities.

In accordance with the terms of the Asset Purchase Agreement, in exchange for the Assets, the Company (i) received an upfront payment at closing in the amount of $3.0 million, (ii) is to be reimbursed for certain recent development expenditures in advancement of the Assets, and (iii) will receive from Botanix contingent near-term milestone payments of (a) $2.0 million upon the acceptance by the U.S. Food and Drug Administration (“FDA”) of the filing of a new drug application (“NDA”) for sofpironium bromide gel, 15%, and (b) $4.0 million if marketing approval in the U.S. for sofpironium bromide gel, 15%, is received on or before September 30, 2023, or $2.5 million if such marketing approval is received after September 30, 2023 but on or before February 17, 2024. The Company also is eligible to receive additional success-based regulatory and sales milestone payments of up to $168 million. Further, the Company will receive tiered earnout payments ranging from high-single digits to mid-teen digits on net sales of sofpironium bromide gel (the “Earnout Payments”).

The Asset Purchase Agreement also provides that Botanix will pay to the Company a portion of the sales-based milestone payments and royalties that Botanix receives from Kaken under the Kaken Agreement (together, the “Sublicense Income”). During the three and six months ended June 30, 2022, the Company recorded contract revenue for the upfront payment received by the Company from Botanix of $3.0 million, reimbursed development expenditures from Botanix under the Asset Purchase Agreement of $0.6 million, and fees for consulting services the Company provided under the TSA (as defined below) of $0.4 million. Additionally, during the three and six months ended June 30, 2022, the Company recognized contract revenue of $0.3 million related to the Sublicense Income, which represents the Company’s estimate of payments that will be earned by the Company in the applicable period from royalties Botanix will receive from Kaken to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Such payments vary based on net sales that are impacted by a wide variety of market and other factors and, as such, the Company utilized the expected value approach, which the Company believes will best predict the amount of consideration to which it will be entitled. In relation to the sales-based milestone payments that Botanix may receive from Kaken in the future, the Company utilized the most likely amount method and determined it is not yet probable that the Company will receive any payments from Botanix in relation to such milestone payments. Therefore, the Company determined that such milestone payments are fully constrained as of June 30, 2022, and, as such, have not yet been recognized as contract revenue.

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All other consideration due under the Asset Purchase Agreement is contingent upon certain regulatory approvals and future sales subsequent to such regulatory approvals or is based upon future sales that the Company determined are not yet probable due to such revenues being highly susceptible to factors outside of the Company’s influence and uncertainty about the amount of such consideration that will not be resolved for an extended period of time. Therefore, the Company determined that such variable consideration amounts are fully constrained as of June 30, 2022, and as such, did not recognize such amounts as contract revenue.

With respect to the recognition of contract revenue for the Sublicense Income based on future royalties that will be due to Botanix from Kaken, certain amounts are not yet due from Botanix. Therefore, the Company has recorded a contract asset equal to the amount of revenue recognized to date related to the Sublicense Income, less the amount of payments received from or due by Botanix in relation to the Sublicense Income to date. As of June 30, 2022, the contract asset related to the Sublicense Income is $0.3 million, of which $0.2 million is included within prepaid expenses and other current assets in the condensed consolidated balance sheet.

Transition Services Agreement with Botanix

In connection with the sale of the Assets, on the Effective Date, the Company and Botanix entered into a transition services agreement (the “TSA”) whereby the Company is providing consulting services as an independent contractor to Botanix in support of and through filing and potential approval of the U.S. NDA for sofpironium bromide gel, 15%. In accordance with the terms of the TSA, in exchange for providing these services, the Company will receive from Botanix, (i) prior to the acceptance of the filing by the FDA of such NDA, a fixed monthly amount of $71 thousand, and (ii) after the acceptance of the filing by the FDA of such NDA, a variable amount based upon actual hours worked, in each case plus related fees and expenses of the Company’s advisors (plus a 5% administrative fee) and the Company’s out-of-pocket expenses. During the three and six months ended June 30, 2022, the Company recognized contract revenue of $0.4 million related to these services.

Agreements with Bodor

In connection with the sale of the Assets, on the Effective Date, the Company, Brickell Subsidiary, and Bodor entered into an agreement (the “Rights Agreement”) to clarify that the Company and Brickell Subsidiary have the power and authority under the Amended and Restated License Agreement to enter into the Asset Purchase Agreement and the TSA, and that Botanix would assume the Amended and Restated License Agreement pursuant to the Asset Purchase Agreement. The Rights Agreement includes a general release of claims and no admission of liability between the parties. Pursuant to such Rights Agreement, the Company has agreed to pay Bodor (i) 18% of the amount of each payment actually received by the Company from Botanix for upfront and milestone payments under the Asset Purchase Agreement, as well as (ii) certain tiered payments, set as a percentage ranging from mid-single digits to low-teen digits, of the actual amount of each of the applicable Earnout Payments received by the Company from Botanix. During the three and six months ended June 30, 2022, the Company incurred $0.5 million of general and administrative expenses for payments due to Bodor.

Pursuant to the terms of the Asset Purchase Agreement, the Company retained its obligation under the Amended and Restated License Agreement to issue $1.0 million in shares of its common stock to Bodor upon the FDA’s acceptance of an NDA filing for sofpironium bromide gel, 15%. As such regulatory milestone event has not yet been achieved, no research and development expenses associated with milestones were incurred during the three or six months ended June 30, 2022 and 2021. Prior to the execution of the Rights Agreement, the Company paid Bodor immaterial amounts with respect to the royalties the Company received from Kaken for sales of sofpironium bromide gel, 5% (ECCLOCK) in Japan during those periods.

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NOTE 5. DETAILED ACCOUNT BALANCES

Prepaid expenses and other current assets consisted of the following (in thousands):


	June 30, 2022		December 31, 2021
Prepaid clinical trial costs	$	2,390	$	1,443
Prepaid insurance	694		921
Accounts receivable	358		125
Other prepaid expenses	170		168
Contract asset	152		—
Other short-term assets	7		59
Total	$	3,771	$	2,716

Accrued liabilities consisted of the following (in thousands):




	June 30, 2022		December 31, 2021
Accrued compensation	$	1,016	$	1,861
Accrued professional fees	382		452
Accrued contracted research and development services	173		823




Total	$	1,571	$	3,136

NOTE 6. NOTE PAYABLE

On April 15, 2020, the Company executed an unsecured promissory note to IberiaBank (the “PPP Loan”) pursuant to the U.S. Small Business Administration’s Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company used the PPP Loan proceeds in the principal amount of $0.4 million and bearing interest at a fixed rate of 1.00% per annum to cover payroll costs and certain other permitted costs in accordance with the relevant terms and conditions of the CARES Act. In January 2021, the Company applied for forgiveness of the full amount of the PPP Loan, which was forgiven in full in June 2021. As a result, during the six months ended June 30, 2021, the Company recognized a gain on extinguishment of debt of approximately $0.4 million in the condensed consolidated statements of operations within the line “Other income.”

NOTE 7. COMMITMENTS AND CONTINGENCIES

Operating Lease

In August 2016, the Company entered into a multi-year, noncancelable lease for its Colorado-based office space, which was amended in June 2021 to, among other things, extend the lease term to December 31, 2022 (as amended, the “Boulder Lease”). Under the terms of the Boulder Lease, the Company may, at its option, renew the Boulder Lease for two additional terms of three years each, with monthly rent payments determined at the time of renewal at the lower of $6,076 per month or current market rental rates. The Company recognized a right-of-use asset and corresponding lease liability. Minimum base lease payments under the Boulder Lease are recognized on a straight-line basis over the full term of the lease. In addition to base rental payments included in the contractual obligations table below, the Company is responsible for its pro rata share of the operating expenses for the building, which includes common area maintenance, utilities, property taxes, and insurance.

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Upon modification of the Boulder Lease, the Company reassessed classification of the lease and determined that the lease still met the criteria to be classified as an operating lease. Furthermore, the Company remeasured the lease liability as of the effective date by calculating the present value of the new lease payments, discounted at the Company’s updated incremental borrowing rate of 11.0%, over the extended term of 18 months. The operating expenses are variable and are not included in the present value determination of the lease liability. Because the Company was not reasonably certain to exercise the renewal option, the option was not considered in determining the lease term, and associated potential additional payments were excluded from lease payments.

The following is a summary of the contractual obligations related to operating lease commitments as of June 30, 2022 (in thousands):





Total maturities, through December 31, 2022	$	37
Less imputed interest	(1)
Present value of lease liability	$	36

Licensing and Other Agreements

Refer to Note 4. “Strategic Agreements” for more information about the Company’s obligations under its licensing and other agreements.

NOTE 8. CAPITAL STOCK (RESTATED)

Reverse Stock Split

On June 30, 2022, the stockholders of the Company approved an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding common stock. The Company effected the reverse stock split at a split ratio of 1-for-45 on July 5, 2022, at which date each forty-five (45) shares of common stock issued and outstanding immediately prior to the reverse stock split were automatically reclassified, combined, and converted into one (1) validly issued, fully paid and non-assessable share of the Company’s common stock, subject to the treatment of fractional share interests as described below. Proportional adjustments were made to the number of shares of the Company’s common stock subject to outstanding equity awards and warrants, as well as the applicable exercise price. Proportional adjustments were also made to the reserve of shares available for future issuance under the Company’s equity incentive plans and the Brickell Biotech, Inc. Employee Stock Purchase Plan (the “ESPP”).

No fractional shares were issued in connection with the reverse stock split. All fractional shares were aggregated and sold at the then-prevailing prices on The Nasdaq Capital Market on behalf of those stockholders who would otherwise be entitled to receive a fractional share as a result of the reverse stock split. After completion of such sale, stockholders who would have been entitled to a fractional share instead received a cash payment in an amount equal to their respective pro rata shares of the total proceeds of that sale net of any brokerage costs incurred to sell such stock.

All common stock share, per-share amounts, and other related balances and computations reported as of and prior to June 30, 2022 in the condensed consolidated financial statements and notes thereto give effect to the 1-for-45 reverse stock split of our outstanding shares of common stock that occurred on July 5, 2022. The number of shares of our common stock authorized for issuance was not affected by the reverse stock split and was not proportionally decreased.

Common Stock

Under the Company’s amended and restated certificate of incorporation, the Company’s board of directors has the authority to issue up to 300,000,000 shares of common stock with a par value of $0.01 per share. Each share

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of the Company’s common stock is entitled to one vote, and the holders of the Company’s common stock are entitled to receive dividends when and as declared or paid by its board of directors. The Company had reserved authorized shares of common stock for future issuance as of June 30, 2022 as follows:


			June 30, 2022
Common stock warrants			621,063
Common stock options outstanding			232,084
Shares available for grant under the Omnibus Plan			125,075
Shares available for grant under the Employee Stock Purchase Plan			48,484



Total			1,026,706

Public Offerings of Common Stock and Warrants

In October 2021, the Company completed a sale of 672,521 shares of its common stock at a public offering price of $17.10 per share in an underwritten public offering (the “October 2021 Offering”). The October 2021 Offering resulted in net proceeds of approximately $10.3 million, after deducting the underwriting discount and offering expenses payable by the Company.

In July 2021, the Company completed a sale of 288,530 shares of its common stock at a public offering price of $27.90 per share in an underwritten public offering (the “July 2021 Offering”). The July 2021 Offering resulted in net proceeds of approximately $7.3 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

In October 2020, the Company completed a sale of 422,300 shares of its common stock, and, to certain investors, pre-funded warrants to purchase 40,663 shares of its common stock, and accompanying common stock warrants to purchase up to an aggregate of 462,979 shares of its common stock (the “October 2020 Offering”). Each share of common stock and pre-funded warrant to purchase one share of the Company’s common stock was sold together with a common warrant to purchase one share of the Company’s common stock. The public offering price of each share of the Company’s common stock and accompanying common warrant was $32.40 and $32.35 for each pre-funded warrant and accompanying common warrant, respectively. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The common warrants are exercisable at a price of $32.40 per share of the Company’s common stock and will expire five years from the date of issuance. The pre-funded warrants were exercised in October 2020 at an exercise price of $0.04 per share of the Company’s common stock. The October 2020 Offering resulted in net proceeds of approximately $13.7 million to the Company after deducting underwriting commissions and discounts and other offering expenses payable by the Company of $1.3 million and excluding the proceeds from the exercise of the warrants. During the six months ended June 30, 2021, 276,165 common warrants associated with the October 2020 Offering were exercised at a weighted-average exercise price of $32.40 per share, resulting in aggregate proceeds of approximately $8.9 million.

In June 2020, the Company completed a sale of 328,669 shares of its common stock, and, to certain investors, pre-funded warrants to purchase 60,220 shares of its common stock, and accompanying common stock warrants to purchase up to an aggregate of 388,920 shares of its common stock (the “June 2020 Offering”). Each share of common stock and pre-funded warrant to purchase one share of common stock was sold together with a common warrant to purchase one share of common stock. The public offering price of each share of common stock and accompanying common warrant was $51.75 and $51.70 for each pre-funded warrant and accompanying common warrant, respectively. The shares of common stock and pre-funded warrants, and the accompanying common warrants, were issued separately and were immediately separable upon issuance. The pre-funded warrants were exercised in the third quarter of 2020 at an exercise price of $0.04 per share of

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common stock. The common warrants were immediately exercisable at a price of $56.25 per share of common stock and will expire five years from the date of issuance. The June 2020 Offering resulted in approximately $18.7 million of net proceeds to the Company after deducting underwriting commissions and discounts and other offering expenses payable by the Company of $1.4 million and excluding the proceeds from the exercise of the warrants. Certain officers of the Company participated in the June 2020 Offering by purchasing an aggregate purchase price of $0.2 million of the Company's common stock and warrants. During the six months ended June 30, 2021, 388 common warrants associated with the June 2020 Offering were exercised at a weighted-average exercise price of $56.25 per share, resulting in aggregate proceeds of approximately $22 thousand.

The Company has used and is using the remaining net proceeds from its common stock offerings for research and development, including clinical trials, working capital, and general corporate purposes.

At Market Issuance Sales Agreements

In March 2021, the Company entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) and William Blair & Company, L.L.C. as the Company’s sales agents (the “Agents”). Pursuant to the terms of the 2021 ATM Agreement, the Company may sell from time to time through the Agents shares of its common stock having an aggregate offering price of up to $50.0 million. Such shares are issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-254037). Sales of the shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by the Company and the Agents. Under the terms of the 2021 ATM Agreement, the Company may also sell the shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to an Agent as principal would be pursuant to the terms of a separate placement notice between the Company and such Agent. During the three and six months ended June 30, 2022, the Company sold 31,557 shares of common stock under the 2021 ATM Agreement at a weighted-average price of $5.61 per share, for aggregate net proceeds of $0.2 million, after giving effect to a 3% commission to the Agents. During the three and six months ended June 30, 2021, the Company sold 88,077 shares of common stock under the 2021 ATM Agreement at a weighted-average price of $40.18 per share, for aggregate net proceeds of $3.4 million, after giving effect to a 3% commission to the Agents. As of June 30, 2022, approximately $45.9 million of shares of common stock were remaining, but had not yet been sold by the Company under the 2021 ATM Agreement.

In April 2020, the Company entered into an At Market Issuance Sales Agreement (the “2020 ATM Agreement” and, together with the 2021 ATM Agreement, the “ATM Agreements”) with Oppenheimer as the Company’s sales agent. Pursuant to the terms of the 2020 ATM Agreement, the Company may sell from time to time through Oppenheimer shares of its common stock having an aggregate offering price of up to $8.0 million. Such shares are issued pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333-236353). Sales of the shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by the Company and Oppenheimer. Under the terms of the 2020 ATM Agreement, the Company may also sell the shares from time to time to Oppenheimer as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to Oppenheimer as principal would be pursuant to the terms of a separate placement notice between the Company and Oppenheimer. During the three and six months ended June 30, 2022, no sales of common stock under the 2020 ATM Agreement occurred. During the three months ended June 30, 2021, the Company sold 122 shares of its common stock under the 2020 ATM Agreement at a weighted-average price of $52.25 per share, for aggregate net proceeds of approximately $6.2 thousand, after giving effect to a 3% commission to Oppenheimer as agent. During the six months ended June 30, 2021, the Company sold 24,201 shares of its common stock under the 2020 ATM Agreement at a weighted-average price of $69.62 per share, for aggregate net proceeds of approximately $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of June 30, 2022, approximately $2.6 million of shares of common stock were remaining, but had not yet been sold by the Company under the 2020 ATM Agreement.

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The Company is subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by the Company under the ATM Agreements or other common stock offerings.

Private Placement Offerings

In February 2020, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and the Company sold, (i) an aggregate of 21,111 shares of common stock (the “Common Shares”); (ii) a warrant to initially purchase an aggregate of up to 13,476 shares of common stock at an exercise price of $0.45 per share (the “Series A Warrant”); and (iii) a warrant to initially purchase an aggregate of up to 34,588 shares of common stock at an exercise price of $52.20 per share (the “Series B Warrant,” and together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.

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

Following the Commencement Date, under the Purchase Agreement, on any business day selected by the Company, the Company may direct Lincoln Park to purchase up to 2,222 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 2,777 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 3,333 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, the Company may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of common stock. During the three and six months ended June 30, 2022, no sales of common stock under the Purchase Agreement occurred. During the three and six months ended June 30, 2021, the Company sold to Lincoln Park 17,778 shares under the Purchase Agreement at a weighted-average price of $36.62 per share, for aggregate net proceeds of $0.6 million. As of June 30, 2022, approximately $26.9 million of shares of common stock were remaining, but had not yet been sold by the Company under the Purchase Agreement. However, only 57,751 of such shares (less than $175,000 of shares assuming a sale date of August 11, 2022) have been registered by the Company under the Securities Act of 1933, as amended.

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

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

Preferred Stock

Under the Company’s amended and restated certificate of incorporation, the Company’s board of directors has the authority to issue up to 5,000,000 shares of preferred stock with a par value of $0.01 per share, at its discretion, in one or more classes or series and to fix the powers, preferences and rights, and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, without further vote or action by the Company’s stockholders. On May 25, 2022, the Company issued and sold one share of the Company’s preferred stock that was designated as Series A Preferred Stock (the “Series A Preferred Stock”) for a nominal amount. As of June 30, 2022, the outstanding share of Series A Preferred Stock had 80,000,000 votes exclusively with respect to any proposal to amend the Company’s Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock. The terms of the Series A Preferred Stock provided that it would be voted, without action by the holder, on any such proposal in the same proportion as shares of the Company’s common stock were voted. The Series A Preferred Stock otherwise had no voting rights except as otherwise required by the General Corporation Law of the State of Delaware. The Series A Preferred Stock was not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company and had no rights with respect to any distribution of assets of the Company, including upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily. The holder of the Series A Preferred Stock was not entitled to receive dividends of any kind.

The Series A Preferred Stock was redeemed in whole on July 5, 2022 upon the effectiveness of the amendment to the Certificate of Incorporation implementing the reverse stock split. Other than the one share of the Company’s Series A Preferred Stock outstanding as of June 30, 2022, as of such date the Company had not issued or designated the rights, preferences, or privileges of any other class or series of preferred stock.

NOTE 9. STOCK-BASED COMPENSATION (RESTATED)

Equity Incentive Plans

On April 20, 2020, the Company’s stockholders approved the 2020 Omnibus Long-Term Incentive Plan (the “Omnibus Plan”), which replaced, with respect to new award grants, the Company’s 2009 Equity Incentive Plan, as amended and restated (the “2009 Plan”), and the Vical Equity Incentive Plan (the “Vical Plan”) (collectively, the “Prior Plans”) that were previously in effect. Following the approval of the Omnibus Plan on April 20, 2020, no further awards were available to be issued under the Prior Plans, but awards outstanding under those plans as of that date remain outstanding in accordance with their terms. As of June 30, 2022, 27,150 and 2,438 shares were subject to outstanding awards under the 2009 Plan and Vical Plan, respectively.

On May 17, 2022, the Company’s stockholders approved an increase in the number of shares of common stock authorized for issuance under the Omnibus Plan by 119,377 shares. As of June 30, 2022, 323,364 shares were authorized and 202,496 shares were subject to outstanding awards under the Omnibus Plan. As of June 30, 2022, 125,075 shares remained available for grant under the Omnibus Plan.

Employee Stock Purchase Plan

On April 19, 2021, the Company’s stockholders approved the ESPP, which had a first eligible purchase period commencing on July 1, 2021. The ESPP allows qualified employees to purchase shares of the Company’s common stock at a price per share equal to 85% of the lower of: (i) the closing price of the Company’s common stock on the first trading day of the applicable purchase period or (ii) the closing price of the Company’s

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common stock on the last trading day of the applicable purchase period. New six-month purchase periods begin each January 1 and July 1. As of June 30, 2022, the Company had 48,484 shares available for issuance and 9,293 cumulative shares had been issued under the ESPP.

Stock-Based Compensation Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	113	$	88	$	216	$	197
General and administrative	463		333		911		693
Total stock-based compensation expense	$	576	$	421	$	1,127	$	890

NOTE 10. SUBSEQUENT EVENTS

At Market Issuance Sales Agreements

Subsequent to June 30, 2022, the Company sold shares of common stock under the 2021 ATM Agreement for aggregate net proceeds of approximately $0.7 million.

Nasdaq Minimum Bid Price Compliance

On July 19, 2022, the Company received formal notice from The Nasdaq Stock Market (“Nasdaq”) stating that it regained compliance with the minimum bid price requirement for continued listing on Nasdaq and, accordingly, that the previously-scheduled hearing regarding the delisting action had been canceled and the Company’s common stock will continue to be listed and traded on Nasdaq.

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

All common stock share, per-share amounts, and other related balances and computations presented in this Item 2 give effect to the 1-for-45 reverse stock split of our outstanding shares of common stock that occurred on July 5, 2022.

Overview

We are a clinical-stage pharmaceutical company striving to transform patient lives by developing innovative and differentiated prescription therapeutics for the treatment of autoimmune, inflammatory, and other debilitating diseases. Our pipeline consists of several development-stage candidates and a cutting-edge platform with broad potential in autoimmune and inflammatory disorders. Our executive management team and board of directors bring extensive experience in product development and global commercialization, having served in senior leadership roles at large global pharmaceutical companies and biotechs that have developed and/or launched successful products, including several that were first-in-class and/or achieved iconic status, such as Cialis®, Taltz®, Gemzar®, Prozac®, Cymbalta®, Juvederm®, Pluvicto®, and Sofpironium Bromide. Our strategy is to leverage this experience to in-license, acquire, develop, and commercialize innovative pharmaceutical products that we believe can meaningfully benefit patients who are suffering from chronic, debilitating diseases that are underserved by available therapies. We have demonstrated our success with this strategy by developing sofpironium bromide gel, 15%, a novel treatment for primary axillary hyperhidrosis, from an early preclinical stage through a successful Phase 3 program in the U.S. and through marketing approval and commercial launch

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in Japan with our former partner Kaken, culminating in the sale of our rights in sofpironium bromide to Botanix.

The following image summarizes our current pipeline and corresponding development programs:

Research & Development Programs

BBI-02: A Potential First-in-Class Oral DYRK1A Inhibitor for the Treatment of Autoimmune and Inflammatory Diseases

In August 2021, we entered into a License and Development Agreement (the “Voronoi License Agreement”) with Voronoi Inc. (“Voronoi”), pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize BBI-02, a novel, clinical-stage, potential first-in-class, highly selective, and orally bioavailable small molecule DYRK1A inhibitor that aims to restore immune balance in patients whose immune systems have become dysregulated. Based on the promising preclinical efficacy data generated to date, we believe BBI-02 has the potential to be a first-in-class, potent therapy for the treatment of a wide array of debilitating autoimmune and inflammatory diseases.

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

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In May 2022, we initiated a first-in-human Phase 1 clinical trial for BBI-02 (“BBI-02-101”) in Canada, which marks the first time a DYRK1A inhibitor intended for patients with autoimmune diseases has been administered in humans. BBI-02-101 is a randomized, double-blind, placebo-controlled study designed to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of BBI-02 capsules in both healthy subjects and patients with AD. In the first quarter of 2022, we successfully submitted a Clinical Trial Application for BBI-02 to Health Canada and subsequently received a No Objection Letter, allowing the BBI-02-101 study to proceed as planned. Part 1A of the study is a single ascending dose (“SAD”) assessment of BBI-02 capsules or placebo in up to 56 healthy subjects across seven cohorts at one study center. Part 1B of the study will be a multiple ascending dose (“MAD”) assessment of BBI-02 capsules or placebo administered once daily for 14 days. The MAD part of the study is expected to enroll a total of 33 healthy subjects across three cohorts at one study center. Part 2 of the study will compare BBI-02 to placebo in AD patients over 28 days of dosing. Part 2 is expected to enroll approximately 40 patients with moderate-to-severe AD at up to 12 study centers and will include a preliminary assessment of efficacy. We continue to enroll and dose patients in BBI-02-101 and plan to initiate the MAD part of the study in September 2022. We remain on track to report topline results from the Phase 1 SAD and MAD trials (Parts 1A and 1B) by early 2023. Additionally, we plan to prepare and file an investigational new drug (IND) application with the FDA for further research and development of BBI-02 in the U.S.

BBI-02 is covered by a composition of matter patent issued in the U.S., Japan, China, and other key countries through at least 2038, subject to patent term extensions and adjustments that may be available depending on how this early-stage asset is developed, as well as a pending Patent Cooperation Treaty (“PCT”) application, and other foreign and U.S. applications for BBI-02, as of the date of this Quarterly Report.

BBI-10: A Covalent STING Inhibitor for the Potential Treatment of Autoimmune, Inflammatory, and Rare Genetic Diseases

In February 2022, we entered into an Exclusive License Agreement (the “Carna License Agreement”) with Carna Biosciences, Inc. (“Carna”), pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize Carna’s portfolio of novel, preclinical-stage oral Stimulator of Interferon Genes (“STING”) inhibitors. STING is a well-known mediator of innate immune responses. Excessive signaling through STING is linked to numerous high unmet need diseases, ranging from autoimmune disorders, such as systemic lupus erythematosus, to interferonopathies, which are a set of rare genetic conditions characterized by interferon overproduction and could have orphan drug potential.

STING is a key component of the cyclic GMP-AMP synthase (“cGAS”)-STING pathway, which plays an important role in the activation of innate immunity. cGAS acts as a DNA sensor, detecting DNA from sources such as invading bacteria, viruses, and cellular debris that can arise from aging and tissue damage. Upon DNA binding, cGAS produces the secondary messenger molecule cyclic GMP-AMP (“cGAMP”), which binds to STING. STING then undergoes the post-translational modification called palmitoylation, a step essential to the activation of STING. Activated STING then in turn activates the recruitment of kinases that phosphorylate IRF3 and IκBα. Phosphorylated IRF3 leads to activation of the type I interferon response, while phosphorylated IκBα activates NFκB and increases the secretion of pro-inflammatory cytokines such as IL-6 and TNFα, resulting in inflammation. While the innate immune response is an important defense mechanism, a dysregulated type I interferon response and overproduction of pro-inflammatory cytokines also represents a driving cause of multiple autoimmune and inflammatory diseases. As such, targeting the cGAS-STING pathway may be a novel approach to treating these diseases.

BBI-10, our lead early-stage STING inhibitor candidate, is a novel, potent, and orally available covalent STING inhibitor that specifically targets the palmitoylation site of STING. This allows it to inhibit both wild-type STING and gain-of-function mutants without competing with cGAMP binding, thus deactivating downstream signaling through IRF3 and IκBα and ultimately suppressing inflammation. BBI-10 has exhibited strong proof-of mechanism and a promising profile in initial pharmacokinetics, toxicology, and safety pharmacology studies.

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In addition, in vitro studies show that BBI-10 more potently blocks the STING pathway compared to other known STING palmitoylation inhibitors, and that mice treated with BBI-10 demonstrate significant decreases in pro-inflammatory cytokine production following stimulation of STING. Preclinical development activities for BBI-10 are currently underway, and we expect to conduct experimental characterization of the STING inhibitor library throughout 2022.

For BBI-10, as of the date of this Quarterly Report, we currently have one pending PCT application and one pending priority patent application. We possess an exclusive license directed to a library of compounds targeting/inhibiting STING, pharmaceutical compositions containing the same, and methods of their use, which are being evaluated.

Next-Generation Kinase Inhibitors: A Cutting-Edge Platform with Potential to Produce Treatments for Autoimmune, Inflammatory, and Other Debilitating Diseases

As part of the Voronoi License Agreement, in August 2021 we acquired exclusive global rights to a cutting-edge platform of next-generation kinase inhibitors. This library of new chemical entities includes next-generation DYRK1A inhibitors, as well as other molecules that specifically inhibit CDC2-like kinase (“CLK”), Leucine-Rich Repeat Kinase 2 (“LRRK2”) and TTK protein kinase (“TTK”), also known as Monopolar spindle 1 (Mps1) kinases. A number of these drug candidates have the potential to penetrate the blood brain barrier, presenting an opportunity to address neuroinflammatory conditions of high unmet need such as Down Syndrome, Alzheimer’s Disease, and Parkinson’s Disease, while other peripherally acting novel LRRK2, TTK, and CLK kinase inhibitors could be developed in additional therapeutic areas within autoimmunity, inflammation, and oncology. We are currently engaged in research to identify both brain penetrant and non-brain penetrant new chemical entities from this next-generation kinase inhibitor platform.

Compounds from the next-generation kinase inhibitor platform are covered by U.S. and foreign composition of matter patent applications, as well as other applications, that are currently pending in global prosecution based on our exclusive license from Voronoi related to DYRK1A, LRRK2, TTK, and CLK kinases.

Strategic, Licensing, and Other Arrangements

Exclusive License and Development Agreement with Carna

In February 2022, we entered into the Carna License Agreement with Carna, pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize Carna’s portfolio of novel STING inhibitors. In accordance with the terms of the Carna License Agreement, in exchange for the licensed rights, we made a one-time cash payment of $2.0 million, which was recorded as research and development expenses in the condensed consolidated statements of operations during the six months ended June 30, 2022.

The Carna License Agreement provides that we will make success-based payments to Carna of up to $258.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Carna License Agreement provides that we will pay Carna tiered royalty payments ranging from mid-single digits up to 10% of net sales. All of the contingent payments and royalties are payable in cash in U.S. Dollars. Under the terms of the Carna License Agreement, we are responsible for, and bear the future costs of, all development and commercialization activities, including patenting, related to all the licensed compounds. As of June 30, 2022 and through the date of this Quarterly Report, we have not yet made any payments or recorded any liabilities related to the specified development, regulatory, and commercial milestones or royalties on net sales pursuant to the Carna License Agreement.

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License and Development Agreement with Voronoi

In August 2021, we entered into the Voronoi License Agreement with Voronoi, pursuant to which we acquired exclusive, worldwide rights to research, develop, and commercialize BBI-02, a novel, clinical-stage, potential first-in-class, oral DYRK1A inhibitor, and other next-generation kinase inhibitors. In accordance with the terms of the Voronoi License Agreement, in exchange for the licensed rights, we made a one-time payment of $2.5 million in cash and issued $2.0 million, or 62,597 shares, of our common stock to Voronoi.

With respect to BBI-02, the Voronoi License Agreement provides that we will make payments to Voronoi of up to $211.0 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. With respect to the next-generation compounds arising from the novel kinase inhibitor platform, we will make payments to Voronoi of up to $107.5 million in the aggregate contingent upon achievement of specified development, regulatory, and commercial milestones. Further, the Voronoi License Agreement provides that we will pay Voronoi tiered royalty payments ranging from low-single digits up to 10% of net sales of products arising from the DYRK1A inhibitor programs and next-generation kinase inhibitor platform. All of the contingent payments and royalties are payable in cash in U.S. Dollars, except for $1.0 million of the development and regulatory milestone payments, which amount is payable in equivalent shares of our common stock. Under the terms of the Voronoi License Agreement, we are responsible for, and bear the future costs of, all development and commercialization activities, including patenting, related to all the licensed compounds. As of June 30, 2022 and through the date of this Quarterly Report, we have not yet made any payments or recorded any liabilities related to the specified development, regulatory, and commercial milestones or royalties on net sales pursuant to the Voronoi License Agreement.

Asset Purchase Agreement with Botanix

On May 3, 2022 (the “Effective Date”), we and Brickell Subsidiary, Inc. (“Brickell Subsidiary”) entered into an asset purchase agreement with Botanix and Botanix Pharmaceuticals Limited (the “Asset Purchase Agreement”), pursuant to which Botanix acquired and assumed control of all rights, title, and interests to assets primarily related to the proprietary compound sofpironium bromide that were owned and/or licensed by us or Brickell Subsidiary (the “Assets”). We had previously entered into a License Agreement with Bodor Laboratories, Inc. (“Bodor”), dated December 15, 2012 (last amended in February 2020) that provided us with a worldwide exclusive license to develop, manufacture, market, sell, and sublicense products containing sofpironium bromide through which the Assets were developed (the “Amended and Restated License Agreement”). As a result of the Asset Purchase Agreement, Botanix is now responsible for all further research, development, and commercialization of sofpironium bromide globally and replaced us as the exclusive licensee under the Amended and Restated License Agreement.

In accordance with the sublicense rights provided to us under the Amended and Restated License Agreement, we also previously entered into a License, Development, and Commercialization Agreement with Kaken, dated as of March 31, 2015 (as amended in May 2018, the “Kaken Agreement”), under which we granted to Kaken an exclusive right to develop, manufacture, and commercialize the sofpironium bromide compound in Japan and certain other Asian countries (the “Territory”). In exchange for the sublicense, we were entitled to receive aggregate payments of up to $10.0 million upon the achievement of specified development milestones, which was earned and received in 2017 and 2018, and up to $19.0 million upon the achievement of sales-based milestones, as well as tiered royalties based on a percentage of net sales of licensed products in the Territory. In September 2020, Kaken received regulatory approval in Japan to manufacture and market sofpironium bromide gel, 5% (ECCLOCK) for the treatment of primary axillary hyperhidrosis, and as a result, we began recognizing royalty revenue earned on a percentage of net sales of ECCLOCK in Japan. Pursuant to the Asset Purchase Agreement, the Kaken Agreement was also assigned to Botanix, which replaced us as the exclusive sub-licensor to Kaken. During the three and six months ended June 30, 2022, prior to entering into the Asset Purchase Agreement, we recognized royalty revenue of $0 and $0.2 million, respectively, under the Kaken Agreement.

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During the three and six months ended June 30, 2021, we recognized royalty revenue of $0.1 million and $0.2 million, respectively.

We determined that the development of and ultimate sale and assignment of rights to the Assets is an output of our ordinary activities and Botanix is a customer as it relates to the sale of the Assets and related activities.

In accordance with the terms of the Asset Purchase Agreement, in exchange for the Assets, we (i) received an upfront payment at closing in the amount of $3.0 million, (ii) are to be reimbursed for certain recent development expenditures in advancement of the Assets, and (iii) will receive from Botanix contingent milestone payments of (a) $2.0 million upon the acceptance by the FDA of the filing of a new drug application (“NDA”) for sofpironium bromide gel, 15%, and (b) $4.0 million if marketing approval in the U.S. for sofpironium bromide gel, 15%, is received on or before September 30, 2023, or $2.5 million if such marketing approval is received after September 30, 2023 but on or before February 17, 2024. We also are eligible to receive additional success-based regulatory and sales milestone payments of up to $168 million. Further, we will receive tiered earnout payments ranging from high-single digits to mid-teen digits on net sales of sofpironium bromide gel (the “Earnout Payments”).

The Asset Purchase Agreement also provides that Botanix will pay to us a portion of the sales-based milestone payments and royalties that Botanix receives from Kaken under the Kaken Agreement (together, the “Sublicense Income”). During the three and six months ended June 30, 2022, we recorded contract revenue for the upfront payment we received from Botanix of $3.0 million, reimbursed development expenditures from Botanix under the Asset Purchase Agreement of $0.6 million, and fees for consulting services we provided under the TSA (as defined below) of $0.4 million. Additionally, during the three and six months ended June 30, 2022, we recognized contract revenue of $0.3 million related to the Sublicense Income.

All other consideration due under the Asset Purchase Agreement is contingent upon certain regulatory approvals and future sales subsequent to such regulatory approvals or is based upon future sales that we determined are not yet probable due to such revenues being highly susceptible to factors outside of our influence and uncertainty about the amount of such consideration that will not be resolved for an extended period of time. Therefore, we determined that such variable consideration amounts are fully constrained as of June 30, 2022, and, as such, have not yet been recognized as contract revenue.

Transition Services Agreement with Botanix

In connection with the sale of the Assets, on the Effective Date, we and Botanix entered into a transition services agreement (the “TSA”) whereby we are providing consulting services as an independent contractor to Botanix in support of and through filing and potential approval of the U.S. NDA for sofpironium bromide gel, 15%. In accordance with the terms of the TSA, in exchange for providing these services, we will receive from Botanix, (i) prior to the acceptance of the filing by the FDA of such NDA, a fixed monthly amount of $71 thousand, and (ii) after the acceptance of the filing by the FDA of such NDA, a variable amount based upon actual hours worked, in each case plus related fees and expenses of our advisors (plus a 5% administrative fee) and our out-of-pocket expenses. During the three and six months ended June 30, 2022, we recognized contract revenue of $0.4 million related to these services.

Agreements with Bodor

In connection with the sale of the Assets, on the Effective Date, we, Brickell Subsidiary, and Bodor entered into an agreement (the “Rights Agreement”) to clarify that we and Brickell Subsidiary have the power and authority under the Amended and Restated License Agreement to enter into the Asset Purchase Agreement and the TSA, and that Botanix would assume the Amended and Restated License Agreement pursuant to the Asset Purchase Agreement. The Rights Agreement includes a general release of claims and no admission of liability between the parties. Pursuant to such Rights Agreement, we have agreed to pay Bodor (i) 18% of the amount of each

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payment actually received by us from Botanix for upfront and milestone payments under the Asset Purchase Agreement, as well as (ii) certain tiered payments, set as a percentage ranging from mid-single digits to low-teen digits, of the actual amount of each of the applicable Earnout Payments received by us from Botanix. During the three and six months ended June 30, 2022, we incurred $0.5 million of general and administrative expenses for payments due to Bodor.

Pursuant to the terms of the Asset Purchase Agreement, we retained our obligation under the Amended and Restated License Agreement to issue $1.0 million in shares of our common stock to Bodor upon the FDA’s acceptance of an NDA filing for sofpironium bromide gel, 15%. As such regulatory milestone event has not yet been achieved, no research and development expenses associated with milestones were incurred during the three or six months ended June 30, 2022 and 2021. Prior to the execution of the Rights Agreement, we paid Bodor immaterial amounts with respect to the royalties we received from Kaken for sales of sofpironium bromide gel, 5% (ECCLOCK) in Japan during those periods.

Nasdaq Listing Matter and Reverse Stock Split

As previously disclosed, we received notices of noncompliance with the minimum closing bid price requirement for continued listing on The Nasdaq Capital Market, the most recent of which granted us until June 13, 2022 to regain compliance with that requirement. On June 14, 2022, Nasdaq notified us that we did not regain compliance with the minimum closing bid price requirement as of June 13, 2022, and therefore our common stock would be delisted from The Nasdaq Capital Market, unless we appealed the delisting determination by timely requesting a hearing before the Nasdaq Hearings Panel. We timely requested the hearing, which request stayed any further delisting action, and a hearing was scheduled for July 28, 2022.

On June 30, 2022, our stockholders approved a reverse stock split of our outstanding common stock, which was effected at a split ratio of 1-for-45 on July 5, 2022, at which date each forty-five (45) shares of common stock issued and outstanding immediately prior to the reverse stock split were automatically reclassified, combined and converted into one (1) validly issued, fully paid, and non-assessable share of our common stock, subject to the treatment of fractional share interests. Subsequently, the closing price of our common stock was in excess of $1.00 for 10 consecutive trading days, and on July 19, 2022, we received formal notice from Nasdaq stating that we regained compliance with the minimum closing bid price requirement for continued listing on The Nasdaq Capital Market and, accordingly, the previously-scheduled hearing regarding the delisting action was canceled by Nasdaq and our common stock will continue to be listed and traded on Nasdaq.

Significant Financing Arrangements

This section sets forth our recent and ongoing financing arrangements, all of which involve our common stock.

Public Offerings of Common Stock and Warrants

In October 2021, we completed the sale of 672,521 shares of our common stock (the “October 2021 Offering”). The October 2021 Offering resulted in net proceeds of approximately $10.3 million, after deducting the underwriting discount and offering expenses payable by us.

In July 2021, we completed the sale of 288,530 shares of our common stock (the “July 2021 Offering”). The July 2021 Offering resulted in net proceeds of approximately $7.3 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

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In October 2020, we completed the sale of 422,300 shares of our common stock, and, to certain investors, pre-funded warrants to purchase 40,663 shares of our common stock, and accompanying common stock warrants to purchase up to an aggregate of 462,979 shares of our common stock (the “October 2020 Offering”). The October 2020 Offering resulted in net proceeds of approximately $13.7 million to us after deducting underwriting commissions and discounts and other offering expenses payable by us of $1.3 million and excluding the proceeds from the exercise of the warrants. During the six months ended June 30, 2021, 276,165 common warrants associated with the October 2020 Offering were exercised at a weighted-average exercise price of $32.40 per share, resulting in aggregate proceeds of approximately $8.9 million.

In June 2020, we completed the sale of 328,669 shares of our common stock, and, to certain investors, pre-funded warrants to purchase 60,220 shares of our common stock, and accompanying common warrants to purchase up to an aggregate of 388,920 shares of our common stock (the “June 2020 Offering”). The June 2020 Offering resulted in approximately $18.7 million of net proceeds after deducting underwriting commissions and discounts and other offering expenses payable by us of $1.4 million and excluding the proceeds from the exercise of the warrants. During the six months ended June 30, 2021, 388 common warrants associated with the June 2020 Offering were exercised at a weighted-average exercise price of $56.25 per share, resulting in aggregate proceeds of approximately $22 thousand.

We have used and continue to use the remaining net proceeds from our common stock offerings for research and development, including clinical trials, working capital, and general corporate purposes. For additional information regarding the offerings described above, see Note 8. “Capital Stock” of the notes to our condensed consolidated financial statements included in this Quarterly Report.

At Market Issuance Sales Agreements

In March 2021, we entered into an At Market Issuance Sales Agreement (the “2021 ATM Agreement”) with Oppenheimer & Co. Inc. (“Oppenheimer”) and William Blair & Company, L.L.C. (“William Blair”) as our sales agents (the “Agents”). Pursuant to the terms of the 2021 ATM Agreement, we may sell from time to time through the Agents shares of our common stock having an aggregate offering price of up to $50.0 million. Such shares are issued pursuant to our shelf registration statement on Form S-3 (Registration No. 333-254037). Sales of shares are made by means of ordinary brokers’ transactions on The Nasdaq Capital Market at market prices or as otherwise agreed by us and the Agents. Under the terms of the 2021 ATM Agreement, we may also sell the shares from time to time to an Agent as principal for its own account at a price to be agreed upon at the time of sale. Any sale of the shares to an Agent as principal would be pursuant to the terms of a separate placement notice between us and such Agent. During the three and six months ended June 30, 2022, we sold 31,557 shares of our common stock under the 2021 ATM Agreement at a weighted-average price of $5.61 per share, for aggregate net proceeds of $0.2 million, after giving effect to a 3% commission to the Agents. During the three and six months ended June 30, 2021, we sold 88,077 shares of our common stock under the 2021 ATM Agreement at a weighted-average price of $40.18 per share, for aggregate net proceeds of $3.4 million, after giving effect to a 3% commission to the Agents. As of June 30, 2022, approximately $45.9 million of shares of common stock were remaining, but had not yet been sold under the 2021 ATM Agreement. Subsequent to June 30, 2022, we sold shares of common stock under the 2021 ATM Agreement for aggregate net proceeds of approximately $0.7 million.

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

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of the shares to Oppenheimer as principal would be pursuant to the terms of a separate placement notice between us and Oppenheimer. During the three and six months ended June 30, 2022, no sales of common stock under the 2020 ATM Agreement occurred. During the three months ended June 30, 2021, we sold 122 shares of our common stock under the 2020 ATM Agreement at a weighted-average price of $52.25 per share, for aggregate net proceeds of approximately $6.2 thousand, after giving effect to a 3% commission to Oppenheimer as agent. During the six months ended June 30, 2021, we sold 24,201 shares of our common stock under the 2020 ATM Agreement at a weighted-average price of $69.62 per share, for aggregate net proceeds of approximately $1.6 million, after giving effect to a 3% commission to Oppenheimer as agent. As of June 30, 2022, approximately $2.6 million of shares of common stock were remaining, but had not yet been sold under the 2020 ATM Agreement.

We are subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by us under the ATM Agreements or other common stock offerings.

Private Placement Offerings

In February 2020, we and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into (i) a securities purchase agreement (the “Securities Purchase Agreement”); (ii) a purchase agreement (the “Purchase Agreement”); and (iii) a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Securities Purchase Agreement, Lincoln Park purchased, and we sold, (i) an aggregate of 21,111 shares of common stock (the “Common Shares”); (ii) a warrant to initially purchase an aggregate of up to 13,476 shares of common stock at an exercise price of $0.45 per share (the “Series A Warrant”); and (iii) a warrant to initially purchase an aggregate of up to 34,588 shares of common stock at an exercise price of $52.20 per share (the “Series B Warrant” and, together with the Series A Warrant, the “Warrants”). The aggregate gross purchase price for the Common Shares and the Warrants was $2.0 million.

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

Following the Commencement Date, under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 2,222 shares of our common stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 2,777 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 3,333 shares, provided that the closing sale price of the common stock is not below $5.00 on the purchase date. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on prevailing market prices of common stock immediately preceding the time of sale. In addition to Regular Purchases, we may direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases if the closing sale price of the common stock exceeds certain threshold prices as set forth in the Purchase Agreement. In all instances, we may not sell shares of our common stock to Lincoln Park under the Purchase Agreement if it would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of our common stock. During the three and six months ended June 30, 2022, no sales of common stock under the Purchase Agreement occurred. During the three and six months ended June 30, 2021, we sold to Lincoln Park 17,778 shares under the Purchase Agreement at a weighted-average price of $36.62 per

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share, for aggregate net proceeds of $0.6 million. As of June 30, 2022, approximately $26.9 million of shares of common stock were remaining, but had not yet been sold under the Purchase Agreement. However, only 57,751 of such shares (less than $175,000 of shares assuming a sale date of August 11, 2022) have been registered by us under the Securities Act of 1933, as amended (the “Securities Act”).

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

Financial Overview

Our operations to date have been limited to business planning, raising capital, developing and entering into strategic partnerships for our pipeline assets, identifying and in-licensing product candidates, conducting clinical trials, and other research and development activities.

To date, we have financed operations primarily through funds received from the sale of common stock and warrants, convertible preferred stock, debt and convertible notes, and payments received under license, collaboration, and other agreements. Other than through arrangements as they relate to sales of ECCLOCK in Japan, none of our product candidates has been approved for sale and we have not generated any product sales. Since inception, we have incurred operating losses. We recorded a net loss of $10.6 million and $20.2 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $155.9 million. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:

•execute a Phase 1 clinical trial, along with other nonclinical development activities, for BBI-02;

•conduct preclinical development activities for BBI-10 and experimental characterization of the STING inhibitor library;

•engage in research to identify both brain penetrant and non-brain penetrant kinase inhibitors from the next-generation kinase inhibitor platform;

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

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

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

•add operational and finance personnel to support product and business development efforts.

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

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Key Components of Operations

Revenue

Revenue generally consists of revenue recognized under our strategic agreements for the development and commercialization of our product candidates. Our strategic agreements generally outline overall development plans and include payments we receive at signing, payments for the achievement of certain milestones, sublicense income, earnout payments on net product sales, and royalties on net product sales. For these activities and payments, we utilize judgment to assess the nature of the performance obligations to determine whether the performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. Prior to entering into the Asset Purchase Agreement, we recognized royalty revenue earned on a percentage of net sales of ECCLOCK in Japan. Beginning in the second quarter of 2022, we began recognizing contract revenue pursuant to the terms of the Asset Purchase Agreement. Other than the contract revenue we may generate in connection with the Asset Purchase Agreement, we do not expect to generate any revenue from any product candidates that we developed or develop unless and until we obtain regulatory approval and commercialize our products or enter into other collaboration agreements with third parties.

Research and Development Expenses

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

Below is a summary of our research and development expenses related to our programs by categories of costs for the periods presented.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(in thousands)




Direct program expenses related to
Sofpironium bromide (1)	$	—	$	8,114	$	2,090	$	13,550
DYRK1A inhibitor program (2)	958		—		1,686		—
STING inhibitor program (3)	28		—		2,038		—


Personnel and other expenses (4)
Salaries, benefits, and stock-based compensation	741		460		1,493		936
Regulatory and compliance	103		244		384		371
Other expenses	35		20		187		33

Total research and development expenses	$	1,865	$	8,838	$	7,878	$	14,890

____________

(1)Sofpironium bromide. Expenses associated with sofpironium bromide decreased in the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 as Phase 3 clinical trials were completed in the fourth quarter of 2021. We do not expect to incur any additional

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research and development expenses related to sofpironium bromide subsequent to the Effective Date, when we sold the assets primarily related to sofpironium bromide that we previously owned and/or licensed to Botanix, which is responsible for all further research, development, and commercialization of sofpironium bromide.

(2)DYRK1A inhibitor program. As part of our potential first-in-class DYRK1A inhibitor program targeting autoimmune and inflammatory diseases, we initiated a Phase 1 clinical trial for BBI-02, our lead DYRK1A inhibitor candidate, in Canada in the second quarter of 2022 that we expect will continue through early 2023. We are also engaged in research to identify new chemical entities from our next-generation kinase inhibitor platform. As a result, in the following years, we expect to incur research and development expenses for these programs at levels consistent with expenditures for development of early-stage assets.

(3)STING inhibitor program. In February 2022, we acquired a portfolio of novel, potent, and orally available STING inhibitors that has broad potential in autoinflammatory diseases. To date, the expenses associated with our STING inhibitor program primarily relate to upfront in-licensing fees. Nonclinical development activities for our lead early-stage STING inhibitor candidate, BBI-10, are currently underway, and we expect to conduct experimental characterization of the STING inhibitor library throughout 2022. As a result, in the following years, we expect to incur research and development expenses for this program at levels consistent with expenditures for development of early-stage assets.

(4)Personnel and other expenses. Personnel and other expenses include operational expenses related to research and development activities not specifically attributable to a specific program. Other expenses include travel, lab and office supplies, clinical trial management software, license fees, and other miscellaneous expenses.

General and Administrative Expenses

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

Critical Accounting Estimates

We have prepared the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and related disclosures at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its critical estimates, including those related to revenue recognition and accrued research and development expenses. We base our estimates on our historical experience and on assumptions that we believe are reasonable; however, actual results may differ materially from these estimates under different assumptions or conditions.

During the three months ended June 30, 2022, we identified the following to be an additional critical accounting estimate because it is both important to the portrayal of our financial condition and results of operations and requires critical judgment by management and estimates about matters that are uncertain.

Contract Revenue Recognition

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Pursuant to the Asset Purchase Agreement described in Note 4. “Strategic Agreements,” we have rights to receive from Botanix future milestone payments, sales-based payments, and sublicense income related to sales-based milestones and royalties earned by Botanix from Kaken under the Kaken Agreement (all of such payments, “Botanix Payments”). The payments under the Asset Purchase Agreement vary based on net sales and/or are contingent upon certain regulatory approvals. Therefore, we are required to estimate the Botanix Payments, which represent variable consideration, to be achieved and recognize revenue to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We may use either the most likely amount or the expected value method in making such estimates based on the nature of the payment to be received and whether there is a wide range of outcomes or only two possible outcomes. For any milestone payments, we utilize the most likely amount method, which represents our best estimate of the single most likely outcome to be achieved. For any royalty-based payments or other consideration where there are more than two possible outcomes, we utilize the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts.

We base our estimates of variable consideration to be recognized as revenue using the applicable method described above on factors such as, but not limited to, required regulatory approvals, historical sales levels, market events and projections, and others as necessary. We update our estimates at each reporting period based on actual results and future expectations as necessary. Our estimates are subject to changes in net sales of sofpironium bromide and the occurrence of contingent events, such as regulatory approvals. Changes in net sales could occur due to various risks such as competitors entering the market, technology changes as to how hyperhidrosis is treated, and foreign exchange risk.

Except for the critical accounting estimates associated with the contract revenue recognition described above, there were no changes during the six months ended June 30, 2022 to our critical accounting estimates as disclosed in our 2021 Annual Report on Form 10-K. For information on our significant accounting policies, please refer to Note 3 of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report.

Recent Accounting Pronouncements

We believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our condensed consolidated financial statements upon adoption.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021


	Three Months Ended June 30,
	2022		2021
	(in thousands)
Revenue	$	4,315	$	151


Research and development expenses	(1,865)		(8,838)
General and administrative expenses	(3,908)		(2,891)





Total other income, net	311		429
Net loss	$	(1,147)	$	(11,149)

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Revenue

Revenue increased by $4.2 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Revenue for the three months ended June 30, 2022 consisted of contract revenue recognized under the Asset Purchase Agreement and TSA with Botanix, while revenue for the three months ended June 30, 2021 was driven by royalty revenue earned on a percentage of net sales of ECCLOCK in Japan under the Kaken Agreement. Upon entering into the Asset Purchase Agreement on the Effective Date, whereby we sold all rights, title, and interests to assets primarily related to sofpironium bromide that were owned and/or licensed by us, and through June 30, 2022, we recognized contract revenue that was associated with the following: an upfront payment from Botanix of $3.0 million; reimbursed development expenditures from Botanix under the Asset Purchase Agreement of $0.6 million; fees for consulting services we provided under the TSA of $0.4 million; and Sublicense Income under the Asset Purchase Agreement of $0.3 million. We expect contract revenue associated with services we provide under the TSA to continue through the date the FDA issues a final decision on the NDA that will be submitted for sofpironium bromide gel. After June 30, 2022, we expect to continue to recognize contract revenue related to royalties on applicable net sales of sofpironium bromide gel pursuant to the Asset Purchase Agreement, as such estimated sales become probable.

Research and Development

Research and development expenses decreased by $7.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, which was driven primarily by lower clinical expenses of $8.1 million related to sofpironium bromide, partially offset by increased clinical costs of $1.0 million for BBI-02. Throughout 2021, we were executing a U.S. Phase 3 pivotal clinical program for sofpironium bromide gel, 15%, which concluded in the fourth quarter of 2021. During the second quarter of 2022, we initiated our Phase 1 clinical trial for BBI-02 and began incurring research and develop expenses related to the clinical trial.

General and Administrative Expenses

General and administrative expenses increased by $1.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was primarily related to expenses incurred in the second quarter of 2022 for a $0.5 million payment to Bodor under the Rights Agreement and higher expenses associated with legal and compliance fees of $0.3 million, compensation-related expenses of $0.1 million, and other administrative fees $0.1 million.

Total Other Income, Net

Total other income, net decreased by $0.1 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease was primarily due to a gain on extinguishment of debt of approximately $0.4 million during the three months ended June 30, 2021 that resulted from the forgiveness of an outstanding loan that we received under the Paycheck Protection Program (the “PPP Loan”) in June 2021, partially offset by $0.3 million of liabilities assumed by Botanix related to development costs during the three months ended June 30, 2022 prior to the Effective Date.

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Comparison of the Six Months Ended June 30, 2022 and 2021


	Six Months Ended June 30,
		2022		2021
		(in thousands)
Revenue		$	4,407	$	168


Research and development expenses		(7,878)		(14,890)
General and administrative expenses		(7,394)		(5,858)






Total other income, net		308		426
Net loss		$	(10,557)	$	(20,154)

Revenue

Revenue increased by $4.2 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Revenue for the six months ended June 30, 2022 primarily consisted of contract revenue recognized under the Asset Purchase Agreement and TSA with Botanix, while revenue for the six months ended June 30, 2021 was driven by royalty revenue earned on a percentage of net sales of ECCLOCK in Japan under the Kaken Agreement. Upon entering into the Asset Purchase Agreement on the Effective Date, whereby we sold all rights, title, and interests to assets primarily related to sofpironium bromide that were owned and/or licensed by us, and through June 30, 2022, we recognized contract revenue that was associated with the following: an upfront payment from Botanix of $3.0 million; reimbursed development expenditures from Botanix under the Asset Purchase Agreement of $0.6 million; fees for consulting services we provided under the TSA of $0.4 million; and Sublicense Income under the Asset Purchase Agreement of $0.3 million. We expect contract revenue associated with services we provide under the TSA to continue through the date the FDA issues a final decision on the NDA that will be submitted for sofpironium bromide gel. After June 30, 2022, we expect to continue to recognize contract revenue related to royalties on applicable net sales of sofpironium bromide gel pursuant to the Asset Purchase Agreement, as such estimated sales become probable.

Research and Development Expenses

Research and development expenses decreased by $7.0 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021, driven primarily by lower clinical expenses of $11.5 million related to sofpironium bromide, partially offset by upfront costs of $2.0 million incurred for the acquisition of our STING inhibitor platform in February 2022, increased clinical costs of $1.7 million for BBI-02, and increased costs of $0.8 million related to personnel and other expenses. Throughout 2021, we were executing our U.S. Phase 3 pivotal clinical program for sofpironium bromide gel, 15%, which concluded in the fourth quarter of 2021. During the second quarter of 2022, we initiated our Phase 1 clinical trial for BBI-02 and began incurring research and development expenses related to the clinical trial.

General and Administrative Expenses

General and administrative expenses increased by $1.5 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was primarily related to expenses incurred in the six months ended June 30, 2022 for a $0.5 million payment to Bodor under the Rights Agreement and higher expenses associated with legal and compliance fees of $0.5 million, compensation-related expenses of $0.3 million, and other administrative expenses of $0.2 million.

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Total Other Income, Net

Total other income, net decreased by $0.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily due to a gain on extinguishment of debt of approximately $0.4 million that resulted from the forgiveness of the PPP Loan in June 2021, partially offset by $0.3 million of liabilities assumed by Botanix related to development costs during the six months ended June 30, 2022 prior to the Effective Date.

Liquidity and Capital Resources

We have incurred significant operating losses and have an accumulated deficit as a result of ongoing efforts to in-license and develop our product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. For the six months ended June 30, 2022 and 2021, we had a net loss of $10.6 million and $20.2 million, respectively. As of June 30, 2022, we had an accumulated deficit of $155.9 million. As of June 30, 2022, we had cash and cash equivalents of $14.5 million compared to $26.9 million as of December 31, 2021. Since inception, we have financed our operations primarily through funds received from the sale of common stock and warrants, convertible preferred stock, debt, and convertible notes, and payments received under license and strategic agreements.

We believe that our cash and cash equivalents as of June 30, 2022, combined with $2.0 million from expected near-term payments under the Asset Purchase Agreement, will be sufficient to fund our operations for at least the next 12 months. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control. We expect to continue to incur additional substantial losses in the foreseeable future as a result of our research and development activities. Additional funding will be required in the future to continue with our planned development and other activities. However, we may be unable to raise additional funds, which would have a negative impact on our business, financial condition, and our ability to develop our pipeline. To the extent that additional funds are raised through the sale of equity, the issuance of securities will result in dilution to our stockholders.

Additionally, we are subject to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit our future issuances of shares under the ATM Agreements or other common stock offerings.

Cash Flows

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



	Six Months Ended June 30,
	2022		2021


	(in thousands)
Net cash provided by (used in):
Operating activities	$	(12,509)	$	(20,205)
Investing activities	—		(36)
Financing activities	105		14,534
Total	$	(12,404)	$	(5,707)

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Operating Activities

Net cash used in operating activities of $12.5 million during the six months ended June 30, 2022 decreased compared to $20.2 million during the six months ended June 30, 2021, which was primarily attributable to a decrease in cash used to support our operating activities, including but not limited to, our clinical trials, research and development activities, and general working capital requirements. The $7.7 million decrease was impacted by the net effect of a decrease in net loss of $9.6 million and an increase in non-cash operating expenses of $0.7 million, partially offset by the net effect of changes in working capital of $2.6 million.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2022 decreased by $36 thousand compared to the six months ended June 30, 2021, due to the fact that we did not purchase any property and equipment in the current year period.

Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2022 decreased by $14.4 million compared to the six months ended June 30, 2021. The decrease primarily resulted from net proceeds received during the six months ended June 30, 2021 of $9.0 million from the exercise of warrants and a reduction during the six months ended June 30, 2022 of $5.4 million in proceeds from sales of our common stock under the 2020 and 2021 ATM Agreements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Form 10-Q/A. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as a result of the material weakness in internal control over financial reporting as described below, our disclosure controls and procedures were not effective as