# Trevi Therapeutics, Inc. (TRVI) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Trevi Therapeutics, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1563880/000095017024034167/trvi-20231231.htm
Accession: 0000950170-24-034167
Filing date: 2024-03-20
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/TRVI/
All MD&A years: /company/TRVI/mda/
Previous year: /company/TRVI/mda/fy2022/ (FY 2022)
Next year: /company/TRVI/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the statements contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Annual Report on Form 10-K, particularly including those risks identified in Part I-Item 1A “Risk Factors” and our other filings with the SEC.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Statements made herein are as of the date of the filing of this Annual Report on Form 10-K with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Annual Report on Form 10-K, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

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Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of the investigational therapy Haduvio (oral nalbuphine ER) for the treatment of chronic cough in idiopathic pulmonary fibrosis, or IPF, and refractory chronic cough, or RCC.

IPF Program. In September 2022, we announced positive data from the full set of patients in our Phase 2 clinical trial of Haduvio for the treatment of chronic cough in IPF, which we refer to as the Phase 2 CANAL trial. The Phase 2 CANAL trial was a randomized, double-blind, placebo controlled, two-treatment, two-period, crossover study that was designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for chronic cough in IPF that we conducted at multiple sites in the United Kingdom. In total, 42 patients in the study received Haduvio. In the Phase 2 CANAL trial, Haduvio demonstrated statistically significant results for the primary efficacy endpoint of daytime cough frequency reduction (p0.0001) and for key secondary endpoints on patient and clinician reported outcomes. The safety results of the trial were generally consistent with the known safety profile of Haduvio from previous trials in other patient populations.

In December 2023, we initiated our Phase 2b CORAL clinical trial, which is a dose-ranging study evaluating the efficacy, safety and tolerability of Haduvio for chronic cough in IPF. This trial is expected to be conducted at multiple sites in up to 11 countries and uses a randomized, double-blind, placebo-controlled, parallel-arm design, which evaluates three doses of Haduvio over six weeks as compared to placebo. The primary efficacy endpoint for the trial is the relative change in 24-hour cough frequency at the end of week six versus baseline for Haduvio compared to placebo, as measured via an objective cough monitor. We expect the trial to enroll approximately 160 patients. The protocol for the Phase 2b CORAL clinical trial provides for a sample size re-estimation, or SSRE, analysis once approximately 50% of the patients in the trial are evaluable for the primary endpoint. The SSRE is expected to occur in the second half of 2024, and topline data from the full trial are expected to be available in the first half of 2025 assuming there are no adjustments made to the sample size.

We expect to have an active investigational new drug application for our planned Phase 1b clinical trial to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity in the first half of 2024. We expect the objective for this clinical trial will be to further characterize the safety of Haduvio in this specific patient population. Subject to agreement with the U.S. Food and Drug Administration, or FDA, and other international regulatory authorities, we intend to initiate this trial in the first half of 2024.

RCC Program. We are also developing Haduvio for the treatment of RCC. In November 2023, we initiated our Phase 2a clinical trial of Haduvio for RCC, which we refer to as the Phase 2a RIVER trial. The Phase 2a RIVER trial is a randomized, double-blind, placebo-controlled, two-treatment, two-period, crossover study that is designed to evaluate the efficacy, safety, tolerability and dosing of Haduvio for the treatment of RCC. We are conducting this trial at multiple sites in the United Kingdom and Canada. The trial was designed to enroll approximately 60 adult patients. The primary endpoint of the study is a mean change in 24-hour cough frequency using an objective cough monitor in the overall population. Patients are randomized with a 1:1 stratification between those with 10-19 coughs/hour (moderate 24-hour cough frequency) and those with at least 20 coughs/hour (high 24-hour cough frequency). The study will also explore secondary endpoints, including patient reported outcome measures for cough frequency and severity. We expect to report topline efficacy and safety data in the second half of 2024.

Human Abuse Potential. We initiated a human abuse potential, or HAP, study in the fourth quarter of 2022 to compare the abuse potential of oral nalbuphine to intravenous, or IV, butorphanol. The injectable version of nalbuphine is currently unscheduled in the U.S. by the Drug Enforcement Agency. The study follows a randomized, double-blind, active and placebo-controlled five-way crossover design. The study is being conducted in two parts. The first part of the study characterized various IV butorphanol doses in order to select a dose to be studied. The second part of the study is designed to utilize the selected dose and compare oral nalbuphine relative to IV butorphanol using the study metrics. We have completed the first part of the study. The FDA requested that we submit the data from the first part of the study in support of our IV butorphanol dose selection for their review and comment prior to commencing the second part of the study. We submitted this data to the FDA and the FDA agreed with the selected dose for IV butorphanol. We initiated dosing in the second part of the study in January 2024, and, as of March 11, 2024, the study was over 50% enrolled. We expect to report topline data from the study in the second half of 2024.

Prurigo Nodularis Program. We also have a development program for the use of Haduvio for the treatment of prurigo nodularis. In June 2022, we reported positive results in our Phase 2b/3 clinical trial of Haduvio in patients with prurigo nodularis, which we refer to as the Phase 2b/3 PRISM trial. The Phase 2b/3 PRISM trial was a randomized, double-blind, placebo controlled, two-arm treatment study that was designed to evaluate the safety and efficacy of Haduvio in patients with prurigo nodularis in the United States and Europe. In total we enrolled 353 patients in the study. In the Phase 2b/3 PRISM trial, Haduvio demonstrated statistically significant results on the primary and all three key secondary endpoints. The safety results of the trial were generally consistent with the known safety profile of Haduvio from previous trials in other patient populations.

In October 2023, we reported the preliminary analysis of the 52-week data from the open-label extension portion of the Phase 2b/3 PRISM trial. Following the completion of the initial 14-week portion of the trial, patients were eligible to enroll into an additional 38-week open-label extension period during which all participants received Haduvio 162mg twice a day (BID). Post hoc analyses demonstrated continued reduction in mean Worst Itch Numerical Rating Scale for those

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participants who remained on Haduvio through 52 weeks. 151 patients completed the open-label extension portion of the trial, adding to the safety database for Haduvio. The safety data were generally consistent with the safety profile of Haduvio observed in the 14-week portion of the Phase 2b/3 PRISM trial and previous trials of Haduvio. Adverse events reported with a frequency greater than five percent in the 38-week open-label period included nausea, dizziness, vomiting, fatigue, and somnolence. Study discontinuation due to treatment-related adverse events occurred in 13% of patients during the 38-week open-label period, and serious adverse events were reported for 13 patients, although only two of these events were considered potentially treatment related.

We expect that we will need to conduct an additional Phase 3 clinical trial to support the submission of a new drug application, or NDA, to the FDA, a marketing authorization application, or MAA, to the European Medicines Agency and an MAA to the Medicines and Healthcare Products Regulatory Agency in the United Kingdom for Haduvio for the treatment of prurigo nodularis, and plan to request an end of Phase 2 meeting with the FDA. Following discussions with the FDA and other regulatory authorities, we plan to determine next steps with respect to our prurigo nodularis program, including with respect to the conduct of any future Phase 3 clinical trial. We may seek to enter into a strategic collaboration for the continued development of this program.

Since commencing operations in 2011, we have devoted substantially all of our efforts and financial resources to the clinical development of Haduvio. We have not generated any revenue from product sales and, as a result, we have never been profitable and have incurred net losses in each year since commencement of our operations. As of December 31, 2023, we had an accumulated deficit of $239.1 million, primarily as a result of research and development and general and administrative expenses. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize Haduvio for the treatment of chronic cough in IPF and RCC or for the treatment of prurigo nodularis and we can provide no assurance that we will ever generate significant revenue or profits.

In May 2019, we issued and sold 5,500,000 shares of common stock in our initial public offering, or the IPO, and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million. Upon the closing of the IPO, our preferred stock then outstanding converted into an aggregate of 10,381,234 shares of common stock.

In June 2020, we entered into a sales agreement with SVB Securities LLC (formerly SVB Leerink LLC), or SVB Securities, which we refer to as the ATM Sales Agreement, under which we were able to issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $12.0 million. In May 2022, we and SVB Securities amended the ATM Sales Agreement to increase the maximum aggregate offering price of common stock that we were able to issue and sell from time to time under the ATM Sales Agreement by $50.0 million, from $12.0 million to up to $62.0 million. Sales of common stock under the ATM Sales Agreement were able to be made by any method that was deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We were not obligated to make any sales of our common stock under the ATM Sales Agreement. We began making sales pursuant to the ATM Sales Agreement in July 2020, and as of August 15, 2023, the date of termination of the ATM Sales Agreement, we had issued and sold an aggregate of 4,333,394 shares of common stock for gross proceeds of $12.7 million pursuant to the ATM Sales Agreement, before deducting estimated commissions and allocated fees of $1.0 million.

In June 2023, we filed with the SEC a universal shelf registration statement on Form S-3, or the Shelf Registration Statement, which allows us to offer and sell up to $200.0 million of common stock, preferred stock, debt securities, units and/or warrants from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. The Shelf Registration Statement was filed to replace our prior universal shelf registration statement on Form S-3 and was declared effective on August 15, 2023. Further, in June 2023, we entered into a new sales agreement with Leerink Partners, LLC (formerly SVB Securities), or Leerink Partners, which we refer to as the 2023 ATM Sales Agreement, under which we may issue and sell shares of common stock, from time to time by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to make any sales of our common stock under the 2023 ATM Sales Agreement. We filed a prospectus under the Shelf Registration Statement for the offer and sale of shares of our common stock having an aggregate offering price of up to $75.0 million pursuant to the 2023 ATM Sales Agreement. In accordance with the terms of the 2023 ATM Sales Agreement, the ATM Sales Agreement terminated upon effectiveness of the Shelf Registration Statement, at which point we were no longer able to issue and sell shares of our common stock under the ATM Sales Agreement. As of December 31, 2023, we had not made any sales pursuant to the 2023 ATM Sales Agreement.

On October 5, 2021 and October 18, 2021, we issued and sold in two private placements, or the October 2021 Private Placements, in the aggregate (i) 4,225,053 shares of our common stock and accompanying warrants to purchase an aggregate of 8,450,106 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 4,926,069 shares of our common stock and accompanying warrants to purchase an aggregate of 9,852,138 shares of our common stock. Each share of our common stock and accompanying common stock warrants were sold together at a combined price of $1.62, and each pre-funded warrant and accompanying common stock warrants were sold together at a combined price of $1.619, for gross proceeds of approximately $14.8 million. Each pre-funded warrant had an exercise price of $0.001 per share, became exercisable immediately upon issuance and continued to be exercisable until exercised in full. Of the accompanying common stock warrants, we issued warrants to purchase an aggregate of 9,151,122 shares that

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are to expire in April 2025 and warrants to purchase an aggregate of 9,151,122 shares that are to expire in October 2028. The accompanying common stock warrants have an exercise price of $1.37 per share and became exercisable immediately upon issuance. As of March 20, 2024, warrants to purchase 1,851,852 shares of common stock that are to expire in April 2025 and warrants to purchase 7,851,852 shares of common stock that are to expire in October 2028 remained outstanding.

On April 11, 2022, we issued and sold in a private placement, or the April 2022 Private Placement, (i) an aggregate of 4,580,526 shares of our common stock, and (ii) pre-funded warrants to purchase up to an aggregate of 24,379,673 shares of our common stock. Each share of our common stock was sold at a price of $1.90, and each pre-funded warrant was sold at a price of $1.899 per warrant share, for gross proceeds of approximately $55.0 million. Each pre-funded warrant has an exercise price of $0.001 per share, is exercisable immediately and will be exercisable until the pre-funded warrant is exercised in full. As of March 20, 2024, pre-funded warrants to purchase 17,282,760 shares of common stock that we issued and sold in the April 2022 Private Placement remained outstanding.

On September 27, 2022, we issued and sold 14,252,670 shares of our common stock and, in lieu of common stock to certain investors, pre-funded warrants to purchase 14,247,330 shares of common stock in a public offering, or the September 2022 Offering, at a public offering price of $1.93 per share of common stock and $1.929 per pre-funded warrant pursuant to an underwriting agreement, or the Underwriting Agreement, with SVB Securities, Stifel, Nicolaus & Company, Incorporated and Oppenheimer & Co. Inc., as representatives of the several underwriters, or the Underwriters. Each pre-funded warrant has an exercise price of $0.001 per share, is exercisable immediately and will be exercisable until the pre-funded warrant is exercised in full. Under the terms of the Underwriting Agreement, we agreed not to issue and sell additional shares until after November 21, 2022 except in certain circumstances, including the issuance and sale of additional shares pursuant to the Underwriting Agreement. Under the terms of the Underwriting Agreement, we granted the Underwriters an option, or the Option, exercisable for 30 days, to purchase up to an additional 4,275,000 shares of common stock, or the Additional Shares, at the public offering price of $1.93 per share. The Underwriters partially exercised the Option to purchase 1,600,428 Additional Shares, which shares were issued and sold on October 25, 2022. The September 2022 Offering, including the initial closing on September 27, 2022 and the Option closing on October 25, 2022, resulted in aggregate gross proceeds to us of approximately $58.1 million. As of March 20, 2024, pre-funded warrants to purchase 13,270,983 shares of common stock that we issued and sold in the September 2022 Offering remained outstanding.

On May 9, 2023, we paid the remaining amount due under the loan and security agreement, or the SVB Loan Agreement, that we originally entered into with Silicon Valley Bank, or SVB, in August 2020, resulting in the full extinguishment of the term loan thereunder, or the SVB Term Loan. The total payoff amount was $6.5 million, consisting of the remaining principal amount due of $5.2 million, the final payment fee of $1.2 million, and $0.1 million of accrued interest and prepayment premium. In August 2020, we entered into the SVB Loan Agreement with SVB, pursuant to which SVB provided the SVB Term Loan to us in the original principal amount of $14.0 million. On the first business day of each month commencing on March 1, 2022, we were required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding obligations with respect to the SVB Term Loan were due and payable in full on February 1, 2024. The SVB Loan Agreement permitted voluntary prepayment of all, but not less than all, of the SVB Term Loan, subject to a prepayment premium. For further discussion of the SVB Term Loan, see “—Liquidity and Capital Resources.”

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $83.0 million. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of issuance of the Consolidated Financial Statements included in this Annual Report on Form 10-K.

We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to the trials we are conducting and plan to conduct for Haduvio including our Phase 2b CORAL clinical trial for the treatment of chronic cough in IPF, our Phase 2a RIVER clinical trial of Haduvio for the treatment of RCC, our planned Phase 1b respiratory physiology clinical trial for the treatment of chronic cough in IPF and the second part of our HAP study to compare the abuse potential of oral nalbuphine to IV butorphanol.

We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of Haduvio for one or more indications or delay our efforts to expand our product pipeline.

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Components of Operating Results

Operating Expenses

Research and Development Expenses

For the periods presented, all of our research and development expenses consist of expenses incurred in connection with the development of Haduvio. These expenses include personnel-related costs, including stock-based compensation, consulting costs, contract manufacturing costs and fees paid to contract research organizations, or CROs, to conduct certain research and development activities on our behalf. We do not allocate all of our costs by each indication for which we are developing Haduvio, as a significant amount of our development activities broadly support all indications. In addition, several of our departments support our Haduvio drug candidate development program and we do not identify internal costs for each potential indication.

We expect our research and development expenses to increase over the next few years as we pursue our development program, pursue regulatory approval of Haduvio in the U.S., Europe and other jurisdictions outside the U.S. and prepare for a possible commercial launch of Haduvio. Predicting the timing or the cost to conduct our Haduvio development program and prepare for a possible commercial launch of Haduvio is difficult and delays may occur because of many factors including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on our development program. Furthermore, we are unable to predict when or if Haduvio will receive regulatory approval in the U.S. or elsewhere with any certainty.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, including stock-based compensation for personnel in executive, finance, commercial and other administrative functions; professional fees for legal, consulting and accounting services; as well as rent and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation and expanded infrastructure.

Other Income (Expense), Net

Interest Income, Net

Interest income, net consists of interest earned primarily on our cash, cash equivalents and marketable securities as well as accretion of discounts/amortization of premiums on purchases of marketable securities.

Other Income, Net

Other income, net consists of income related to an employee retention tax credit under the Coronavirus Aid, Relief, and Economic Security Act, foreign currency transaction gains and losses as well as an immaterial effect from early extinguishment of debt in connection with us paying the remaining amounts due under the SVB Loan Agreement.

Interest Expense

In August 2020, we entered into the SVB Loan Agreement pursuant to which we borrowed $14.0 million under the SVB Term Loan. In connection with the SVB Term Loan, we recognized interest expense which included amortization of deferred financing charges, accretion of loan discount-financing costs, accrual of the final payment fee, amortization of the term loan discount-interest and the stated interest on the SVB Term Loan. Prior to the Third Amendment to the SVB Loan Agreement that we entered into with SVB in April 2022, or the Third Amendment, the SVB Term Loan bore interest at a floating rate per annum equal to the greater of (A) the prime rate plus 1.00% and (B) 4.25%. If SVB received evidence satisfactory to it that we had (i) received positive data for the Phase 2b/3 PRISM trial sufficient to advance Haduvio into a second Phase 3 clinical trial for prurigo nodularis and (ii) raised sufficient financing to fund such Phase 3 clinical trial and our operations, which we refer to together as the Phase 3 Event, the interest rate under the SVB Term Loan would have been adjusted to a floating rate equal to the greater of (A) the prime rate plus 3.00% and (B) 6.25%.

Under the Third Amendment, SVB agreed that amounts outstanding under the SVB Loan Agreement would accrue interest at a floating per annum rate equal to (i) the greater of (A) the prime rate plus 1.00% and (B) 4.25%, prior to raising $45.0 million in net proceeds from the sale of equity securities, which we refer to as the 2022 Equity Event, and (ii) upon and after the occurrence of the 2022 Equity Event, the greater of (A) the prime rate plus 3.00% and (B) 6.25%. The closing of the April 2022 Private Placement constituted the 2022 Equity Event.

The SVB Term Loan required interest-only payments until March 2022. Commencing on March 1, 2022, we were required to repay the SVB Term Loan in 24 consecutive installments of principal plus monthly payments of accrued interest. All outstanding principal and accrued and unpaid interest under the SVB Term Loan and all other outstanding

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obligations with respect to the SVB Term Loan were due and payable in full on February 1, 2024. On May 9, 2023, we paid the remaining amount due under the SVB Loan Agreement, resulting in the full extinguishment of the SVB Term Loan. The total payoff amount was $6.5 million, consisting of the remaining principal amount due of $5.2 million, the final payment fee of $1.2 million, and $0.1 million of accrued interest and prepayment premium.

Change in Fair Value of Term Loan Derivative Liability

Before it was amended by the Third Amendment, the SVB Loan Agreement provided that upon the occurrence of the Phase 3 Event, as described below, the interest rate on the SVB Term Loan would increase by 2.00%. This contingent interest rate increase represented a free-standing financial instrument. Accordingly, we accounted for the contingent interest rate increase as a derivative under Accounting Standards Codification, or ASC, 815, Derivatives and Hedging and therefore, we recorded a term loan derivative liability for the contingent interest rate increase at its fair value. We adjusted this liability to fair value at each reporting date it remained outstanding. We recognized changes in the fair value of this term loan derivative in our statements of comprehensive loss as a component of other income (expense), net.

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","Change"],["Operating expenses:"],["Research and development","","$","23,683","","","$","19,834","","","$","3,849"],["General and administrative","","","10,240","","","","10,073","","","","167"],["Total operating expenses","","","33,923","","","","29,907","","","","4,016"],["Loss from operations","","","(33,923",")","","","(29,907",")","","","(4,016",")"],["Other income (expense):"],["Interest income, net","","","4,748","","","","1,740","","","","3,008"],["Other income, net","","","469","","","","289","","","","180"],["Interest expense","","","(391",")","","","(1,163",")","","","772"],["Change in fair value of term loan derivative liability","","","\u2014","","","","(147",")","","","147"],["Total other income, net","","","4,826","","","","719","","","","4,107"],["Loss before income taxes","","","(29,097",")","","","(29,188",")","","","91"],["Income tax benefit","","","32","","","","36","","","","(4",")"],["Net loss","","$","(29,065",")","","$","(29,152",")","","$","87"]]
[[/GREPCENT_TABLE]]

Operating Expenses

Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","Change"],["Clinical development expenses","","$","13,733","","","$","11,796","","","$","1,937"],["Personnel and related expenses","","","4,762","","","","4,180","","","","582"],["Consultant services in support of clinical development","","","3,829","","","","2,595","","","","1,234"],["Stock-based compensation expenses","","","871","","","","815","","","","56"],["Other research and development expenses","","","488","","","","448","","","","40"],["Total research and development expenses","","$","23,683","","","$","19,834","","","$","3,849"]]
[[/GREPCENT_TABLE]]

Research and development expenses for the year ended December 31, 2023 increased $3.8 million, or 19.4%, to $23.7 million from $19.8 million for the year ended December 31, 2022, primarily due to increased clinical trial costs in our Phase 2b CORAL trial and our Phase 2a RIVER trial, both of which started in 2023. Consultant services and personnel-related expenses in support of these studies also increased. These increases were partially offset by decreased clinical trial costs in our completed Phase 2b/3 PRISM and Phase 2 CANAL trials as well as decreased purchases of active drug substance. For the years ended December 31, 2023 and 2022, all of our research and development expenses related to our development activity for Haduvio.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2023 increased $0.1 million, or 1.7%, to $10.2 million from $10.1 million for the year ended December 31, 2022.

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Other Income, Net

Other income, net for the year ended December 31, 2023 increased by $4.1 million, or 571.2% to $4.8 million from $0.7 million for the year ended December 31, 2022. The increase was primarily due to an increase in interest income of $3.0 million due to higher cash equivalent and marketable securities balances and higher interest rate yields. Contributing to the increase was a reduction in interest expense of $0.8 million due to the early payoff of the SVB Term Loan in May 2023.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. Prior to the completion of our IPO, and concurrent private placement in May 2019, we financed our operations primarily through private placements of our preferred stock and convertible notes as well as borrowings under our prior term loan. From inception to our IPO, we raised an aggregate of $102.2 million in gross proceeds from sales of our preferred stock and convertible notes and borrowed $15.0 million under a prior term loan.

In May 2019, we issued and sold 5,500,000 shares of common stock in our IPO and 1,500,000 shares of common stock in a concurrent private placement, in each case at an offering price of $10.00 per share, for combined net proceeds of $62.1 million after deducting aggregate underwriting discounts and commissions and private placement agent fees of $4.9 million and other offering expenses of $3.0 million.

In June 2020, we entered into the ATM Sales Agreement, under which we were able to issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $12.0 million. In May 2022, we and SVB Securities amended the ATM Sales Agreement to increase the maximum aggregate offering price of common stock that we were able to issue and sell from time to time under the ATM Sales Agreement by $50.0 million, from $12.0 million to up to $62.0 million. Sales of common stock under the ATM Sales Agreement were able to be made by any method that was deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We were not obligated to make any sales of our common stock under the ATM Sales Agreement. We began making sales pursuant to the ATM Sales Agreement in July 2020 and through August 15, 2023, the date of termination of the ATM Sales Agreement, we had issued and sold an aggregate of 4,333,394 shares of common stock for gross proceeds of $12.7 million, before deducting estimated commissions and allocated fees of $1.0 million.

In June 2023, we filed with the SEC the Shelf Registration Statement, which allows us to offer and sell up to $200.0 million of common stock, preferred stock, debt securities, units and/or warrants from time to time pursuant to one or more offerings at prices and terms to be determined at the time of sale. The Shelf Registration Statement was filed to replace our prior universal shelf registration statement on Form S-3 and was declared effective on August 15, 2023. Further, in June 2023, we entered into the 2023 ATM Sales Agreement with Leerink Partners, under which we may issue and sell shares of common stock, from time to time by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to make any sales of our common stock under the 2023 ATM Sales Agreement. We filed a prospectus under the Shelf Registration Statement for the offer and sale of shares of our common stock having an aggregate offering price of up to $75.0 million pursuant to the 2023 ATM Sales Agreement. In accordance with the terms of the 2023 ATM Sales Agreement, the ATM Sales Agreement terminated upon effectiveness of the Shelf Registration Statement, at which point we were no longer able to issue and sell shares of our common stock under the ATM Sales Agreement. As of December 31, 2023, we had not made any sales pursuant to the 2023 ATM Sales Agreement.

On June 18, 2021, we entered into the LPC Purchase Agreement with Lincoln Park for an equity line financing. The LPC Purchase Agreement provided that, subject to the terms and conditions set forth therein, we had the right, but not the obligation, to sell to Lincoln Park and Lincoln Park was obligated to purchase up to $15.0 million of shares of common stock, at our sole discretion, over a 24-month period commencing on July 23, 2021. We filed a registration statement on Form S-1 covering the resale of shares of common stock that are issued to Lincoln Park under the LPC Purchase Agreement, which was declared effective on July 14, 2021. We issued 170,088 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the LPC Purchase Agreement. As of July 23, 2023, no shares had been sold to Lincoln Park and the LPC Purchase Agreement terminated by its terms.

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Cash Flows

The following table summarizes our cash flows for each of the periods presented below (in thousands):

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31,"],["","","2023","","","2022","","","Change"],["Net cash used in operating activities","","$","(31,710",")","","$","(28,175",")","","$","(3,535",")"],["Net cash provided by (used in) investing activities","","","59,428","","","","(107,373",")","","","166,801"],["Net cash (used in) provided by financing activities","","","(7,910",")","","","111,307","","","","(119,217",")"],["Net increase (decrease) in cash and cash equivalents","","$","19,808","","","$","(24,241",")","","$","44,049"]]
[[/GREPCENT_TABLE]]

Operating Activities

During the year ended December 31, 2023, operating activities used $31.7 million of net cash, resulting from our net loss of $29.1 million and changes in our operating assets and liabilities of $3.8 million, partially offset by net non-cash charges of $1.2 million. Changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a $2.9 million increase in prepaid expenses and other current assets and a $1.0 million decrease in accounts payable. The increase in prepaid expenses and other current assets was primarily due to an increase in prepayments related to our clinical trial work performed by our CROs. The decrease in accounts payable was primarily due to the timing of vendor invoices. The non-cash charges consisted primarily of stock-based compensation expense of $2.2 million, $0.4 million for the write off of deferred offering costs, $0.4 million change in value of our operating lease right-of-use assets and liabilities and $0.2 million of accretion/accrual of term loan discounts and debt issuance costs, which were partially offset by $2.1 million of accretion of our available-for-sale marketable securities.

During the year ended December 31, 2022, operating activities used $28.2 million of net cash, resulting from our net loss of $29.2 million, changes in our operating assets and liabilities of $1.2 million partially offset by non-cash charges of $2.2 million. Changes in our operating assets and liabilities for the year ended December 31, 2022 consisted of a $0.6 million increase in prepaid expenses and other current assets and a $0.6 million decrease in accrued expenses and other liabilities. The increase in prepaid expenses and other current assets was primarily due to an increase in interest income receivable related to our marketable securities. The decrease in accrued expenses and other liabilities was primarily due to decreased accruals for research, development and clinical trial work performed by our CROs. The non-cash charges for the year ended December 31, 2022 consisted primarily of stock-based compensation expense of $2.3 million and $0.5 million of accretion/accrual of term loan discounts and debt issuance costs offset by $0.8 million of accretion of our available-for-sale marketable securities.

Investing Activities

During the year ended December 31, 2023, net cash provided by investing activities was $59.4 million, consisting of $69.5 million of proceeds from maturities of available-for-sale marketable securities partially offset by $9.9 million of purchases of available-for-sale marketable securities and $0.1 million of purchases of property, equipment and leasehold improvements.

During the year ended December 31, 2022, net cash used in investing activities was $107.4 million, primarily related to purchases of and proceeds from maturities of available-for-sale marketable securities.

Financing Activities

During the year ended December 31, 2023, net cash used in financing activities was $7.9 million, consisting of repayments of $9.4 million on the SVB Term Loan including payment of the final payment fee and prepayment premium, both associated with the payoff of the SVB Term Loan, payments of offering costs of $0.3 million and payments of $0.1 million on our finance lease. These cash outflows were partially offset by gross cash proceeds of $1.7 million, net of commissions from sales of our common stock under the ATM Sales Agreement, $0.1 million of cash proceeds from the exercise of stock options and $0.1 million of cash proceeds from sales under our 2019 Employee Stock Purchase Plan.

During the year ended December 31, 2022, net cash provided by financing activities was $111.3 million, primarily consisting of net cash proceeds from our April 2022 Private Placement and our September 2022 Offering of $105.4 million, cash proceeds of $11.8 million from the exercise of warrants and cash proceeds from the exercise of stock options of $0.1 million, partially offset by repayments of $5.8 million on the SVB Term Loan and payments of offering costs of $0.2 million.

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Funding Requirements

We expect to incur substantial expenditures in the foreseeable future as we advance Haduvio through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term, we expect to incur substantial expenses relating to:

•
our Phase 2b CORAL clinical trial of Haduvio for the treatment of chronic cough in IPF;

•
our planned Phase 1b clinical trial to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity;

•
our Phase 2a RIVER clinical trial of Haduvio for the treatment of RCC; and

•
the second part of our ongoing HAP study to further characterize the abuse potential of oral nalbuphine.

We expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

We will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from sales of Haduvio, if ever, we expect to finance our operations through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms or at all. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

•
the scope, progress, timing, costs and results of clinical trials of Haduvio, including our Phase 2b CORAL clinical trial of Haduvio for the treatment of chronic cough in IPF, our planned Phase 1b trial to evaluate the effect of Haduvio on respiratory physiology in patients with IPF of varying disease severity, our Phase 2a RIVER clinical trial in RCC, and the second part of our HAP study, as well as trials for any future product candidates;

•
the number and characteristics of indications for which we seek to develop Haduvio or any future product candidates and their respective development requirements;

•
the outcome, timing and costs of clinical and nonclinical trials and of seeking regulatory approvals, including the costs of supportive clinical studies such as our HAP study and a potential TQT study;

•
the costs associated with the manufacture of necessary quantities of Haduvio or any future product candidate for clinical development in connection with regulatory submissions;

•
the costs of commercialization activities for Haduvio for the treatment of chronic cough in IPF or RCC or for the treatment of prurigo nodularis or for any future product candidates that receive marketing approval, if any, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

•
subject to receipt of marketing approvals, revenue, if any, received from commercial sales of Haduvio for the treatment of chronic cough in IPF or RCC or for the treatment of prurigo nodularis or from any future product candidates;

•
our ability to identify potential collaborators for Haduvio for the treatment of prurigo nodularis or for the treatment of chronic cough in IPF or RCC or for any future product candidates and the terms and timing of any collaboration agreement that we may establish for the development and any commercialization of such product candidates;

•
the extent to which we acquire or in-license rights to other potential product candidates or technologies and the terms and timing of any such acquisition or licensing arrangements;

•
our potential obligation to make milestone payments to Endo Pharmaceuticals Inc., or Endo, which would become due upon the successful completion of the first Phase 3 clinical trial of a licensed product candidate and the marketing approval of a licensed product in the United States, as well as our potential obligations to pay Endo royalties on the net sales of the product;

•
our headcount growth and associated costs as we expand our research and development activities and establish a commercial infrastructure;

•
the costs of preparing, filing and prosecuting patent applications, maintaining, expanding and protecting our intellectual property rights and defending against intellectual property-related claims;

•
the effect of competing technologies and market developments;

•
our ability to establish and maintain healthcare coverage and adequate reimbursement for our products; and

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•
the costs of operating as a public company.

We believe that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into 2026. Our current plans do not take into account the cost of any additional clinical trials for the treatment of prurigo nodularis.

We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing and financing may not be available to us on acceptable terms, on a timely basis or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We do not have any committed external source of funds. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations, licensing arrangements or other sources to complete the clinical development and commercialization of Haduvio for the treatment of chronic cough in IPF or RCC or for the treatment of prurigo nodularis or any other indication. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any debt financing into which we enter would result in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, granting liens over our assets, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates. Any debt financing that we seek or additional equity that we raise may contain terms that could adversely affect our common stockholders.

If we are unable to raise sufficient capital as and when needed, we may be required to delay, reduce or abandon our product development programs or commercialization efforts. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Contractual Obligations and Commitments

A significant portion of our development activities are outsourced to third parties under agreements, including with CROs and contract manufacturers in connection with the production of clinical trial materials. The contracts are cancelable at any time by us, generally upon 60 days' prior written notice to the CRO, and therefore we believe that our non-cancelable obligations under these agreements are not material.

For information related to our future commitments relating to our lease and licensing agreements, see Note 5, “Leases” and Note 12, “Collaborative and Licensing Agreements” of our Consolidated Financial Statements.

Critical Accounting Policies and Use of Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates and assumptions involved in the accounting policy described below may have the greatest potential impact on our Consolidated Financial Statements and, therefore, consider this to be our critical accounting policy.

Research and Development Expenses

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.

We have entered into agreements with CROs, contract manufacturing organizations and other companies that provide services in connection with our research and development activities. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and

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contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in accrued expenses on our consolidated balance sheet. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CROs, contract manufacturing organizations and other companies under these arrangements in advance of the performance of the related services are recorded as prepaid expenses.