10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

OR

☐ 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 001-38356

MENLO THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

Delaware	45-3757789
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

520 U.S. Highway 22, Suite 204

Bridgewater, New Jersey 08807

(Address of principal executive offices including zip code)

(800) 755-7936

(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, par value $0.0001	MNLO	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 July 30, 2020, there were 167,690,615 shares of the registrant’s Common Stock, par value $0.0001 per share, outstanding.

TABLE OF CONTENTS

		Page
Part I	Financial Information	6
Item 1.	Unaudited Financial Statements	6
	Unaudited Condensed Consolidated Balance Sheets	6
	Unaudited Condensed Consolidated Statements Of Operations	8
	Unaudited Condensed Consolidated Statements Of Comprehensive Loss	9
	Unaudited Condensed Consolidated Statements Of Changes In Stockholders' Equity	10
	Unaudited Condensed Consolidated Statements Of Cash Flows	12
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
Part II	Other Information	47
Item 1	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
SIGNATURES		51

We own or have rights to various copyrights, trademarks, and trade names used in our business in the U.S. and/or other countries, including AMZEEQ^®, ZILXI^™, Molecule Stabilizing Technology (MST)™ and MST™. This report also includes trademarks, service marks and trade names of other companies. Trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are statements that could be deemed forward-looking statements reflecting the current beliefs and expectations of management with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These statements are often identified by the use of words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” “until,” “if” and similar expressions or variations.

The following factors, among others, including those described in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, could cause our future results to differ materially from those expressed in the forward-looking information:

•our ability to successfully commercialize AMZEEQ^® and ZILXI^™ and our other product candidates;

•disruptions related to a pandemic, epidemic or outbreak of a contagious disease, such as COVID-19, on the ability of our suppliers to provide materials for our products and product candidates, initiating and retaining patients in our clinical trials, distribution of our products and business sales execution, operating results, liquidity and financial condition;

•the regulatory approval process for our product candidates, including any delay or failure in obtaining requisite approvals;

•the potential market size of treatments for any diseases and market adoption of our products, if approved or cleared for commercial use, by physicians and patients;

•the timing, cost or other aspects of the commercialization of AMZEEQ, ZILXI and product candidates;

•our ability to achieve favorable pricing for AMZEEQ, ZILXI and product candidates;

•third-party payor reimbursement for AMZEEQ, ZILXI and any future products;

•developments and projections relating to our competitors and our industry, including competing drugs and therapies, particularly if we are unable to receive exclusivity;

•risks related to our indebtedness, including our ability to comply with the covenants in our loan documents;

•the timing of commencement of future non-clinical studies and clinical trials;

•our ability to successfully complete, and receive favorable results in, clinical trials for our product candidates;

•our intentions and our ability to establish collaborations or obtain additional funding;

•the timing or likelihood of regulatory filings and approvals or clearances for our product candidates;

•our ability to comply with various regulations applicable to our business;

•our expectations regarding the commercial supply of AMZEEQ, ZILXI and product candidates;

•our ability to create intellectual property and the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected terms of patent protection;

•the timing, costs or results of litigation, including litigation to protect our intellectual property;

•estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital on acceptable terms or at all;

•our ability to attract and retain key scientific or management personnel;

•our defense of current and any future litigation that may be initiated against us;

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•our expectations regarding licensing, business transactions and strategic operations; and

•our future financial performance and liquidity.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except per share data)

(Unaudited)

	June 30		December 31
	2020		2019
A s s e t s
CURRENT ASSETS:
Cash and cash equivalents	$	96,511	$	43,759
Restricted cash	855		825
Short-term bank deposits	—		12,102
Investment in marketable securities (Note 6)	2,609		16,246
Restricted investment in marketable securities (Note 6)	435		434
Trade receivables, net of allowances	6,407		135
Other receivable	4,000		—
Prepaid and other assets	2,672		1,557
Inventory (Note 7)	5,801		1,356
TOTAL CURRENT ASSETS	119,290		76,414
NON-CURRENT ASSETS:
Property and equipment, net	2,811		2,885
Operating lease right-of-use assets (Note 10)	2,558		1,694
Prepaid and other assets	6,183		166
TOTAL NON-CURRENT ASSETS	11,552		4,745
TOTAL ASSETS	$	130,842	$	81,159

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except per share data)

(Unaudited)

	June 30		December 31
	2020		2019
Liabilities and shareholders’ equity
CURRENT LIABILITIES:
Trade payables	$	9,952	$	19,352
Accrued expenses	8,812		3,381
Employee related obligations	4,081		5,231
Operating lease liabilities (Note 10)	1,245		1,092
Other	142		270
TOTAL CURRENT LIABILITIES	24,232		29,326
LONG-TERM LIABILITIES:
Liability for employee severance benefits	403		424
Operating lease liabilities (Note 10)	1,308		653
Long-term debt (Note 8)	32,915		32,725
Other liabilities	456		456
TOTAL LONG-TERM LIABILITIES	35,082		34,258
TOTAL LIABILITIES	59,314		63,584
COMMITMENTS (Note 11)	—		—
STOCKHOLDERS' EQUITY:
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	—		—
Common stock: $0.0001 par value; 300,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 167,683,814 and 36,480,314 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	17		3
Additional paid-in capital	589,812		328,154
Accumulated deficit	(518,301)		(310,587)
Accumulated other comprehensive income	—		5
TOTAL SHAREHOLDERS' EQUITY	71,528		17,575
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	130,842	$	81,159

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands, except per share data)

(Unaudited)

	Three months ended June 30				Six months ended June 30
	2020		2019		2020		2019
REVENUES (Note 4)
Product sales	$	1,483	$	—	$	3,233	$	—
License revenues	10,000		—		10,000		—
Royalty revenues	205		—		205		308
TOTAL REVENUES	11,688		—		13,438		308
EXPENSES
Cost of goods sold	216		—		487		—
Research and development	13,119		12,556		29,072		23,404
Selling, general and administrative	26,459		6,803		51,874		12,147
Goodwill and in-process research & development impairments	54,345		—		54,345		—
Contingent Stock Right Remeasurement	84,726		—		84,726		—
TOTAL EXPENSES	178,865		19,359		220,504		35,551
OPERATING LOSS	167,177		19,359		207,066		35,243
FINANCE INCOME	(564)		(468)		(1,292)		(1,004)
FINANCE EXPENSES	1,086		102		2,158		134
LOSS BEFORE INCOME TAX	167,699		18,993		207,932		34,373
INCOME TAX	(259)		—		(259)		(176)
NET LOSS FOR THE PERIOD	$	167,440	$	18,993	$	207,673	$	34,197
LOSS PER SHARE BASIC AND DILUTED	$	1.21	$	0.19	$	2.29	$	0.35
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE IN THOUSANDS	138,653		97,999		90,627		97,954

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars in thousands)

(Unaudited)

	Three months ended June 30				Six months ended June 30
	2020		2019		2020		2019
NET LOSS	$	167,440	$	18,993	$	207,673	$	34,197
OTHER COMPREHENSIVE LOSS (INCOME):
Net unrealized (gains) losses from marketable securities	(43)		(4)		1		(40)
Losses on marketable securities reclassified into net loss	3		—		4		—
Net unrealized losses (gains) on derivative financial instruments	—		13		—		(2)
TOTAL OTHER COMPREHENSIVE (INCOME) LOSS	(40)		9		5		(42)
TOTAL COMPREHENSIVE LOSS	$	167,400	$	19,002	$	207,678	$	34,155

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(U.S. dollars in thousands, except share data)

(Unaudited)

	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive Income (loss)		Total
	Number of Shares	Amounts		Amounts
BALANCE AT JANUARY 1, 2019	97,864,663	$	10	$	307,624	$	(215,409)	$	(43)	$	92,182
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	—	—		—		(34,197)		42		(34,155)
Exercise of options and vesting of restricted stock units	188,755	—		18		—		—		18
Stock-based compensation	—	—		2,337		—		—		2,337
BALANCE AT JUNE 30, 2019	98,053,418	$	10	$	309,979	$	(249,606)	$	(1)	$	60,382
BALANCE AT JANUARY 1, 2020	36,480,314	$	3	$	328,154	$	(310,587)	$	5	$	17,575
CHANGES DURING THE PERIOD:
Comprehensive loss	—	—		—		(207,673)		(5)		(207,678)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	1,032,003	—		260		—		—		260
Stock-based compensation	—	—		12,527		—		—		12,527
Deemed dividend to warrants holders due to warrant modification	—	—		41		(41)		—		—
Classification of stock awards to derivative liability	—	—		(975)		—		—		(975)
Issuance of Ordinary Shares through a public offering, net of $3,903 issuance costs	31,107,500	3		53,646		—		—		53,649
Issuance of stock related to merger	99,063,997	11		196,159		—		—		196,170
BALANCE AT JUNE 30, 2020	167,683,814	$	17	$	589,812	$	(518,301)	$	—	$	71,528

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

9

MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(U.S. dollars in thousands, except share data)

(Unaudited)

	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive Income (loss)		Total
	Number of Shares	Amounts		Amounts
BALANCE AT APRIL 1, 2019	97,987,433	$	10	$	308,590	$	(230,613)	$	8	$	77,995
CHANGES DURING THE PERIOD:
Comprehensive loss	—	—		—		(18,993)		(9)		(19,002)
Exercise of options and vesting of restricted stock units	65,985	—		2		—		—		2
Stock-based compensation	—	—		1,387		—		—		1,387
BALANCE AT JUNE 30, 2019	98,053,418	$	10	$	309,979	$	(249,606)	$	(1)	$	60,382
BALANCE AT APRIL 1, 2020	61,501,130	$	6	$	420,430	$	(350,861)	$	(40)	$	69,535
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	—	—		—		(167,440)		40		(167,400)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan	530,771	—		(43)		—		—		(43)
Stock-based compensation	—	—		10,768		—		—		10,768
Classification of stock awards to derivative liability	—	—		657		—		—		657
Issuance of Ordinary Shares through a public offering, net of $3,903 issuance costs	31,107,500	3		53,646		—		—		53,649
Issuance of stock related to merger	74,544,413	8		104,354		—		—		104,362
BALANCE AT JUNE 30, 2020	167,683,814	$	17	$	589,812	$	(518,301)	$	—	$	71,528

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

10

MENLO THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

(Unaudited)

	Six months ended June 30
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	207,673	$	34,197
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	187		163
Goodwill and in-process research & development impairments	54,345		—
Contingent stock right remeasurement	84,726		—
Loss from disposal and sale of fixed assets	—		29
Changes in marketable securities and bank deposits, net	(142)		(358)
Changes in accrued liability for employee severance benefits, net of retirement fund profit	(21)		42
Stock-based compensation	12,527		2,337
Non-cash finance (income) expenses, net	(833)		3
Changes in operating assets and liabilities, net of effects of businesses acquired:
Increase in trade receivables, prepaid and other assets	(9,807)		246
Increase in other non-current assets	(6,026)		—
(Decrease) increase in accounts payable and accruals	(10,908)		2,374
Increase in inventory	(4,445)		—
Net cash used in operating activities	(88,070)		(29,361)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets	(113)		(454)
Investment in bank deposits	—		(16,048)
Cash acquired through merger	38,641		—
Proceeds from sale and maturity of marketable securities and bank deposits	48,577		57,014
Net cash provided by investing activities	87,105		40,512
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds related to issuance of ordinary shares through offerings, net of issuance costs	53,646		—
Proceeds related to issuance of stock for stock-based compensation arrangements, net	100		18
Net cash provided by financing activities	53,746		18
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	52,781		11,169
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	1		48
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD	44,584		28,118
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD	$	97,366	$	39,335
Cash and cash equivalents	$	96,511	$	39,085
Restricted cash	855		250
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN IN STATEMENT OF CASH FLOWS	$	97,366	$	39,335
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS -
Cashless exercise of warrants and restricted stock units	*		$	4
Issuance of shares under employee stock purchase plan	$	163	$	—
Additions to operating lease right of use assets	$	1,120	$	867
Additions to operating lease liabilities	$	1,120	$	850
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest received	$	298	$	666
Interest paid	$	1,946	$	—
Fair value of assets acquired	$	117,270	$	—
Less liabilities assumed	5,827		—
Net acquired (See “Note 3- Business combination”)	111,443		—
Less cash acquired	38,641		—

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Merger net of cash acquired $ 72,802  $ — 

*Represents an amount less than one thousand

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Menlo Therapeutics Inc.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

NOTE 1 - NATURE OF OPERATIONS

Menlo Therapeutics Inc. (the “Company,” “Menlo” or the “combined company”) is a specialty pharmaceutical company focused on developing and commercializing proprietary therapies to address unmet needs in dermatology. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.

Reverse Merger

On November 10, 2019, the Company, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.

Products, Product Candidates and Licenses

Prior to the Merger, in January 2020, Foamix launched AMZEEQ^® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the U.S. Food and Drug Administration (the "FDA") approved ZILXI^™ (minocycline) topical form, 1.5% (formerly FMX103, "ZILXI"), for the treatment of inflammatory lesions of rosacea in adults. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.

AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)^™ that is also being used in the development of the Company’s other product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company has begun preparations to conduct an end-of-Phase II meeting with the FDA before the end of 2020.

Additionally, the Company was developing serlopitant, a small molecule inhibitor of the neurokinin 1 receptor, or NK1-R, given as a once-daily, oral tablet, for the treatment of pruritus, or itch, associated with various conditions including prurigo nodularis, or PN. On April 6, 2020, the Company announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN, studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. The Company does not currently intend to pursue serlopitant. As a result, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets in its unaudited condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2020. See "Note 3 - Business Combination" for more information.

The Company is actively pursuing opportunities to out-license its products and product candidates to third parties for development and commercialization outside the United States, and recently entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”). See "Note 4 - Revenue Recognition." The Company has also licensed certain technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining the Company’s foam technology with the licensee’s proprietary drugs.

Liquidity and Capital Resources

The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of

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developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the six months ended June 30, 2020, the Company incurred a net loss of $207.7 million and used $88.1 million of cash in operations. As of June 30, 2020, the Company had cash, cash equivalents and investments of $100.4 million and an accumulated deficit of $518.3 million.

If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other topical minocycline product candidates. The Company does not currently intend to pursue serlopitant further. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

The Company believes that its existing cash, cash equivalents and investments as of June 30, 2020 and projected cash flows from revenues and the funds that the Company is entitled to receive under the license agreement with Cutia Therapeutics (HK) Limited ("Cutia"), will provide sufficient resources to fund its current ongoing needs for at least the next 12 months from the issuance of these financial statements, though there may be need for additional financing activity if the on-going COVID-19 pandemic continues for an extended duration and as the Company continues to grow.

As a result of the COVID-19 pandemic, the Company suspended the vast majority of its in-person interactions by its customer-facing professionals in healthcare settings and have engaged with these customers remotely as the Company seeks to continue to support healthcare professionals and patient care. During the second quarter of 2020, the Company began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures. As a result of the negative impact on the Company's product sales, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement. See "Note 8 - Long-Term Debt." The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI, and have a material adverse effect on the Company's liquidity, as well as the Company's ability to remain in compliance with the minimum net revenue covenants contained in the Company's loan documents.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

a.Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

These unaudited interim condensed consolidated financial statements should be read in conjunction with Foamix’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on May 7, 2020, and the Company's unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020.

b.Principles of Consolidation

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The consolidated financial statements include the accounts of Menlo and its subsidiaries. Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.

c.Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management 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 condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which the pandemic impacts worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. For the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures due to the pandemic. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

d.Business Acquisition

The Company’s unaudited interim condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.  For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.  The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

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•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

The Company reviews all of its long-lived assets for impairment indicators throughout the year. Impairment testing is performed for indefinite-lived intangible assets annually (or sooner if warranted) and for all other long-lived assets whenever impairment indicators are present. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

e.Revenue Recognition

The Company accounts for its revenue transactions under FASB ASC Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.

The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 90 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.

The Company’s net product revenues through June 30, 2020 were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed

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products to Cutia for clinical and commercial use. The Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognizes the revenues from the upfront license fee when the license is transferred to the licensee and the licensee is able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.

f.Allowance for credit losses

An allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical bad debts experience and changes in customer payment patterns. Trade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain sales allowances and provisions for doubtful accounts. Provisions for doubtful accounts were not material for the three and six months ended June 30, 2020.

g.Derivative instruments

The Company recognizes all derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheet at their respective fair values. All gains and losses associated with derivatives are reported as a finance expense (income) in the accompanying condensed consolidated statements of operations.

h.Fair value measurement

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

i.Loss per share

The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:

a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement

b.The number of common outstanding common stock outstanding from the merge date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.

The basic and diluted loss per share for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse merger was calculated by dividing (a) by (b):

a.The loss of the legal acquiree attributable to common stockholders in each of those periods.

b.The legal acquiree's historical weighted-average number of common stock outstanding multiplied by the exchange ratio established in the merge agreement

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary shares outstanding during the period. Diluted net loss per share is based upon the weighted average number

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of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

	Three months ended June 30		Six months ended June 30,
	2020	2019	2020	2019
Outstanding stock options, RSUs and shares under the ESPP	14,975,385	11,037,802	12,082,037	10,576,229
Warrants	1,893,032	—	1,272,336	—

In addition to the above, the CSR was excluded from the calculation of the diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.

j.Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-4 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.

NOTE 3 – BUSINESS COMBINATION

On November 10, 2019, Menlo entered into the Merger Agreement with Foamix, and Merger Sub, a direct and wholly-owned Israeli subsidiary of Menlo. On March 9, 2020, the Merger was completed and Foamix is now a wholly-owned subsidiary of Menlo.

On the Effective Date, each ordinary share of Foamix was exchanged for 0.5924 shares of common stock of Menlo (the “Exchange Ratio”). In addition, on the Effective Date, Foamix shareholders received one contingent stock right (a “CSR”) for each Foamix ordinary share held by them. The CSRs were issued pursuant to the Contingent Stock Rights Agreement (the “CSR Agreement”), dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of prurigo nodularis (the “Phase III PN Trials”).

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on

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April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders owned approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis.

For accounting purposes, the Merger is treated as a “reverse acquisition” under U.S. GAAP and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods.

Under reverse acquisition accounting, the U.S. dollar amount for common stock in the financial statements is based on the value and number of shares issued by Menlo (reflecting the legal structure of Menlo as the legal acquirer) on the Merger date plus subsequent shares issued by the Company. The amounts in additional paid-in capital represent that of Foamix and include the fair value of shares deemed for accounting purposes to have been issued by Foamix on the merger date and the fair value of the Menlo equity awards included in the purchase price calculation. The Foamix additional paid-in capital was also adjusted for the difference between the number of common stock and the historical number of shares of Foamix’s ordinary shares.

During the six months ended June 30, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date. The total transaction costs and other non-recurring costs related to the Merger were $21.8 million.

Purchase Price

The following is the Merger Consideration (as defined in the Merger Agreement) was transferred to effect the Merger:

(in thousands)	Total
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders	$	123,757
Deemed (for accounting purposes only) conversion of Menlo equity awards	7,322
Total consideration*	$	131,079

* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.

Based on Foamix’s closing share price of $2.99 as of March 9, 2020, the Merger Consideration under reverse acquisition accounting was approximately $131.1 million, consisting of $123.8 million for the deemed (for accounting purposes only) issuance of 41.4 million Foamix shares assuming that no upwards adjustment was made to the Exchange Ratio relating to the CSR, and $7.3 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the Foamix closing share price of $2.99 as of March 9, 2020 as an input to the Black Scholes valuation model to determine the fair value of the options.

Purchase Price Allocation

The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:

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(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	50,300
Goodwill	4,045
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Estimated purchase price*	$	111,443

* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.

Goodwill

Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually. None of the Goodwill recognized is expected to be deductible for income tax purposes. The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:

(in thousands)	March 9, 2020
Purchase price	$	111,443
Less: fair value of net assets acquired, including other identifiable intangibles	(107,398)
Goodwill	$	4,045

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.0 million related to goodwill in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.

In-Process Research and Development (“IPR&D")

The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	50,300
Fair value of identified intangible assets	$	50,300

* Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing.

The fair value of IPR&D has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. 

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On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $50.3 million related to the IPR&D asset in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.

CSR

The CSR was issued pursuant to the CSR Agreement, dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s Phase III PN Trials. The Company recognized a liability of $19.6 million in the unaudited condensed consolidated balance sheet as of March 31, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery pre-Merger Foamix shareholders and pre-Merger Menlo stockholders own approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020 and increased the awards available for grant under the Company's equity plan.

The contingent consideration associated with the CSR was recognized and measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5. An acquirer's obligation to pay contingent consideration should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity, ASC 815 Derivatives and Hedging, and other applicable U.S. GAAP. The contingent consideration associated with the CSR was initially measured at fair value and will subsequently be measured at fair value at each reporting date. The CSR was classified as a liability, as it is settled by issuing a variable number of the Company's common stock. On April 6, 2020, the Company recorded $84.7 million of expense in its unaudited condensed consolidated statements of operations and comprehensive loss to remeasure the CSR liability in its consolidated balance sheet to its fair value of $104.4 million (calculated based on 74,544,413 shares issued and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.

Pro Forma

The actual Menlo net loss included in the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2020 (for the period from the March 9, 2020, the Effective Date, through June 30, 2020, which are not indicative of the results to be expected for a full year) and the supplemental unaudited pro forma revenue and net loss of the combined entity had the acquisition been completed on January 1, 2019 are as follows:

Actual Menlo results of operations included in the condensed consolidated statement of operation for the three and six months ended June 30, 2020:

(in thousands)	Three months ended June 30, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

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	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
(in thousands, except per share data)	(Unaudited)				(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	—	$	13,438	$	308
Net loss	$	167,441	$	35,470	$	205,082	$	69,547
Loss per share - basic and diluted	$	1.21	$	0.59	$	1.23	$	1.16
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	—	$	(14,931)	$	—
Acceleration of stock based compensation	—		—		(7,199)		—
Total Adjustments	$	—	$	—	$	(22,130)	$	—

These unaudited pro forma condensed consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the Merger.

NOTE 4 – REVENUE RECOGNITION

Product Sales

Product revenues for the three and six months ended June 30, 2020 were generated from sales of AMZEEQ which was commercially launched in the United States in January 2020. The Company’s customers include a limited number of national and select regional distributors. These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. For the three months ended June 30, 2020, three distributors accounted for 42%, 43% and 15% of product revenue, respectively. For the six months ended June 30, 2020, three distributors accounted for 46%, 39% and 14% of product revenue, respectively.

Product Sales Provisions

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, described below.   The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its distributors less provisions for (i) trade discounts and allowances, such as distributor fees and discounts for prompt payment, (ii) estimated rebates to Third-party Payers, patient co-pay assistance programs, chargebacks and other discount programs and (iii) reserves for expected product returns.

Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to Trade receivables, net on the condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within Accrued expenses on the condensed consolidated balance sheet. Provisions for revenue reserves described below reduced product revenues by $5.9 million and $14.1 million for the three and six months ended June 30, 2020, respectively.

Distribution Fees and Trade Discounts and Allowances: The Company pays fees for distribution services and for certain data that distributors provide to the Company and generally provides discounts on sales to its distributors for prompt payment. These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.

Rebates, Chargebacks and Other Discounts: Product sales made under managed-care and governmental pricing programs in the U.S. are subject to rebates. Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share. Chargebacks relate to contractual agreements to sell products to government agencies and other indirect

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customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers. The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.

Product Returns: Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date. The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The information utilized to estimate the returns provision includes: (i) historical industry information regarding rates for comparable pharmaceutical products and product portfolios, (ii) external data with respect to inventory levels in the wholesale distribution channel, (iii) external data with respect to prescription demand for products and (iv) remaining shelf lives of products at the date of sale. The Company estimates that approximately 2% to 3% of product will be returned.

License Revenues

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commerical use. Outside of the license transferred, the Company does not have any additional performance obligations under the arrangement. In exchange for the license, the Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The license is considered functional IP as the licensee is able to use and benefit from the license without the continued involvement of the Company. The Company recorded $10.0 million of license revenue in the three and six months ended June 30, 2020. The Company will also receive royalties on net sales of any licensed products, such royalties will be recognized in the period the sales or usage occurs under the royalties sales-and usage based exception. The Company has not recorded revenue related to the $1.0 million payment due upon receipt of marketing approval for the licensed product as such amount is constrained under the variable consideration guidance under ASC 606, Revenue from Contracts with Customers.

Contract Assets and Contract Liabilities 

The Company did not have any contract assets (unbilled receivables) related to product sales as of June 30, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company has a $4.0 million receivable, recorded as an Other receivable on the consolidated balance sheet, due from Cutia as of June 30, 2020 which is expected to be paid in Q3 2020. The Company did not have any contract liabilities as of June 30, 2020, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers.

Sales Commissions

Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales commissions are included in selling, general and administrative expenses.

Financing Component

The Company has elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Standard credit terms do not exceed 90 days.

Royalty Revenues 

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Revenues in the amount of $0.2 million were recorded during the three and six months ending

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June 30, 2020 and revenues in the amount of $0.3 million were recorded during the six months ending June 30, 2019. There was no revenue for the three months ending June 30, 2019.

NOTE 5 - FAIR VALUE MEASUREMENT

The Company’s assets and liabilities that are measured at fair value as of June 30, 2020 and December 31, 2019, are classified in the tables below in one of the three categories described in note 2H above:

	June 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	591	$	2,018	$	—	$	2,609

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	1,020	$	15,660	$	—	$	16,680

⁽¹⁾The Company’s debt securities are traded in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Accordingly, these assets are categorized as Level 2.

Foreign exchange risk management

Occasionally, the Company purchases and writes non-functional currency options in order to hedge the currency exposure on the Company’s cash flow. The currency hedged items are denominated in New Israeli Shekels (“NIS”). The purchasing and writing of options is part of a comprehensive currency hedging strategy with respect to salary and rent expenses denominated in NIS. These transactions are at zero cost for periods of up to one year. The counterparties to the derivatives are major banks in Israel. As of June 30, 2020, there were no hedged amounts.

As of June 30, 2020, the Company has a lien in the amount of $0.3 million on the Company’s marketable securities and a lien in the amount $0.3 million on the Company’s checking account, in respect of bank guarantees granted in order to secure the hedging transactions.

NOTE 6 - MARKETABLE SECURITIES

Marketable securities as of June 30, 2020, and December 31, 2019 consist mainly of debt and mutual funds securities. The debt securities are classified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in other comprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in the consolidated statement of operations as finance income or expenses.

Equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through finance (income) expense in the condensed consolidated statements of operations.

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2020		2019
Israeli mutual funds	$	591	$	1,020
Certificates of deposit	—		151
U.S Government	—		6,031
U.S Treasury bills	—		9,478
Corporate notes	2,018		—
Total	$	2,609	$	16,680

As of June 30, 2020 and December 31, 2019 the fair value, cost and gross unrealized holding gains and losses of the debt marketable securities owned by the Company were as follows:

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	June 30, 2020
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding losses		Gross unrealized holding gains
Corporate notes	2,018		2,018		—		—
Total	$	2,018	$	2,018	$	—	$	—

	December 31, 2019
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding loss		Gross unrealized holding gains
Certificates of deposit	$	151	$	151	$	—	$	—
U.S Government and agency bonds	6,031		6,030		—		1
U.S Treasury bills	9,478		9,475		—		3
Total	$	15,660	$	15,656	$	—	$	4

The Company has considered factors regarding other than temporary impaired securities and determined that there are no securities with impairment that is other than temporary as of June 30, 2020 and December 31, 2019.

As of June 30, 2020, and December 31, 2019 all of the Company’s debt securities were due within one year.

During the six months ended June 30, 2020 and June 30, 2019 the Company received aggregate proceeds of $36.4 million and $33.0 million, respectively, upon sale and maturity of marketable securities.

As of June 30, 2020, and December 31, 2019, the Company’s restricted marketable securities were $0.4 million and $0.4 million, respectively, due to a lien in respect of bank guarantees granted to secure hedging transaction and the Company’s rent agreements. See “Note 5- Fair Value Measurement” and “Note 10-Operating Lease” for more information.

NOTE 7 – INVENTORY

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. The Company commenced capitalizing inventory for AMZEEQ upon FDA approval of AMZEEQ on October 18, 2019 and ZILXI on May 29, 2020. The Company periodically reviews its inventory levels and, if necessary, writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no inventory write-downs during the three and six months ended June 30, 2020.

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2020		2019
Raw materials	$	3,387	$	500
Work-in-process	954		—
Finished goods	1,460		856
Total	$	5,801	$	1,356

NOTE 8 - LONG-TERM DEBT

On July 29, 2019 (the “Closing Date”) the Company secured up to $50 million in debt under a credit agreement “the Credit Agreement”) from two of its current shareholders, who are considered related parties (the “lenders”) and entered into a Securities Purchase Agreement with one of the lenders for gross proceeds of approximately $14 million, before deducting offering expenses (see “Note 9- Share Capital” for more information). On March 9, 2020, the Company entered into an Amended and Restated Credit Agreement and Guaranty (the “Amended and Restated Credit Agreement”), whereby the Company has guaranteed the indebtedness obligation of Foamix Pharmaceuticals Inc. and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. The Amended and Restated Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $50.0 million, of which $35.0 million was drawn as June 30, 2020 and December 31, 2019.

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Under the Amended and Restated Credit Agreement, the debt comprises of three tranches: (a) $15 million funded at closing (the “Tranche 1 Loan”), (b) $20 million funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to $15 million available after the closing date and prior to September 30, 2020 (the “Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the Company’s NDA for AMZEEQ (formerly known as FMX101) and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining its arrangements with a third party for the commercial supply and manufacture of AMZEEQ. The Company shall be permitted to borrow the Tranche 3 Loan only following the achievement of certain revenue targets prior to September 30, 2020. Subject to any acceleration as provided in the Credit Agreement, including upon an event of default (as defined in the Amended and Restated Credit Agreement), the credit facility will mature on July 29, 2024 and bear interest equal to the sum of (A) 8.25% (subject to increase in accordance with the terms of the Credit Agreement) plus (B) the greater of (x) the one-month LIBOR as of the second business day immediately preceding the first day of the calendar month or the date of borrowing (if such loan is not outstanding as of the first day of the calendar month), as applicable, and (y) 2.75%. A fee in an amount equal to 1.0% of the aggregate principal amount of all loans made on any given borrowing date shall be payable to the lenders.

The Amended and Restated Credit Agreement contains certain financial covenants, including that the Company at all times after the date of FDA approval of AMZEEQ maintain a minimum aggregate compensating cash balance of $2.5 million.

In addition, as a result of the negative impact on the Company's product sales of AMZEEQ due to the COVID-19 pandemic, the parties entered into Amendment No. 1 to Amended and Restated Credit Agreement (the "Amendment") on August 5, 2020. The Amendment provides for a covenant "holiday" with respect to the minimum net revenue covenant such that the compliance with such covenant will commence with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024. The Amendment does not modify any of the conditions precedent to borrowing the Tranche 3 Loan, as described above and as set forth in the Amended and Restated Credit Agreement. See "Note 12 - Subsequent Events."

As of June 30, 2020, the Company is in compliance with all covenants, including maintaining a minimum aggregate compensating cash balance as mentioned above. In the event where the Company fails to observe or perform any of the financial covenants the lenders may, by notice to the Company, declare the Term Loans then outstanding to be due and payable in whole, together with accrued interest and a Prepayment Premium (as defined in the Amended and Restated Credit Agreement ). Additionally, the Company will continue to monitor ongoing developments in connection with the COVID-19 pandemic, which may have an adverse impact on the Company’s commercial prospects, projected cash position and ability to remain in compliance with these covenants.

Under the Amended and Restated Credit Agreement, there are no required payments of principal amounts until July 2023. Afterwards, the Company will pay 1.5% of the aggregate principal amount each month. The outstanding amount will be paid in full on July 2024.

In addition, on the Closing Date, Foamix issued to the lenders warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, at an exercise price of $2.09 per share (the “Warrant”), which represents the five-day volume weighted average price of the ordinary shares as of the trading day immediately prior to the Closing Date. Following the Merger, the Warrants were exchanged, based on the Exchange Ratio, to 651,640 of the Company’s common stock, and adjusted the exercise price to $3.53 (See “Note 3 – Business Combinations” for more information relating to subsequent adjustment of warrant following the Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106)). Payment of the exercise price will be made, at the option of the lender, either in cash or as a reduction of common stock issuable upon exercise of the Warrant, with an aggregate fair value equal to the aggregate exercise price ("cashless exercise"), or any combination of the foregoing. The Warrants were exercisable immediately following the closing of the Credit Agreement and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants' expiration date, if in the money. The Warrants issued were classified as equity in accordance with ASC 815-40. Proceeds received under the Tranche 1 Loan were allocated to the Warrants and the Tranche 1 Loan on a relative fair value basis.

The Company incurred offering expenses of $1.1 million in connection with transactions contemplated by the Credit Agreement and the Securities Purchase Agreement, which were allocated to the Warrants, shares and debt consistently with the allocation of proceeds. The Company incurred additional expenses in the amount of $0.3 million from the borrowing of Tranche 2 Loan, allocated only to the debt.

Debt issuance costs are recorded on the consolidated balance sheet as a reduction of liabilities.

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Amounts allocated to the debt, net of issuance cost, are subsequently recognized at amortized cost using the effective interest method.

The fair value of the debt as of June 30, 2020 was $35.8 million and is categorized as Level 3. The valuation was performed by applying the income approach, under which the contractual present value method was used. The estimation of risk adjusted discount curve was based on public information reported in the financial statements of publicly traded venture lending companies.

During the three months ended June 30, 2020 the company recorded interest expense of $1.0 million and $0.1 million relating to the interest and discount cost, respectively. During the six months ended June 30, 2020 the company recorded interest expense of $1.9 million and $0.2 million relating to the interest and discount cost, respectively.

NOTE 9 – SHARE CAPITAL

Preferred stock

As of June 30, 2020, the Company's Certificate of Incorporation, as amended, authorizes the Company to issue 20,000,000 of shares of $0.0001 par value preferred stock. There were no shares of preferred stock issued and outstanding as of June 30, 2020 and December 31, 2019.

Shares of preferred stock may be issued from time to time in one or more series. The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's Board of Directors.

Common stock

As of June 30, 2020, the Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 300,000,000 shares of $0.0001 par value common stock. See Note 12—Subsequent Events.

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends on common stock.

Issuance of stock

On July 29, 2019, pursuant to the Credit Agreement and Securities Purchase Agreement, Foamix issued and sold, in a registered offering, an aggregate of 6,542,057 ordinary shares at a purchase price of $2.14 per share, later exchanged to 3,875,514 Menlo common stock at the closing of the Merger. The aggregate gross proceeds of approximately $14 million, before deducting issuance costs allocated as described in Note 8-Long Term Debt, in the amount of $0.3 million.

Pursuant to the completion of the merger, on March 9, 2020, the Company issued 36,550,335 shares to Foamix shareholders. On April 6, 2020, pursuant to the terms of the CSR Agreement, the Company issued 74,544,413 shares to Foamix shareholders.

On June 9, 2020, the Company completed an underwritten public offering of 31,107,500 shares of common stock at a price to the public of $1.85 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.

Warrants

In addition to the Credit Agreement signed on July 29, 2019, on the Closing Date, Foamix issued to the lender Warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, later exchanged to 1,980,660 of Menlo’s common stock. Upon the closing of the Merger, each Warrant received one CSR as described in Note 3- Business Combinations. The warrants were exercisable immediately following the closing of the Credit Agreement and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants’ expiration date, if in the money.

The exchange of Warrants from Foamix warrants to Menlo warrants and the additional CSR, was accounted for as a modification, by analogy, from the modification’s guidance under ASC 260-10-S99-2. The Company assessed the significance of the modification of the Warrants by comparing the fair value of the Warrants immediately before and after the amendments. In its assessment, it also considered additional qualitative factors. The Company concluded that the change of terms was not

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significant. Therefore, the incremental fair value, in the amount of $41,000, of the modified Warrants over the original ones (as of modification date) was recognized in retained earnings as deemed dividend to the Warrants holders in the six months ended June 30, 2020.

Share-based compensation

Equity incentive plans:

Upon closing of the Merger, the company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of June 30, 2020, 2,849,843 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan"), effective January 2018. Pursuant to the terms of the 2018 Plan in January 2020, the 2018 share reserve automatically increased by 976,105 shares of common stock issuable. As of June 30, 2020, 2,184,769 shares remain issuable under the 2018 Plan.

Employee Share Purchase Plan:

Upon closing of the Merger, the company adopted Foamix’s ESPP pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15% of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code.

As of June 30, 2020, 9,371,258 shares remain available for grant under the ESPP.

During the six months ended June 30, 2020, 61,031 Foamix ordinary shares, later exchanged to 109,892 Menlo common stock, were issued to the employees.

Options and RSUs granted to employees and directors:

In the six months ended June 30, 2020 and 2019, the Company granted options and RSU as follows:

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	4,782,444	$1.95-$3.13	1 year -4 years	10 years
RSUs	2,589,710	—	1 year -4 years	—

	Six months ended June 30, 2019
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	2,299,899	$1.48-$2.12	1 year -4 years	10 years
RSUs	748,337	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merge grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

The fair value of options and RSUs granted to employees and directors during the six months ended June 30, 2020, and the six months ended June 30, 2019 was $11.4 million and $3.7 million, respectively.

The fair value of RSUs granted is based on the share price on the grant date.

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

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	Six months ended June 30
	2020		2019
Dividend yield	0	%	0	%
Expected volatility	60.44%-69.83%		60.40%-61.40%
Risk-free interest rate	0.44%-1.26%		2.20%-2.62%
Expected term	6 years		6 years

Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged to stock options and RSUs of Menlo’s common stock according to the Exchange Ratio. In addition, for each option and RSU the holder received a CSR as described in Note 3- Business Combination. This transaction was considered by the company to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation expense of $60,000 related to the modification in the consolidated statement of operations for the three months ended March 31, 2020. As described in Note 3 - Business Combination, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $9.3 million for the three and six months ended June 30, 2020. As of June 30, 2020 there is $6.6 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 2 years.

Awards granted to options and RSU holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the unaudited condensed consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $0.5 million and $1.0 million for the three and six months ended June 30, 2020, respectively. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that study MTI-105 and study MTI-106 did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital.

Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan.

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Research and development expenses	$	3,050	$	384	$	3,566	$	738
Selling, general and administrative	7,718		1,004		8,961		1,599
Total	$	10,768	$	1,388	$	12,527	$	2,337

NOTE 10 – OPERATING LEASE

Operating lease agreements

The Company has operating leases for corporate offices, research and development facilities, and vehicles. The properties primarily relate to the Company’s principal executive office in Bridgewater, New Jersey, corporate offices in Redwood City, California and research and development facility in Israel.

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On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (“The Amendment”). The Amendment includes an extension of the lease period of the 10,000 square feet previously leased under the original agreement (the “Original Space”) and an addition of 4,639 square feet (the “Additional Space”). The Company entered the Additional Space following a period of preparation by the lessor completed during September 2019 (the “Commencement Date”). The Amendment is due to expire on August 31, 2022.

Pursuant to The Amendment of the lease on the Current Space, the Company recognized an additional right of use asset and liability in the amount of $0.7 million. The Additional Space was considered a new lease agreement and was recognized as a right of use asset and liability, in the amount of $0.3 million, on the Commencement Date.

The Company’s corporate offices in Redwood City, California are under lease through December 31, 2020 with a base rent of approximately $60,000 per month. Given the short-term nature of the remaining lease period, the combined company did not recognize a right-of-use asset and liability and expects to recognize the lease payments in its statements of operations and comprehensive loss on a straight-line basis over the remaining lease term.

The lease agreement for the research and development facility in Israel is linked to the Israeli consumer price index (“CPI”) and due to expire in December 2020.

Additionally, the Company has entered into operating lease agreements in connection with the leasing of vehicles. The lease periods are generally for three-year terms. To secure the terms of certain of the vehicle lease agreements, the Company has made prepayments to the leasing company, representing approximately 3 months of lease payments. These amounts have been recorded as part of the operating lease right-of-use assets.

Maturities of lease liabilities are as follows:

(in thousands)
2020	$	1,267
2021	993
2022	768
2023	90
Total lease payments	3,118
Less imputed interest	565
Total lease liability	$	2,553

As of June 30, 2020, the Company has a lien in the amount of $0.7 million on the Company’s cash and marketable securities in respect of bank guarantees granted in order to secure the lease agreements.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2020, no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

IPO Lawsuits

On November 8, 2018 and January 28, 2019, two purported class actions were filed in the Superior Court of California, San Mateo County, against the Company and certain of our officers and directors. The actions are entitled Savelstrov v. Menlo Therapeutics Inc., et al., and McKay v. Menlo Therapeutics Inc., et al. The underwriters for our initial public offering were also named as defendants in these lawsuits. The complaints contain identical allegations against the same defendants. Both complaints alleged that the Registration Statement and prospectus for our initial public offering contained false and misleading statements in violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in connection with our initial public offering. The complaints seek, among other things, an award of damages in an amount to be proven at trial, along with reimbursement of reasonable costs and expenses, including attorneys’ fees and expert fees. The McKay action has been consolidated with the Savelstrov action and the claim for violations of Section 12(a)(2) has been dismissed. 

The parties have mediated the consolidated lawsuit and reached a settlement, providing for payment to the class of plaintiffs in the amount of $9.5 million, the vast majority of which will be paid by the Company's insurance carriers, in return for a release of all claims against the defendants, including the Company and its current and former officers and directors. The

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settlement is subject to final documentation and Court approval. The Court preliminarily approved the settlement on April 24, 2020, and will consider whether to grant final approval of the settlement at a hearing scheduled for August 14, 2020. Menlo accrued for the remaining settlement amount that is not covered by insurance carriers as of December 31, 2019, which did not have a material impact on its financial statements.

Merger Lawsuits

Seven lawsuits (collectively, the “Merger Lawsuits”) were filed in various U.S. federal district courts against Foamix and certain other defendants in connection with the Merger. The lawsuits generally alleged that the registration statement on Form S-4 and the prospectus/joint proxy statement included therein included false or misleading information regarding the Merger in violations of Section 14(a) and Section 20(a) of the Exchange Act and/or Rule 14a 9 promulgated under the Exchange Act. In addition, one of the lawsuits alleged that the members of Foamix’s board of directors breached their fiduciary duties in connection with the Merger. The plaintiffs sought, among other things, to enjoin consummation of the Merger, or alternatively rescission or rescissory damages; to compel the individual defendants to disseminate a joint proxy statement/prospectus that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading; a declaration that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act; a declaration that the Merger Agreement was entered into in breach of fiduciary duty and is therefore invalid and unenforceable; an order directing the individual defendants to commence a sale process for Foamix and obtain a transaction; and an award of costs, including attorneys’ and experts’ fees and expenses, as well as an accounting of damages allegedly suffered by the plaintiffs. The plaintiffs have agreed the Lawsuits were rendered moot by subsequent disclosure, and on April 22, 2020, each of the plaintiffs and defendants named in the Merger Lawsuits entered into a mootness resolution agreement pursuant to which the plaintiffs agreed to dismiss their lawsuits with prejudice as to the named plaintiff and Foamix agreed to pay a de minimis mootness fee to plaintiffs’ counsel. As of May 4, 2020, each of the Merger Lawsuits has been dismissed.

NOTE 12 – SUBSEQUENT EVENTS

Reverse Stock Split Proposal

At the Company's annual meeting of stockholders held on August 3, 2020, the Company's stockholders voted to approve a proposal to adopt an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect (a) a reverse stock split of the Company’s outstanding shares of common stock, at a reverse stock split ratio ranging from 1-for-2 shares to 1-for-7 shares, which may be determined by the Board at a later date, and (b) a reduction in the number of authorized shares of the Company’s common stock by a corresponding ratio. The exact timing for selection of the reverse stock split ratio and the effective date of the reverse stock split will be determined by the Board based upon its evaluation as to when such action will be most advantageous to the Company and its stockholders. The Board may delay or abandon the reverse stock split at any time prior to the effective time of the reverse stock split, if the Board determines that the reverse stock split is no longer in the best interests of the Company or its stockholders. The reverse stock split, if implemented, would become effective upon the filing of a charter amendment with the Delaware Secretary of State.

Amendment to Amended and Restated Credit Agreement

On August 5, 2020, the Company and the lenders entered into the Amendment. The Amendment provides for a covenant "holiday" with respect to the minimum net revenue covenant in the Amended and Restated Credit Agreement, such that the compliance with such covenant will commence with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing on the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2019, our Current Report on Form 8-K/A filed with the SEC on May 7, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 11, 2020. In this Quarterly Report on Form 10-Q, unless otherwise indicated, all references to the “Company,” “we,” “us” and “our” or similar terms refer to Menlo Therapeutics Inc. after giving effect to the Merger.

Company Overview

We are a specialty pharmaceutical company focused on developing and commercializing proprietary therapies to address unmet needs in dermatology. On March 9, 2020, we combined with Foamix Pharmaceuticals Ltd. (“Foamix”). In January 2020, Foamix (now our wholly-owned subsidiary) launched AMZEEQ^® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the Food and Drug Administration (“FDA”) approved ZILXI™ (minocycline) topical foam, 1.5% (formerly FMX103, “ZILXI”), for the treatment of inflammatory lesions of rosacea in adults. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA and serve as a springboard for our potential commercialization of additional innovative products in dermatology.

AMZEEQ and ZILXI utilize our proprietary Molecule Stabilizing Technology™, or MST, that we also use in the development of our product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, we announced positive topline results from our Phase II clinical trial, Study FX2016-40, to evaluate the efficacy and safety of FCD105. Pending a successful development program, we intend to file a new drug application (“NDA”) for FCD105 under the 505(b)(2) regulatory pathway, which is the same regulatory pathway we have pursued for AMZEEQ and ZILXI.

In addition to MST^™, and our emulsion platform which is a different technology, we have a number of proprietary delivery platforms in development that enable topical delivery of other APIs, each having unique pharmacological features and characteristics designed to keep the API stable when delivered and directed to the target site. We believe our MST vehicle and other topical delivery platforms may offer significant advantages over alternative delivery options, including emulsions, and are suitable for multiple application sites across a range of conditions. We are also actively pursuing opportunities to out-license our product and product candidates to third parties for development and commercialization outside the United States.

Key Developments

Below is a summary of selected key developments affecting our business that have occurred since December 31, 2019:

•On November 10, 2019, the Company, Foamix and Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020. Foamix was deemed the “accounting acquirer” in the Merger and the Merger was accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements are deemed those of the predecessor entity.

•On March 9, 2020, we entered into an Amended and Restated Credit Agreement and Guaranty, whereby we have guaranteed the indebtedness obligation of Foamix Pharmaceuticals Inc. and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. The Amended and Restated Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $50.0 million, of which $35.0 million was drawn as of December 31, 2019 and June 30, 2020. On August 5, 2020, the parties amended the minimum net revenue covenant contained in the Amended and Restated Credit Agreement and Guaranty as a result of the negative impact of the COVID-19 pandemic on the Company's product sales of AMZEEQ. See "Part II - Other Information - Part 5. Other Information."

•On March 24, 2020, we announced that Andrew Saik has joined the Company as our Chief Financial Officer and Treasurer.

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•On April 2, 2020, we announced that we have entered into a settlement and license agreement to resolve the remaining pending patent litigation involving Finacea^® foam.

•LEO Pharma A/S, or LEO, has remedied the supply chain issues related to Finacea foam that Foamix previously disclosed in April 2019 and has resumed commercial sales of Finacea foam.

•On April 6, 2020, we announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of pruritus (itch) associated with prurigo nodularis (PN), studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. We currently do not intend to further pursue the development of serlopitant, other than to assess and explore opportunities, if any, to license out and or monetize other aspects of the serlopitant asset. As such, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets of $50.3 million and $4.0 million, respectively, in its unaudited consolidated condensed statement of operations and comprehensive loss for the three and six months ending June 30, 2020.

•On April 23, 2020, we announced that we entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”) for AMZEEQ^® (minocycline) topical foam, 4% as well as certain of our other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ^® and, if approved in the U.S., FMX103 and FCD105 in the Greater China territory. Foamix will supply the finished licensed products to Cutia for clinical and commercial use. Foamix will receive an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. Foamix will also receive royalties on net sales of any licensed products.

•During the first quarter of 2020, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, that began in China spread throughout the globe. There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our patients, employees, suppliers, vendors, business partners and distribution channels. For the three and six months ended June 30, 2020, the Company's product sales from AMZEEQ were negatively impacted due to office closures as a result of the pandemic. We are unable to predict the impact that COVID-19 will have on our financial position and operating results in future periods due to numerous uncertainties, including duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. An extended duration of the pandemic could have a material adverse effect on our product sales for AMZEEQ, and any future sales of ZILXI. In addition, any prolonged material disruption of the Company’s employees, suppliers, manufacturing, or customers could further materially negatively impact our consolidated financial position, consolidated results of operations and consolidated cash flows. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary. See “Part II Other Information—Item 1A. Risk Factors—Risks Related to Our Business and Industry—We face risks related to health epidemics and other widespread outbreaks of contagious disease, including COVID-19, which have disrupted, and may continue to significantly disrupt, our operations and impact our financial results.”

•Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ and its other topical minocycline product candidates. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

•On May 28, 2020, the FDA approved ZILXI for the treatment of inflammatory lesions of rosacea in adults. ZILXI is the first minocycline product of any kind to be approved by the FDA for use in rosacea. We anticipate having ZILXI available for prescribing in the fourth quarter of 2020.

•On June 2, 2020, we announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. Study FX2016-40 enrolled 447 patients in the United States who were randomized to either FCD105 foam, 3% minocycline foam, 0.3% adapalene foam, or vehicle foam. We have begun preparations to conduct an end-of-Phase II meeting with the FDA before the end of 2020.

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•On June 9, 2020, we completed an underwritten public offering of 31,107,500 shares of common stock at a price to the public of $1.85 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses. We intend to use the net proceeds from this offering for (i) a Phase III clinical trial for FCD105 for the potential treatment of acne vulgaris, (ii) supporting the commercial launch of ZILXI, (iii) the continued development of our product candidates and (iv) the remainder, if any, for general corporate purposes.

Financial Overview

Our cash and cash equivalents and investments totaled $100.4 million as of June 30, 2020. We believe that our cash and cash equivalents and investments, projected cash flows from revenues and the funds that we are entitled to receive under our license agreement with Cutia, will provide sufficient resources for our current ongoing needs through at least the next twelve months from the issuance of these financial statements, though there may be need for additional financing activity as a result of the on-going COVID-19 pandemic and as we continue to grow. See “—Liquidity and Capital Resources” below.

We have incurred net losses since our inception. Until the first quarter of 2020, when we commenced commercial operations, our business activities were primarily limited to developing product candidates, raising capital and performing research and development activities. As of June 30, 2020, we had an accumulated deficit of $518.3 million. We recorded net losses of $167.4 million and $19.0 million for the three months ended June 30, 2020 and 2019, respectively, and $207.7 million and $34.2 million for the six months ended June 30, 2020 and 2019, respectively.

Our capital resources and business efforts are largely focused on activities relating to the commercialization of AMZEEQ and ZILXI and advancing our product candidates and pipeline. We expect to continue to incur operating losses until our products generate adequate commercial revenue to reach profitability. If we do not successfully commercialize AMZEEQ, ZILXI or any current or future product candidates, if approved, we may be unable to generate adequate product revenues to achieve such profitability. We may be required to obtain further funding through debt or equity offerings or other sources. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts. Additionally, we are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may have an adverse impact on our commercial prospects and projected cash position.

Components of Operating Results

Revenues

To date, we have generated limited revenues from sales of AMZEEQ, ZILXI or any of our other product candidates.

During 2019, we were engaged in pre-launch sales and marketing planning activities and other pre-commercialization efforts in order to support the commercialization of AMZEEQ in the United States. We received FDA approval for AMZEEQ on October 18, 2019, launched AMZEEQ in the United States in January 2020 and have generated product revenue of $3.2 million for the six months ended June 30, 2020. We expect to commercially launch ZILXI in the fourth quarter of 2020 and we will not commercially launch our other product candidates in the United States or generate any revenues from sales of any of our product candidates unless and until we obtain marketing approval. Our ability to generate revenues from sales will depend on the successful commercialization of our drug products AMZEEQ and ZILXI and any other product candidates.

Historically, we have generated revenues under development and license agreements including royalty payments in relation to Finacea, the prescription foam product that we developed in collaboration with Bayer, which later assigned it to LEO. In the three months ended March 31, 2020, we did not receive or become entitled to any royalty payments due to the ongoing suspension of the manufacturing of Finacea by LEO, following inadequate supply of quality-compliant batches of the API used in such product. In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sale in the United States. In the three months ended June 30, 2020 we received royalties of $0.2 million.

We may become entitled to additional contingent payments in the future, subject to achievement of the applicable clinical results by our other licensees. However, in light of the current phase of development and associated milestone schedules under these agreements, we do not expect to receive significant payments in the near term, if at all. We are also entitled to additional royalties from net sales or net profits generated by other products to be developed under these agreements, if they are successfully commercialized. In those development and license agreements in which royalties are based on net sales, their rate ranges from 3% to 8.5%, and in the agreement in which royalties are based on net profits, their rate is 6%.

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Additionally, as described in “Key Developments,” on April 23, 2020, we announced that we entered into a licensing agreement with Cutia for AMZEEQ as well as certain of our other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ and, if approved in the U.S., FMX103 and FCD105 in the Greater China territory. Foamix will supply the finished licensed products to Cutia for clinical and commercial use. Foamix will receive an upfront cash payment of $10 million and will be eligible to receive an additional $1 million payment upon the receipt of marketing approval in China of the first licensed product. Foamix will also receive royalties on net sales of any licensed products. In the six months ended June 30, 2020 we recognized license revenue of $10.0 million.

Cost of Goods Sold

Cost of goods sold was $0.5 million for the six months ended June 30, 2020. There was no cost of goods sold in the six months ended June 30, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 85% was favorably impacted during the six months ended June 30, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 81%.

Cost of goods sold expenses consist primarily of:

◦third party expenses incurred in manufacturing product for sale;

◦transportation costs incurred in shipping manufacturing materials between third parties.

◦other costs associated with delivery and manufacturing of product.

Operating Expenses

Research and Development Expenses

Our research and development expenses to date relate primarily to the development of AMZEEQ, ZILXI and FCD105. Our total research and development expenses for the six months ended June 30, 2020 and 2019 were approximately $29.1 million and $23.4 million, respectively. We charge all research and development expenses to operations as they are incurred.

Research and development expenses consist primarily of:

•employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;

◦expenses incurred under agreements with third parties, including subcontractors, suppliers and consultants that conduct regulatory activities, clinical trials and preclinical studies;

◦expenses incurred to acquire, develop and manufacture clinical trial materials;

◦facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other operating costs;

◦costs associated with the creation, development and protection of intellectual property;

◦other costs associated with preclinical and clinical activities and regulatory operations; and

•materials and manufacturing costs related to commercial production prior to FDA approval.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2020 and 2019 were approximately $51.9 million and $12.1 million, respectively. This increase was primarily associated with the expansion of our employee base, including sales force, to support the growth of our operations, severance expenses for Menlo employees, stock based compensation awards, merger expenses and sales and marketing expenses incurred in connection with the commercialization of AMZEEQ. 

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Our selling, general and administrative expenses consist principally of:

•employee-related expenses, including salaries, benefits and related expenses, including share-based compensation expenses;

•costs associated with selling, marketing and shipping and handling costs;

•legal and professional fees for auditors and other consulting expenses; and

•facility, information technology and depreciation expenses.

Financial Income and Expenses

Financial income primarily consist of gains from interest earned from our bank deposits, financial income on our marketable securities and a revaluation of our derivative liability. Financial expenses primarily consist of interest expense on our long-term debt.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception. We expect to continue to incur NOLs until such a time when AMZEEQ, ZILXI or any other product, if approved in the future, generates adequate revenues for us to reach profitability. As of December 31, 2019, we had federal and state net operating loss carryforwards of $165.8 million and $17.6 million, respectively, of which $44.3 million and $16.8 million of these carryforwards will begin to expire in 2031 for federal and state purposes, respectively. As of December 31, 2019, we had federal and state research and development tax credit carryforwards of $7.1 million and $2.1 million, respectively. The federal credits begin to expire in 2031 and the California research credits have no expiration dates. As of December 31, 2019, Foamix had foreign NOL carryforwards of $224.4 million, which are available solely to offset taxable income of our foreign subsidiary, subject to any applicable limitations under foreign law and $27.3 million in federal and state NOLs with no limited period of use.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. State NOLs and tax credit carryforwards may be subject to similar limitations under state laws. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Sections 382 or 383. We may have experienced ownership changes in the past, including in connection to our initial public offering (“IPO”), and as a result of the Merger and/or subsequent shifts in our stock ownership, some of which may be outside of our control. As a result, even if we earn net taxable income, our ability to use the NOL and tax credit carryforwards may be materially limited, which could harm our future operating results by effectively increasing our future tax obligations.

Results of Operations

Comparison of the Three-Month Periods Ended June 30, 2020 and 2019

Revenue 

Revenues totaled $11.7 million for the three months ended June 30, 2020. There were no revenues for the three months ended June 30, 2019. For the three months ended June 30, 2020, $1.5 million revenues were generated from product sales of AMZEEQ, which was launched in January 2020, $10.0 million came from the upfront payment associated with the Cutia license agreement and $0.2 million of royalty revenue.

The lack of supply of Finacea resulted in no royalty revenues from the sale of Finacea for the three months ended March 31, 2020. In April 2020, LEO informed us that it had reestablished the supply of Finacea foam and resumed commercial sales in the United States. For the three months ended June 30, 2020 we recognized royalty revenue of $0.2 million, compared to $0.3 million for three months ended June 30, 2019.

The increase in license revenue for the three months ended June 30, 2020 as compared to license revenue for the three months ended June 30, 2019 is due to the upfront cash payment paid to us under the licensing agreement with Cutia for the sale and marketing of AMZEEQ in China.

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As a result of the COVID-19 pandemic, we suspended the vast majority of our in-person interactions by our customer-facing professionals in healthcare settings and have engaged with these customers remotely as we seek to continue to support healthcare professionals and patient care. During the second quarter of 2020, we began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the three months ended June 30, 2020, the Company’s product sales for AMZEEQ were negatively impacted by office closures. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI.

Cost of Goods Sold

Cost of goods sold was $0.2 million for the three months ended June 30, 2020. There was no cost of goods sold in the three months ended June 30, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 85% was favorably impacted during the three months ended June 30, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the three months ended June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 80%.

Research and Development Expenses

Our research and development expenses for the three months ended June 30, 2020 were $13.1 million, representing an increase of $0.6 million, or 4%, compared to $12.6 million for the three months ended June 30, 2019. Employee-related expenses increased by $4.5 million, of which $3.0 million related to stock based compensation. In addition, clinical and manufacturing costs related to serlopitant increased by $4.1 million which was acquired in the merger, offset by a decrease of $8.0 million related to clinical and manufacturing expenses for AMZEEQ and ZILXI.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended June 30, 2020 were $26.5 million, representing an increase of $19.7 million, or 289%, compared to $6.8 million for the three months ended June 30, 2019. Employee-related expenses increased by $11.9 million, consisting of $3.7 million primarily due to the expansion of our employee base, including sales force, to support the growth of our operations and $7.7 million of stock based compensation. We incurred $3.4 million expenses relating to the Merger included in selling, general and administrative expenses. Sales and marketing expenses increased by $4.4 million related to the commercialization of AMZEEQ.

Goodwill and in-process research & development impairments

Goodwill and in-process research & development impairments for the three months ended June 30, 2020 were $54.3 million. There were no impairments for the three months ended June 30, 2019. In the three months ended June 30, 2020, we recorded impairments of $4.0 million for Goodwill and $50.3 million for in process research and development due to the failed clinical trials for serlopitant for the treatment of prurigo nodularis.

CSR Remeasurement 

Contingent Stock Right Remeasurement for the three months ended June 30, 2020 was $84.7 million. For the three months ended June 30, 2020 we incurred $84.7 million of expense due to the remeasurement of the CSR to fair value which was driven by the result of the failed serlopitant trials. At the time of the merger, Foamix and Menlo entered into a contingent stock right agreement that called for the issuance of additional Menlo common stock to legacy Foamix shareholders upon negative data from both phase III serlopitant trials. Since the trials did not meet the milestones outlined per the agreement, the contingent stock rights were remeasured during the three months ended June 30, 2020, resulting in an expense of $84.7 million.

Finance Income and Expenses

Finance expenses and income are as follows:

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	Three months ended June 30
	2020		2019
	(in thousands of U.S. dollars)
Interest on bank deposits	$	3	$	(162)
Finance gains on derivative liabilities	(533)		—
Other income	8		—
Gain from marketable securities, net	(42)		(306)
Total income	(564)		(468)
Other expenses	16		5
Foreign exchange loss	—		97
Finance expenses on loans interest and discount	1,070		—
Total expenses	$	1,086	$	102

Income Taxes

Our tax benefit for the three months ended June 30, 2020 was $0.3 million. During the three months ended June 30, 2019 we had no tax expenses.

Net Loss

Our net loss for the three months ended June 30, 2020 was $167.4 million, as compared to $19.0 million for the three months ended June 30, 2019, representing an increase of $148.4 million, or 782%. The increase was primarily due to Goodwill impairment, In process research and development impairment, and Contingent Stock Right Remeasurement as a result of the failed clinical trials for serlopitant.

Comparison of the Six-Month Periods Ended June 30, 2020 and 2019

Revenue 

Revenues totaled $13.4 million and $0.3 million for the six months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020, $3.2 million of revenues were generated from product sales of AMZEEQ, which was launched in January 2020, $10.0 million of license revenue, and $0.2 million of royalty revenue. For the six months ended June 30, 2019, revenues consisted solely of royalty revenues.

The increase in license revenue for the six months ended June 30, 2020 as compared to license revenue for the six months ended June 30, 2019 is due to the upfront payment received under the Cutia license agreement for the marketing and sale of AMZEEQ in China.

As a result of the COVID-19 pandemic, we suspended the vast majority of our in-person interactions by our customer-facing professionals in healthcare settings and have engaged with these customers remotely as we seek to continue to support healthcare professionals and patient care. During the second quarter of 2020, we began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the six months ended June 30, 2020, the Company’s product sales for AMZEEQ were negatively impacted by office closures. The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI.

Cost of Goods Sold

Cost of goods sold was $0.5 million for the six months ended June 30, 2020. There was no cost of goods sold in the six months ended June 30, 2019 because the revenues in that period consisted solely of royalties, which do not bear related cost of goods sold.

Our gross margin percentage of 85% was favorably impacted during the six months ended June 30, 2020 by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2020 was valued at cost, our gross margin for the period then ended would have been 80%.

Research and Development Expenses

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Our research and development expenses for the six months ended June 30, 2020 were $29.1 million, representing an increase of $5.7 million, or 24%, compared to $23.4 million for the six months ended June 30, 2019. Employee-related expenses increased by $8.4 million, including $3.8 million related to severance expenses payable to Menlo employees, and stock based compensation of $3.6 million. In addition, clinical and manufacturing costs related to serlopitant increased by $7.4 million which was acquired in the Merger, offset by a decrease of $10.1 million related to clinical and manufacturing expenses for AMZEEQ and ZILXI.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2020 were $51.9 million, representing an increase of $39.7 million, or 327%, compared to $12.1 million for the six months ended June 30, 2019. Employee-related expenses increased by $13.9 million consisting of $9.6 million primarily due to the expansion of our employee base, including sales force, to support the growth of our operations and $4.3 million related to severance expenses payable to Menlo employees. We incurred $8.9 million of employee award stock compensation. Sales and marketing expenses increased by $9.3 million related to the commercialization of AMZEEQ. We incurred $7.7 million expenses relating to the merger included in selling, general and administrative expenses.

Goodwill and in-process research & development impairments

Goodwill and in-process research & development impairments for the six months ended June 30, 2020 were $54.3 million. There were no impairments for the six months ended June 30, 2019. In the six months ended June 30, 2020, we recorded impairments of $4.0 million for Goodwill and $50.3 million for in process research and development due to the failed clinical trials for serlopitant for the treatment of prurigo nodularis.

CSR Remeasurement 

Contingent Stock Right Remeasurement for the six months ended June 30, 2020 was $84.7 million. For the six months ended June 30, 2020 we incurred $84.7 million of expense due to the remeasurement of the CSR to fair value which was driven by the result of the failed serlopitant trials. At the time of the merger, Foamix and Menlo entered into a contingent stock right agreement that called for the issuance of additional Menlo common stock to legacy Foamix shareholders upon negative data from both Phase III serlopitant trials. Since the trials did not meet the milestones outlined per the agreement, the contingent stock rights were remeasured during the six months ended June 30, 2020, resulting in an expense of $84.7 million.

Finance Income and Expenses

In the six months ended June 30, 2020 and 2019, our financial income was primarily attributable to gains from marketable securities, interest earned on our bank deposits and revaluation of our derivative liability. Our financial expenses included interest expense on our long-term debt.

Finance expenses and income are as follows:

	Six months ended June 30,
	2020		2019
	(in thousands of U.S. dollars)
Interest on bank deposits	$	(29)	$	(341)
Finance gains on derivative liabilities	(975)		—
Other income	(17)		—
Foreign exchange gains	(71)		—
Gain from marketable securities, net	(200)		(663)
Total income	(1,292)		(1,004)
Other expenses	21		9
Foreign exchange loss	—		125
Finance expenses on loans interest and discount	2,137		—
Total expenses	$	2,158	$	134

Income Taxes

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Our tax benefit for the six months ended June 30, 2020 was $0.3 million, representing an increase of $0.1 million, or 47%, compared to $0.2 million for the six months ended June 30, 2019.

Net Loss

Our net loss for the six months ended June 30, 2020 was $207.7 million, as compared to $34.2 million for the six months ended June 30, 2019, representing an increase of $173.5 million, or 507%. The increase was primarily due to an increase in expenses incurred in connection with our commercial launch of AMZEEQ, Merger expenses and severance expenses for Menlo employees, Goodwill impairment, In process research and development impairment, and Contingent Stock Right Remeasurement.

Liquidity and Capital Resources

Since inception, we have funded operations primarily through private and public placements of our equity, debt, warrants and through fees, cost reimbursements and royalties received from our licensees. We commenced generating product revenues related to sales of AMZEEQ in the first quarter of 2020. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our product and product candidates, if approved, are commercially successful, if at all. We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products.

As of June 30, 2020, we had cash, cash equivalents and investments of $100.4 million. Our cash, cash equivalents and investments are held in money market accounts and marketable securities.

Foamix Pharmaceuticals Inc., a Delaware corporation (the “Borrower”), Foamix and Menlo, each as a guarantor, the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent for the lenders, entered into an Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020 (the “Credit Agreement”). We have guaranteed the indebtedness obligation of the Borrower under the Credit Agreement and in connection with the Credit Agreement also granted a first priority security interest in substantially all of our assets for the benefit of the lenders. The Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $50.0 million, and as of June 30, 2020, approximately $35.0 million was drawn under the Credit Agreement. The Borrower will be permitted to borrow an additional $15 million before September 30, 2020 provided that the Borrower achieves certain revenue targets set forth in the Credit Agreement.

We have incurred significant transaction-related expenses in connection with negotiating and completing the Merger. Transaction-related expenses, which include legal, accounting and financial advisor fees and other service provider costs, were approximately $21.8 million. We incurred $11.7 million of these costs during the six months ended June 30, 2020 in our statements of operations and comprehensive loss, and we do not expect to incur any additional significant costs relating to the Merger in future periods.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant for pruritic conditions. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ and its other topical minocycline product candidates. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

We believe that our cash and cash equivalents and investments, projected cash flows from revenues and the funds that we are entitled to receive under our license agreement with Cutia, will provide sufficient resources for our current ongoing needs through at least the next twelve months from the issuance of these financial statements, though there may be need for additional financing activity as a result of the on-going COVID-19 pandemic and as we continue to grow. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

As a result of the COVID-19 pandemic, we suspended the vast majority of our in-person interactions by our customer-facing professionals in healthcare settings and have engaged with these customers remotely as we seek to continue to support healthcare professionals and patient care. During the second quarter of 2020, we began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the three and six months ended June 30, 2020, the Company’s product sales for AMZEEQ were negatively impacted by office closures. As a result of the negative impact on the Company's product sales, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement. See "Part II—Other Information—Part 5. Other Information." The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial

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condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI, and have a material adverse effect on our liquidity.

Summary Statement of Cash Flows

The following table summarizes our statement of cash flows for the six months ended June 30, 2020 and 2019:

	Six months ended June 30
	2020		2019
	(in thousands of U.S. dollars)
Net cash (used in) / provided by:
Operating activities	$	(88,070)	$	(29,361)
Investing activities	87,105		40,512
Financing activities	$	53,746	$	18

Cash Used in Operating Activities

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Adjustments to net income for non-cash items mainly include depreciation and amortization, share-based compensation, goodwill and in-process research and development impairment, and contingent stock right remeasurement.

Net cash used in operating activities was $88.1 million in the six months ended June 30, 2020, compared to $29.4 million in the six months ended June 30, 2019. The increase was attributable primarily to the growth in operations and the Merger.

Cash Provided by Investing Activities

Net cash provided by investing activities was $87.1 million in the six months ended June 30, 2020, compared to $40.5 million in the six months ended June 30, 2019. The increase was attributable primarily to the cash acquired through the Merger.

Cash Provided by Financing Activities

There was $53.7 million provided by financing activities in the six months ended June 30, 2020, compared to $18,000 in the six months ended June 30, 2019. The increase was attributable to proceeds from the offering of common stock in June 2020, along with the exercise of options and issuance of shares under our equity incentive plan.

Cash and Funding Sources

Our sources of liquidity in the six months ended June 30, 2020 consisted primarily of cash and investments acquired in the Merger, proceeds from an underwritten public offering of common stock completed in June 2020, sales of AMZEEQ and the portion of the upfront cash payment paid to us under the Cutia license.

Our sources of liquidity in the six months ended June 30, 2019 consisted mainly of proceeds from a share offering and payments from licensees.

We have no ongoing material financial commitments (such as lines of credit) that may affect our liquidity over the next five years other than our commitments under the Credit Agreement.

Funding Requirements

Our present and future funding requirements will depend on many factors, including, inter alia:

•the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our drug products AMZEEQ and ZILXI and any other pipeline product that is commercialized;

•selling, marketing and patent-related activities undertaken in connection with the commercialization of AMZEEQ, ZILXI and any other product candidates, as well as costs involved in the development of an effective sales and marketing organization;

•the progress, timing and completion of preclinical testing and clinical trials for pipeline product candidates;

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•the time and costs involved in obtaining regulatory approval for our other pipeline product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these product candidates;

•the efforts necessary to institute post-approval regulatory compliance requirements for AMZEEQ and ZILXI;

•the number of potential new products we identify and decide to develop; and

•the costs involved in filing and prosecuting patent applications and obtaining, maintaining and enforcing patents or defending against claims or infringements raised by third parties, and license royalties or other amounts we may be required to pay to obtain rights to third party intellectual property rights.

Our operating plan may change as a result of many factors currently unknown to us, and any such change may affect our funding requirements. We may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these 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 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 accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Our critical accounting policies are described on our Current Report on Form 8-K/A filed with the SEC on May 7, 2020.

While our significant accounting policies are described in the Notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results. These policies relate to the more significant areas involving management’s judgments and estimates and they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

COVID-19

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which the pandemic impacts worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. For the three and six months ended June 30, 2020, the Company’s product sales for AMZEEQ were negatively impacted by office closures due to the pandemic. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangibles; however, these impairments were unrelated to the impact of COVID-19 (See “Note 3 – Business Combination” for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Clinical Trial Accruals

Clinical trial costs are charged to research and development expense as incurred. We accrue for expenses resulting from obligations under contracts with clinical research organizations, or CROs. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided. Our objective is to reflect the appropriate trial expense in the consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. In the event

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advance payments are made to a CRO, the payments will be recorded as other assets, which will be recognized as expenses as services are rendered. The CRO contracts generally include pass-through fees including, but not limited to, regulatory expenses, investigator fees, travel costs and other miscellaneous costs. We estimate our clinical accruals based on reports from and discussion with clinical personnel and the CRO as to the progress or state of completion of the trials. We estimate accrued expenses as of each balance sheet date in the consolidated financial statements based on the facts and circumstances known at that time. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from the CROs.

Revenue Recognition

We record revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). For the Collaboration Agreement under ASC 606, we identify the performance obligations, determine the transaction price, allocate the contract transaction price to the performance obligations, and recognize the revenue when (or as) the performance obligation is satisfied.

We identify the performance obligations included within the agreement and evaluate which performance obligations are distinct. Upfront payments for licenses are evaluated to determine if the license is capable of being distinct from the obligations to participate on certain development and/or commercialization committees with the collaboration partners and supply manufactured drug product for clinical trials. For performance obligations that are satisfied over time, we utilize the input method and revenue is recognized by consistently applying a method of measuring progress toward complete satisfaction of that performance obligation. We periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.

Milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive event. Milestone payments are estimated and included in the transaction price when we determine that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

Research and development revenues and cost reimbursements are based upon negotiated rates for our full-time employee equivalents (“FTE”) and actual out-of-pocket costs. FTE rates are set based upon our costs, and which we believe approximate fair value. None of the revenues recognized to date are refundable if the relevant research effort is not successful.

Business Acquisition

Our financial statements include the operations of an acquired business after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

We are required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.  For example, we use fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.  We estimate fair value using an exit price approach, which requires, among other things, that we determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

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•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

We review all of our long-lived assets for impairment indicators throughout the year. We perform impairment testing for indefinite-lived intangible assets annually and for all other long-lived assets whenever impairment indicators are present. When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Indemnification

As permitted under Delaware law and in accordance with our bylaws, we are required to indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with our directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as of June 30, 2020 and December 31, 2019.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

Recently Issued and Adopted Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 2, “Significant Accounting Policies” in the Notes to Unaudited Interim Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and accounting pronouncements not yet adopted, and their expected impact on our financial position and results of operations.

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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 Item 10 of Regulation S-K. As such, we are not required to provide the information set forth in this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2020 our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the six months ended June 30, 2020 identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

On November 8, 2018 and January 28, 2019, two purported class actions were filed in the Superior Court of California, San Mateo County, against the Company and certain of our officers and directors. The actions are entitled Savelstrov v. Menlo Therapeutics Inc., et al., and McKay v. Menlo Therapeutics Inc., et al. The underwriters for our initial public offering were also named as defendants in these lawsuits. The complaints contain identical allegations against the same defendants. Both complaints alleged that the Registration Statement and prospectus for our initial public offering contained false and misleading statements in violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in connection with our initial public offering. The complaints seek, among other things, an award of damages in an amount to be proven at trial, along with reimbursement of reasonable costs and expenses, including attorneys’ fees and expert fees. The McKay action has been consolidated with the Savelstrov action and the claim for violations of Section 12(a)(2) has been dismissed. 

The parties have mediated the consolidated lawsuit and reached a settlement, providing for payment to the class of plaintiffs in the amount of $9.5 million, the vast majority of which will be paid by the Company's insurance carriers, in return for a release of all claims against the defendants, including the Company and its current and former officers and directors. The settlement is subject to final documentation and Court approval. The Court preliminarily approved the settlement on April 24, 2020, and will consider whether to grant final approval of the settlement at a hearing scheduled for August 14, 2020. Menlo accrued for the remaining settlement amount that is not covered by insurance carriers as of December 31, 2019, which did not have a material impact on its financial statements.

1A. Risk Factors.

Our business is subject to various risks and uncertainties, including those described below, that we believe apply to our business and the industry in which we operate. You should carefully consider these risks, as well as the other information in our Annual Report on Form 10-K, the Current Report on Form 8-K/A filed with the SEC on May 7, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020, and this Quarterly Report on Form 10-Q, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described below could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.

We face risks related to health epidemics and other widespread outbreaks of contagious disease, including COVID-19, which have disrupted, and may continue to significantly disrupt, our operations and impact our financial results.

In December 2019, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, began in China. As of July 2020, that outbreak has led to numerous confirmed cases worldwide, including in the United States and other countries where we or our business partners conduct operations. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, including our own operations. For example, our product sales for AMZEEQ during the three and six months ended June 30, 2020 were negatively impacted by office closures as a result of the pandemic. The future progression of the outbreak and its effects on our business and operations are uncertain. Many patients have chosen not to visit or contact their healthcare providers which has limited new patient access and conversion. In response to the outbreak, we have taken certain steps to safeguard our employees, healthcare professionals and our other partners. For example, our sales force and marketing team were removed from the field and adopted remote and virtual sales activities, including tele-detailing, web-based speaker programs and virtual product education sessions, in order to meet patients’ needs. During the second quarter of 2020, certain members of our sales force have resumed in-person meetings with healthcare professionals while taking appropriate precautions in locations that have eased restrictions. However, as a precautionary measure, such sales representatives are still prohibited from engaging in certain activities that were available before the pandemic. No assurance can be made that these sales tactics will be as effective as those used prior to the outbreak of COVID-19 or when the remainder of our sales force will be redeployed. If the activities of our sales force continue to be disrupted or such tele-detailing and virtual-based tactics are not accepted by healthcare professionals, we may continue to generate less revenue than expected which would have a material adverse effect on our financial results as well as hinder our ability to satisfy certain covenants contained in our Credit Agreement, which have been amended as of August 5, 2020. See "Item 5. Other Information" for additional discussion regarding the amendment to the Credit Agreement. In addition, if the pandemic persists for an extended duration, no assurance can be made that the Company will be able to further amend the revenue covenants in the Credit Agreement.

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We are currently unaware of any material disruptions to the supply of AMZEEQ and any material impact on our primary suppliers. We believe we have a sufficient amount of product in the trade and safety stock of our raw materials to support the current demand for AMZEEQ. While we are currently unaware of any material disruptions to our supply, our primary suppliers or our anticipated timelines for clinical results and other key milestones, we cannot guarantee that we will not experience such disruptions in the future as a result of the COVID-19 pandemic. If the outbreak of COVID-19 persists, we and our third-party contract manufacturers, contract research organizations and clinical sites may experience disruptions in supply of our product and product candidates and/or procuring items that are essential for our commercialization and research and development activities, including, for example, raw materials used in the manufacturing of our products and product candidates, medical and laboratory supplies used in our clinical trials or preclinical studies, in each case, for which there may be shortages because of ongoing efforts to address the outbreak. Any negative impact that the outbreak has on the ability of our suppliers to provide materials for our product and product candidates or on retaining patients in our clinical trials could disrupt our commercialization efforts and clinical trial activities, which could adversely affect our ability to earn revenue, obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On August 5, 2020, the Company, Foamix, Foamix Pharmaceuticals Inc., the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent to the lenders, amended the existing Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020, pursuant to that certain Amendment No. 1 to Amended and Restated Credit Agreement and Guaranty (the “Amendment”). The Amendment provides for a covenant "holiday" with respect to the minimum net revenue covenant contained in the Amended and Restated Credit Agreement, such that the compliance with such covenant will commence with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024. The parties entered into the Amendment following an analysis of the negative impact of the COVID-19 pandemic on the Company’s product sales of AMZEEQ for the three and six months ended June 30, 2020.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.2.

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Item 6.  Exhibits.

The following documents are filed, or furnished as applicable, as part of this Quarterly Report on Form 10-Q:

Exhibit Index

Exhibit Number		Incorporated by Reference			Filed
	Exhibit Description	Form	Date	Number	Herewith
3.1	Amended and Restated Certificate of Incorporation.	8-K	1/29/2018	3.1
3.2	Amended and Restated Bylaws.	10-Q	5/11/2020	3.2
10.1*	License Agreement, dated as of April 21, 2020, by and between Foamix Pharmaceuticals Ltd. and Cutia Therapeutics (HK) Limited.				X
10.2	Amendment No. 1 to Amended and Restated Credit Agreement and Guaranty, dated August 5, 2020, by and among Menlo Therapeutics Inc., Foamix Pharmaceuticals Ltd., Foamix Pharmaceuticals Inc., the lenders party thereto and Perceptive Credit Holdings II, LP as administrative agent.				X
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).				X
32.1**	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).				X
32.2**	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).				X
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document				X
101.SCH	XBRL Taxonomy Extension Schema Document.				X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.				X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.				X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.				X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.				X

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104 The cover page of Menlo Therapeutics Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (included within Exhibit 101 attachments)

_______________________________________________________

# Indicates management contract or compensatory plan.

* Portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.

** The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Menlo Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 6, 2020

Menlo Therapeutics Inc.
By:	/s/ David Domzalski
	David Domzalski Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Andrew Saik
	Andrew Saik Chief Financial Officer and Treasurer
	(Principal Financial Officer and Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

Certain information in this document identified by brackets has been omitted because it is both not material and would be competitively harmful if publicly disclosed.

LICENSE AGREEMENT

This License Agreement (the “Agreement”) is entered into as of April 21, 2020 (the “Effective Date”) by and between Foamix Pharmaceuticals Ltd., a company organized and existing under the laws of the State of Israel and having a place of business at 2 Holzman Street, Rehovot Science Park, Rehovot, Israel (“Foamix”), and Cutia Therapeutics (HK) Limited, a company organized and existing under the laws of Companies Ordinance (Chapter 622 of the laws of Hong Kong) and having a place of business at Unit 402, 4/F Fairmont Hse No 8 Cotton Tree Drive Admiralty Hong Kong (“Cutia”). Foamix and Cutia are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

Whereas, Foamix is currently conducting research, development, and commercialization of certain topical minocycline products;

Whereas, Cutia is a biopharmaceutical company with experience in developing pharmaceutical products in the greater China region; and

Whereas, Cutia desires to obtain from Foamix an exclusive license to Develop and Commercialize Licensed Products in the Cutia Territory (with each capitalized term as respectively defined below), and Foamix is willing to grant such license to Cutia, all under the terms and conditions of this Agreement.

Now, Therefore, in consideration of the foregoing premises and the mutual promises, covenants and conditions contained in this Agreement, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

1.1 “AdverseEvent” means any untoward medical occurrence in a patient or subject who is administered a Licensed Product, including any undesirable sign (including abnormal laboratory findings of clinical concern), symptom or disease temporally associated with the use of Licensed Products.

1.2 “Adverse Risk” means any risk of a material adverse effect on the Development, procurement or maintenance of Regulatory Approval, Manufacture, or Commercialization of Licensed Products outside the Cutia Territory.

1.3 “Accounting Standards” means U.S. generally accepted accounting principles (“GAAP”) or, to the extent that Cutia adopts International Financial Reporting Standards (“IFRS”), then “Accounting Standards” means IFRS, in either case consistently applied.

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1.4 “Act” shall mean, as applicable, the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§301 et seq., and/or the Public Health Service Act, 42 U.S.C. §§262 et seq., as such may be amended from time to time.

1.5 “Affiliate” means, with respect to a particular Party, a Person that controls, is controlled by, or is under common control with such Party. For the purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one (1) or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of fifty percent (50%) or more of the voting stock of such entity, or by contract, or otherwise. For clarity, once a Person ceases to be an Affiliate of a Party, then, without any further action, such Person shall cease to have any rights, including license and sublicense rights, under this Agreement by reason of being an Affiliate of such Party.

1.6 “Anti-Corruption Laws” means laws, regulations, or orders prohibiting the provision of a financial or other advantage for a corrupt purpose or otherwise in connection with the improper performance of a relevant function, including without limitation, the Corruption of Foreign Public Officials Act (CFPOA), the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act 2010, and similar laws governing corruption and bribery, whether public, commercial or both, to the extent applicable.

1.7 “Background Intellectual Property” means, with respect to a Party, any and all Information, inventions, and discoveries, in each case whether or not patentable, and any Patents or other intellectual property rights therein, in each case Controlled by such Party as of the Effective Date or acquired, made, conceived, or reduced to practice during the Term independent of this Agreement.

1.8 “Business Day” means a day other than Saturday, Sunday or any day that banks in Bridgewater, New Jersey, USA or Hong Kong, China are required or permitted to be closed.

1.9 “Calendar Quarter” means each successive period of three (3) consecutive calendar months ending on March 31, June 30, September 30, or December 31.

1.10 “Change of Control” means, with respect to either Party: (a) the sale of all or substantially all of such Party’s assets or business relating to (i) this Agreement in its entirety or (ii) any Product or Products (other than to an Affiliate of such Party); (b) a merger, reorganization, or consolidation involving such Party in which the voting securities of such Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization, or consolidation; or (c) a Person, or group of Persons, acting in concert acquire more than fifty percent (50%) of the voting equity securities or management control of such Party.

1.11 “Clinical Trial” means a Phase 1 Clinical Trial, Phase 2 Clinical Trial, Phase 3 Clinical Trial, Phase 4 Clinical Trial, or Pivotal Clinical Trial, or any combination thereof.

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1.12 “CMC Information” means Information related to the chemistry, manufacturing and controls of the Licensed Products, as specified by the FDA, NMPA and other applicable Regulatory Authorities.

1.13 “Commercialization” means all activities undertaken before and after obtaining Regulatory Approvals relating to the pre-launch, launch, promotion, detailing, medical education and medical liaison activities, marketing, pricing, reimbursement, sale, distribution and disposition of Licensed Products, including strategic marketing, sales force detailing, advertising, market Licensed Product support, all customer support, Licensed Product distribution, and invoicing and sales activities; provided, however, “Commercialization” shall exclude any activities relating to the Manufacture of Licensed Product. “Commercialize” and “Commercializing” have the correlative meanings. For clarity, “Commercialization” shall exclude all activities undertaken in connection with Voluntary Phase 4 Clinical Trials.

1.14 “Commercially Reasonable Efforts” means, with respect to either Party’s obligations under this Agreement, the carrying out of such obligations with a level of efforts and resources consistent with the commercially reasonable practices of a similarly situated company in the pharmaceutical industry for the active and diligent commercialization of a similarly situated branded pharmaceutical product as the Licensed Product at a similar stage of commercialization, taking into account efficacy, safety, present and future market potential, competitive market conditions, the profitability of the product in light of pricing and reimbursement issues, and all other relevant factors (but not taking in account any payment owed to Foamix under this Agreement or any other pharmaceutical product that Cutia is then researching, developing or commercializing, alone or with one or more collaborators).

1.15 “Competing Product” means a pharmaceutical product, other than a Licensed Product, that contains minocycline, alone or in combination with other ingredients, formulated for topical delivery.

1.16 “Confidential Information” of a Party means any and all Information of such Party or its Affiliates that is disclosed to the other Party or its Affiliates under this Agreement, whether in oral, written, graphic, or electronic form. In addition, all Information disclosed by a Party or its Affiliates pursuant to the confidentiality agreement between the Parties dated as of January 23, 2020 (the “Confidentiality Agreement”) is the Confidential Information of such Party disclosed hereunder; provided, however, that any use or disclosure of any such Information that is authorized under Article 12 shall not be restricted by, or be deemed a violation of, the Confidentiality Agreement. For clarity, Foamix Licensed Know-How is the Confidential Information of Foamix.

1.17 “Control” means, with respect to any material, Information, Patent or other intellectual property right, possession of the right, whether directly or indirectly, and whether by ownership, license, or otherwise, to grant a license, sublicense, or other right to or under, such material, Information, Patent, or intellectual property right without violating the terms of any existing agreement or other arrangement with any Third Party; provided that, with respect to any material, Information, Patent or other intellectual property right obtained by Foamix after the Effective Date from a Third Party, Foamix shall be deemed to Control such material,

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Information, Patent or other intellectual property right only if it possesses the right to grant such license, sublicense, or other right thereto without being obligated to pay any royalties or other consideration therefor, unless Cutia agrees in advance of any grant of rights thereto to pay such royalties or other consideration. “Controlled” has a correlative meaning.

1.18 “Cover” means, with respect to a Patent and a Licensed Product, that the Manufacture, use, offer for sale, sale or import of a Licensed Product, absent a license to such Patent or Licensed Product, would infringe a Valid Claim in such Patent; provided, however, that in determining whether a claim of a pending Patent application would be infringed, it shall be treated as if issued in the form then currently being prosecuted. “Covered” and “Covering” have the correlative meanings.

1.19 “Cutia Territory” means, collectively, mainland China, Taiwan, Hong Kong and Macau (each a “Region”).

1.20 “Data” means all data, non-clinical data, preclinical data and clinical data, generated by or on behalf of a Party or its Affiliates or their respective sublicensees pursuant to activities conducted under this Agreement; provided, that Data excludes CMC Information. For clarity, Data does not include any patentable inventions.

1.21 “Development” means all activities conducted after the Effective Date relating to preclinical and clinical trials, toxicology testing, statistical analysis, publication and presentation of study results with respect to Licensed Products, and the reporting, preparation and submission of regulatory applications (including any CMC Information) for obtaining, registering and maintaining Regulatory Approval of Licensed Products, including the conduct of Phase 4 Clinical Trials; provided, however, “Development” excludes any activities relating to the Manufacture of Licensed Product. “Develop” and “Developing” have the correlative meanings.

1.22 “Divest” means the sale or transfer of rights to the Competing Program to a Third Party where neither the assigning Party nor its assignee have the right to engage, and neither the assigning Party nor its assignee in fact engage, in any management, governance or decision-making activities in connection with such Competing Program. “Divestiture” has the correlative meaning.

1.23 “Executive Officers” means the Chief Executive Officer of Foamix and Chief Executive Officer of Cutia or their respective designees.

1.24 “FDA” means the U.S. Food and Drug Administration or any successor entity thereto.

1.25 “Field” means, with respect to each Licensed Product, (a) each dermatological Indication for which such Licensed Product receives Regulatory Approval in the United States and (b) with respect to FCD105, any other Indications agreed by the Parties pursuant to Section 4.8.

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1.26 “First Commercial Sale” means the first sale of a Licensed Product in the Cutia Territory to a Third Party after Regulatory Approval has been obtained in the Cutia Territory.

1.27 “Fiscal Year” means Cutia’s fiscal year that starts on January 1 and ends on December 31.

1.28 “Foamix Licensed Know-How” means all Information (including Data and Regulatory Materials) that (a) is Controlled by Foamix and/or its Affiliates (i) as of the Effective Date or (ii) during the Term, and (b) is necessary or reasonably useful for the Development or Commercialization of Licensed Products in the Field in the Cutia Territory.

1.29 “Foamix Licensed Patents” means all Patents that (a) are Controlled by Foamix and/or its Affiliates (i) as of the Effective Date or (ii) during the Term, and (b) Cover the Development or Commercialization of Licensed Products in the Field in the Cutia Territory, including Foamix’s interest in any Patents claiming any Foamix Inventions and Joint Inventions. Foamix Licensed Patents existing as of the Effective Date are set forth in Exhibit A.

1.30 “Foamix Technology” means the Foamix Licensed Know-How and Foamix Licensed Patents.

1.31 “Foamix Territory” means the world except for the Cutia Territory.

1.32 “GCP”or“Good Clinical Practices” means the then-current standards, practices and procedures promulgated or endorsed by the FDA as set forth in the guidelines entitled “Guidance for Industry E6 Good Clinical Practice: Consolidated Guidance,” including related regulatory requirements imposed by the FDA and comparable regulatory standards, practices and procedures promulgated by the NMPA or other Regulatory Authority applicable to the Cutia Territory, as they may be updated from time to time, including applicable quality guidelines promulgated under the ICH.

1.33 “GenericProduct” means, with respect to a Licensed Product in a Region, any pharmaceutical product that (a) (i) contains the same active pharmaceutical ingredients as such Licensed Product, (ii) is in the same form and format as such Licensed Product, and (iii) is approved by the Regulatory Authority in such Region based on reference to data contained in an earlier regulatory filing; and (b) is sold in such Region by a Third Party that is not a sublicensee and did not purchase such product or its active pharmaceutical ingredients from Cutia or its Affiliates or sublicensees.

1.34 “GLP”or“Good Laboratory Practices” means the then-current good laboratory practice standards promulgated or endorsed by the FDA as defined in 21 C.F.R. Part 58, and comparable regulatory standards promulgated by NMPA or other Regulatory Authority applicable to the Cutia Territory, as may be updated from time to time, including applicable quality guidelines promulgated under the ICH.

1.35 “Government Official” means (a) any official or employee of any Governmental Authority, or any department, agency, or instrumentality thereof (including without limitation

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commercial entities owned or controlled, directly or indirectly, by a Governmental Authority), (b) any political party or official thereof, or any candidate for political office, or (c) any official or employee of any public international organization.

1.36 “Governmental Authority” means any multi-national, national, federal, state, local, municipal, provincial or other governmental authority of any nature (including any governmental division, prefecture, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal).

1.37 “ICH” means International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.

1.38 “Indication” means a separately defined, well-categorized class of human disease or condition for which a separate MAA (including any extensions or supplements) is required to be filed with a Regulatory Authority. For clarity, if an MAA is approved for a Licensed Product in a particular Indication and patient population, a label expansion for such Licensed Product to include such Indication in a different patient population shall not be considered a separate Indication.

1.39 “Information” means any data, results, technology, business or financial information or information of any type whatsoever, in any tangible or intangible form, including know-how, copyrights, trade secrets, practices, techniques, methods, processes, inventions, developments, specifications, formulae, software, algorithms, marketing reports, expertise, technology, test data (including pharmacological, biological, chemical, biochemical, clinical test data and data resulting from non-clinical studies), stability data and other study data and procedures.

1.40 “Inventions” means any inventions or discoveries, including processes, manufacture, composition of matter, Information, methods, assays, designs, protocols, and formulas, and improvements or modifications thereof, patentable or otherwise, that are generated, developed, conceived or reduced to practice (constructively or actually) by or on behalf of a Party or its Affiliates or their respective sublicensees (a) pursuant to activities conducted under this Agreement, or (b) in connection with the Development, Manufacture, and Commercialization of Licensed Product, in each case of (a) and (b), including all rights, title and interest in and to the intellectual property rights therein and thereto; provided, however, that Inventions exclude Data.

1.41 “Laws” means, with respect to a given country, the applicable laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, municipal, city or other political subdivision, domestic or foreign that may be in effect from time to time in such country and that relate to a Party’s activities under this Agreement.

1.42 “Licensed Product” means each of:

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(a) Foamix’s minocycline topical foam product referred to as Amzeeq™, 4%, in the form and format described in NDA 212379 approved by the FDA on October 18, 2019 (“Amzeeq™”),

(b) Foamix’s minocycline topical foam product referred to as FMX103, 1.5%, and in the form and format described in NDA N050808 for such product (i) submitted by or on behalf of Foamix in the United States and (ii) approved by the FDA (“FMX103”), and

(c) Foamix’s combination minocycline and adapalene foam product referred to as FCD105 and in the form and format described in the first MAA for such product (i) submitted by or on behalf of Foamix in the United States and (ii) approved by the FDA (“FCD105”).

1.43 “Manufacture” and “Manufacturing” mean activities directed to manufacturing, processing, filling, finishing, packaging, labeling, quality control, quality assurance testing and release, post-marketing validation testing, inventory control and management, storing and transporting any Licensed Product, including oversight and management of vendors therefor.

1.44 “Manufacturing Cost” means, with respect to a particular Licensed Product (whether as active pharmaceutical ingredient or finished form) supplied by Foamix pursuant to Section 7.1: (a) if Foamix or its Affiliate Manufactures the applicable Licensed Product, [***]; or (b) if a Third Party Manufactures such Licensed Product, [***].

1.45 “Marketing Authorization Application” or “MAA”means a New Drug Application (“NDA”) or any other application to the appropriate Regulatory Authority for approval to market a Licensed Product, but excluding pricing approvals.

1.46 “Net Sales” means the gross amounts billed or invoiced by Cutia, its Affiliates and their respective sublicensees for sales of Licensed Products to Third Parties, less the following deductions to the extent reasonable, customary, and actually allowed and taken with respect to such sales:

(a) trade, cash or quantity discounts not already reflected in the amount invoiced, to the extent related to the gross amount billed or invoiced;

(b) price reductions, rebates and administrative fees (including those paid or credited to pharmacy benefit managers, governmental authorities or otherwise);

(c) shipping costs, including freight, insurance and other transportation charges or costs incurred in shipping of Licensed Products to Third Parties (provided that, such shipping costs shall not be in excess of one percent (1%) of Net Sales with respect to any given Calendar Quarter);

(d) sales, use, excise, value-added or similar taxes, customs duties and other governmental fees, charges and surcharges imposed on the sale of Licensed Products;

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(e) amounts repaid or credited by reason of rejections, defects, recalls or returns;

(f) amounts paid or credited for wholesaler chargebacks; and

(g) any receivables that have been included in gross sales and are deemed to be uncollectible according to Accounting Standards (any such bad debt deductions shall be applied to Net Sales in the period in which such receivables are written off) (provided that, the amount of such receivables shall not be in excess of two percent (2%) of Net Sales with respect to any given Calendar Quarter).

Notwithstanding the foregoing, amounts received or invoiced by Cutia, its Affiliates, or their respective sublicensees for the sale of Licensed Product among Cutia, its Affiliates or their respective sublicensees shall not be included in the computation of Net Sales hereunder unless the purchasing entity is the end-user. For purposes of determining Net Sales, the Licensed Product shall be deemed to be sold when billed or invoiced. Net Sales shall be accounted for in accordance with standard Cutia practices for operation by Cutia, its Affiliates or their respective sublicensees, as practiced in the Cutia Territory, but in any event in accordance with Accounting Standards consistently applied in the Cutia Territory. For clarity, a particular item may only be deducted once in the calculation of Net Sales. Notwithstanding anything to the contrary in the foregoing, to the extent any amounts deducted pursuant to subsections (d) or (g) above are subsequently recovered by Cutia, its Affiliates, or their respective sublicensees during the Term, such recovered amounts shall be deemed “Net Sales” for the subsequent Calendar Quarter; provided that, if no royalties are owed by Cutia for such subsequent Calendar Quarter Cutia shall promptly refund such recovered amounts to Foamix.

The transfer of any Licensed Product to an Affiliate, sublicensee, or other Third Party (x) in connection with the research, development or testing of a Licensed Product (including the conduct of Clinical Trials), (y) for purposes of distribution as promotional samples, or (z) at no charge for indigent or similar public support or compassionate use programs, will not, in any case, be considered a Net Sale of a Licensed Product under this Agreement.

With respect to any transfer of any Licensed Product in the Cutia Territory for any substantive consideration other than monetary consideration on arm’s length terms, for the purposes of calculating the Net Sales under this Agreement, such Licensed Product shall be deemed to be sold exclusively for money at the average Net Sales price charged to Third Parties for cash sales in the Cutia Territory during the applicable reporting period (or if there were only de minimus cash sales in the Cutia Territory, at the fair market value as determined by comparable markets).

Cutia, its Affiliates, and their respective sublicensees shall sell the Licensed Product as a standalone product and will not sell the Licensed Product in combination with other pharmaceutical or biologics products, diagnostic products, or active ingredients or as part of a bundle with other products or offer packaged arrangements to customers that include the Licensed Product, except with Foamix’s prior written consent.

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1.47 “NMPA” means the National Medical Product Administration of the People’s Republic of China, formerly known as the China National Drug Administration, or any successor agency or authority thereto.

1.48 “Patents”means(a) pending patent applications, issued patents, utility models and designs; (b) reissues, substitutions, confirmations, registrations, validations, re-examinations, additions, continuations, continued prosecution applications, continuations-in-part, or divisions of or to any of the foregoing; and (c) extensions, renewals or restorations of any of the foregoing by existing or future extension, renewal or restoration mechanisms, including supplementary protection certificate, patent term additions, patent term extensions or the equivalent thereof.

1.49 “Person”means an individual, corporation, partnership, limited liability company, limited partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity not specifically listed herein.

1.50 “Phase 1 Clinical Trial” means any human clinical trial of a Licensed Product conducted mainly to evaluate the safety of chemical or biologic agents or other types of interventions (e.g., a new radiation therapy technique) that would satisfy the requirements of 21 C.F.R. § 312.21(a) or its non-United States equivalents.

1.51 “Phase 2 Clinical Trial” means any human clinical trial of a Licensed Product conducted mainly to test the effectiveness of chemical or biologic agents or other types of interventions for purposes of identifying the appropriate dose for a Phase 3 Clinical Trial for a particular Indication or Indications that would satisfy the requirements of 21 CFR § 312.21(b) or its non-United States equivalents.

1.52 “Phase 3 Clinical Trial” means any human clinical trial of a Licensed Product designed to: (a) establish that such Licensed Product is safe and efficacious for its intended use; (b) define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed; and (c) support regulatory approval of such Licensed Product, that would satisfy the requirements of 21 CFR § 312.21(c) or its non-United States equivalents.

1.53 “Phase 4 Clinical Trial” means any human clinical trial of a Licensed Product that is: (a) designed to satisfy a requirement of a Regulatory Authority in order to maintain a Regulatory Approval for such Licensed Product or (b) conducted after the first Regulatory Approval of a Licensed Product in the same Indication for which a Licensed Product received Regulatory Approval.

1.54 “Pivotal Clinical Trial” means a pivotal clinical trial of a Licensed Product in human patients (whether or not designated a Phase 3 Clinical Trial) in any Region with a defined dose or a set of defined doses of a Licensed Product designed to ascertain efficacy and safety of such Licensed Product for the purpose of submitting applications for MAA approval to the competent Regulatory Authorities.

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1.55 “Proper Conduct Practices”means, with respect to a Party, each of its Representatives not, directly or indirectly, (a) making, offering, authorizing, providing or paying anything of value in any form, whether in money, property, services or otherwise to any Government Official, or other Person charged with similar public or quasi-public duties, or to any customer, supplier, or any other Person, or to any employee thereof, or failing to disclose fully any such payments in violation of the laws of any relevant jurisdiction to (i) obtain favorable treatment in obtaining or retaining business for it or any of its Affiliates, (ii) pay for favorable treatment for business secured, (iii) obtain special concessions or for special concessions already obtained, for or in respect of it or any of its Affiliates, in each case which would have been in violation of any Law, (iv) influence an act or decision of the recipient (including a decision not to act) in connection with the Person’s or its Affiliate’s business, (v) induce the recipient to use his or her influence to affect any government act or decision in connection with the Person’s or its Affiliate’s business or (vi) induce the recipient to violate his or her duty of loyalty to his or her organization, or as a reward for having done so; (b) engaging in any transactions, establishing or maintaining any fund or assets in which it or any of its Affiliates will have proprietary rights that have not been recorded in the books and records of it or any of its Affiliates; (c) making any unlawful payment to any agent, employee, officer or director of any Person with which it or any of its Affiliates does business for the purpose of influencing such agent, employee, officer or director to do business with it or any of its Affiliates; (d) violating any provision of applicable Anti-Corruption Laws; (e) making any payment in the nature of bribery, fraud, or any other unlawful payment under the Law of any jurisdiction where it or any of its Affiliates conducts business or is registered; or, (f) if such Person or any of its Representatives is a Government Official, improperly using his or her position as a Government Official to influence the award of business or regulatory approvals to or for the benefit of such Person, its Representatives or any of their business operations, or failing to recuse himself or herself from any participation as a Government Official in decisions relating to such Person, its Representatives or any of their business operations.

1.56 “Regulatory Approval” means any and all approvals (including marketing authorization approvals, supplements, amendments, pre- and post-approvals, and pricing and reimbursement approvals), licenses, registrations or authorizations of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, that are necessary for the Manufacture, distribution, use or commercial sale of a Licensed Product in a given country or regulatory jurisdiction.

1.57 “Regulatory Authority” means, in a particular country or jurisdiction, any applicable Governmental Authority involved in granting Regulatory Approval in such country or jurisdiction.

1.58 “Regulatory Materials” means regulatory applications (including MAA), submissions, notifications, communications, correspondence, registrations, Regulatory Approvals and other filings made to, received from or otherwise conducted with a Regulatory Authority in order to Develop, Manufacture, market, sell or otherwise Commercialize Licensed Products in a particular country or jurisdiction.

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1.59 “Representatives” means, as to any Person, such Person’s Affiliates and its and their successors, controlling Persons, directors, officers and employees.

1.60 “Third Party” means any Person other than a Party or an Affiliate of a Party.

1.61 “U.S. Dollar” means a U.S. dollar, and “US$” shall be interpreted accordingly.

1.62 “U.S.” or “USA” means the United States of America, including all possessions and territories thereof.

1.63 “Valid Claim”means a claim (including a process, use, or composition of matter claim) of (a) an issued and unexpired patent that has not (i) irretrievably lapsed or been revoked, dedicated to the public or disclaimed or (ii) been held invalid, unenforceable or not patentable by a court, governmental agency, national or regional patent office or other appropriate body that has competent jurisdiction, which holding, finding or decision is final and unappealable or unappealed within the time allowed for appeal, or (b) a pending patent application that has been pending for no more than seven (7) years since its earliest priority date and has not been abandoned or finally disallowed without the possibility of appeal.

1.64 “Voluntary Phase 4 Clinical Trial” means a Phase 4 Clinical Trial that is not conducted to satisfy a requirement of a Regulatory Authority in order to maintain a Regulatory Approval for such Licensed Product.

1.65 Additional Definitions: The following table identifies the location of definitions set forth in various Sections of the Agreement:

Defined Terms	Section
Additional Product	2.5
Additional Tax	8.8(b)(i)
Agreement	Preamble
Alliance Manager	3.1
Amzeeq™	1.42(a)
Claims	11.1
Competing Program	2.6(b)
Confidentiality Agreement	1.16
CRC	6.3
Cutia	Preamble
Cutia Data	9.1(b)
Cutia Indemnitees	11.1
Cutia Inventions	9.1(d)(ii)
Cutia Sublicense	2.1(c)
Cutia Withholding Tax Action	8.8(b)(i)
Development Plan	4.2
Dispute	14.1
Effective Date	Preamble

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FCD105	1.42(c)
FMX103	1.42(b)
Foamix	Preamble
Foamix Indemnitees	11.2
Foamix Inventions	9.1(d)(i)
Foamix Partner	2.2
GAAP	1.3
IFRS	1.3
Indemnified Party	11.3
Indemnifying Party	11.3
Infringement	9.4(a)
Initial Development Plan	4.2
Initial Transfer	2.7
JDC	3.2(a)
Joint Inventions	9.1(d)(iii)
Licensed Mark	9.6(a)
Losses	11.1
NDA	1.45
Party	Preamble
Product Marks	9.6(b)
Product Materials	4.6
Region	1.19
Remedial Action	5.9
Royalty Term	8.3(b)
Rules	14.2(a)
Safety Agreement	5.8(a)
SEC	12.3(c)
Supply Agreement	7.1
Term	13.1
Third Party Infringement Actions	9.5
Tax Withholding	8.8(b)
VAT	8.8(d)

ARTICLE 2

LICENSE

2.1 License to Cutia.

(a) License Grant. Subject to the terms and conditions of this Agreement, Foamix hereby grants Cutia an exclusive (even as to Foamix and its Affiliates, except as provided in Section 2.1(b) below), royalty-bearing license, with the right to sublicense (solely as provided in Section 2.1(c)), under the Foamix Technology, to Develop, use, have used, distribute, market, promote, sell, have sold, offer for sale, import, label, package and otherwise

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Commercialize Licensed Products in the Field in the Cutia Territory, including to act as the local agent for Foamix to fulfil its obligations as the MAH (Marketing Authorization Holder) of the Licensed Products in the Cutia Territory.

(b) Foamix Retained Rights. Notwithstanding the exclusive rights granted to Cutia in Section 2.1(a), Foamix and its Affiliates shall retain:

(i) the right to practice the Foamix Technology within the scope of the license granted to Cutia under Section 2.1(a) in order to perform, or have performed by a Third Party, Foamix’s obligations under this Agreement; provided that Foamix shall remain solely responsible for such Third Party’s performance of or failures to perform any obligations of Foamix under this Agreement; and

(ii) the right to practice and license the Foamix Technology outside the scope of the license granted to Cutia under Section 2.1(a).

(c) Sublicense Rights. Cutia may grant sublicenses of the license granted in Section 2.1(a) and Section 9.6(a) (i) to its Affiliates, including through multiple tiers, without requiring Foamix’s prior consent; and (ii) to Third Parties with Foamix’s prior written consent, such consent not to be unreasonably withheld, conditioned, or delayed; provided, that (x) Foamix shall respond within thirty (30) days of receiving Cutia’s written notice containing the name of the sublicensee and the material terms of a proposed sublicense, (y) that such consent shall be deemed granted by Foamix if Foamix fails to respond within such thirty (30)-day period, and (z) Cutia shall not enter into a proposed sublicense with material terms different than those presented to Foamix without first notifying Foamix of such changes and obtaining Foamix’s prior written consent pursuant to this Section 2.1(c). Cutia shall, within thirty (30) days after granting any sublicense under Section 2.1(c), notify Foamix of the execution of such sublicense and provide Foamix with a summary of the sublicense agreement (each, an “Cutia Sublicense”). Cutia shall ensure that each Cutia Sublicense is consistent with the terms and conditions of this Agreement, and Cutia shall be solely responsible for all of its sublicensees’ activities and any and all failures by its sublicensees to comply with the terms of this Agreement. Without limiting the foregoing, each Cutia Sublicense shall include the following additional terms and conditions:

(i) the sublicensee shall be bound by confidentiality obligations no less stringent than those set forth in this Agreement;

(ii) he sublicensee shall not have any right to prosecute or maintain or enforce any Foamix Licensed Patents;

(iii) the sublicensee shall assign or license to Cutia all Data and Inventions generated by or on behalf of such sublicensee, and shall grant Cutia all of the rights necessary for Cutia to fulfill its obligations under Section 9.1; and

(iv) Cutia shall use Commercially Reasonable Efforts to include in each Cutia Sublicense a provision that, if this Agreement terminates, Foamix may assume Cutia’s rights and obligations under the Cutia Sublicense.

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2.2 Foamix Partner. Foamix may enter into one (1) or more agreements with Third Parties and may grant such Third Parties the right to Develop, Manufacture, and Commercialize Licensed Products in one or more countries in the Foamix Territory (each such Third Party, a “Foamix Partner”). In addition, Foamix may exercise any or all of its rights and may fulfill any or all of its obligations under this Agreement through one (1) or more Foamix Partners; provided that (a) any such Foamix Partner is not actively developing, manufacturing or commercializing a Competing Product in the Cutia Territory, and (b) Foamix shall remain solely responsible for any Foamix Partner’s performance of or failures to perform any obligations of Foamix under this Agreement.

2.3 Negative Covenants. Cutia shall not, and shall not permit any of its Affiliates or sublicensees to, use or practice any Foamix Technology outside the scope of the license granted to it under Section 2.1(a). Cutia shall not, and shall not permit any Affiliate or sublicensee to, directly or indirectly, Develop, distribute, market, promote, sell, have sold, offer for sale, import, label, package and otherwise Commercialize Licensed Products in the Cutia Territory for any use outside the Field. Foamix shall not, and shall not permit any of its Affiliates to, directly or indirectly, Develop, distribute, market, promote, sell, have sold, offer for sale, import, label, package and otherwise Commercialize Licensed Products in the Cutia Territory for any use outside the Field unless (a) Foamix has first offered such rights to Cutia pursuant to Section 2.5 and the Parties have failed to reach agreement under Section 2.5 or (b) Foamix obtains Cutia’s prior written consent.

2.4 No Implied Licenses. Except as explicitly set forth in this Agreement, neither Party shall be deemed by estoppel, implication, or otherwise to have granted the other Party any license or other right to any intellectual property of such Party.

2.5 Right of First Offer. Foamix hereby grants to Cutia a right of first offer to obtain an exclusive or non-exclusive license, as the Parties mutually agree, with the right to sublicense through multiple tiers, to Develop, distribute, market, promote, sell, have sold, offer for sale, import, label, package and otherwise Commercialize any topical minocycline product of Foamix, other than the Licensed Products, for any dermatological Indication in the Cutia Territory (an “Additional Product”). Foamix shall notify Cutia in writing of its desire to out-license such Additional Product. Together with such notice, Foamix shall provide Cutia with all material information in Foamix’s control relating to the applicable Additional Product. Cutia shall have fifteen (15) days from receipt of such written notice to notify Foamix in writing as to whether Cutia desires to negotiate for a license for such Additional Product. If Cutia so notifies Foamix that it does desire to negotiate for such rights for such Additional Product, then for forty-five (45) days the Parties shall negotiate in good faith a definitive agreement for such rights for such Additional Product. For clarity, Foamix may only enter into discussions, exchange information, and negotiate with a Third Party with respect to an agreement related to the transfer of or grant of rights for such Additional Product after the foregoing sixty (60)-day notice and negotiation period.

2.6 Exclusivity.

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(a) Obligations. During the Term, Cutia shall not, directly or indirectly, either by itself or with or through any of its Affiliates or any Third Party (including via any arrangement or series of arrangements with a Third Party), Develop, Manufacture or Commercialize any Competing Product in the Cutia Territory.

(b) Acquisition of Competing Program. If a Third Party becomes an Affiliate of Cutia after the Effective Date through merger, acquisition, consolidation or other similar transactions and, as of the closing date of such transaction, such Third Party is engaged in the research, development, manufacture or commercialization of a Competing Product such that, if conducted by such Third Party, it would cause Cutia to be in breach of its exclusivity obligations set forth above (a “Competing Program”) then Cutia and its new Affiliate will have twelve (12) months from the closing date of such transaction to wind down or complete the Divestiture of such Competing Program, and Cutia’s new Affiliate’s conduct of such Competing Program during such twelve (12)-month period will not be deemed a breach of Cutia’s exclusivity obligations set forth above; provided that such new Affiliate conducts such Competing Program during such twelve (12)-month period independently of the activities of this Agreement and does not use or access any of Foamix’s intellectual property rights or Confidential Information in the conduct of such Competing Program.

2.7 Transfer of Foamix Licensed Know-How. Promptly after the Effective Date and no later than one hundred (100) Business Days thereafter, Foamix shall, to the extent expressly provided for in Exhibit B, provide Cutia with complete and accurate copies through the Intralinks data room of the Foamix Licensed Know-How set forth in Exhibit B (such transfer the “Initial Transfer”). The JDC shall establish a reasonable process and schedule for the transfer of any additional Foamix Licensed Know-How that subsequently becomes Controlled by Foamix or its Affiliates during the Term. Foamix shall reasonably cooperate with Cutia in providing Cutia with copies of such Foamix Licensed Know-How in accordance with the process and schedule agreed upon through the JDC. Notwithstanding anything to the contrary, Foamix is not obligated to transfer to Cutia any CMC Information as part of the Initial Transfer or any subsequent transfer. For clarity, all Licensed Know-How, including the Initial Transfer, will be provided by Foamix in English and in such editable PDF form and format then in Foamix’s possession.

ARTICLE 3

GOVERNANCE

3.1 Alliance Managers. Within thirty (30) days after the Effective Date, each Party shall appoint and notify the other Party of the identity of a representative having the appropriate qualifications, including a general understanding of pharmaceutical development, manufacturing, and commercialization issues, to act as its alliance manager under this Agreement (the “Alliance Manager”). The Alliance Managers shall serve as the primary contact points between the Parties for the purpose of providing each Party with information on the progress and results of Cutia’s Development, Manufacturing, and Commercialization of Licensed Products. The Alliance Managers shall also be primarily responsible for facilitating the flow of information and otherwise promoting communication, coordination and collaboration between the Parties with

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respect to Licensed Products. Each Party may replace its Alliance Manager at any time upon written notice to the other Party.

3.2 Joint Development Committee.

(a) Formation; Purpose. Within thirty (30) days after the Effective Date, the Parties shall establish a joint development committee (the “JDC”) for the overall coordination and oversight of the Parties’ activities under this Agreement. The role of the JDC is:

(i) to review, discuss and coordinate the overall strategy for the Development, Manufacturing, and Commercialization of Licensed Products in the Cutia Territory, including related regulatory activities;

(ii) to review, discuss and approve any proposed amendments or revisions to the Development Plan, including those with respect to clinical Development activities set forth in Section 4.3, and to review, discuss and approve the conduct of any Development activities by Cutia;

(iii) to perform such other functions as appropriate to further the purposes of this Agreement, as expressly set forth in this Agreement or as determined by the Parties in writing.

(b) Members. The JDC shall be comprised of an equal number of representatives from each Party. Each Party’s representatives shall be an officer or employee of such Party or its Affiliate having sufficient seniority within the applicable Party to make decisions arising within the scope of the JDC’s responsibilities. Each Party shall initially appoint two (2) representatives to the JDC. Each Party may replace its representatives at any time upon written notice to the other Party. Each Party shall appoint one (1) of its representatives on the JDC to act as the co-chairperson. The role of the co-chairpersons is to convene and preside at the JDC meetings and to ensure the circulation of meeting agendas at least five (5) days in advance of JDC meetings and the preparation of meeting minutes and any pre-read materials in accordance with Section 3.2(c), but the co-chairpersons have no additional powers or rights beyond those held by other JDC representatives. Employees or consultants of either Party that are not representatives of the Parties on the JDC may attend meetings of the JDC, provided that such attendees shall not vote or otherwise participate in the decision-making process of the JDC and are subject to obligations of confidentiality substantially similar to the provisions set forth in Section 12.1.

(c) Meetings. The JDC shall meet at least every six (6) months during the Term, and at least one (1) such meeting per calendar year shall be in-person, unless the Parties mutually agree in writing to a different frequency for such meetings. Either Party may also call a special JDC meeting (by videoconference or teleconference) with reasonable advanced written notice to the other Party in the event such Party reasonably believes that a significant matter must be addressed prior to the next regularly scheduled meeting, and such Party shall promptly provide the JDC prior to the special meeting with materials reasonably adequate to enable an informed decision. All JDC meetings shall be conducted in English, and all communications

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under this Agreement shall be in English. The location of each in-person JDC meeting shall alternate between locations reasonably selected by each of the Parties. The co-chairpersons shall be responsible for preparing reasonably detailed written minutes of the JDC meetings that reflect all material decisions made at such meetings. The co-chairpersons shall send draft meeting minutes to each representative of the JDC for review and approval within ten (10) Business Days after the JDC meeting. Such minutes shall be deemed approved unless one or more JDC representatives object to the accuracy of such minutes within ten (10) Business Days of receipt.

3.3 Decision Making. The JDC shall strive to seek consensus in its actions and decision making process, and all decisions by the JDC shall be made by consensus, with each Party having collectively one (1) vote in all decisions. If after reasonable discussion and good faith consideration of each Party’s view on a particular matter before the JDC, the representatives of the Parties cannot reach an agreement as to such matter (to the extent that such matter requires the agreement of the Parties hereunder) within ten (10) Business Days after such matter was brought to the JDC for resolution or after such matter has been referred to the JDC, such disagreement shall be referred to the Executive Officers for resolution. If the Executive Officers cannot resolve such matter within thirty (30) days after such matter has been referred to them, then:

(a) the Cutia Executive Officer has the final decision making authority with respect to the Development or Commercialization of Licensed Products in the Field in the Cutia Territory to the extent such Development and Commercialization activities primarily arise within the Cutia Territory and would be reasonably expected to primarily affect the Development, Commercialization, and Manufacture of Licensed Products in the Cutia Territory; provided, that the Cutia Executive Officer shall consider in good faith Foamix’s comments and suggestions with respect to such matter; provided, further, that the Cutia Executive Officer may not exercise such final decision making authority in a manner that creates an Adverse Risk;

(b) the Foamix Executive Officer has the final decision making authority with respect to all other matters not allocated to Cutia in Section 3.3(a).

For clarity, the Parties shall resolve in accordance with Section 14.2 any Dispute concerning whether the Cutia Executive Officer or the Foamix Executive Officer has the final decision making authority, including a Dispute as to whether a decision by the Cutia Executive Officer creates an Adverse Risk.

3.4 Limitation of JDC Authority. The JDC shall only have the powers expressly assigned to it in this Article 3 and elsewhere in this Agreement and shall not have the authority to: (a) modify or amend the terms and conditions of this Agreement; (b) waive or determine either Party’s compliance with the terms and conditions of under this Agreement; or (c) decide any issue in a manner that would conflict with the express terms and conditions of this Agreement.

3.5 Discontinuation of the JDC. The activities to be performed by the JDC shall solely relate to governance under this Agreement, and are not intended to be or involve the delivery of services. The JDC shall continue to exist until the first to occur of: (a) the Parties

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agree to disband the JDC; or (b) Foamix provides written notice to Cutia of its intention to disband and no longer participate in the JDC. Thereafter, the JDC will have no further obligations under this Agreement and, thereafter, each Party shall designate a contact person for the exchange of information relevant to the JDC under this Agreement and decisions of the JDC shall be decisions as between the Parties, subject to the other terms and conditions of this Agreement.

3.6 Notification of Threatened Action. Each Party shall immediately notify the other Party (including by providing notice to the other Party’s Alliance Manager) of any information it receives regarding any threatened or pending action, inspection or communication by or from any Third Party, including a Regulatory Authority, which has an Adverse Risk. Upon receipt of such information, the Parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action.

3.7 No Harmful Actions. If Foamix believes that Cutia is taking or intends to take any action (or inaction) with respect to any Licensed Product that could reasonably be expected to create Adverse Risk, then Foamix may bring the matter to the attention of the JDC and the Parties shall discuss in good faith to promptly resolve such concern.

ARTICLE 4

DEVELOPMENT

4.1 Overview; Diligence. Subject to the terms and conditions of this Agreement (including the diligence obligations set forth below), Cutia shall be solely responsible for the Development of Licensed Products in the Field in the Cutia Territory, at its own cost and expense (except as otherwise expressly set forth herein), including all non-clinical and clinical studies, asnecessary to obtain Regulatory Approval for Licensed Products in any Region in the Cutia Territory. Cutia shall use Commercially Reasonable Efforts to Develop and to obtain Regulatory Approval for each Licensed Product in each Region in the Cutia Territory and in each Indication for which such Licensed Product has received Regulatory Approval in the United States.

4.2 Development Plan. Without limiting the generality of the other provisions in this Article 4, Cutia shall conduct its Development activities under and in accordance with the Development Plan and shall be solely responsible for all decisions regarding the day-to-day conduct of Development within the Cutia Territory. An initial, mutually agreed Development Plan is attached hereto as Exhibit C(the “Initial Development Plan” and together with any subsequent updates pursuant to this Section 4.2, collectively the “Development Plan”). The Development Plan shall include among other things, (a) the Indications in the Field for which the Licensed Products are to be Developed, (b) critical activities to be undertaken under this Agreement, (c) go/no-go decision points and relevant decision criteria, (d) solely to the extent expressly agreed by Foamix with respect to any responsibilities allocated to Cutia, certain allocations of responsibilities between the Parties under the Development Plan, and (e) all non-clinical and clinical studies, CMC Information collection activities, and regulatory activities with respect to the Licensed Products to be conducted by or on behalf of Cutia or its Affiliates or their

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respective sublicensees in the Cutia Territory. From time to time during the Term, Cutia may prepare written amendments and updates, as appropriate, to the then-current Development Plan, and shall submit such amendments and updates to the JDC in accordance with Section 3.2. Such Development Plan and the contents therein shall be Confidential Information of Cutia.

4.3 Cooperation. Foamix shall provide such technical assistance and cooperation to Cutia as Cutia may reasonably request, as necessary or reasonably useful for Cutia to Develop or Commercialize Licensed Products in the Field in the Cutia Territory, without additional charge to Cutia. For clarity, Foamix is not obligated to provide Cutia with any CMC Information.

4.4 Development Records. Cutia shall maintain complete, current and accurate records of all activities conducted pursuant to the Development Plan by Cutia, its Affiliates and their respective sublicensees, and all Data and other Information resulting from such activities. Such records shall fully and properly reflect all work done and results achieved in the performance of the Development activities in good scientific manner appropriate for regulatory and patent purposes. Cutia shall document all non-clinical studies and clinical trials in formal written study records in accordance with all Law, including applicable national and international guidelines such as ICH, GCP and GLP. Cutia shall, to the extent permitted by applicable Laws, permit Foamix to review and copy such records at reasonable times and to obtain access to the original to the extent necessary or useful for regulatory or patent purposes.

4.5 Development Reports. Cutia shall keep Foamix reasonably informed as to the progress and results of its and its Affiliates’ and their respective sublicensees’ work under the Development Plan (including prompt reporting of available clinical data). Without limiting the foregoing, at each regularly scheduled JDC meeting, Cutia shall provide Foamix with a written report summarizing the Development activities performed since the last JDC meeting and the results thereof, and comparing such activities with the Development Plan for such time period. Such reports shall be provided in English and at a level of detail reasonably requested by Foamix and sufficient to enable Foamix to determine Cutia’s compliance with its diligence obligations under Section 4.1. At such JDC meeting, the Parties shall discuss the status, progress and results of Cutia’s Development activities. Cutia shall promptly respond to Foamix’s reasonable questions or requests for additional information relating to such Development activities. In addition, within thirty (30) days after the end of each Fiscal Year, Cutia shall provide Foamix with a detailed written annual report in English regarding the progress under the Development Plan and results thereof (or upon Foamix’s reasonable request, on a more frequent basis).

4.6 Data Exchange. In addition to Foamix’s obligation with respect to the transfer of Foamix Licensed Know-How set forth under Section 2.7 and each Party’s adverse event, safety data, and product quality complaint reporting obligations pursuant to Section 5.8, but subject to the remainder of this Section 4.6, each Party shall, at its sole cost and expense, solely to the extent permitted by applicable Laws, promptly provide the other Party with copies of all Data and Regulatory Materials related to all Licensed Products generated by or on behalf of such Party or its Affiliates or sublicensees in the performance of Development activities of the Licensed Products in their respective territories (the “Product Materials”). The JDC may establish

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reasonable policies to effectuate such exchange of Product Materials between the Parties. For clarity, Product Materials exclude CMC Information.

4.7 Subcontractors. Cutia may engage subcontractors to conduct any activities necessary for Development of Licensed Products, including non-clinical studies, clinical studies, CMC activities (subject to Foamix’s prior written consent), and regulatory services for Licensed Products, under this Agreement, provided that such subcontractors are bound by written obligations of confidentiality consistent with this Agreement and have agreed in writing to assign to Cutia all Data, Information, inventions or other intellectual property generated by such subcontractor in the course of performing such subcontracted work. Cutia shall remain responsible for any obligations that have been delegated or subcontracted to any subcontractor, and shall be responsible for the performance of its subcontractors.

4.8 Development of FCD105.

(a) If Foamix decides, in its sole discretion, to conduct a global Clinical Trial for FCD105 (“Global Trial”) and wishes to include Clinical Trial sites in the Cutia Territory as part of such Global Trial, Foamix shall notify Cutia in writing. Cutia and Foamix shall discuss in good faith the terms of Cutia’s participation in any such Global Trial. If the Parties agree to collaborate with respect to such Global Trial, the Parties shall enter into a separate clinical trial agreement that is negotiated in good faith and contains commercially reasonable terms and conditions.

(b) In the event Foamix decides to cease, abandon or discontinue the Development of FCD105 prior to receiving Regulatory Approval therefor in the United States within five (5) years from the Effective Date (“Abandoned FCD105”), Foamix shall notify Cutia of such cessation, abandonment or discontinuance. Upon Cutia’s request within sixty (60) days after such notice, the Parties shall discuss in good faith including such Abandoned FCD105, in its then-current form and format at the time of the cessation, abandonment or discontinuance, as a Licensed Product under this Agreement. If the Parties agree to include Abandoned FCD105 as a Licensed Product under this Agreement, the Parties shall amend and modify this Agreement as necessary to adjust the rights and obligations of the Parties hereunder with respect to the Abandoned FCD105.

ARTICLE 5

REGULATORY MATTERS

5.1 Holder of Regulatory Approvals and Regulatory Materials. Foamix shall initially be the holder of Regulatory Approvals and Regulatory Material for Licensed Products in the Cutia Territory to the extent required by Law in the Cutia Territory. As soon as is practicable during the Term, the Parties shall cooperate in good faith to enable Cutia to hold all Regulatory Approvals and Regulatory Materials, whether by transfer to Cutia of such Regulatory Approvals and Regulatory Materials or through the submission by Cutia of a new application for Regulatory Approval in a Region in the Cutia Territory, to the extent permitted by Law and in accordance therewith. Cutia shall reimburse Foamix’s actual costs and expenses related to Foamix’s cooperation to enable Cutia to hold all such Regulatory Approvals and Regulatory Materials.

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5.2 CutiaResponsibilities.

(a) Cutia shall conduct all regulatory activities delegated to Cutia in this Agreement in connection with the Development and Commercialization of Licensed Products in the Cutia Territory at Cutia’s sole cost and expense. During such time that Foamix is the holder of Regulatory Approvals and Regulatory Materials for Licensed Products in the Cutia Territory, Cutia shall act as the express and authorized regulatory agent of record for Foamix in the Cutia Territory, and shall carry out specific activities delegated to Cutia by Foamix that are within the scope of this Agreement. Promptly after the Effective Date, the Parties shall execute such documents as are required for Cutia to act as Foamix’s express and authorized regulatory agent of record in the Cutia Territory. Cutia shall, and shall ensure that its Affiliates and sublicensees, comply with all Laws in its conduct of regulatory activities under this Agreement, and Cutia shall use Commercially Reasonable Efforts, in its capacity as a regulatory agent of record for Foamix in the Cutia Territory, to comply with guidelines in the United States applicable to regulatory agents of record to the extent that equivalent guidelines do not exist in the Cutia Territory, and only to the extent that such guidelines do not conflict with Laws in the Cutia Territory. Subject to Section 5.1, Cutia shall use Commercially Reasonable Efforts to obtain and maintain all Regulatory Approvals and Regulatory Materials necessary to Manufacture Licensed Products in the Cutia Territory as soon as practicable during the Term and to the extent permitted by Law and in accordance therewith. After Regulatory Approvals and Regulatory Materials necessary for the Development and Commercialization of Licensed Products in the Cutia Territory are held by Cutia, Cutia shall be solely responsible for all regulatory activities, including making additional Regulatory Materials and obtaining additional Regulatory Approvals for Licensed Products from the Regulatory Authorities in the Cutia Territory, at its sole cost and expense; provided that, Cutia undertakes any such activities in compliance with this Agreement to the same extent as if Cutia were acting as Foamix’s authorized regulatory agent under this Agreement.

(b) Cutia, either itself or on behalf of Foamix in accordance with the foregoing Section 5.1, shall apply for Regulatory Approval of Licensed Products in each Region in the Cutia Territory, provided that Cutia has obtained, or has been provided with access by Foamix to, Data sufficient for such Regulatory Material.

(c) Except as required by Law, Cutia, its Affiliates and sublicensees shall not submit any Regulatory Materials to, or communicate with, any Regulatory Authority in the Foamix Territory regarding any Licensed Products. If such submission or communication is required by Law, Cutia shall immediately notify Foamix in writing of such requirement and the content of such submission or communication.

5.3 FoamixResponsibilities. Foamix shall use Commercially Reasonable Efforts to maintain Regulatory Approvals in the U.S. for Licensed Products. Foamix shall keep Cutia promptly informed of material notices and communications issued by the FDA in connection with Regulatory Approvals for Licensed Products in the U.S. Foamix shall reasonably cooperate with Cutia in obtaining any Regulatory Approvals for Licensed Products in the Field in the Cutia Territory by providing, to the extent Controlled by Foamix, access to Regulatory Approvals,

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Regulatory Materials, Data, Information, and documentation for Licensed Products outside of the Cutia Territory. The Parties shall establish a reasonable process and schedule for Foamix to provide CMC Information to the applicable Regulatory Authority for purposes of the MAA. With respect to CMC Information and regardless of which Party is then holding the Regulatory Materials and Regulatory Approvals for Licensed Products in the Cutia Territory, Foamix shall reasonably cooperate with Cutia, at Cutia’s cost and expense, in directly providing to Regulatory Authorities the CMC Information required to obtain Regulatory Approvals for Licensed Products in the applicable Region in the Cutia Territory. Cutia shall reimburse Foamix’s reasonable costs and expenses incurred in connection with the submission of CMC Information. Foamix shall provide all other regulatory assistance at Foamix’s cost and expense. Except as expressly permitted under this Agreement or required by Law, Foamix, its Affiliates and sublicensees shall not submit any Regulatory Materials to, or communicate with, any Regulatory Authority in the Cutia Territory regarding any Licensed Products. If such submission or communication is required by Law, Foamix shall immediately notify Cutia in writing of such requirement and the content of such submission or communication.

5.4 RightofReference. Each Party hereby grants to the other Party the right of reference to all Regulatory Materials pertaining to Licensed Products in the Field submitted by or on behalf of such Party. Cutia may use such right of reference to Foamix’s Regulatory Materials in the Field solely for the purpose of seeking, obtaining and maintaining Regulatory Approval of Licensed Products in Field in the Cutia Territory. Foamix may use the right of reference to Cutia’s Regulatory Materials in the Field solely for the purpose of seeking, obtaining and maintaining Regulatory Approval of Licensed Products in the Foamix Territory. Each Party shall support the other Party, as reasonably requested by such other Party and at such other Party’s expense (except as otherwise provided in Section 5.3), in obtaining Regulatory Approvals in such other Party’s territory, including providing necessary documents or other materials required by Law to obtain Regulatory Approval in such territory, all in accordance with the terms and conditions of this Agreement.

5.5 Regulatory Information Sharing. Cutia shall notify Foamix of any material verbal or written communication or question relating to Licensed Products received by Cutia from the Regulatory Authority in the Cutia Territory and shall promptly notify Foamix in writing of any decision by any Regulatory Authority in the Cutia Territory regarding Licensed Products. Cutia shall provide Foamix with all Regulatory Materials containing or requesting CMC Information upon receipt, and Foamix shall provide any responses or written communications relating to the request for submission directly to the applicable Regulatory Authority. In addition, Cutia shall notify Foamix of any Regulatory Materials received from any Regulatory Authority in the Cutia Territory and shall provide Foamix with copies thereof within five (5) days after receipt. If any such Regulatory Material is not in the English language, Cutia shall also provide Foamix with both the original document and an English summary thereof.

5.6 RegulatoryAuditsandInspection. Upon reasonable notice, Foamix may conduct, once every other year or at any time upon reasonable cause, an audit of safety and regulatory systems, procedures, and practices of Cutia, including on site evaluations. Cutia shall promptly notify Foamix of any inspections relating to the Development or Commercialization of

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Licensed Products by any Regulatory Authority in the Cutia Territory, including the NMPA, of which it becomes aware. Unless prohibited by Laws, Cutia shall permit Foamix’s representative to observe such inspection. Cutia shall also provide Foamix with copies of all correspondences submitted to or received from the Regulatory Authority relating to such inspection.

5.7 Meetings with Regulatory Authorities. Each Party shall provide the other Party with at least fifteen (15) days’ prior written notice (or, to the extent such meeting or discussion is scheduled in less than fifteen (15) days, notice as quickly as practicable) of any meeting or discussion with any Regulatory Authority in the Cutia Territory related to Licensed Products. Cutia shall lead all interactions with Regulatory Authorities in the Cutia Territory with respect to Licensed Products. To the extent permitted by Law and by the Regulatory Authorities, Foamix may participate (whether directly or through a representative) in all such meetings and discussions, at Foamix’s cost (except as otherwise provided in Section 5.3). If Foamix elects not to attend such meeting or discussion, Cutia shall provide Foamix with a written summary thereof in English promptly following such meeting or discussion. Cutia shall keep Foamix reasonably informed of any material regulatory developments related to Licensed Products in the Field in the Cutia Territory. At each regularly scheduled JDC meeting, Cutia shall provide Foamix with a list and schedule of any meeting or discussion with the applicable Regulatory Authorities (or related advisory committees) in the Cutia Territory planned for the next Calendar Quarter that relates to any Licensed Product in the Field.

5.8 AdverseEventsReporting.

(a) Promptly following the Effective Date, but in no event later than sixty (60) days before the commencement of a clinical study with respect to Development of any Licensed Product by Cutia in the Cutia Territory, Cutia and Foamix shall develop and agree to the worldwide safety and pharmacovigilance procedures for the Parties with respect to Licensed Products, such as safety data sharing and exchange, Adverse Events reporting and prescription events monitoring in a written agreement (the “SafetyAgreement”). Such Safety Agreement shall describe the coordination of collection, investigation, reporting, and exchange of information concerning Adverse Events or any other safety problem of any significance, and product quality and product complaints involving Adverse Events, sufficient to permit each Party, its Affiliates, or sublicensees to comply with its legal obligations. The Parties shall promptly update the Safety Agreement if required by changes in legal requirements. Each Party shall comply with its respective obligations under the Safety Agreement and to cause its Affiliates and sublicensees to comply with such obligations.

(b) Cutia shall maintain an Adverse Event database for Licensed Products in the Cutia Territory, at its sole cost and expense, and, to the extent required by Laws, shall report quality complaints, Adverse Events and safety data related to Licensed Products to the applicable Regulatory Authorities in the Cutia Territory, as well as responding to safety issues and to all requests of Regulatory Authorities related to Licensed Products in the Cutia Territory. Cutia shall provide to Foamix access to Cutia’s Adverse Event database for the Cutia Territory. Foamix shall maintain a global Adverse Event database at its sole cost and expense, and, except as prohibited by applicable Law, shall provide Cutia with information contained in such global

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Adverse Event database at JDC meetings, provided, that Foamix shall promptly provide Cutia with any material Adverse Event information that arises between any such JDC meetings.

(c) Each Party shall comply with all Laws governing Adverse Events in its respective territory, and shall notify the other Party on a timely basis of any Adverse Events occurring in its respective territory. Each Party shall submit copies of reports of Adverse Events to the other Party simultaneously with submission to the applicable Regulatory Authorities. Each Party shall notify the other in a timely manner and in any event within twenty-four (24) hours of receiving any serious Adverse Event reports from Clinical Trials that each Party is monitoring, notice from a Regulatory Authority, independent review committee, data safety monitoring board or another similar Clinical Trial or post-marketing monitoring body alleging significant concern regarding a patient safety issue or other material information relevant to the safety or efficacy of Licensed Products.

5.9 RemedialActions. Each Party shall notify the other immediately, and promptly confirm such notice in writing, if it obtains information indicating that any Licensed Product may be subject to any recall, corrective action, or other regulatory action by any Governmental Authority or Regulatory Authority (a “RemedialAction”). The Parties shall assist each other in gathering and evaluating such information as is necessary to determine the necessity of conducting a Remedial Action. Cutia has sole discretion with respect to any matters relating to any Remedial Action in the Cutia Territory, including the decision to commence such Remedial Action and the control over such Remedial Action in the Cutia Territory; provided, however, if Foamix determines in good faith that any Remedial Action with respect to any Licensed Product in the Cutia Territory should be commenced or is required by Law or Regulatory Authority, (a) Foamix shall discuss such Remedial Action with Cutia and (b) Cutia shall consider in good faith such Remedial Action upon Foamix’s request. The cost and expenses of any Remedial Action in the Cutia Territory shall be borne solely by Cutia. Cutia shall, and shall ensure that its Affiliates and sublicensees will, maintain adequate records to permit the Parties to trace the distribution, sale and use of Licensed Products in the Cutia Territory. Each Party shall provide the other Party, at the other Party’s expense, with such assistance in connection with a Remedial Action as may be reasonably requested by such other Party. Notwithstanding the foregoing, any Remedial Action that relates to the manufacture and supply of Licensed Products by Foamix to Cutia shall be governed by the terms and conditions of the applicable Supply Agreement.

ARTICLE 6

COMMERCIALIZATION

6.1 Overview; Diligence. Subject to the terms and conditions of this Agreement (including the diligence obligations set forth below), Cutia has the sole right and responsibility for all aspects of the Commercialization of Licensed Products in the Field in the Cutia Territory, including: (a) developing and executing a commercial launch and pre-launch plan, (b) negotiating with applicable Governmental Authorities regarding the price and reimbursement status of Licensed Products; (c) marketing, advertising and promotion; (d) booking sales and distribution and performance of related services; (e) handling all aspects of order processing, invoicing and collection, inventory and receivables; (f) providing customer support, including

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handling medical queries, and performing other related functions; and (g) conforming its practices and procedures to Laws relating to the marketing, detailing and promotion of Licensed Products in the Field in the Cutia Territory. Cutia shall bear all of the costs and expenses incurred in connection with such Commercialization activities. Cutia shall use Commercially Reasonable Efforts to Commercialize the Licensed Products in the Cutia Territory.

6.2 Commercialization Report. For each Fiscal Year following Regulatory Approval for each Licensed Product, Cutia shall provide to Foamix within sixty (60) days after the end of such Fiscal Year a high-level annual report summarizing (a) Cutia’s activities with respect to the Commercialization of Licensed Products in such Fiscal Year and (b) Cutia’s anticipated activities with respect to the Commercialization of Licensed Products in the next Fiscal Year. Such reports and the contents therein shall be Confidential Information of Cutia.

6.3 Data Exchange. Cutia shall keep Foamix reasonably informed of Cutia’s, its Affiliates’ and their respective sublicensees’ Commercialization activities with respect to the Licensed Products in the Field in the Cutia Territory. Foamix shall provide to Cutia, upon Cutia’s request, and no more than once each Calendar Quarter, at Foamix’s cost, access to materials prepared by or on behalf of Foamix that are approved and authorized to be distributed as promotional materials pursuant to Foamix’s internal commercial review committee (“CRC”) that are necessary or reasonably useful in connection with Cutia’s Commercialization of Licensed Products in the Field in the Cutia Territory (including relevant final and CRC-approved training materials, and any final global brand and global market research materials, in each case, with respect to Licensed Products). Until Cutia has received Regulatory Approval for a Licensed Product in a Region in the Cutia Territory, Foamix shall provide such promotional materials in read-only access format.

6.4 No Diversion. Each Party hereby covenants and agrees that it shall not, and shall ensure that its Affiliates and sublicensees will not, directly or indirectly, promote, market, distribute, import, sell or have sold the Licensed Products, including via internet or mail order, in the other Party’s territory. With respect to any country in the other Party’s territory, a Party shall not, and shall ensure that its Affiliates and their respective sublicensees will not: (a) establish or maintain any branch, warehouse or distribution facility for Licensed Products in such countries, (b) knowingly engage in any advertising or promotional activities relating to Licensed Products that are directed primarily to customers or other purchaser or users of Licensed Products located in such countries, (c) actively solicit orders for Licensed Products from any prospective purchaser located in such countries, or (d) knowingly sell or distribute Licensed Products to any person in such Party’s territory who intends to sell or has in the past sold Licensed Products in such countries. If either Party receives any order for any Licensed Product from a prospective purchaser reasonably believed to be located in a country in the other Party’s territory, such Party shall immediately refer that order to the other Party and such Party shall not accept any such orders. Each Party shall not deliver or tender (or cause to be delivered or tendered) Licensed Products into a country in the other Party’s territory. Each Party shall not, and shall ensure that its Affiliates and their respective sublicensees will not, knowingly restrict or impede in any manner the other Party’s exercise of its retained exclusive rights in the other Party’s territory.

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ARTICLE 7

MANUFACTURE AND SUPPLY

7.1 Foamix Manufacture and Supply. Except as otherwise provided for in this Agreement or a Supply Agreement, Cutia shall purchase from Foamix, and Foamix shall use Commercially Reasonable Efforts to supply to Cutia, all of Cutia’s requirements for the Licensed Products, subject to the terms and conditions of each Supply Agreement. [***].

7.2 Cutia Supply; Manufacturing Technology Transfer. Foamix may require that Cutia, and Cutia shall, assume the Manufacture of all of Cutia’s requirements for the Licensed Products for use in the Cutia Territory in accordance with the procedures set forth in this Section 7.2. At any time after twelve (12) months after the First Commercial Sale of a Licensed Product in the Cutia Territory, Foamix may provide written notice to Cutia of its transfer of the Manufacture of such Licensed Product to Cutia. The commercial Supply Agreement shall set forth the applicable time periods and mechanics of a technology transfer that is reasonably necessary for Cutia, itself or through an Affiliate or Third Party, to Manufacture such Licensed Product for use in the Cutia Territory, including the transfer to Cutia relevant documents and information to the extent Controlled and actually used in the Manufacture of Licensed Products by Foamix as of such transfer date, and the provision of technical assistance and support. Cutia shall pay Foamix’s external and internal costs incurred in connection with providing such information or assistance, as further set forth in the commercial Supply Agreement.

7.3 Distribution. Cutia will be solely responsible for the distribution of Licensed Products in the Field in the Cutia Territory.

7.4 Brand Security and Anti-Counterfeiting. The Parties will establish contacts for communication regarding brand security issues, and each Party shall reasonably cooperate with the other Party with respect thereto.

ARTICLE 8

COMPENSATION

8.1 Initial Upfront Payments. As partial consideration for the licenses granted under this Agreement and as reimbursement of Foamix’s certain research and development expenses and activities conducted prior to the Effective Date, Cutia shall pay Foamix a one-time, non-refundable, non-creditable payment of ten million U.S. Dollars (US$10,000,000) as follows: (a) six million U.S. Dollars (US$6,000,000) within twenty-five (25) Business Days after the Effective Date, and (b) four million U.S. Dollars (US$4,000,000) within one hundred (100) Business Days after the Effective Date, provided that Foamix has provided Cutia with the Foamix Licensed Know-How set forth in Exhibit B.

8.2 Milestone Payment. Cutia shall pay to Foamix a one-time, non-refundable, non-creditable milestone payment of one million U.S. Dollars (US$1,000,000) within thirty (30) Business Days after the first Regulatory Approval of the first Licensed Product by the NMPA, whether achieved by or on behalf of Cutia, its Affiliate, or their respective sublicensees. For

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clarity, such milestone payment shall be due only once for all Licensed Products and shall not exceed one million U.S. Dollars (US$1,000,000).

8.3 Royalties on Net Sales.

(a) Royalty Rate. Subject to the terms and conditions of this Section 8.3, within sixty (60) days after the end of each Calendar Quarter during the Royalty Term, Cutia shall pay to Foamix non-creditable, non-refundable royalties on the Net Sales in the Cutia Territory during such Calendar Quarter, [***].

(b) Royalty Term. Royalties payable under Section 8.3(a) shall be paid by Cutia (on a Licensed Product-by-Licensed Product and Region-by-Region basis) beginning on the date of the First Commercial Sale of each Licensed Product in a Region in the Cutia Territory and continuing until the later of: (i) ten (10) years from the date of First Commercial Sale of such Licensed Product in such Region, and (ii) expiration of the last Valid Claim of a Foamix Licensed Patent Covering such Licensed Product in such Region (the “Royalty Term”). For clarity, if a Valid Claim of a Foamix Licensed Patent Covers the Manufacture of such Licensed Product in such Region, then regardless of whether such Licensed Product is actually manufactured in such Region, such Licensed Product shall be deemed to be Covered by a Valid Claim of a Foamix Licensed Patent in such Region.

(c) Generic Competition. If, in a Region within the Territory during the Royalty Term for a Licensed Product, sales of all Generic Products to such Licensed Product in such Region in a Calendar Quarter exceed [***] of the unit volume of all sales of such Licensed Product plus the unit volume of all sales of such Generic Products to such Licensed Product in such country, then the royalty rate payable by Cutia to Foamix with respect to Net Sales of the Licensed Product in such Region for such Calendar Quarter shall be reduced by [***] of the otherwise applicable rate. If, in a Region within the Territory during the Royalty Term for a Licensed Product, sales of all Generic Products to such Licensed Product in such Region in a Calendar Quarter exceed [***] of the unit volume of all sales of such Licensed Product plus the unit volume of all sales of such Generic Products to such Licensed Product in such country, then the royalty rate payable by Cutia to Foamix with respect to Net Sales of the Licensed Product in such Region for such Calendar Quarter shall be [***]. All such determinations of the unit volume of sales shall be based upon a mutually acceptable calculation method using market share data provided by a reputable and mutually agreed upon provider, such as IMS Health.

(d) Third Party License. To the extent a Third Party license is necessary to make, use, import, sell, have sold, offer for sale or otherwise Commercialize a Licensed Product in a particular Region, the royalties payable by Cutia to Foamix shall be [***].

(e) Floor. In no circumstances will the royalties payable to Foamix under this Section 8.3 in any Calendar Quarter be reduced, as a result of Section 8.3(c)–(d) below [***] otherwise payable under Section 8.3. Cutia may carry forward to subsequent Calendar Quarters any deductions that it was not able to deduct as a result of the foregoing provision.

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8.4 Royalty Payments; Reports. Royalties under Section 8.3 shall be calculated and reported for each Calendar Quarter during the Royalty Term and shall be paid within sixty (60) days after the end of the applicable Calendar Quarter, commencing with the Calendar Quarter in which the First Commercial Sale of a Licensed Product occurs; provided, that if, after further review of its books and records of Net Sales for the Calendar Quarter for which Cutia last paid Foamix royalties, Cutia determines that the royalty rate paid during such Calendar Quarter was (i) more than [***], the corresponding overpayment received by Foamix shall be credited to Cutia against royalty payments due for the next Calendar Quarter or (ii) less than [***], Cutia shall pay the amount owed within sixty (60) days after the determination of such underpayment. Each payment or adjustment of royalties shall be accompanied by a report of Net Sales of Licensed Products by Cutia, its Affiliates and their respective sublicensees in sufficient detail to permit confirmation of the accuracy of the royalty payment made, including: (a) the amount of gross sales and Net Sales of Licensed Products in the Cutia Territory on a Licensed Product-by-Licensed Product and Region-by-Region basis, (b) an itemized calculation showing the deductions from gross sales (by each major category as set forth in the definition of Net Sales herein) to determine Net Sales, and (c) a calculation of the amount of royalties due to Foamix in U.S. Dollars, including the application of any exchange rate used.

8.5 Payment Method; Foreign Exchange. All payments owed by Cutia under this Agreement shall be made by wire transfer in immediately available funds to a bank and account designated in writing by Foamix. For clarity, all payments by Cutia to Foamix under this Agreement shall be in U.S. Dollars. The rate of exchange to be used in computing the amount of currency equivalent in U.S. Dollars of any amounts payable in U.S. Dollars by Cutia to Foamix under this Agreement shall be determined and calculated using the average rate of exchange based on OANDA rates for the Calendar Quarter in which the applicable payment is due.

8.6 Interest on Late Payments. If Foamix does not receive payment of any sum due to it on or before the due date, interest shall thereafter accrue on the sum due to Foamix until the date of payment at the per annum rate of one percent (1%) over the then-current prime rate reported in The Wall Street Journal or the maximum rate allowable by Law, whichever is lower, with such interest compounded quarterly.

8.7 Records; Audits.

(a) Cutia shall, and shall cause its Affiliates and their respective sublicensees to, maintain complete and accurate records in accordance with Accounting Standards and in sufficient detail to permit Foamix to confirm the accuracy of the calculation of royalty payments and the achievement of the milestone event. All payments and other amounts under this Agreement shall be accounted for in accordance with Accounting Standards. Upon reasonable prior notice, such records shall be available for examination during regular business hours for a period of three (3) years from the end of the Fiscal Year to which they pertain, and not more often than once each Fiscal Year, by an independent certified public accountant selected by Foamix and reasonably acceptable to Cutia, for the sole purpose of verifying the accuracy of the financial reports furnished by Cutia pursuant to this Agreement and any payments with respect thereto. Any such auditor shall not disclose Cutia’s Confidential Information, except to the extent

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such disclosure is necessary to verify the accuracy of the financial reports furnished by Cutia or the amount of payments due under this Agreement. Any amounts shown to be owed but unpaid shall be paid within thirty (30) days from the accountant’s report, plus interest (as set forth in Section 8.6) from the original due date. Any amount overpaid by Cutia shall be returned to Cutia within thirty (30) days from the accountant’s report, plus interest (as set forth in Section 8.6) from the original payment date. Foamix shall bear the full cost of such audit; provided, however, if the audit discovers that the royalties payable by Cutia for such period are more than one hundred ten percent (110%) of the royalties actually paid for such period, then Cutia shall pay the reasonable fees and expenses of such audit.

(b) Foamix shall, and shall cause its Affiliates to, maintain complete and accurate records in accordance with Accounting Standards and in sufficient detail to permit Cutia to confirm the accuracy of the calculation of the Manufacturing Cost of the Licensed Products. All such amounts under this Agreement shall be accounted for in accordance with Accounting Standards. Upon reasonable prior notice, such records shall be available for examination during regular business hours for a period of three (3) years from the end of the Fiscal Year to which they pertain, and not more often than once each Fiscal Year, by an independent certified public accountant selected by Cutia and reasonably acceptable to Foamix, for the sole purpose of verifying the accuracy of the Manufacturing Cost of the Licensed Products furnished by Foamix. Any such auditor shall not disclose Foamix’s Confidential Information, except to the extent such disclosure is necessary to verify the accuracy of the Manufacturing Cost of the Licensed Products furnished by Foamix. Any amounts shown to be owed but unpaid shall be paid within thirty (30) days from the accountant’s report, plus interest (as set forth in Section 8.6) from the original due date. Any amount overpaid by Cutia shall be returned to Cutia within thirty (30) days from the accountant’s report, plus interest (as set forth in Section 8.6) from the original payment date. Cutia shall bear the full cost of such audit; provided, however, if the audit discovers that the Manufacturing Cost furnished by Foamix over the course of a Fiscal Year is more than one hundred ten percent (110%) of the Manufacturing Cost actually incurred in such Fiscal Year, then Foamix shall pay the reasonable fees and expenses of such audit.

(c) Foamix shall, and shall cause its Affiliates and its and their respective employees, agents and contractors, maintain complete and accurate records with respect to Foamix’s pharmacovigilance-related obligations set forth in Section 5.8. Upon reasonable prior notice, such records shall be available for examination during regular business hours for a period of three (3) years from the end of the Fiscal Year to which they pertain, and not more often than once each Fiscal Year, by Cutia or its designee that is reasonably acceptable to Foamix, for the sole purpose of ensuring compliance with NMPA and other Regulatory Authority regulations. Any such records shall be deemed Confidential Information of Foamix.

8.8 Taxes.

(a) Taxes on Income. Each Party shall be solely responsible for the payment of all taxes imposed on its share of income arising directly or indirectly from the efforts of the Parties under this Agreement.

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(b) Withholding Taxes. If Cutia is required by Laws to make any tax deduction, tax withholding or similar payment from any amount paid or payable by Cutia to Foamix (a “Tax Withholding”) under this Agreement, then (1) in the case of payments to be made by Cutia to Foamix under Section 8.1, Cutia shall pay Foamix the actual stated amount set forth under this Agreement in full and shall also pay any such Tax Withholding (including any additional Tax Withholding required with respect to Cutia’s additional payments under this Section 8.8) directly to the proper Governmental Authority so that Foamix receives the full amount it would have received had no withholding tax applied and (2) in the case of all other payments to be made by Cutia to Foamix under this Agreement (including Sections 8.2 and 8.3), Cutia shall deduct such Tax Withholding, shall pay Foamix such remaining amount after deduction, and shall pay any such Tax Withholding directly to the proper Governmental Authority. If (A) a Tax Withholding is required, but some or all of the tax required to be withheld and remitted by Cutia is not withheld and/or is not remitted by Cutia, and (B) instead Foamix pays the relevant amount to a Governmental Authority, Cutia shall indemnify Foamix for the full amount of any such tax paid by Foamix and any liability (including penalties, interest and reasonable expenses) arising therefrom or with respect thereto.

(i) TaxesResultingfromCutiaAction. If Cutia is required to make a payment to Foamix subject to Tax Withholding, then (A) if such Tax Withholding arises as a result of any action by Cutia, including payment of amounts owed under this Agreement by through Cutia’s Affiliates, an assignment or transfer of this Agreement (or the rights and obligations hereunder), a change in Cutia’s tax domicile, or any failure on the part of Cutia to comply with applicable Law, (a “CutiaWithholdingTaxAction”), then subject to Section 8.8(b)(ii), the payment by Cutia (in respect of which such deduction or withholding of Tax is required to be made) shall be increased by the amount necessary (the “AdditionalTax”) to ensure that Foamix receives an amount equal to the amount that it would have received had no such Cutia Withholding Tax Action occurred, and. All Tax deducted and withheld from any payment made by Cutia, shall be timely remitted to the proper Governmental Authority for the account of Foamix in accordance with applicable Law.

(ii) TaxCreditsandTaxRepayments. If Foamix determines that it has derived full use and benefit from a credit (arising with respect to any Additional Tax) against the payment of any other Tax owed by Foamix, or if Foamix receives a refund of any Additional Tax from the Hong Kong Tax Authority, then Foamix shall, to the extent that it can do so without prejudice to financial or tax position of Foamix, refund to Cutia an amount that, after payment to Cutia, will leave Foamix in no worse of an after-Tax position than it would have been in had it not made the payment to Cutia provided that Cutia has not previously obtained a refund or payment of any such amount from the applicable Tax authority. Nothing in this Agreement shall obligate Foamix to make available to Cutia any Tax returns, financial information, or other documents reasonably determined by Foamix to be confidential.

(c) Tax Cooperation. The Parties shall cooperate with one another and use reasonable efforts to reduce or eliminate Tax Withholding, VAT, or similar obligations in respect of payments made by Cutia to Foamix under this Agreement (including pursuant to Section 8.1 and Section 8.2). To the extent Cutia is required to deduct and withhold taxes from any payment

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to Foamix, Cutia shall pay the amounts of such taxes to the proper Governmental Authority in a timely manner and promptly transmit to Foamix an official tax certificate or other evidence of such withholding sufficient to enable the other Party to claim such payment of taxes from any applicable Government Authority. Foamix shall use Commercially Reasonable Efforts to provide Cutia any tax forms that may be necessary in order for Cutia not to withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty to the extent Foamix is able to do so. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by Law, of withholding taxes, VAT or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or VAT. Specifically, in the event that any tax has been withheld upon a payment made under this Agreement and been remitted by Cutia to a Governmental Authority, if requested by Cutia and if, and for so long as, the Parties acting in good faith mutually agree that there is a reasonable prospect of successfully obtaining a refund of such tax, then Cutia may, at its sole cost and expense, seek a refund of such tax from the proper Governmental Authority. Foamix shall reasonably cooperate with Cutia in the pursuit of such tax refund (including, if required by Law or by the applicable Governmental Authority, permitting Cutia to seek such tax refund in Foamix’s name and participating in any application or appeal that requires that Foamix be the party applying for such tax refund, solely with Foamix’s prior written consent); provided that, (i) Cutia shall assume responsibility for direct payment of lawyers’ and other advisors’ fees and any other costs associated with seeking such refund, and (ii) to the extent that Foamix is ever the party making such payment, Cutia agrees that forthwith upon presentation by Foamix of the applicable invoice(s), Cutia shall refund Foamix’s reasonable expenses in cooperating in the pursuit of such tax refund.

(d) VAT. All payments due to Foamix from Cutia pursuant to this Agreement shall be paid exclusive of, and without reduction for, any value-added tax (including, for greater certainty, any goods and services tax, harmonized sales tax and any similar provincial sales tax) (“VAT”) (which, if applicable, shall be payable by Cutia upon receipt of a valid VAT invoice). If Foamix determines that it is required to report any such tax, Cutia shall promptly provide Foamix with applicable receipts and other documentation necessary or appropriate for such report. For clarity, this Section 8.8(d) is not intended to limit Cutia’s right to deduct VAT in determining Net Sales. Cutia shall and hereby does indemnify Foamix for any VAT that is the responsibility of Cutia pursuant to this Section 8.8(d).

ARTICLE 9

INTELLECTUAL PROPERTY MATTERS

9.1 Ownership; License Grants.

(a) Background IP. Each Party shall own and retain all right, title, and interest in and to all Background Intellectual Property Controlled by such Party. For clarity, Foamix’s Background Intellectual Property excludes Foamix Technology, Foamix Inventions, and Joint Inventions.

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(b) Data. Foamix shall solely own all Data generated by or on behalf of Foamix. Cutia shall solely own all Data generated by or on behalf of Cutia in the Development, Manufacture, and Commercialization of Licensed Products in the Field in the Cutia Territory (“Cutia Data”). For good and valuable consideration, the receipt of which is hereby acknowledged, to the maximum extent permitted by Law, Cutia hereby grants to Foamix a perpetual, royalty-free, fully paid-up, exclusive license, with the right to grant sublicenses through multiple tiers, to use the Cutia Data to Develop, Manufacture, and Commercialize the Licensed Products in the Foamix Territory, and, to the extent the foregoing exclusive license is not permitted by Law, Cutia hereby grants to Foamix a perpetual, royalty-free, fully paid-up, non-exclusive license, with the right to grant sublicenses through multiple tiers, to use the Cutia Data to Develop, Manufacture, and Commercialize the Licensed Products in the Foamix Territory.

(c) Product Materials. Subject to the terms and conditions of this Agreement, each Party hereby grants to the other Party a fully paid-up, royalty-free license, with the right to grant sublicenses through multiple tiers, to use Product Materials generated and owned by such Party, for the Development, Manufacture (with respect to Cutia, solely to the extent applicable under Section 7.2 or a Supply Agreement) and Commercialization of Licensed Products in the other Party’s respective territory during the Term.

(d) Inventions. Inventorship of any Inventions will be determined in accordance with the standards of inventorship and conception under U.S. patent laws.

(i) Foamix Inventions. Any Inventions generated, developed, conceived or reduced to practice (constructively or actually) solely by or on behalf of Foamix, its Affiliates and their respective sublicensees, including their employees, agents and contractors (“Foamix Inventions”) shall be solely and exclusively owned by Foamix.

(ii) Cutia Inventions. Any Inventions, including Manufacturing improvements, generated, developed, conceived or reduced to practice (constructively or actually) solely by or on behalf of Cutia, its Affiliates and their respective sublicensees, including their employees, agents and contractors (“Cutia Inventions”) shall be solely and exclusively owned by Cutia. For good and valuable consideration, the receipt of which is hereby acknowledged, to the maximum extent permitted by Law, Cutia shall and hereby does grant to Foamix a perpetual, royalty-free, fully paid-up, exclusive license, with the right to grant sublicenses through multiple tiers, under the Cutia Inventions and all of Cutia’s intellectual property rights therein and thereto, to Develop, Manufacture, and Commercialize the Licensed Products in the Foamix Territory, and, to the extent the foregoing exclusive license is not permitted by Law, Cutia hereby grants to Foamix a perpetual, royalty-free, fully paid-up, non-exclusive license, with the right to grant sublicenses through multiple tiers, under the Cutia Inventions and all of Cutia’s intellectual property rights therein and thereto, to Develop, Manufacture, and Commercialize the Licensed Products in the Foamix Territory.

(iii) Joint Inventions. Any Inventions generated, developed, conceived or reduced to practice (constructively or actually) jointly by or on behalf of Cutia and Foamix, their Affiliates and respective sublicensees, including their employees, agents and contractors

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(“Joint Inventions”) shall be jointly owned by Foamix and Cutia. Each Party may use, or allow Third Parties to use, the Joint Inventions without the duty to account to the other Party.

(e) Affiliates, Sublicensees and Subcontractors. Each Party shall ensure that each of its Affiliates, sublicensees and subcontractors under this Agreement has a contractual obligation to disclose to such Party all Data, Product Materials and Inventions generated, invented, discovered, developed, made or otherwise created by them or their employees, agents or independent contractors, and to provide sufficient rights with respect thereto, so that such Party can comply with its obligations under this Article 9.

9.2 Patent Prosecution.

(a) Definition. For the purpose of this Article 9, “prosecution” (and all correlative forms of “prosecution”) of Patents includes all communication and other interaction with any patent office or patent authority having jurisdiction over a Patent application throughout the world in connection with any pre-grant proceedings and post-grant proceeding, including opposition proceedings.

(b) Foamix Licensed Patents. As between the Parties, Foamix has the first right, but not obligation, to prepare, file, prosecute and maintain or abandon the Foamix Licensed Patents on a worldwide basis. Foamix shall use Commercially Reasonable Efforts to prepare, file, prosecute, defend and maintain all Foamix Licensed Patents in the Cutia Territory; provided, however, that Foamix does not represent or warrant that any patent will issue or be granted based on patent applications contained in the Foamix Licensed Patents. After the Effective Date, Foamix shall provide Cutia reasonable opportunity to review and comment on such prosecution efforts regarding the Foamix Licensed Patents in the Cutia Territory, including, (i) promptly providing Cutia with copies of all material communications from any patent authority in the Cutia Territory with respect thereto; (ii) providing Cutia, for its review and comment, with drafts of any material filings or responses to be made to such patent authorities in a reasonable amount of time in advance of submitting such filings or responses; and (iii) considering in good faith comments thereto provided by Cutia in connection with the prosecution thereof. Cutia shall reimburse Foamix for all out-of-pocket patent expenses incurred on or after the Effective Date in connection with the preparation, filing, prosecution, and maintenance of all Foamix Licensed Patents in the Cutia Territory.

(c) Step-In Rights. If Foamix elects to cease prosecution or maintenance of a Foamix Licensed Patent in a Region in the Cutia Territory, Cutia may, at its cost, continue prosecution or maintenance of such Foamix Licensed Patent in such Region. If Cutia elects to continue prosecution or maintenance or elects to file additional applications following Foamix’s election to cease prosecution or maintenance pursuant to this Section 9.2, Foamix shall transfer the applicable patent files to Cutia or its designee and execute such documents and perform such acts at Foamix’s expense as may be reasonably necessary to allow Cutia to initiate or continue such filing, prosecution or maintenance at Cutia’s sole expense.

(d) Cooperation. Each Party shall provide the other Party with all reasonable assistance and cooperation in the patent prosecution efforts set forth in this Section 9.2, including

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providing any necessary powers of attorney and executing any other required documents or instruments for such prosecution.

9.3 Patent Term Extensions in the Cutia Territory. The JDC will discuss and recommend for which, if any, of the Patents within the Foamix Licensed Patents in the Cutia Territory the Parties should seek patent term extensions. Cutia has final decision-making authority with respect to applying for any such patent term extension in the Cutia Territory, and shall act with reasonable promptness in light of the development stage of Licensed Products to apply for any such patent term extension, where it so elects; provided, however, that if only one such Patent can obtain a patent term extension, then the Parties shall consult in good faith to determine which such Patent(s) should be the subject of efforts to obtain a patent term extension. Cutia shall cooperate fully with Foamix in making such filings or actions, including making available all required regulatory Data and Information and executing any required authorizations to apply for such patent term extension. All expenses incurred in connection with activities of Foamix with respect to the Foamix Licensed Patents for which Foamix seeks patent term extensions pursuant to this Section 9.3 shall be borne by Foamix.

9.4 Patent Enforcement.

(a) Notification; Information Sharing. If either Party becomes aware of any existing or threatened infringement of any Foamix Licensed Patent by the use, offer for sale or sale of a Product or a Competing Product (“Infringement”), it shall promptly notify the other Party in writing to that effect, and the Parties shall consult with each other regarding any actions to be taken with respect to such Infringement. Each Party shall share with the other Party all Information available to it regarding such alleged Infringement, pursuant to a mutually agreeable “common interest agreement” executed by the Parties under which the Parties agree to their shared, mutual interest in the outcome of any suit to enforce the Foamix Licensed Patents against such Infringement.

(b) Enforcement Rights. Cutia has the first right, but not the obligation, to bring an appropriate suit or other action against any Person engaged in Infringement in the Cutia Territory. If Cutia elects to commence a suit to enforce such patent rights against such Infringement, then Foamix may join such enforcement action upon notice to Cutia, and in this case the Parties shall share the cost and expense of such enforcement action equally. If Cutia notifies Foamix that it does not intend to commence a suit to enforce the applicable Foamix Licensed Patent against such Infringement or to take other action to secure the abatement of such Infringement, or fails to take any such action after a period of one hundred twenty (120) days, then Foamix may commence such a suit or take such action, at its sole cost and expense; provided that, in no event shall Cutia take any action that is likely to materially or adversely impact the scope or enforceability of the Foamix Licensed Patents in the Foamix Territory. If Foamix believes in good faith that the commencement of any such suit or action by Cutia would reasonably be likely to have such an impact, then Cutia shall not commence or continue such suit or action without the prior written consent of Foamix. In addition, neither Party shall settle any such suit or action in any manner that would limit or restrict the ability of the other Party to sell the Licensed Products in its respective Territory without the prior written consent of such Party.

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For clarity, Foamix has the sole right to bring an appropriate suit or other action against any Person engaged in Infringement in the Foamix Territory.

(c) Collaboration. Each Party shall provide the other Party with reasonable assistance in such enforcement, at such enforcing Party’s request and expense (unless a Party elects to join an enforcement action when the other Party is the enforcing Party, in which case the expenses will be shared equally by the Parties), including joining such action as a party plaintiff if required by Law to pursue such action. The enforcing Party shall keep the other Party regularly informed of the status and progress of such enforcement efforts, and shall reasonably consider the other Party’s comments on any such efforts. The non-Enforcing Party shall be entitled to separate representation in such matter by counsel of its own choice and at its own expense, but such Party shall at all times cooperate fully with the enforcing Party.

(d) Expenses and Recoveries. The enforcing Party shall be solely responsible for any expenses it incurs as a result of such enforcement action, except that the Parties shall share equally the cost and expense of the enforcement action when the non-enforcing Party elects to join the enforcement action. If the enforcing Party recovers monetary damages in such claim, suit or action brought under Section 9.4(a), such recovery shall be allocated first to the reimbursement of any documented expenses incurred by the Parties in such enforcement action, and any remaining amounts shall be shared by the Parties as follows:

(i) if Foamix is the enforcing Party: one hundred percent (100%) of the remaining amounts shall be retained by Foamix;

(ii) if Cutia is the enforcing Party and Foamix does not elect to join the enforcement action and share the cost and expense of the enforcement action: one hundred percent (100%) of the remaining amounts shall be retained by Cutia (provided that, such remaining amounts shall be treated as Net Sales); and

(iii) if Cutia is the enforcing Party and Foamix elects to join the enforcement action and share the cost and expense of the enforcement action: fifty percent (50%) of the remaining amounts shall be retained by Cutia, and fifty percent (50%) of the remaining amounts shall be paid to Foamix.

For clarity, Foamix shall retain all amounts recovered under any suit or action with respect to Infringement of any Foamix Licensed Patent in the Foamix Territory.

9.5 Third Party Infringement Claims. If the Development, Manufacture, or Commercialization of any Licensed Product in the Field in the Cutia Territory pursuant to this Agreement results in a claim, suit or proceeding alleging patent infringement against Foamix or Cutia (or their respective Affiliates, licensees or sublicensees) (collectively, “Third Party Infringement Actions”), such Party shall promptly notify the other Party hereto in writing. Foamix may direct and control the defense of such Third Party Infringement Action, at its own expense with counsel of its choice; provided, however, that Cutia may participate in the defense and settlement thereof, at its own expense with counsel of its choice. In any event, Foamix shall keep Cutia reasonably informed of all material developments in connection with any such Third

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Party Infringement Action for which Foamix exercises its right to direct and control the defense. Foamix agrees not to settle such Third Party Infringement Action, or make any admissions or assert any position in such Third Party Infringement Action, in a manner that would materially adversely affect the rights or interests of Cutia, without the prior written consent of Cutia, which shall not be unreasonably withheld or delayed. If Foamix does not exercise its right to direct and control the defense of a Third Party Infringement Action that is brought against Cutia, then Cutia may exercise such right and it shall keep Foamix reasonably informed of all material developments in connection with such Third Party Infringement Action, and it shall not settle such Third Party Infringement Action, or make any admissions or assert any position in such Third Party Infringement Action, in a manner that would materially adversely affect the rights or interests of Foamix, without the prior written consent of Foamix, which shall not be unreasonably withheld or delayed.

9.6 Trademarks.

(a) Foamix shall own and retain all right, title, and interest in and to all trademarks associated with any Licensed Product that are owned or Controlled by Foamix worldwide (each, a “Licensed Mark”). Foamix shall register and maintain all Licensed Marks at Foamix cost and expense, and all goodwill in any such Licensed Mark shall accrue to Foamix. Foamix hereby grants Cutia an exclusive (even as to Foamix), sublicensable right to use all Licensed Marks to Develop, Commercialize, and Manufacture Licensed Products in the Field in the Cutia Territory. Cutia shall, and shall ensure that its Affiliates and its and their respective sublicensees, use the Licensed Marks solely in connection with the Development, Commercialization, and Manufacture of Licensed Products in the Field in the Cutia Territory. For clarity, Foamix has no obligation to register or maintain any trademark in the Cutia Territory.

(b) Cutia may brand Licensed Products in the Cutia Territory using trademarks, logos, and trade names it determines appropriate for Licensed Products, which may vary by Region or within a Region (the “ProductMarks”). Cutia shall own all rights in the Product Marks in the Cutia Territory and shall register and maintain the Product Marks in the Cutia Territory that it determines reasonably necessary, at Cutia’s cost and expense. Cutia shall consult with Foamix and consider Foamix’s comments in good faith in the selection and design of the Product Marks.

(c) During the Term, Cutia may request in writing a transfer of ownership of any Licensed Mark in the Cutia Territory from Foamix to Cutia. Foamix shall review such request in good faith, and within thirty (30) days of receipt of Cutia’s request to transfer ownership of such Licensed Mark, Foamix may, at its sole discretion, approve such request and submit to Cutia a written invoice for all past preparation, filing, prosecution, and maintenance costs incurred by Foamix with respect to such approved Licensed Mark. Cutia shall pay the invoiced amount to Foamix within thirty (30) days of receipt of such invoice. Upon full payment of the invoiced amount pursuant to this Section 9.6(b), Foamix hereby transfers and assigns all its right, title, and interest in and to such Licensed Mark in the Cutia Territory to Cutia.

(d) Notwithstanding anything to the contrary, to the extent required by Law, (i) Cutia may include Foamix’s name and corporate logo on the Licensed Product label,

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packaging, promotional/marketing materials to indicate that the Licensed Product is in-licensed from Foamix, and shall display Foamix’s name and corporate logo with equal prominence and comparable size, resolution, print quality, and location, as instructed by Foamix from time to time, as Cutia’s name and corporate logo is displayed, and (ii) Foamix hereby grants to Cutia a non-exclusive, fully paid-up, royalty free, sublicensable license to use Foamix’s name and corporate logo for the Commercialization of the Licensed Product in the Cutia Territory to the extent consistent with this Section 9.6(d).

ARTICLE 10

REPRESENTATIONS AND WARRANTIES; COVENANTS

10.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party, as follows:

(a) Corporate Existence. As of the Effective Date, it is a company or corporation duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated;

(b) Corporate Power, Authority and Binding Agreement. As of the Effective Date, (i) it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; (ii) it has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and (iii) this Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally;

(c) No Conflict. The execution and delivery of this Agreement, the performance of such Party’s obligations in the conduct of the Development Plan and the license granted pursuant to this Agreement (i) do not and will not conflict with or violate any requirement of Law existing as of the Effective Date; (ii) do not and will not conflict with or violate the certificate of incorporation or by-laws (or other constating documents) of such Party; and (iii) do not and will not conflict with, violate, breach or constitute a material default under any contractual obligations of such Party or any of its Affiliates existing as of the Effective Date;

(d) No Violation. Neither such Party nor any of its Affiliates is under any obligation to any Person, contractual or otherwise, that is in violation of the terms of this Agreement or that would impede the fulfillment of such Party’s obligations hereunder;

(e) No Debarment. Neither such Party nor any of its Affiliates is debarred or disqualified under the Act or comparable Laws outside the U.S.; and

(f) No Consents. No authorization, consent, approval of a Third Party, nor to such Party’s knowledge, any license, permit, exemption of or filing or registration with or notification to any court or Governmental Authority is or will be necessary for the (i) valid

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execution and delivery of this Agreement by such Party; or (ii) the consummation by such Party of the transactions contemplated hereby.

10.2 Additional Representations and Warranties of Foamix. Foamix represents and warrants to Cutia, as of the Effective Date, as follows:

(a) Title; Encumbrances. (i) It has sufficient legal or beneficial title or ownership or license, free and clear from any mortgages, pledges, liens, security interests, conditional and installment sale agreement, encumbrances, charges or claim of any kind, of the Foamix Technology to grant the licenses to Cutia as purported to be granted pursuant to this Agreement; (ii) to Foamix’s knowledge, no Third Party has taken any action before the United States Patent and Trademark Office or a court, or any counterpart thereof outside the U.S., claiming legal or beneficial title or ownership or license of any Foamix Technology; and (iii) it has not received any written notice from any Third Party claiming legal or beneficial title or ownership or license of any Foamix Technology;

(b) Compliance. To Foamix’s knowledge, Foamix has complied in all respects with and is not in breach, violation or noncompliance of any applicable Laws with respect to its ownership, use, or Manufacture of the Licensed Products. To Foamix’s knowledge, no employee of Foamix has breached any non-use or confidentiality obligations under any agreement with his or her respective prior employers, or has otherwise misappropriated any trade secret or confidential information of such prior employers, in each case relating to the Foamix Technology;

(c) Intellectual Property Rights. The Foamix Technology includes all intellectual property rights Controlled by Foamix that (i) are necessary or reasonably useful for the Development or Commercialization of the Licensed Product by Cutia in the Cutia Territory in accordance with the terms of this Agreement as contemplated on the Effective Date or (ii) were generated, developed, conceived, reduced to practice (constructively or actually) or used by or on behalf of Foamix or its Affiliates in the Development or Commercialization of Licensed Product.

(d) The Information that Foamix has disclosed to Cutia, together with the Foamix Licensed Know-How set forth in Exhibit B, constitute all material Information (other than CMC Information) in its or its Affiliates’ possession regarding the Foamix Technology and Licensed Products (including all clinical trial and safety data, databases and analyses);

(e) To Foamix’s knowledge (without any inquiry or requirement to conduct any freedom-to-operate patent search), (i) the Development of Amzeeq™ in the manner contemplated by the Initial Development Plan and (ii) the Commercialization of Amzeeq™ in the same manner as Amzeeq™ is commercialized by Foamix in the U.S., in each case of (i) and (ii) does not infringe or misappropriate any intellectual property rights of any Third Party in the Cutia Territory.

(f) Notice of Infringement or Misappropriation. To Foamix’s knowledge, the Development, Manufacture and Commercialization of the Licensed Products ongoing as of

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the Effective Date does not infringe or misappropriate any intellectual property rights of any Third Party in the Foamix Territory. It has not received any written notice from any Third Party asserting or alleging that (i) any research, development, manufacture, or commercialization of a Licensed Product by Foamix prior to the Effective Date infringed or misappropriated the intellectual property rights of such Third Party, or (ii) the Development, Manufacture, or Commercialization of the Licensed Products in the Cutia Territory would infringe or misappropriate the intellectual property rights of such Third Party;

(g) Non-Infringement of Rights by Third Parties. To Foamix’s knowledge, no Third Party is infringing or misappropriating, or has infringed or misappropriated the Foamix Technology as of the Effective Date;

(h) No Proceeding. There is no pending, and to Foamix’s knowledge, no threatened, adverse action, suit or proceeding against Foamix involving any Foamix Technology or a Licensed Product;

(i) No Conflicts. Foamix has not entered, and shall not enter, into any agreement with any Third Party that is in conflict with the rights granted to Cutia under this Agreement, and has not taken and shall not take any action that would in any way prevent it from granting the rights granted to Cutia under this Agreement, or that would otherwise materially conflict with or adversely affect Cutia’s rights under this Agreement;

(j) Foamix hereby covenants to Cutia that neither Foamix nor any of its Affiliates or it or their respective contractors will employ or use the services of any Person who is debarred or disqualified under the Act, or comparable Laws outside the U.S., in connection with activities relating to any Licensed Product; and in the event that Foamix becomes aware of the debarment or disqualification or threatened debarment or disqualification of any Person providing services to Foamix or any of its Affiliates with respect to any activities relating to any Licensed Product, Foamix will immediately notify Cutia in writing and Foamix will cease, or cause its Affiliate or it or their respective contractors to cease (as applicable), employing, contracting with, or retaining any such Person to perform any services relating to any Licensed Product; and

(k) Foamix hereby covenants to Cutia that neither Foamix nor any of its Affiliates, nor any of their respective employees, agents or contractors shall use any confidential information obtained from any Third Party (including any prior employer), directly or indirectly, whether obtained prior to the Effective Date or during the Term, in connection with activities performed under this Agreement, and Foamix shall be solely responsible and liable for, and shall indemnify Cutia pursuant to Section 11.1 in connection with, any breach of this covenant by Foamix, any of its Affiliates, or their respective employees, agents or contractors.

10.3 Additional Representations, Warranties and Covenants of Cutia.

(a) Cutia represents and warrants to Foamix that, as of the Effective Date, to Cutia’s knowledge as of the Effective Date, Cutia does not Control any Patent that is necessary to make, use, import, offer for sale or sell Licensed Products.

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(b) Cutia hereby covenants to Foamix that neither Cutia nor any of its Affiliates or it or their respective sublicensees will employ or use the services of any Person who is debarred or disqualified under the Act, or comparable Laws outside the U.S., in connection with activities relating to any Licensed Product; and in the event that Cutia becomes aware of the debarment or disqualification or threatened debarment or disqualification of any Person providing services to Cutia or any of its Affiliates with respect to any activities relating to any Licensed Product, Cutia will immediately notify Foamix in writing and Cutia will cease, or cause its Affiliate or it or their respective sublicensee to cease (as applicable), employing, contracting with, or retaining any such Person to perform any services relating to any Licensed Product.

(c) Cutia hereby covenants to Foamix that neither Cutia nor any of its Affiliates, or its or their sublicensees, shall exploit in any manner any Licensed Product outside of the scope of the licenses expressly granted to Cutia under this Agreement.

(d) Cutia hereby covenants to Foamix that neither Cutia nor any of its Affiliates, nor any of their respective employees, agents or contractors shall use any confidential information obtained from any Third Party (including any prior employer), directly or indirectly, whether obtained prior to the Effective Date or during the Term, in connection with activities performed under this Agreement, and Cutia shall be solely responsible and liable for, and shall indemnify Foamix pursuant to Section 11.2 in connection with, any breach of this covenant by Cutia, any of its Affiliates, or their respective employees, agents or contractors.

10.4 Compliance with Laws.

(a) Each Party shall, and shall ensure that its Affiliates and their respective sublicensees will, comply in all respects with Anti-Corruption Laws, Proper Conduct Practices and all Law in the Development, Manufacturing, and Commercialization of Licensed Products and performance of its obligations under this Agreement, including the ICH, GCP, GLP and any Regulatory Authority and Governmental Authority health care programs having jurisdiction in such Party’s respective territory, each as may be amended from time to time.

(b) Each Party shall immediately notify the other Party if it has any information or suspicion that there may be a violation of any Laws (including Anti-Corruption Laws) in connection with its performance under this Agreement or the Development or Commercialization of any Licensed Product hereunder. In the event that either Party has violated or been suspected of violating any of its obligations, representations, warranties or covenants in Section 10.4(a), such Party will take reasonable actions to remedy such breach and to prevent further such breaches from occurring.

(c) Notwithstanding the foregoing, each Party will have the right, upon reasonable prior written notice and during the other Party’s regular business hours, to audit the other Party’s books and records in the event that a suspected violation of any Anti-Corruption Law needs to be investigated (in such Party’s reasonable, good-faith discretion). Such audit shall be conducted by such Party’s audit team comprised of qualified auditors who have received anticorruption training.For clarity, a credible finding, after a reasonable investigation, of any breach of Section 10.4(a) or 10.4(b) with respect to any Anti-Corruption Law, shall be deemed a

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material breach of this Agreement and allow the non-breaching Party to terminate this Agreement in accordance with Section 13.4.

10.5 No Other Representations or Warranties. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS, ARE MADE OR GIVEN BY OR ON BEHALF OF A PARTY OR ITS AFFILIATES, AND ALL REPRESENTATIONS AND WARRANTIES, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, ARE HEREBY EXPRESSLY EXCLUDED. FOR CLARITY AND WITHOUT LIMITING THE FOREGOING, FOAMIX MAKES NO REPRESENTATION OR WARRANTY CONCERNING THE LICENSED PRODUCTS OR FOAMIX TECHNOLOGY EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 10.

ARTICLE 11

INDEMNIFICATION

11.1 Indemnification by Foamix. Foamix shall defend, indemnify, and hold Cutia and its Affiliates and their respective officers, directors, employees, and agents (the “Cutia Indemnitees”) harmless from and against any and all losses, damages, liabilities, expenses and costs, including reasonable legal expense and attorneys’ fees (“Losses”) to which any Cutia Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party (collectively, “Claims”) arising out of, based on, or resulting from (a) the Development, Manufacture, or Commercialization of Licensed Products in the Foamix Territory (except to the extent that any such activities are conducted by or on behalf of Cutia or its Affiliates as permitted under this Agreement), (b) the breach of any of Foamix’s obligations under this Agreement, including Foamix’s representations, warranties or covenants set forth herein, or (c) the willful misconduct or negligent acts of any Foamix Indemnitee. The foregoing indemnity obligation shall not apply to the extent that (i) the Cutia Indemnitees fail to comply with the indemnification procedures set forth in Section 11.3 and Foamix’s defense of the relevant Claim is materially prejudiced by such failure, or (ii) any Claim arises from, is based on, or results from any activity or occurrence for which Cutia is obligated to indemnify the Foamix Indemnitees under Section 11.2.

11.2 Indemnification by Cutia. Cutia shall defend, indemnify, and hold Foamix and its Affiliates and their respective officers, directors, employees, and agents (the “Foamix Indemnitees”) harmless from and against any and all Losses to which any Foamix Indemnitee may become subject as a result of any Claims arising out of, based on, or resulting from (a) the Development, Manufacture, or Commercialization of Licensed Products by or on behalf of Cutia or its Affiliates or sublicensees on or after the Effective Date (except to the extent that any such activities are conducted by or on behalf of Foamix or its Affiliates as permitted under this Agreement) (including any Third Party Infringement Actions), (b) the breach of any of Cutia’s obligations under this Agreement, including Cutia’s representations, warranties, or covenants set forth herein, (c) actions taken by Cutia as Foamix’s local regulatory agent in the Cutia Territory,

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or (d) the willful misconduct or negligent acts of any Cutia Indemnitee. The foregoing indemnity obligation shall not apply to the extent that (i) the Foamix Indemnitees fail to comply with the indemnification procedures set forth in Section 11.3 and Cutia’s defense of the relevant Claim is materially prejudiced by such failure, or (ii) any Claim arises from, is based on, or results from any activity or occurrence for which Foamix is obligated to indemnify the Cutia Indemnitees under Section 11.1.

11.3 Indemnification Procedures. The Party claiming indemnity under this Article 11 (the “Indemnified Party”) shall give written notice to the Party from whom indemnity is being sought (the “Indemnifying Party”) promptly after learning of such Claim and shall offer control of the defense of such Claim to the Indemnifying Party. The Indemnified Party shall provide the Indemnifying Party with reasonable assistance, at the Indemnifying Party’s expense, in connection with the defense of the Claim for which indemnity is being sought. The Indemnified Party may participate in and monitor such defense with counsel of its own choosing at its sole expense; provided, however, the Indemnifying Party may assume and conduct the defense of the Claim with counsel of its choice. The Indemnifying Party shall not settle any Claim without the prior written consent of the Indemnified Party, not to be unreasonably withheld, unless the settlement involves only the payment of money. So long as the Indemnifying Party is actively defending the Claim in good faith, the Indemnified Party shall not settle or compromise any such Claim without the prior written consent of the Indemnifying Party. If the Indemnifying Party does not assume and conduct the defense of the Claim as provided above, (a) the Indemnified Party may defend against, consent to the entry of any judgment, or enter into any settlement with respect to such Claim in any manner the Indemnified Party may deem reasonably appropriate (and the Indemnified Party need not consult with, or obtain any consent from, the Indemnifying Party in connection therewith), and (b) the Indemnifying Party shall remain responsible to indemnify the Indemnified Party as provided in this Article 11. Notwithstanding anything contained in the foregoing to the contrary, the provisions of Section 9.5 shall govern the defense of any Third Party Infringement Actions. Additionally, in the event that Foamix has elected to defend any such Third Party Infringement Action, then Cutia shall not be obligated to indemnify Foamix for any Claims related to such Third Party Infringement Action; rather, the Parties shall share such Claims equally.

11.4 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT WILL EITHER PARTY’S TOTAL LIABILITY UNDER THIS AGREEMENT EXCEED THE AMOUNT PAID OR PAYABLE BY CUTIA TO FOAMIX UNDER THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 11.4 IS INTENDED TO OR SHALL LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF ANY PARTY UNDER SECTION 11.1 OR 11.2, A PARTY’S GROSSLY NEGLIGENT OR INTENTIONAL BREACH OF THIS AGREEMENT, OR DAMAGES AVAILABLE FOR A PARTY’S BREACH OF ITS EXCLUSIVITY OBLIGATIONS IN SECTION 2.6 OR ITS CONFIDENTIALITY OBLIGATIONS IN SECTION 12.

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11.5 Insurance. Each Party shall procure and maintain insurance, including product liability insurance, adequate to cover its obligations hereunder and consistent with normal business practices of prudent companies similarly situated. Such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 11. Each Party shall provide the other Party with written evidence of such insurance upon request. Each Party shall provide the other Party with written notice at least thirty (30) days prior to the cancellation, nonrenewal or material change in such insurance.

ARTICLE 12

CONFIDENTIALITY

12.1 Confidentiality. Each Party agrees that, during the Term and for a period of ten (10) years thereafter, it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement (which includes the exercise of any rights or the performance of any obligations hereunder or thereunder) any Confidential Information of the other Party, except to the extent expressly agreed in writing by the Parties. The foregoing confidentiality and non-use obligations shall not apply to any portion of the other Party’s Confidential Information that the receiving Party can demonstrate by competent written proof:

(a) was already known to the receiving Party or its Affiliate, other than under an obligation of confidentiality, at the time of disclosure by the other Party;

(b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

(c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party or its Affiliate in breach of this Agreement;

(d) was disclosed to the receiving Party or its Affiliate without any confidentiality obligations by a Third Party who, to the Party’s knowledge, had a legal right to make such disclosure and who did not obtain such information directly or indirectly from the other Party; or

(e) was independently discovered or developed by the receiving Party or its Affiliate without use of or reference to the other Party’s Confidential Information, as evidenced by a contemporaneous writing.

For purposes of this Section 12.1(b)–(c), Confidential Information disclosed under this Agreement shall not be deemed to be within such exceptions unless such information is readily accessible to the public in a written publication, and such exceptions shall not include information the substance of which must be pieced together from a number of different publications or other sources.

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12.2 Authorized Disclosure. Notwithstanding the obligations set forth in Section 12.1, a Party may disclose the other Party’s Confidential Information and the terms of this Agreement to the extent:

(a) such disclosure is reasonably necessary (i) for the filing or prosecuting of Patent rights as contemplated herein; (ii) to comply with the requirements of Regulatory Authorities with respect to obtaining and maintaining Regulatory Approval of Licensed Product; or (iii) for the prosecuting or defending litigation as contemplated herein;

(b) such disclosure is reasonably necessary to its or its Affiliate’s employees, agents, consultants, contractors, licensees or sublicensees on a need-to-know basis for the sole purpose of performing its obligations or exercising its rights hereunder; provided that in each case, the disclosees are bound by written obligations of confidentiality consistent with those contained in this Agreement;

(c) such disclosure is reasonably necessary to any bona fide potential or actual investor, acquiror, merger partner, or other financial or commercial partner for the sole purpose of evaluating or carrying out an actual or potential investment, acquisition or other business relationship; provided that in connection with such disclosure, such Party shall inform each disclosee of the confidential nature of such Confidential Information and require each disclosee to treat such Confidential Information as confidential; or

(d) such disclosure is reasonably necessary to comply with Laws, including regulations or rules promulgated by applicable securities commissions (or other securities regulatory authorities), security exchanges, court order, administrative subpoena or order.

Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party’s Confidential Information pursuant to Section 12.2(a) or 12.2(d), such Party shall promptly notify the other Party of such required disclosure, to the extent that it is legally authorized or permitted to so, and shall use reasonable efforts to obtain, or to assist the other Party in obtaining, a protective order preventing or limiting the required disclosure.

12.3 Publicity; Terms of Agreement.

(a) The Parties agree that the terms of this Agreement are the Confidential Information of both Parties, subject to the special authorized disclosure provisions set forth in this Section 12.3.

(b) The Parties have agreed upon in principle the initial press release to announce the execution of this Agreement in substantially the form attached hereto as Exhibit E, which shall be finalized upon mutual agreement by the Parties before release. After such initial press release, if either Party desires to make a public disclosure concerning the terms of this Agreement, such Party shall give reasonable prior advance notice of the proposed text of such disclosure to the other Party for its prior review and approval (except as otherwise provided herein), which approval shall not be unreasonably withheld, conditioned, or delayed. A Party commenting on such a proposed disclosure shall provide its comments, if any, within ten (10)

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Business Days after receiving the proposed disclosure for review (or such shorter period of time as necessitated by regulatory requirements). Each Party may make a press release or other public disclosure regarding the achievement of the milestone, the achievements of Regulatory Approval in the Cutia Territory as they occur or the occurrence of other events that affect either Party’s rights or obligations under this Agreement, in each case subject only to the review procedure set forth in the preceding sentences. In relation to the other Party’s review of such an announcement, such other Party may make specific, reasonable comments on such proposed press release within the prescribed time for commentary. Neither Party is required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement that has already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 12.3.

(c) Either or both Parties or their Affiliates may be obligated to file under Laws a copy of this Agreement with Governmental Authorities, including the U.S. Securities and Exchange Commission (the “SEC”). Each Party and its Affiliates may make such a required filing, provided that it requests confidential treatment of the commercial terms and sensitive technical terms hereof and thereof to the extent such confidential treatment is reasonably available. In the event of any such filing, each Party will provide the other Party with a copy of this Agreement marked to show provisions for which such Party or its Affiliate intends to seek confidential treatment and shall reasonably consider and incorporate the other Party’s timely comments thereon to the extent consistent with the legal requirements, with respect to the filing Party or Affiliate, governing disclosure of material agreements and material information that must be publicly filed.

(d) Each Party may disclose the existence and terms of this Agreement to bona fide potential or actual investors, advisors, lenders, and research collaborators, provided each such entity is bound by confidentiality obligations no less stringent than this Article 12.

12.4 Technical Publication. Cutia may not publish peer reviewed manuscripts, or provide other forms of public disclosure, including abstracts and presentations, of results of studies carried out under the Development Plan, or otherwise pertaining to the Licensed Products or Foamix Licensed Know-How, without the prior written consent of Foamix.

12.5 Equitable Relief. Each Party acknowledges that its breach of this Article 12 will cause irreparable harm to the other Party, which cannot be reasonably or adequately compensated in damages in an action at law. By reasons thereof, each Party agrees that the other Party shall be entitled, in addition to any other remedies it may have under this Agreement or otherwise, to seek preliminary and permanent injunctive and other equitable relief to prevent or curtail any actual or threatened breach of the obligations relating to Confidential Information set forth in this Article 12 by the other Party.

ARTICLE 13

TERM AND TERMINATION

13.1 Term. The term of this Agreement shall commence upon the Effective Date and, unless earlier terminated pursuant to this Article 13, shall remain in effect until the expiration of the Royalty Term of the last Licensed Product on a Region-by-Region basis (the “Term”). Upon

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the expiration (but not early termination) of this Agreement for all Licensed Products in a Region, the licenses granted hereunder by Foamix to Cutia shall become non-exclusive, fully paid-up, royalty-free, and perpetual for such Region.

13.2 Termination by Cutia. Cutia may terminate this Agreement in its entirety (a) at any time for convenience upon ninety (90) days’ prior written notice given to Foamix, or (b) upon prior written notice given to Foamix if a Regulatory Authority in the Cutia Territory has ordered Cutia to stop all sales of Licensed Products in the Cutia Territory due to a safety concern; provided, however, that Cutia has, for a period of ninety (90) days prior to the provision of such notice by Cutia, used Commercially Reasonable Efforts to resolve such safety concern.

13.3 Termination by Foamix. Foamix may terminate this Agreement in its entirety upon sixty (60) days’ prior written notice to Cutia, if Cutia or its Affiliates or their respective sublicensees (directly or indirectly, individually or in association with any other Person) challenges the validity, enforceability or scope of any Foamix Licensed Patentin a litigation or other court proceeding, unless during such sixty (60)-day period the subject challenge is permanently dismissed or withdrawn and is not thereafter reinstituted or continued; provided that in the event Cutia’s sublicensee initiates such challenge, Foamix may not terminate this Agreement if (i) Cutia successfully causes such sublicensee to withdraw such challenge within such sixty (60)-day period, or (ii) Cutia successfully terminates such sublicense and provides written evidence of such termination to Foamix within such sixty (60)-day period.

13.4 Termination for Breach. Each Party may terminate this Agreement in its entirety immediately upon written notice to the other Party if the other Party materially breaches its obligations under this Agreement and, after receiving written notice identifying such material breach in reasonable detail, fails to cure such material breach within sixty (60) days from the date of such notice; provided that, such cure period shall be extended for up to an additional sixty (60) days upon the breaching Party providing a written plan that reasonably demonstrates the need for such additional time and continuing to use Commercially Reasonable Efforts to cure such breach. If either Party disputes (a) whether such material breach has occurred, or (b) whether the defaulting Party has cured such material breach, the Parties shall promptly resolve the Dispute under Article 14. During the pendency of such a Dispute, all of the terms and conditions of this Agreement remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.

13.5 Termination Due to Bankruptcy. Either Party may terminate this Agreement if, at any time, the other Party files in any court or agency pursuant to any statute or regulation of any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of that Party or of its assets, or if the other Party proposes a written agreement of composition or extension of its debts, or if the other Party is served with an involuntary petition against it, filed in any insolvency proceeding, and such petition is not dismissed within sixty (60) days after the filing thereof, or if the other Party proposes or becomes a Party to any dissolution or liquidation, or if the other Party makes an assignment for the benefit of its creditors.

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13.6 Effect of Termination. Upon any termination of this Agreement, the following shall apply (in addition to any other rights and obligations under this Agreement with respect to such termination):

(a) Licenses. All licenses and other rights granted by Foamix to Cutia under this Agreement shall terminate, including all sublicenses granted by Cutia unless such sublicenses are assumed by Foamix pursuant to Section 2.1(c), which shall survive such termination.

(b) Wind-Down. Cutia shall (i) responsibly wind-down, in accordance with accepted pharmaceutical industry norms and ethical practices, any on-going clinical studies for which it has responsibility hereunder in which patient dosing has commenced and (ii) at Foamix’s written election, (A) transfer to Foamix or its designee any such clinical studies to the extent permitted under Laws and accepted pharmaceutical industry norms and ethical practices, or (B) if reasonably practicable and not adverse to patient safety, complete such trials and Foamix shall reimburse Cutia its reasonable, out-of-pocket costs associated therewith. For clarity, except as provided for above, Cutia may transfer to Foamix or its designee or wind-down any ongoing clinical trials prior to the date of termination in accordance with accepted pharmaceutical industry norms and ethical practices and Cutia will be responsible for any costs associated with such transfer or wind-down.

(c) Regulatory Materials; Data. Unless this Agreement is terminated by Cutia pursuant to Section 13.4 or Section 13.5, Cutia shall (i) provide and assign to Foamix or its designee all Regulatory Materials, including Regulatory Approvals, for the Licensed Products to the extent possible under Law in the Cutia Territory, (ii) promptly provide and assign to Foamix all Data, including pharmacovigilance data, generated by or on behalf of Cutia, and (iii) promptly return or destroy (and certify such destruction in writing), at Foamix’s election, all Confidential Information of Foamix.

(d) Transition Assistance. Upon Foamix’s reasonable request, (i) Cutia shall provide such assistance as may be reasonably necessary or useful for Foamix to continue the Development, Manufacture, and Commercialization of Licensed Products in the Cutia Territory, to the extent Cutia or its Affiliate is then performing or having performed such activities, including upon the reasonable request of Foamix, assigning (or using Commercially Reasonable Efforts to amend as appropriate) any agreements or arrangements Cutia or its Affiliate have with any Third Party for the Development, Manufacture, distribution, or Commercialization of Licensed Products; and (ii) Cutia shall provide Foamix with copies of any promotional and marketing materials generated by or on behalf of Cutia with respect to Licensed Products prior to the effective date of termination. Cutia shall reimburse Foamix’s costs and expenses in connection with such transition assistance, unless this Agreement is terminated by Cutia pursuant to Section 13.4 or Section 13.5.

(e) Inventory. In the event that this Agreement is terminated in its entirety, Foamix may purchase any and all of the inventory of Licensed Products held by Cutia or its Affiliates or sublicensees as of the date of termination, at a price equal to the transfer price paid by Cutia to Foamix for such inventory.

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(f) Intellectual Property.Unless this Agreement is terminated by Cutia pursuant to Section 13.4 or Section 13.5, with respect to all Patents, Product Marks, and other intellectual property rights Controlled by Cutia that are necessary for the Development, Manufacture, or Commercialization of Licensed Products prior to the effective date of termination, for good and valuable consideration, the receipt of which is hereby acknowledged, Cutia hereby grants to Foamix, effective upon the effective date of termination: (i) to the maximum extent permitted by Law, a worldwide, exclusive, perpetual, royalty-free license, with the right to sublicense through multiple tiers, under such Patents, Product Marks, and other intellectual property rights to make, have made, import, use, offer for sale, sell, or otherwise exploit the Licensed Products, and (ii) to the extent the foregoing exclusive license is not permitted by Law, a worldwide, non-exclusive, perpetual, royalty-free license, with the right to sublicense through multiple tiers, under such Patents, Product Marks, and other intellectual property rights to make, have made, import, use, offer for sale, sell, or otherwise exploit the Licensed Products.

13.7 Survival. Any expiration or termination of this Agreement shall not affect rights or obligations of the Parties under this Agreement that have accrued prior to the date of expiration or termination. Notwithstanding anything to the contrary, the following provisions shall survive any expiration or termination of this Agreement: Sections 2.4 (No Implied Licenses), 8.5 (Payment Method; Foreign Exchange), 8.6 (Interest on Late Payments), 8.7 (Records; Audits), 8.8 (Taxes), 9.1 (Ownership; License Grants), 10.5 (No Other Representations or Warranties), 13.6 (Effects of Termination), 13.7 (Survival), and 13.8 (Termination Not Sole Remedy), and Articles 1 (Definitions) (to the extent such terms are used in other surviving provisions), 11 (Indemnification) (to the extent the cause of action for such indemnification obligation arose prior to the effective date of expiration or termination), 12 (Confidentiality), 14 (Dispute Resolution), and 15 (Miscellaneous).

13.8 Termination Not Sole Remedy. Termination is not the sole remedy under this Agreement and, whether or not termination is effected and notwithstanding anything contained in this Agreement to the contrary, all other remedies shall remain available except as agreed to otherwise herein.

ARTICLE 14

DISPUTE RESOLUTION

14.1 Disputes; Internal Resolution. It is the objective of the Parties to establish procedures to facilitate the resolution of any and all disputes that may arise out of or in connection with this Agreement (each a “Dispute”) in an expedient manner by mutual cooperation. To accomplish this objective, the Parties agree that, except as otherwise provided in Section 3.3, in the event of such a Dispute, including any alleged breach under this Agreement or any issue relating to the interpretation or application of this Agreement, and the Parties are unable to resolve such Dispute within thirty (30) days after such Dispute is first identified by either Party in writing to the other, the Parties shall refer such Dispute to the Executive Officers for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. If the dispute is not resolved within such thirty (30) days, either Party may commence

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arbitration with respect to the subject matter of the Dispute and with respect to any other claims it may have and thereafter neither Party will have any further obligation under this Section 14.1. Any Dispute concerning the propriety of the commencement of the arbitration or the applicability of the Agreement to arbitrate shall be finally settled by the arbitral tribunal. Notwithstanding the foregoing, and without waiting for the expiration of any such thirty (30)-day periods, Foamix and Cutia may each apply to any court of competent jurisdiction for appropriate interim or provisional relief, as necessary to protect the rights or property of that Party.

14.2 Arbitration; Governing Law.

(a) Arbitration. Subject to Section 14.1, all Disputes, including existence, validity, interpretation, performance, breach or termination thereof, shall be submitted to and finally resolved by arbitration administered by the International Court of Arbitration of the International Chamber of Commerce (ICC) under the Rules of Arbitration of the International Chamber of Commerce (the “Rules”). The seat, or legal place, of arbitration shall be Hong Kong. The language of the arbitration shall be English. The arbitration shall be conducted by a tribunal of three (3) arbitrators. Each Party shall nominate one (1) arbitrator, and the two (2) party nominated arbitrators shall jointly nominate, within fifteen (15) days of the second arbitrator’s appointment, the third arbitrator who shall serve as the presiding arbitrator and shall be of neutral nationality. Each arbitrator must have significant business or legal experience in the pharmaceutical business. An arbitrator shall be deemed to meet this qualification unless a Party objects within ten (10) days after the arbitrator is nominated. The Parties shall engage in discovery of information and evidence that is or might be relevant to the claims, defenses, and issues in the Dispute, including by means of discovery in the form of requests for documents (including electronically stored information). After conducting any hearing and taking any evidence deemed appropriate for consideration, the arbitrators shall render their award within six (6) months of the final arbitration hearing or the final post-hearing submissions unless the Parties jointly request an extension, or the arbitral tribunal determines in a reasoned decision that the interest of justice or the complexity of the case requires that such a limit be extended. The arbitral tribunal shall not have the power to award damages excluded pursuant to Section 11.4 of this Agreement, and any arbitral award that purports to award such damages is expressly prohibited.

(b) Arbitral Award. The award shall be final and binding, and the Parties undertake to carry out the award without delay. Judgment on the award so rendered may be entered in any court of competent jurisdiction. Each Party shall bear one-half (½) of all ICC administrative costs and the fees and costs of the arbitrators. Notwithstanding the foregoing, each Party shall bear its own attorneys’ fees, expert or witness fees, and any other fees and costs, and no such fees or costs will be shifted to the other Party. The existence and content of the arbitral proceedings and any rulings or awards shall be kept confidential by the Parties and members of the arbitral tribunal except (i) to the extent that disclosure may be required of a party to fulfill a legal duty, protect or pursue a legal right, or enforce or challenge an award in bona fide legal proceedings before a state court or other judicial authority, (ii) with the consent of all Parties, (iii) where needed for the preparation or presentation of a claim or defense in this arbitration, (iv)

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where such information is already in the public domain other than as a result of a breach of this clause, or (v) by order of the arbitral tribunal upon application of a Party.

(c) Governing Law. This Agreement and all Disputes shall be governed by and construed in accordance with the laws of the State of New York, USA, without giving effect to any choice of law rules or principles.

ARTICLE 15

MISCELLANEOUS

15.1 Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior and contemporaneous agreements and understandings between the Parties with respect to the subject matter hereof, including the Confidentiality Agreement. The foregoing shall not be interpreted as a waiver of any remedies available to either Party as a result of any breach, prior to the Effective Date, by the other Party of its obligations under the Confidentiality Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth in this Agreement. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

15.2 Force Majeure. Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued only for so long as (a) the condition constituting force majeure continues and (b) the nonperforming Party takes all reasonable efforts to remove the condition. For purposes of this Agreement, force majeure includes conditions beyond the reasonable control of the applicable Party, which may include an act of God, war, civil commotion, terrorist act, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe, action or inaction of any Governmental Authority, and failure of plant or machinery. Notwithstanding the foregoing, a Party shall not be excused from making payments owed hereunder because of a force majeure affecting such Party. If a force majeure persists for more than ninety (90) days, then the Parties will discuss in good faith the modification of the Parties’ obligations under this Agreement in order to mitigate the delays caused by such force majeure.

15.3 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 15.3, and shall be deemed to have been given for all purposes (a) when received, if hand-delivered or a reputable courier service, (b) five (5) Business

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Days after mailing, if mailed by first class certified or registered airmail, postage prepaid, return receipt requested, (c) or upon receipt if sent by electronic mail, provided that such notice is also sent by a reputable courier service or first class certified or registered airmail, postage prepaid, return receipt requested.

If to Foamix:    Foamix Pharmaceuticals Ltd.

2 Holzman Street,

Rehovot Science Park

Rehovot Israel

Attn: General Counsel

with copies to (which shall not constitute notice):

        Cooley LLP

11951 Freedom Drive #1500

        Reston, VA 20190

        Attn: Kenneth Krisko

If to Cutia:    Cutia Therapeutics (HK) Limited

        UNIT 402, 4/F FAIRMONT HSE

NO 8 COTTON TREE DRIVE ADMIRALTY

HONG KONG

Attn: CEO

with copies to (which shall not constitute notice):

Greenberg Traurig LLP

One International Place, Suite 2000

Boston, MA 02110

Attention: Fang Xie

15.4 No Strict Construction; Headings. This Agreement has been prepared jointly by the Parties and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. The headings of each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section. Except where the context otherwise requires, the use of any gender shall be applicable to all genders, and the word “or” is disjunctive but not necessarily exclusive. The term “including” as used herein means including, without limiting the generality of any description preceding such term.

15.5 Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other Party, except that either Party may make such an assignment, in whole or in part, without the other Party’s consent (a) to an Affiliate of such Party or (b) to a Third Party in connection with a Change of Control. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any

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assignment or attempted assignment by either Party in violation of the terms of this Section 15.5 shall be null, void and of no legal effect.

15.6 Performance by Affiliates. Each Party may discharge any obligations and exercise any right hereunder through any of its Affiliates. Each Party hereby guarantees the performance by its Affiliates of such Party’s obligations under this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any obligation to first proceed against such Party’s Affiliate.

15.7 Further Actions. Each Party shall execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

15.8 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

15.9 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

15.10 Independent Contractors. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give either Party the power or authority to act for, bind, or commit the other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties.

15.11 English Language. This Agreement was prepared in the English language, which language shall govern the interpretation of, and any dispute regarding, the terms of this Agreement.

15.12 Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.The signatures of all the Parties do not need to be on the same counterpart for it to be effective. Delivery of an executed counterpart’s signature page of this Agreement, by electronic mail in portable document format (.pdf) or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, has the same effect as delivery of an executed original of this Agreement.

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15.13 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by one Party to the other Party are, and otherwise will be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code or comparable provision of applicable bankruptcy or insolvency laws, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code or comparable provision of applicable bankruptcy or insolvency laws. Each Party will retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or comparable provision of applicable bankruptcy or insolvency laws. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against a Party to this Agreement under the U.S. Bankruptcy Code or comparable provision of applicable bankruptcy or insolvency laws, the other Party will be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in its possession, will be promptly delivered to it (i) upon any such commencement of a bankruptcy or insolvency proceeding upon its written request therefor, unless the bankrupt Party elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, following the rejection of this Agreement by or on behalf of the bankrupt Party upon written request therefor by the other Party.

{Signature Page Follows}

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In Witness Whereof, the Parties have executed this License Agreement in duplicate originals by their duly authorized officers as of the Effective Date.

Foamix Pharmaceuticals Ltd. By:/s/ David Domzalski Name: David Domzalski Title: Chief Executive Officer Cutia Therapeutics (HK) Limited By: /s/ Chung Sau Yin Name: Chung Sau Yin Title: Director

By:/s/ David Domzalski By: /s/ Chung Sau Yin

Name: David Domzalski Name: Chung Sau Yin 

Title: Chief Executive Officer Title: Director

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Exhibit A

Foamix Licensed Patents

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Exhibit B

Initial Transfer of Foamix Licensed Know-How

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Exhibit 10.1

Exhibit C

Initial Development Plan

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Exhibit 10.1

Exhibit D

Supply Agreement Terms

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Exhibit E

Press Release

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EX-10.2

Exhibit 10.2

AMENDMENT NO. 1

TO AMENDED AND RESTATED

CREDIT AGREEMENT AND GUARANTY

This AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY, dated as of August 5, 2020 (this “Amendment”), is by and among Foamix Pharmaceuticals Inc., a Delaware corporation (the “Borrower”), Foamix Pharmaceuticals Ltd., an Israeli limited liability company (the “Israeli Guarantor”), Menlo Therapeutics Inc., a Delaware corporation (the “Parent Guarantor”), the Lenders signatory hereto (the “Lenders”), and Perceptive Credit Holdings II, LP, a Delaware limited partnership, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, “Administrative Agent”). Reference is made to the Amended and Restated Credit Agreement and Guaranty, dated as of March 9, 2020, among the Borrower, the Israeli Guarantor, the Parent Guarantor, certain subsidiaries of the Parent Guarantor from time to time party thereto, the Lenders from time to time party thereto and the Administrative Agent (the “Credit Agreement”). Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement, as amended by this Amendment (the “Amended Credit Agreement”).

RECITALS

A. WHEREAS, the Borrower has requested that the Administrative Agent and Majority Lenders agree to certain amendments and modifications of Section 10.02 of the Credit Agreement;

B.  WHEREAS, the Lenders party hereto constitute Majority Lenders; and

C. WHEREAS, the Administrative Agent and the Majority Lenders have agreed to allow for the amendments and modifications to Section 10.02 of the Credit Agreement set forth herein on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, the parties hereto hereby agree as follows:

ARTICLE I

AMENDMENTS TO CREDIT AGREEMENT

SECTION 1.01.Amendments to the Credit Agreement.  As of the Amendment Effective Date (as defined below), the Credit Agreement shall be amended as follows:

(a) The following new defined terms shall be added to Section 1.01 of the Credit Agreement and inserted in appropriate alphabetical order:

“Amendment No. 1” means that certain Amendment No. 1 to Amended and Restated Credit Agreement and Guaranty, dated as of August 5, 2020, by and among the Borrower, the Parent Guarantor, the Israeli Guarantor, the Administrative Agent and the Lenders party thereto.

“Amendment No. 1 Effective Date” means August 5, 2020.

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1271711.03-NYCSR01A - MSW

(b) Section 10.02 of the Credit Agreement is hereby deleted in its entirety and replaced by inserting the following new text:

10.02 Minimum Net Revenue. As of the last day of each fiscal quarter set forth below, the Parent Guarantor and its Subsidiaries, determined on a consolidated basis, shall have generated Net Revenue, for the twelve (12) consecutive month period ending on the last day of such fiscal quarter, in an aggregate amount not less than the corresponding amount set forth opposite such fiscal quarter:

Fiscal Quarter Ending	Revenue
December 31, 2020	$6,000,000
March 31, 2021	$10,500,000
June 30, 2021	$16,400,000
September 30, 2021	$25,800,000
December 31, 2021	$34,900,000
March 31, 2022	$43,500,000
June 30, 2022	$49,300,000
September 30, 2022	$53,400,000
December 31, 2022	$56,600,000
March 31, 2023	$59,900,000
June 30, 2023	$64,100,000
September 30, 2023	$72,000,000
December 31, 2023	$80,300,000
March 31, 2024	$88,800,000
June 30, 2024	$97,000,000

ARTICLE II

ACKNOWLEDGEMENT, AGREEMENT AND CONSENT AND

REPRESENTATIONS AND WARRANTIES

SECTION 2.01 Each Obligor confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Obligor under each Loan Document to which such Obligor is a party shall not be impaired and each Loan Document to which such Obligor is a party is, and shall continue to be, in full force and effect and is hereby confirmed and ratified in all respects.

SECTION 2.02 Each Obligor hereby acknowledges and agrees that the Guaranteed Obligations will include all Obligations under, and as defined in, the Amended Credit Agreement.

SECTION 2.03 To induce the Administrative Agent and the Lenders to execute and deliver this Amendment, each Obligor party hereto represents and warrants to the Administrative Agent and the Lenders party hereto that as of the date hereof, the following statements are true, correct and complete:

(a) the representations and warranties made by each Obligor party hereto in each Loan Document are true and correct in all material respects as if made on and as of such date (or in the case of any representation or warranty qualified by materiality, Material Adverse Effect or similar qualification, true and correct in all respects) unless stated to relate solely to an earlier date, in which case such representations or warranties shall be true and correct in all material respects as of such earlier date; 

(b) the execution, delivery and performance of this Amendment by each Obligor party hereto has been duly authorized by all necessary corporate or other organizational action on the part of such Obligor and this Amendment constitutes a legal, valid and binding agreement of such Obligor, enforceable against such Obligor in accordance with its terms, except as enforcement may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);

(c) the execution, delivery and performance of this Amendment by any Obligor party hereto does not constitute a violation of any Law to which such Obligor or any of its Subsidiaries is subject, and does not result in the creation of any Lien (other than Permitted Liens) on any asset of such Obligor or any of its Subsidiaries, or violate, or result in a material default under any Material Agreement binding upon such Obligor or any of its Subsidiaries;

(d) no authorization or approval or other action by, and no notice or filing with, any Governmental Authority or any other Person (other than those that have been duly obtained or made and which are in full force and effect) is required for the due execution, delivery and performance by any Obligor party to this Amendment; and

(e) immediately after giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or an Event of Default.

ARTICLE III

CONDITIONS PRECEDENT

SECTION 3.01.Conditions to Effectiveness of this Amendment. This Amendment shall become effective only upon, and shall be subject to, the prior or simultaneous satisfaction or waiver of each of the following conditions precedent in a manner reasonably satisfactory to the Administrative Agent (the date satisfaction of such conditions being referred to as the “Amendment Effective Date”):

(a) Executed Amendment. The Administrative Agent shall have received this Amendment, duly executed by the Borrower, the Parent Guarantor, the Israeli Guarantor and each of the Majority Lenders.

(b) Representations and Warranties; No Default. (1) Each of the representations and warranties set forth in this Amendment and each other Loan Document (including the Credit Agreement both immediately before and after giving effect to this Amendment) that are qualified

by materiality, Material Adverse Effect or the like are, in each case, true and correct, (2) each of the representations and warranties set forth in this Amendment and each other Loan Document (including the Credit Agreement both immediately before and after giving effect to this Amendment) that are not qualified by materiality, Material Adverse Effect or the like are, in each case, true and correct in all material respects and (3) no Default or Event of Default has occurred and is continuing, or could reasonably be expected to result from the execution, delivery and performance of this Amendment or the transactions contemplated hereby.

(c) Amendment Effective Date Certificate. The Administrative Agent shall have received a certificate of the Borrower confirming that the conditions precedent described in clause (b) of this Section 3.01 have been satisfied.

(d) Costs and Expenses, Etc. The Administrative Agent shall have received for its account and the account of each Lender all fees, costs and expenses due and payable to them pursuant to Section 14.03 of the Credit Agreement (including the Administrative Agent’s and each Lender’s reasonable and documented legal fees and out-of-pocket expenses) to the extent invoiced at least two (2) Business Days prior to the Amendment Effective Date.

ARTICLE IV

MISCELLANEOUS

SECTION 4.01.Governing Law; Jurisdiction; Jury Trial. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction. The jurisdiction and waiver of jury trial provisions set forth in Sections 14.10 and 14.11 of the Credit Agreement, respectively, are incorporated herein by reference mutatis mutandis.

SECTION 4.02.Effect of Amendment.

(a) On and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each reference to the Credit Agreement in any other Loan Document shall be deemed a reference to the Amended Credit Agreement.

(b) This Amendment shall constitute a Loan Document for all purposes of the Amended Credit Agreement. The Obligors party hereto agree that all of the representations, warranties, terms, covenants, conditions and other provisions of the Credit Agreement and other Loan Documents shall, except as expressly set forth in this Amendment, remain unchanged and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms. The amendments, consents and modifications set forth herein shall be limited precisely as provided for herein to the provisions expressly amended herein or otherwise modified or consented to hereby and shall not be deemed to be an amendment to, waiver of, consent to or modification of any other term or provision of the Credit Agreement or any other Loan Document or of any transaction or further or future action on the part of any Obligor which would require the consent of the Lenders or the Administrative Agent under the Credit

Agreement or any other Loan Document, or a waiver of any Default or Event of Default or non-compliance with any term or condition contained in the Credit Agreement. Except as expressly set forth in this Amendment, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any holder of the Administrative Agent or any Lender under any Loan Document or applicable Law, nor constitute a waiver of any provision of the Credit Agreement except as expressly set forth herein.

SECTION 4.03.No Novation. This Amendment is not intended by the parties to be, and shall not be construed to be, a novation of the Credit Agreement or the other Loan Documents.

SECTION 4.04. Costs and Expenses. Each Obligor party hereto agrees to pay or reimburse the Administrative Agent and the Lenders for all of their reasonable and documented out-of-pocket costs in connection with the negotiation, preparation, execution and delivery of this Amendment, including, without limitation, the reasonable and documented out-of-pocket fees and expenses of outside counsel for the Administrative Agent and the Lenders,.

SECTION 4.05.Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed signature page of this Amendment by facsimile transmission or electronic transmission (including PDF format) shall be effective as delivery of a manually executed counterpart hereof. Any signature (including, without limitation, (x) any electronic symbol or process attached to, or associated with, a contract or other record and adopted by a person with the intent to sign, authenticate or accept such contract or record and (y) any facsimile or .pdf signature) hereto or to any other certificate, agreement or document related to this transaction, and any contract formation or record-keeping, in each case, through electronic means, shall have the same legal validity and enforceability as a manually executed signature or use of a paper-based record-keeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar state law based on the Uniform Electronic Transactions Act, and the parties hereto hereby waive any objection to the contrary. The words “execution,” “signed,” “signature,” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system.

SECTION 4.06.Binding Nature. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

SECTION 4.07. Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Amendment.

SECTION 4.08.Severability. In case any provision of or obligation under this Amendment shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

SECTION 4.09. Integration. This Amendment, together with the other Loan Documents, sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto.

SECTION 4.10. Waiver and Release. TO INDUCE THE ADMINISTRATIVE AGENT AND THE LENDERS TO AGREE TO THE TERMS OF THIS AMENDMENT, PARENT GUARANTOR, Israeli Guarantor and the Borrower AND THEIR AFFILIATES (COLLECTIVELY, THE “RELEASING PARTIES”) REPRESENT AND WARRANT THAT, AS OF THE DATE HEREOF, THERE ARE NO CLAIMS OR OFFSETS AGAINST, OR RIGHTS OF RECOUPMENT WITH RESPECT TO, OR DISPUTES OF, OR DEFENSES OR COUNTERCLAIMS TO, THEIR OBLIGATIONS UNDER THIS AMENDMENT OR THE OTHER LOAN DOCUMENTS, AND IN ACCORDANCE THEREWITH THEY:

(a) WAIVE ANY AND ALL SUCH CLAIMS, OFFSETS, RIGHTS OF RECOUPMENT, DISPUTES, DEFENSES AND COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE HEREOF; AND

(b) FOREVER RELEASE, RELIEVE, AND DISCHARGE THE ADMINISTRATIVE AGENT AND EACH LENDER AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, PARTNERS, PREDECESSORS, SUCCESSORS, ASSIGNS, ATTORNEYS, ACCOUNTANTS, AGENTS, EMPLOYEES, AND REPRESENTATIVES (COLLECTIVELY, THE “RELEASED PARTIES”), AND EACH OF THEM, FROM ANY AND ALL CLAIMS, LIABILITIES, DEMANDS, CAUSES OF ACTION, DEBTS, OBLIGATIONS, PROMISES, ACTS, AGREEMENTS, AND DAMAGES, OF WHATEVER KIND OR NATURE, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, CONTINGENT OR FIXED, LIQUIDATED OR UNLIQUIDATED, MATURED OR UNMATURED, WHETHER ARISING AT LAW OR IN EQUITY, WHICH THE RELEASING PARTIES EVER HAD, NOW HAVE, OR MAY, SHALL, OR CAN HEREAFTER HAVE, DIRECTLY OR INDIRECTLY ARISING OUT OF OR IN ANY WAY BASED UPON, CONNECTED WITH, OR RELATED TO MATTERS, THINGS, ACTS, CONDUCT, AND/OR OMISSIONS AT ANY TIME FROM THE DATE THAT WAS NINETY (90) DAYS PRIOR TO THE DATE HEREOF THROUGH AND INCLUDING THE DATE HEREOF, INCLUDING WITHOUT LIMITATION ANY AND ALL CLAIMS AGAINST THE RELEASED PARTIES ARISING UNDER OR RELATED TO ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY.

(c) IN CONNECTION WITH THE RELEASE CONTAINED HEREIN, THE RELEASING PARTIES ACKNOWLEDGE THAT THEY ARE AWARE THAT THEY MAY HEREAFTER DISCOVER CLAIMS PRESENTLY UNKNOWN OR UNSUSPECTED, OR FACTS IN ADDITION TO OR DIFFERENT FROM THOSE WHICH THEY KNOW OR BELIEVE TO BE TRUE, WITH RESPECT TO THE MATTERS RELEASED HEREIN.

NEVERTHELESS, IT IS THE INTENTION OF THE RELEASING PARTIES, THROUGH THIS AMENDMENT AND WITH ADVICE OF COUNSEL, FULLY, FINALLY, AND FOREVER TO RELEASE ALL SUCH MATTERS, AND ALL CLAIMS RELATED THERETO, WHICH DO NOW EXIST, OR HERETOFORE HAVE EXISTED. IN FURTHERANCE OF SUCH INTENTION, THE RELEASES HEREIN GIVEN SHALL BE AND REMAIN IN EFFECT AS A FULL AND COMPLETE RELEASE OF SUCH MATTERS NOTWITHSTANDING THE DISCOVERY OR EXISTENCE OF ANY SUCH ADDITIONAL OR DIFFERENT CLAIMS OR FACTS RELATED THERETO.

(d) THE RELEASING PARTIES COVENANT AND AGREE NOT TO BRING ANY CLAIM, ACTION, SUIT, OR PROCEEDING AGAINST THE RELEASED PARTIES, DIRECTLY OR INDIRECTLY, REGARDING OR RELATED IN ANY MANNER TO THE MATTERS RELEASED HEREBY, AND FURTHER COVENANT AND AGREE THAT THIS AMENDMENT IS A BAR TO ANY SUCH CLAIM, ACTION, SUIT, OR PROCEEDING.

(e) THE RELEASING PARTIES REPRESENT AND WARRANT TO THE RELEASED PARTIES THAT THEY HAVE NOT HERETOFORE ASSIGNED OR TRANSFERRED, OR PURPORTED TO ASSIGN OR TRANSFER, TO ANY PERSON OR ENTITY ANY CLAIMS OR OTHER MATTERS HEREIN RELEASED.

(f) THE RELEASING PARTIES ACKNOWLEDGE THAT THEY HAVE HAD THE BENEFIT OF INDEPENDENT LEGAL ADVICE WITH RESPECT TO THE ADVISABILITY OF ENTERING INTO THIS RELEASE AND HEREBY KNOWINGLY, AND UPON SUCH ADVICE OF COUNSEL, WAIVE ANY AND ALL APPLICABLE RIGHTS AND BENEFITS UNDER, AND PROTECTIONS OF, CALIFORNIA CIVIL CODE SECTION 1542, AND ANY AND ALL STATUTES AND PRINCIPLES OF COMMON LAW THAT HAVE SIMILAR EFFECT. CALIFORNIA CIVIL CODE SECTION 1542 PROVIDES AS FOLLOWS:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release, and that if known by him or her, would have materially affected his or her settlement with the debtor or released party.

[Signature pages to follow]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date hereof.

FOAMIX PHARMACEUTICALS INC., as Borrower

By: /s/ David Domzalski__________________

Name: David Domzalski

Title: Chief Executive Officer

By: /s/ Andrew Saik _____________________

Name: Andrew Saik

Title: Chief Financial Officer

MENLO THERAPEUTICS INC., as Parent Guarantor

By: /s/ David Domzalski__________________

Name: David Domzalski

Title: Chief Executive Officer

By: /s/ Andrew Saik _____________________

Name: Andrew Saik

Title: Chief Financial Officer

FOAMIX PHARMACEUTICALS LTD., as Israeli Guarantor

By: /s/ David Domzalski__________________

Name: David Domzalski

Title: Chief Executive Officer

By: /s/ Andrew Saik _____________________

Name: Andrew Saik

Title: Chief Financial Officer

PERCEPTIVE CREDIT HOLDINGS II, LP, as Administrative Agent and a Lender

By: PERCEPTIVE CREDIT OPPORTUNITIES GP, LLC, its general partner

By _/s/ Sandeep Dixit ______________________

Name: Sandeep Dixit

Title: Chief Credit Officer

By _/s/ Sam Chawla________________________

Name: Sam Chawla

Title: Portfolio Manager

ORBIMED ROYALTY & CREDIT OPPORTUNITIES III, LP, as a Lender

By: ORBIMED ROF III LLC, its general partner

By: ORBIMED ADVISORS LLC, its managing member

By /s/ W. Carter Neild_____________________

Name: W. Carter Neild

Title: Member

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, David Domzalski, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Menlo Therapeutics Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2020	By:	/s/ David Domzalski
		David Domzalski Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Andrew Saik, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Menlo Therapeutics Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2020	By:	/s/ Andrew Saik
		Andrew Saik Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Menlo Therapeutics Inc. (the “Company”), for the quarterly period ended June 30, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, David Domzalski, President and Chief Executive Officer and principal executive officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2020	By:	/s/ David Domzalski
		David Domzalski Principal Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Menlo Therapeutics Inc. (the “Company”), for the quarterly period ended June 30, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Andrew Saik, Chief Financial Officer, Treasurer and principal financial officer, hereby certify as of the date hereof, solely for purposes of 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2020	By:	/s/ Andrew Saik
		Andrew Saik Principal Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

XML

Cover - shares	6 Months Ended
	Jun. 30, 2020	Jul. 30, 2020
DOCUMENT AND ENTITY INFORMATION [Abstract]
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-38356
Entity Registrant Name	MENLO THERAPEUTICS INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	45-3757789
Entity Address, Address Line One	520 U.S. Highway 22, Suite 204
Entity Address, City or Town	Bridgewater
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08807
City Area Code	800
Local Phone Number	755-7936
Title of 12(b) Security	Common Stock, par value $0.0001
Trading Symbol	MNLO
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Shell Company	false
Entity Central Index Key	0001566044
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Ex Transition Period	true
Entity Common Stock, Shares Outstanding		167,690,615

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 96,511	$ 43,759
Restricted cash	855	825
Short-term bank deposits	0	12,102
Investment in marketable securities (Note 6)	2,609	16,246
Restricted investment in marketable securities (Note 6)	435	434
Trade receivables, net of allowances	6,407	135
Other receivable	4,000	0
Prepaid and other assets	2,672	1,557
Inventory (Note 7)	5,801	1,356
TOTAL CURRENT ASSETS	119,290	76,414
NON-CURRENT ASSETS:
Property and equipment, net	2,811	2,885
Operating lease right-of-use assets (Note 10)	2,558	1,694
Prepaid and other assets	6,183	166
TOTAL NON-CURRENT ASSETS	11,552	4,745
TOTAL ASSETS	130,842	81,159
CURRENT LIABILITIES:
Trade payables	9,952	19,352
Accrued expenses	8,812	3,381
Employee related obligations	4,081	5,231
Operating lease liabilities (Note 10)	1,245	1,092
Other	142	270
TOTAL CURRENT LIABILITIES	24,232	29,326
LONG-TERM LIABILITIES:
Liability for employee severance benefits	403	424
Operating lease liabilities (Note 10)	1,308	653
Long-term debt (Note 8)	32,915	32,725
Other liabilities	456	456
TOTAL LONG-TERM LIABILITIES	35,082	34,258
TOTAL LIABILITIES	59,314	63,584
COMMITMENTS (Note 11)	0	0
STOCKHOLDERS' EQUITY:
Preferred stock: $0.0001 par value; 20,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; no shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	0	0
Common stock: $0.0001 par value; 300,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 167,683,814 and 36,480,314 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	17	3
Additional paid-in capital	589,812	328,154
Accumulated deficit	(518,301)	(310,587)
Accumulated other comprehensive income	0	5
TOTAL SHAREHOLDERS' EQUITY	71,528	17,575
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 130,842	$ 81,159

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (USD/share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock par value (USD/share)	$ 0.0001	$ 0.0001
Common stock shares authorized (in shares)	300,000,000	300,000,000
Common stock shares issued (in shares)	167,683,814	36,480,314
Common stock shares outstanding (in shares)	167,683,814	36,480,314

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
TOTAL REVENUES	$ 11,688,000	$ 0	$ 13,438,000	$ 308,000
EXPENSES
Cost of goods sold	216,000	0	487,000	0
Research and development	13,119,000	12,556,000	29,072,000	23,404,000
Selling, general and administrative	26,459,000	6,803,000	51,874,000	12,147,000
Goodwill and in-process research & development impairments	54,345,000	0	54,345,000	0
Contingent Stock Right Remeasurement	84,726,000	0	84,726,000	0
TOTAL EXPENSES	178,865,000	19,359,000	220,504,000	35,551,000
OPERATING LOSS	167,177,000	19,359,000	207,066,000	35,243,000
FINANCE INCOME	(564,000)	(468,000)	(1,292,000)	(1,004,000)
FINANCE EXPENSES	1,086,000	102,000	2,158,000	134,000
LOSS BEFORE INCOME TAX	167,699,000	18,993,000	207,932,000	34,373,000
INCOME TAX	(259,000)	0	(259,000)	(176,000)
NET LOSS FOR THE PERIOD	$ 167,440,000	$ 18,993,000	$ 207,673,000	$ 34,197,000
LOSS PER SHARE BASIC AND DILUTED (in dollars per share)	$ 1.21	$ 0.19	$ 2.29	$ 0.35
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE (in shares)	138,653	97,999	90,627	97,954
Product sales
TOTAL REVENUES	$ 1,483,000	$ 0	$ 3,233,000	$ 0
License revenues
TOTAL REVENUES	10,000,000	0	10,000,000	0
Royalty revenues
TOTAL REVENUES	$ 205,000	$ 0	$ 205,000	$ 308,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net loss	$ 167,440	$ 18,993	$ 207,673	$ 34,197
OTHER COMPREHENSIVE LOSS (INCOME):
Net unrealized (gains) losses from marketable securities	(43)	(4)	1	(40)
Losses on marketable securities reclassified into net loss	3	0	4	0
Net unrealized losses (gains) on derivative financial instruments	0	13	0	(2)
TOTAL OTHER COMPREHENSIVE (INCOME) LOSS	(40)	9	5	(42)
TOTAL COMPREHENSIVE LOSS	$ 167,400	$ 19,002	$ 207,678	$ 34,155

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common stock	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive income (loss)
Balance at Dec. 31, 2018	$ 92,182	$ 10	$ 307,624	$ (215,409)	$ (43)
Balance (shares) at Dec. 31, 2018		97,864,663
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(34,155)			(34,197)	42
Exercise of options and vesting of restricted stock units	18		18
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)		188,755
Stock-based compensation	2,337		2,337
Balance at Jun. 30, 2019	60,382	$ 10	309,979	(249,606)	(1)
Balance (shares) at Jun. 30, 2019		98,053,418
Balance at Mar. 31, 2019	77,995	$ 10	308,590	(230,613)	8
Balance (shares) at Mar. 31, 2019		97,987,433
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(19,002)			(18,993)	(9)
Exercise of options and vesting of restricted stock units	2		2
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)		65,985
Stock-based compensation	1,387		1,387
Balance at Jun. 30, 2019	60,382	$ 10	309,979	(249,606)	(1)
Balance (shares) at Jun. 30, 2019		98,053,418
Balance at Dec. 31, 2019	$ 17,575	$ 3	328,154	(310,587)	5
Balance (shares) at Dec. 31, 2019	36,480,314	36,480,314
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	$ (207,678)			(207,673)	(5)
Exercise of options and vesting of restricted stock units	260		260
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)		1,032,003
Stock-based compensation	12,527		12,527
Deemed dividend to warrants holders due to warrant modification	0		41	(41)
Classification of stock awards to derivative liability	(975)		(975)
Issuance of stock related to merger	196,170	$ 11	196,159
Issuance of stock related to merger (in shares)		99,063,997
Balance at Jun. 30, 2020	$ 71,528	$ 17	589,812	(518,301)	0
Balance (shares) at Jun. 30, 2020	167,683,814	167,683,814
Balance at Mar. 31, 2020	$ 69,535	$ 6	420,430	(350,861)	(40)
Balance (shares) at Mar. 31, 2020		61,501,130
CHANGES DURING THE PERIOD:
Comprehensive (loss) income	(167,400)			(167,440)	40
Exercise of options and vesting of restricted stock units	(43)		(43)
Exercise of options, vesting of restricted stock units and shares issued under employee stock purchase plan (in shares)		530,771
Stock-based compensation	10,768		10,768
Classification of stock awards to derivative liability	657		657
Issuance of Ordinary Shares through a public offering, net of $3,903 issuance costs	53,649	$ 3	53,646
Issuance of Ordinary Shares through public offering, net of $3,903 issuance costs (in shares)		31,107,500
Issuance of stock related to merger	104,362	$ 8	104,354
Issuance of stock related to merger (in shares)		74,544,413
Balance at Jun. 30, 2020	$ 71,528	$ 17	$ 589,812	$ (518,301)	$ 0
Balance (shares) at Jun. 30, 2020	167,683,814	167,683,814

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Statement of Stockholders' Equity [Abstract]
Payments of stock issuance costs	$ 3,903	$ 3,903

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$ 207,673	$ 34,197
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	187	163
Goodwill and in-process research & development impairments	54,345	0
Contingent Stock Right Remeasurement	84,726	0
Loss from disposal and sale of fixed assets	0	29
Changes in marketable securities and bank deposits, net	(142)	(358)
Changes in accrued liability for employee severance benefits, net of retirement fund profit	(21)	42
Stock-based compensation	12,527	2,337
Non-cash finance (income) expenses, net	(833)	3
Changes in operating assets and liabilities, net of effects of businesses acquired:
Increase in trade receivables, prepaid and other assets	(9,807)	246
Increase in other non-current assets	(6,026)	0
(Decrease) increase in accounts payable and accruals	(10,908)	2,374
Increase in inventory	(4,445)	0
Net cash used in operating activities	(88,070)	(29,361)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets	(113)	(454)
Investment in bank deposits	0	(16,048)
Cash acquired through merger	38,641	0
Proceeds from sale and maturity of marketable securities and bank deposits	48,577	57,014
Net cash provided by investing activities	87,105	40,512
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds related to issuance of ordinary shares through offerings, net of issuance costs	53,646	0
Proceeds related to issuance of stock for stock-based compensation arrangements, net	100	18
Net cash provided by financing activities	53,746	18
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	52,781	11,169
EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	1	48
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD	44,584	28,118
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF THE PERIOD	97,366	39,335
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN IN STATEMENT OF CASH FLOWS	97,366	39,335
SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS -
Cashless exercise of warrants and restricted stock units		4
Issuance of shares under employee stock purchase plan	163	0
Additions to operating lease right of use assets	1,120	867
Additions to operating lease liabilities	1,120	850
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest received	298	666
Interest paid	1,946	0
Fair value of assets acquired	117,270	0
Less liabilities assumed	5,827	0
Net acquired (See “Note 3- Business combination”)	111,443	0
Less cash acquired	38,641	0
Merger net of cash acquired	$ 72,802	$ 0

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NATURE OF OPERATIONS

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS

NATURE OF OPERATIONS

Menlo Therapeutics Inc. (the “Company,” “Menlo” or the “combined company”) is a specialty pharmaceutical company focused on developing and commercializing proprietary therapies to address unmet needs in dermatology. The Company is a Delaware corporation, has its principal executive offices in Bridgewater, New Jersey and operates as one business segment.

Reverse Merger

On November 10, 2019, the Company, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.

Products, Product Candidates and Licenses

Prior to the Merger, in January 2020, Foamix launched AMZEEQ^® (minocycline) topical foam, 4% (“AMZEEQ”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients 9 years of age and older. On May 28, 2020, the U.S. Food and Drug Administration (the "FDA") approved ZILXI^™ (minocycline) topical form, 1.5% (formerly FMX103, "ZILXI"), for the treatment of inflammatory lesions of rosacea in adults. AMZEEQ and ZILXI are the first topical minocycline products approved by the FDA for any condition.

AMZEEQ and ZILXI utilize the Company’s proprietary Molecule Stabilizing Technology (MST)^™ that is also being used in the development of the Company’s other product candidate FCD105, a topical foam comprising minocycline and adapalene for the treatment of acne vulgaris. On June 2, 2020, the Company announced positive results from a Phase II clinical trial evaluating the preliminary safety and efficacy of FCD105 (3% minocycline / 0.3% adapalene foam), the first ever topical minocycline-based combination product, for the treatment of moderate-to-severe acne vulgaris. The Company has begun preparations to conduct an end-of-Phase II meeting with the FDA before the end of 2020.

Additionally, the Company was developing serlopitant, a small molecule inhibitor of the neurokinin 1 receptor, or NK1-R, given as a once-daily, oral tablet, for the treatment of pruritus, or itch, associated with various conditions including prurigo nodularis, or PN. On April 6, 2020, the Company announced top line results from two Phase III clinical trials evaluating the safety and efficacy of once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN, studies MTI-105 and MTI-106. Neither study met their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based on a 4-point improvement responder analysis. The Company does not currently intend to pursue serlopitant. As a result, the Company recorded a full impairment charge related to the IPR&D and Goodwill assets in its unaudited condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2020. See "Note 3 - Business Combination" for more information.

The Company is actively pursuing opportunities to out-license its products and product candidates to third parties for development and commercialization outside the United States, and recently entered into a license agreement with Cutia Therapeutics (HK) Limited (“Cutia”). See "Note 4 - Revenue Recognition." The Company has also licensed certain technology under development and licensing agreements to various pharmaceutical companies for development of certain products combining the Company’s foam technology with the licensee’s proprietary drugs.

Liquidity and Capital Resources

The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of

developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the six months ended June 30, 2020, the Company incurred a net loss of $207.7 million and used $88.1 million of cash in operations. As of June 30, 2020, the Company had cash, cash equivalents and investments of $100.4 million and an accumulated deficit of $518.3 million.

If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other topical minocycline product candidates. The Company does not currently intend to pursue serlopitant further. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

The Company believes that its existing cash, cash equivalents and investments as of June 30, 2020 and projected cash flows from revenues and the funds that the Company is entitled to receive under the license agreement with Cutia Therapeutics (HK) Limited ("Cutia"), will provide sufficient resources to fund its current ongoing needs for at least the next 12 months from the issuance of these financial statements, though there may be need for additional financing activity if the on-going COVID-19 pandemic continues for an extended duration and as the Company continues to grow.

As a result of the COVID-19 pandemic, the Company suspended the vast majority of its in-person interactions by its customer-facing professionals in healthcare settings and have engaged with these customers remotely as the Company seeks to continue to support healthcare professionals and patient care. During the second quarter of 2020, the Company began limited in-person customer meetings and interactions in certain regions, consistent with local government mandates. However, during the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures. As a result of the negative impact on the Company's product sales, the Company and its lenders amended the minimum net revenue covenant in the Amended and Restated Credit Agreement. See "Note 8 - Long-Term Debt." The length of time and extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict. An extended duration of the COVID-19 pandemic could continue to negatively impact sales of AMZEEQ, and any future sales of ZILXI, and have a material adverse effect on the Company's liquidity, as well as the Company's ability to remain in compliance with the minimum net revenue covenants contained in the Company's loan documents.

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SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

a.Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

These unaudited interim condensed consolidated financial statements should be read in conjunction with Foamix’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on May 7, 2020, and the Company's unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020.

b.Principles of Consolidation

The consolidated financial statements include the accounts of Menlo and its subsidiaries. Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.

c.Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management 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 condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which the pandemic impacts worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. For the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures due to the pandemic. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

d.Business Acquisition

The Company’s unaudited interim condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.  For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.  The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

The Company reviews all of its long-lived assets for impairment indicators throughout the year. Impairment testing is performed for indefinite-lived intangible assets annually (or sooner if warranted) and for all other long-lived assets whenever impairment indicators are present. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

e.Revenue Recognition

The Company accounts for its revenue transactions under FASB ASC Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.

The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 90 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.

The Company’s net product revenues through June 30, 2020 were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed

products to Cutia for clinical and commercial use. The Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognizes the revenues from the upfront license fee when the license is transferred to the licensee and the licensee is able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.

f.Allowance for credit losses

An allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical bad debts experience and changes in customer payment patterns. Trade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain sales allowances and provisions for doubtful accounts. Provisions for doubtful accounts were not material for the three and six months ended June 30, 2020.

g.Derivative instruments

The Company recognizes all derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheet at their respective fair values. All gains and losses associated with derivatives are reported as a finance expense (income) in the accompanying condensed consolidated statements of operations.

h.Fair value measurement

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

i.Loss per share

The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:

a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement

b.The number of common outstanding common stock outstanding from the merge date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.

The basic and diluted loss per share for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse merger was calculated by dividing (a) by (b):

a.The loss of the legal acquiree attributable to common stockholders in each of those periods.

b.The legal acquiree's historical weighted-average number of common stock outstanding multiplied by the exchange ratio established in the merge agreement

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary shares outstanding during the period. Diluted net loss per share is based upon the weighted average number

of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

	Three months ended June 30		Six months ended June 30,
	2020	2019	2020	2019
Outstanding stock options, RSUs and shares under the ESPP	14,975,385	11,037,802	12,082,037	10,576,229
Warrants	1,893,032	—	1,272,336	—

In addition to the above, the CSR was excluded from the calculation of the diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.

j.Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-4 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.

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BUSINESS COMBINATION

6 Months Ended

Jun. 30, 2020

Business Combinations [Abstract]

BUSINESS COMBINATION

BUSINESS COMBINATION

On November 10, 2019, Menlo entered into the Merger Agreement with Foamix, and Merger Sub, a direct and wholly-owned Israeli subsidiary of Menlo. On March 9, 2020, the Merger was completed and Foamix is now a wholly-owned subsidiary of Menlo.

On the Effective Date, each ordinary share of Foamix was exchanged for 0.5924 shares of common stock of Menlo (the “Exchange Ratio”). In addition, on the Effective Date, Foamix shareholders received one contingent stock right (a “CSR”) for each Foamix ordinary share held by them. The CSRs were issued pursuant to the Contingent Stock Rights Agreement (the “CSR Agreement”), dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s phase III clinical trials evaluating the safety and efficacy of once daily oral serlopitant for the treatment of prurigo nodularis (the “Phase III PN Trials”).

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on

April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery, pre-Merger Foamix shareholders and pre-Merger Menlo stockholders owned approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis.

For accounting purposes, the Merger is treated as a “reverse acquisition” under U.S. GAAP and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods.

Under reverse acquisition accounting, the U.S. dollar amount for common stock in the financial statements is based on the value and number of shares issued by Menlo (reflecting the legal structure of Menlo as the legal acquirer) on the Merger date plus subsequent shares issued by the Company. The amounts in additional paid-in capital represent that of Foamix and include the fair value of shares deemed for accounting purposes to have been issued by Foamix on the merger date and the fair value of the Menlo equity awards included in the purchase price calculation. The Foamix additional paid-in capital was also adjusted for the difference between the number of common stock and the historical number of shares of Foamix’s ordinary shares.

During the six months ended June 30, 2020, the Company incurred transaction costs of approximately $11.7 million, which are recorded in the consolidated statements of operations and comprehensive income. This amount includes $8.1 million of severance benefits for employees terminated after the Effective Date. The total transaction costs and other non-recurring costs related to the Merger were $21.8 million.

Purchase Price

The following is the Merger Consideration (as defined in the Merger Agreement) was transferred to effect the Merger:

(in thousands)	Total
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders	$	123,757
Deemed (for accounting purposes only) conversion of Menlo equity awards	7,322
Total consideration*	$	131,079

* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.

Based on Foamix’s closing share price of $2.99 as of March 9, 2020, the Merger Consideration under reverse acquisition accounting was approximately $131.1 million, consisting of $123.8 million for the deemed (for accounting purposes only) issuance of 41.4 million Foamix shares assuming that no upwards adjustment was made to the Exchange Ratio relating to the CSR, and $7.3 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the Foamix closing share price of $2.99 as of March 9, 2020 as an input to the Black Scholes valuation model to determine the fair value of the options.

Purchase Price Allocation

The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	50,300
Goodwill	4,045
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Estimated purchase price*	$	111,443

* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.

Goodwill

Goodwill is recorded with the acquisition of a business and is calculated as the difference between the acquisition date fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment at least annually. None of the Goodwill recognized is expected to be deductible for income tax purposes. The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:

(in thousands)	March 9, 2020
Purchase price	$	111,443
Less: fair value of net assets acquired, including other identifiable intangibles	(107,398)
Goodwill	$	4,045

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $4.0 million related to goodwill in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.

In-Process Research and Development (“IPR&D")

The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	50,300
Fair value of identified intangible assets	$	50,300

* Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing.

The fair value of IPR&D has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. 

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. The Company does not intend to pursue the development of serlopitant. As such, the Company recorded a full impairment charge of $50.3 million related to the IPR&D asset in its unaudited condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020.

CSR

The CSR was issued pursuant to the CSR Agreement, dated as of March 9, 2020, by and between Menlo and American Stock Transfer & Trust Company, LLC, and represented the non-transferable contractual right to receive shares of common stock of Menlo depending on the results of Menlo’s Phase III PN Trials. The Company recognized a liability of $19.6 million in the unaudited condensed consolidated balance sheet as of March 31, 2020. The liability was measured at fair value and categorized as level 3 as of the acquisition date in accordance with ASC 805-31-25-5 and subsequently at each reporting date thereafter. The fair value of the CSR was estimated as the incremental value that Foamix would be able to achieve on a probability weighted basis assuming three different potential probabilities of the following scenarios: (a) serlopitant significance was achieved in both Phase III PN Trials (b) serlopitant significance was achieved in only one Phase III PN Trial and (c) serlopitant significance was not achieved or was not determined on or before May 31, 2020.

On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The CSR conversion resulted in the issuance and delivery of 74,544,413 shares of Menlo common stock underlying the CSRs. Following the delivery pre-Merger Foamix shareholders and pre-Merger Menlo stockholders own approximately 82% and 18% of post-Merger Menlo, respectively, each calculated on a fully diluted basis. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020 and increased the awards available for grant under the Company's equity plan.

The contingent consideration associated with the CSR was recognized and measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5. An acquirer's obligation to pay contingent consideration should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity, ASC 815 Derivatives and Hedging, and other applicable U.S. GAAP. The contingent consideration associated with the CSR was initially measured at fair value and will subsequently be measured at fair value at each reporting date. The CSR was classified as a liability, as it is settled by issuing a variable number of the Company's common stock. On April 6, 2020, the Company recorded $84.7 million of expense in its unaudited condensed consolidated statements of operations and comprehensive loss to remeasure the CSR liability in its consolidated balance sheet to its fair value of $104.4 million (calculated based on 74,544,413 shares issued and a share price of $1.40 on April 6, 2020) and then settled in connection with the issuance of shares.

Pro Forma

The actual Menlo net loss included in the Company’s consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2020 (for the period from the March 9, 2020, the Effective Date, through June 30, 2020, which are not indicative of the results to be expected for a full year) and the supplemental unaudited pro forma revenue and net loss of the combined entity had the acquisition been completed on January 1, 2019 are as follows:

Actual Menlo results of operations included in the condensed consolidated statement of operation for the three and six months ended June 30, 2020:

(in thousands)	Three months ended June 30, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
(in thousands, except per share data)	(Unaudited)				(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	—	$	13,438	$	308
Net loss	$	167,441	$	35,470	$	205,082	$	69,547
Loss per share - basic and diluted	$	1.21	$	0.59	$	1.23	$	1.16
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	—	$	(14,931)	$	—
Acceleration of stock based compensation	—		—		(7,199)		—
Total Adjustments	$	—	$	—	$	(22,130)	$	—

These unaudited pro forma condensed consolidated financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the first day of the earliest period presented, or of future results of the consolidated entities. The unaudited pro forma condensed consolidated financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the Merger.

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REVENUE RECOGNITION

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION

Product Sales

Product revenues for the three and six months ended June 30, 2020 were generated from sales of AMZEEQ which was commercially launched in the United States in January 2020. The Company’s customers include a limited number of national and select regional distributors. These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. For the three months ended June 30, 2020, three distributors accounted for 42%, 43% and 15% of product revenue, respectively. For the six months ended June 30, 2020, three distributors accounted for 46%, 39% and 14% of product revenue, respectively.

Product Sales Provisions

Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, described below.   The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its distributors less provisions for (i) trade discounts and allowances, such as distributor fees and discounts for prompt payment, (ii) estimated rebates to Third-party Payers, patient co-pay assistance programs, chargebacks and other discount programs and (iii) reserves for expected product returns.

Provisions for distribution fees, trade discounts and chargebacks are reflected as a reduction to Trade receivables, net on the condensed consolidated balance sheet. All other provisions, including rebates, other discounts and return provisions are reflected as a liability within Accrued expenses on the condensed consolidated balance sheet. Provisions for revenue reserves described below reduced product revenues by $5.9 million and $14.1 million for the three and six months ended June 30, 2020, respectively.

Distribution Fees and Trade Discounts and Allowances: The Company pays fees for distribution services and for certain data that distributors provide to the Company and generally provides discounts on sales to its distributors for prompt payment. These fees and discounts are contractual in nature and the Company expects its distributors to earn these fees and discounts, and accordingly deducts the full amount of these fees and discounts from its gross product revenues at the time such revenues are recognized.

Rebates, Chargebacks and Other Discounts: Product sales made under managed-care and governmental pricing programs in the U.S. are subject to rebates. Managed Care rebates relate to contractual agreements to sell products to managed care organizations and pharmacy benefit managers at contractual rebate percentages in exchange for volume and/or market share. Chargebacks relate to contractual agreements to sell products to government agencies and other indirect

customers at contractual prices that are lower than the list prices the Company charges wholesalers. When these government agencies or other indirect customers purchase products through wholesalers at these reduced prices, the wholesaler charges the Company for the difference between the prices they paid the Company and the prices at which they sold the products to the indirect customers. The Company estimates the rebates and chargebacks it expects to be obligated to provide and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide based upon (i) the Company's current contracts and negotiations, (ii) estimates regarding the payer mix based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.

Product Returns: Consistent with industry practice, customers are generally allowed to return products within a specified period of time before and after its expiration date. The Company estimates the amount of product that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The information utilized to estimate the returns provision includes: (i) historical industry information regarding rates for comparable pharmaceutical products and product portfolios, (ii) external data with respect to inventory levels in the wholesale distribution channel, (iii) external data with respect to prescription demand for products and (iv) remaining shelf lives of products at the date of sale. The Company estimates that approximately 2% to 3% of product will be returned.

License Revenues

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed products to Cutia for clinical and commerical use. Outside of the license transferred, the Company does not have any additional performance obligations under the arrangement. In exchange for the license, the Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The license is considered functional IP as the licensee is able to use and benefit from the license without the continued involvement of the Company. The Company recorded $10.0 million of license revenue in the three and six months ended June 30, 2020. The Company will also receive royalties on net sales of any licensed products, such royalties will be recognized in the period the sales or usage occurs under the royalties sales-and usage based exception. The Company has not recorded revenue related to the $1.0 million payment due upon receipt of marketing approval for the licensed product as such amount is constrained under the variable consideration guidance under ASC 606, Revenue from Contracts with Customers.

Contract Assets and Contract Liabilities 

The Company did not have any contract assets (unbilled receivables) related to product sales as of June 30, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company has a $4.0 million receivable, recorded as an Other receivable on the consolidated balance sheet, due from Cutia as of June 30, 2020 which is expected to be paid in Q3 2020. The Company did not have any contract liabilities as of June 30, 2020, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers.

Sales Commissions

Sales commissions are generally attributed to periods shorter than one year and therefore are expensed when incurred. Sales commissions are included in selling, general and administrative expenses.

Financing Component

The Company has elected not to adjust consideration for the effects of a significant financing component when the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. Standard credit terms do not exceed 90 days.

Royalty Revenues 

The Company is entitled to royalty payments with respect to sales of a product developed by a customer in collaboration with the Company. Revenues in the amount of $0.2 million were recorded during the three and six months ending

June 30, 2020 and revenues in the amount of $0.3 million were recorded during the six months ending June 30, 2019. There was no revenue for the three months ending June 30, 2019.

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FAIR VALUE MEASUREMENT

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

FAIR VALUE MEASUREMENT

The Company’s assets and liabilities that are measured at fair value as of June 30, 2020 and December 31, 2019, are classified in the tables below in one of the three categories described in note 2H above:

	June 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	591	$	2,018	$	—	$	2,609

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	1,020	$	15,660	$	—	$	16,680

⁽¹⁾The Company’s debt securities are traded in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Accordingly, these assets are categorized as Level 2.

Foreign exchange risk management

Occasionally, the Company purchases and writes non-functional currency options in order to hedge the currency exposure on the Company’s cash flow. The currency hedged items are denominated in New Israeli Shekels (“NIS”). The purchasing and writing of options is part of a comprehensive currency hedging strategy with respect to salary and rent expenses denominated in NIS. These transactions are at zero cost for periods of up to one year. The counterparties to the derivatives are major banks in Israel. As of June 30, 2020, there were no hedged amounts.

As of June 30, 2020, the Company has a lien in the amount of $0.3 million on the Company’s marketable securities and a lien in the amount $0.3 million on the Company’s checking account, in respect of bank guarantees granted in order to secure the hedging transactions.

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MARKETABLE SECURITIES

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

MARKETABLE SECURITIES

MARKETABLE SECURITIES

Marketable securities as of June 30, 2020, and December 31, 2019 consist mainly of debt and mutual funds securities. The debt securities are classified as available-for-sale and are recorded at fair value. Changes in fair value, net of taxes (if applicable), are reflected in other comprehensive loss. Realized gains and losses on sales of the securities, as well as premium or discount amortization, are included in the consolidated statement of operations as finance income or expenses.

Equity securities with readily determinable fair value are measured at fair value. The changes in the fair value of equity investments are recognized through finance (income) expense in the condensed consolidated statements of operations.

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2020		2019
Israeli mutual funds	$	591	$	1,020
Certificates of deposit	—		151
U.S Government	—		6,031
U.S Treasury bills	—		9,478
Corporate notes	2,018		—
Total	$	2,609	$	16,680

As of June 30, 2020 and December 31, 2019 the fair value, cost and gross unrealized holding gains and losses of the debt marketable securities owned by the Company were as follows:

	June 30, 2020
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding losses		Gross unrealized holding gains
Corporate notes	2,018		2,018		—		—
Total	$	2,018	$	2,018	$	—	$	—

	December 31, 2019
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding loss		Gross unrealized holding gains
Certificates of deposit	$	151	$	151	$	—	$	—
U.S Government and agency bonds	6,031		6,030		—		1
U.S Treasury bills	9,478		9,475		—		3
Total	$	15,660	$	15,656	$	—	$	4

The Company has considered factors regarding other than temporary impaired securities and determined that there are no securities with impairment that is other than temporary as of June 30, 2020 and December 31, 2019.

As of June 30, 2020, and December 31, 2019 all of the Company’s debt securities were due within one year.

During the six months ended June 30, 2020 and June 30, 2019 the Company received aggregate proceeds of $36.4 million and $33.0 million, respectively, upon sale and maturity of marketable securities.

As of June 30, 2020, and December 31, 2019, the Company’s restricted marketable securities were $0.4 million and $0.4 million, respectively, due to a lien in respect of bank guarantees granted to secure hedging transaction and the Company’s rent agreements. See “Note 5- Fair Value Measurement” and “Note 10-Operating Lease” for more information.

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INVENTORY

6 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

INVENTORY

INVENTORY

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. The Company commenced capitalizing inventory for AMZEEQ upon FDA approval of AMZEEQ on October 18, 2019 and ZILXI on May 29, 2020. The Company periodically reviews its inventory levels and, if necessary, writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. There were no inventory write-downs during the three and six months ended June 30, 2020.

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2020		2019
Raw materials	$	3,387	$	500
Work-in-process	954		—
Finished goods	1,460		856
Total	$	5,801	$	1,356

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LONG-TERM DEBT

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

LONG-TERM DEBT

LONG-TERM DEBTOn July 29, 2019 (the “Closing Date”) the Company secured up to $50 million in debt under a credit agreement “the Credit Agreement”) from two of its current shareholders, who are considered related parties (the “lenders”) and entered into a Securities Purchase Agreement with one of the lenders for gross proceeds of approximately $14 million, before deducting offering expenses (see “Note 9- Share Capital” for more information). On March 9, 2020, the Company entered into an Amended and Restated Credit Agreement and Guaranty (the “Amended and Restated Credit Agreement”), whereby the Company has guaranteed the indebtedness obligation of Foamix Pharmaceuticals Inc. and granted a first priority security interest in substantially all of our assets for the benefit of the lenders. The Amended and Restated Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of up to $50.0 million, of which $35.0 million was drawn as June 30, 2020 and December 31, 2019.

Under the Amended and Restated Credit Agreement, the debt comprises of three tranches: (a) $15 million funded at closing (the “Tranche 1 Loan”), (b) $20 million funded on December 17, 2019 (the “Tranche 2 Loan”) and (c) up to $15 million available after the closing date and prior to September 30, 2020 (the “Tranche 3 Loan”). The Tranche 2 Loan was borrowed following the FDA’s approval of the Company’s NDA for AMZEEQ (formerly known as FMX101) and listing of AMZEEQ in the FDA’s “Orange Book,” in addition to maintaining its arrangements with a third party for the commercial supply and manufacture of AMZEEQ. The Company shall be permitted to borrow the Tranche 3 Loan only following the achievement of certain revenue targets prior to September 30, 2020. Subject to any acceleration as provided in the Credit Agreement, including upon an event of default (as defined in the Amended and Restated Credit Agreement), the credit facility will mature on July 29, 2024 and bear interest equal to the sum of (A) 8.25% (subject to increase in accordance with the terms of the Credit Agreement) plus (B) the greater of (x) the one-month LIBOR as of the second business day immediately preceding the first day of the calendar month or the date of borrowing (if such loan is not outstanding as of the first day of the calendar month), as applicable, and (y) 2.75%. A fee in an amount equal to 1.0% of the aggregate principal amount of all loans made on any given borrowing date shall be payable to the lenders.

The Amended and Restated Credit Agreement contains certain financial covenants, including that the Company at all times after the date of FDA approval of AMZEEQ maintain a minimum aggregate compensating cash balance of $2.5 million.

In addition, as a result of the negative impact on the Company's product sales of AMZEEQ due to the COVID-19 pandemic, the parties entered into Amendment No. 1 to Amended and Restated Credit Agreement (the "Amendment") on August 5, 2020. The Amendment provides for a covenant "holiday" with respect to the minimum net revenue covenant such that the compliance with such covenant will commence with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing with the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024. The Amendment does not modify any of the conditions precedent to borrowing the Tranche 3 Loan, as described above and as set forth in the Amended and Restated Credit Agreement. See "Note 12 - Subsequent Events."

As of June 30, 2020, the Company is in compliance with all covenants, including maintaining a minimum aggregate compensating cash balance as mentioned above. In the event where the Company fails to observe or perform any of the financial covenants the lenders may, by notice to the Company, declare the Term Loans then outstanding to be due and payable in whole, together with accrued interest and a Prepayment Premium (as defined in the Amended and Restated Credit Agreement ). Additionally, the Company will continue to monitor ongoing developments in connection with the COVID-19 pandemic, which may have an adverse impact on the Company’s commercial prospects, projected cash position and ability to remain in compliance with these covenants.

Under the Amended and Restated Credit Agreement, there are no required payments of principal amounts until July 2023. Afterwards, the Company will pay 1.5% of the aggregate principal amount each month. The outstanding amount will be paid in full on July 2024.

In addition, on the Closing Date, Foamix issued to the lenders warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, at an exercise price of $2.09 per share (the “Warrant”), which represents the five-day volume weighted average price of the ordinary shares as of the trading day immediately prior to the Closing Date. Following the Merger, the Warrants were exchanged, based on the Exchange Ratio, to 651,640 of the Company’s common stock, and adjusted the exercise price to $3.53 (See “Note 3 – Business Combinations” for more information relating to subsequent adjustment of warrant following the Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106)). Payment of the exercise price will be made, at the option of the lender, either in cash or as a reduction of common stock issuable upon exercise of the Warrant, with an aggregate fair value equal to the aggregate exercise price ("cashless exercise"), or any combination of the foregoing. The Warrants were exercisable immediately following the closing of the Credit Agreement and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants' expiration date, if in the money. The Warrants issued were classified as equity in accordance with ASC 815-40. Proceeds received under the Tranche 1 Loan were allocated to the Warrants and the Tranche 1 Loan on a relative fair value basis.

The Company incurred offering expenses of $1.1 million in connection with transactions contemplated by the Credit Agreement and the Securities Purchase Agreement, which were allocated to the Warrants, shares and debt consistently with the allocation of proceeds. The Company incurred additional expenses in the amount of $0.3 million from the borrowing of Tranche 2 Loan, allocated only to the debt.

Debt issuance costs are recorded on the consolidated balance sheet as a reduction of liabilities.

Amounts allocated to the debt, net of issuance cost, are subsequently recognized at amortized cost using the effective interest method.

The fair value of the debt as of June 30, 2020 was $35.8 million and is categorized as Level 3. The valuation was performed by applying the income approach, under which the contractual present value method was used. The estimation of risk adjusted discount curve was based on public information reported in the financial statements of publicly traded venture lending companies.

During the three months ended June 30, 2020 the company recorded interest expense of $1.0 million and $0.1 million relating to the interest and discount cost, respectively. During the six months ended June 30, 2020 the company recorded interest expense of $1.9 million and $0.2 million relating to the interest and discount cost, respectively.

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SHARE CAPITAL

6 Months Ended

Jun. 30, 2020

Stockholders' Equity Note [Abstract]

SHARE CAPITAL

SHARE CAPITAL

Preferred stock

As of June 30, 2020, the Company's Certificate of Incorporation, as amended, authorizes the Company to issue 20,000,000 of shares of $0.0001 par value preferred stock. There were no shares of preferred stock issued and outstanding as of June 30, 2020 and December 31, 2019.

Shares of preferred stock may be issued from time to time in one or more series. The voting powers (if any), preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions of any series of preferred stock will be set forth in a Certificate of Designation filed pursuant to the Delaware General Corporation Law, as determined by the Company's Board of Directors.

Common stock

As of June 30, 2020, the Company’s Certificate of Incorporation, as amended, authorizes the Company to issue 300,000,000 shares of $0.0001 par value common stock. See Note 12—Subsequent Events.

Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of preferred stock outstanding. The Company has never declared any dividends on common stock.

Issuance of stock

On July 29, 2019, pursuant to the Credit Agreement and Securities Purchase Agreement, Foamix issued and sold, in a registered offering, an aggregate of 6,542,057 ordinary shares at a purchase price of $2.14 per share, later exchanged to 3,875,514 Menlo common stock at the closing of the Merger. The aggregate gross proceeds of approximately $14 million, before deducting issuance costs allocated as described in Note 8-Long Term Debt, in the amount of $0.3 million.

Pursuant to the completion of the merger, on March 9, 2020, the Company issued 36,550,335 shares to Foamix shareholders. On April 6, 2020, pursuant to the terms of the CSR Agreement, the Company issued 74,544,413 shares to Foamix shareholders.

On June 9, 2020, the Company completed an underwritten public offering of 31,107,500 shares of common stock at a price to the public of $1.85 per share. The net proceeds of the offering were approximately $53.6 million, after deducting underwriting discounts and commissions and other offering expenses.

Warrants

In addition to the Credit Agreement signed on July 29, 2019, on the Closing Date, Foamix issued to the lender Warrants to purchase up to an aggregate of 1,100,000 of its ordinary shares, later exchanged to 1,980,660 of Menlo’s common stock. Upon the closing of the Merger, each Warrant received one CSR as described in Note 3- Business Combinations. The warrants were exercisable immediately following the closing of the Credit Agreement and are due to expire on July 29, 2026. Any Warrants left outstanding will be cashless exercised on the Warrants’ expiration date, if in the money.

The exchange of Warrants from Foamix warrants to Menlo warrants and the additional CSR, was accounted for as a modification, by analogy, from the modification’s guidance under ASC 260-10-S99-2. The Company assessed the significance of the modification of the Warrants by comparing the fair value of the Warrants immediately before and after the amendments. In its assessment, it also considered additional qualitative factors. The Company concluded that the change of terms was not

significant. Therefore, the incremental fair value, in the amount of $41,000, of the modified Warrants over the original ones (as of modification date) was recognized in retained earnings as deemed dividend to the Warrants holders in the six months ended June 30, 2020.

Share-based compensation

Equity incentive plans:

Upon closing of the Merger, the company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of June 30, 2020, 2,849,843 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan"), effective January 2018. Pursuant to the terms of the 2018 Plan in January 2020, the 2018 share reserve automatically increased by 976,105 shares of common stock issuable. As of June 30, 2020, 2,184,769 shares remain issuable under the 2018 Plan.

Employee Share Purchase Plan:

Upon closing of the Merger, the company adopted Foamix’s ESPP pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15% of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code.

As of June 30, 2020, 9,371,258 shares remain available for grant under the ESPP.

During the six months ended June 30, 2020, 61,031 Foamix ordinary shares, later exchanged to 109,892 Menlo common stock, were issued to the employees.

Options and RSUs granted to employees and directors:

In the six months ended June 30, 2020 and 2019, the Company granted options and RSU as follows:

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	4,782,444	$1.95-$3.13	1 year -4 years	10 years
RSUs	2,589,710	—	1 year -4 years	—

	Six months ended June 30, 2019
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	2,299,899	$1.48-$2.12	1 year -4 years	10 years
RSUs	748,337	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merge grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

The fair value of options and RSUs granted to employees and directors during the six months ended June 30, 2020, and the six months ended June 30, 2019 was $11.4 million and $3.7 million, respectively.

The fair value of RSUs granted is based on the share price on the grant date.

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

	Six months ended June 30
	2020		2019
Dividend yield	0	%	0	%
Expected volatility	60.44%-69.83%		60.40%-61.40%
Risk-free interest rate	0.44%-1.26%		2.20%-2.62%
Expected term	6 years		6 years

Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged to stock options and RSUs of Menlo’s common stock according to the Exchange Ratio. In addition, for each option and RSU the holder received a CSR as described in Note 3- Business Combination. This transaction was considered by the company to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation expense of $60,000 related to the modification in the consolidated statement of operations for the three months ended March 31, 2020. As described in Note 3 - Business Combination, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $9.3 million for the three and six months ended June 30, 2020. As of June 30, 2020 there is $6.6 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 2 years.

Awards granted to options and RSU holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the unaudited condensed consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $0.5 million and $1.0 million for the three and six months ended June 30, 2020, respectively. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that study MTI-105 and study MTI-106 did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital.

Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan.

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Research and development expenses	$	3,050	$	384	$	3,566	$	738
Selling, general and administrative	7,718		1,004		8,961		1,599
Total	$	10,768	$	1,388	$	12,527	$	2,337

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OPERATING LEASE

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

OPERATING LEASE

OPERATING LEASE

Operating lease agreements

The Company has operating leases for corporate offices, research and development facilities, and vehicles. The properties primarily relate to the Company’s principal executive office in Bridgewater, New Jersey, corporate offices in Redwood City, California and research and development facility in Israel.

On March 13, 2019, the Company signed an amendment to the original lease agreement for its principal executive office in Bridgewater, New Jersey (“The Amendment”). The Amendment includes an extension of the lease period of the 10,000 square feet previously leased under the original agreement (the “Original Space”) and an addition of 4,639 square feet (the “Additional Space”). The Company entered the Additional Space following a period of preparation by the lessor completed during September 2019 (the “Commencement Date”). The Amendment is due to expire on August 31, 2022.

Pursuant to The Amendment of the lease on the Current Space, the Company recognized an additional right of use asset and liability in the amount of $0.7 million. The Additional Space was considered a new lease agreement and was recognized as a right of use asset and liability, in the amount of $0.3 million, on the Commencement Date.

The Company’s corporate offices in Redwood City, California are under lease through December 31, 2020 with a base rent of approximately $60,000 per month. Given the short-term nature of the remaining lease period, the combined company did not recognize a right-of-use asset and liability and expects to recognize the lease payments in its statements of operations and comprehensive loss on a straight-line basis over the remaining lease term.

The lease agreement for the research and development facility in Israel is linked to the Israeli consumer price index (“CPI”) and due to expire in December 2020.

Additionally, the Company has entered into operating lease agreements in connection with the leasing of vehicles. The lease periods are generally for three-year terms. To secure the terms of certain of the vehicle lease agreements, the Company has made prepayments to the leasing company, representing approximately 3 months of lease payments. These amounts have been recorded as part of the operating lease right-of-use assets.

Maturities of lease liabilities are as follows:

(in thousands)
2020	$	1,267
2021	993
2022	768
2023	90
Total lease payments	3,118
Less imputed interest	565
Total lease liability	$	2,553

As of June 30, 2020, the Company has a lien in the amount of $0.7 million on the Company’s cash and marketable securities in respect of bank guarantees granted in order to secure the lease agreements.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of June 30, 2020, no claims or actions pending against the Company that, in the opinion of management, are likely to have a material adverse effect on the Company.

IPO Lawsuits

On November 8, 2018 and January 28, 2019, two purported class actions were filed in the Superior Court of California, San Mateo County, against the Company and certain of our officers and directors. The actions are entitled Savelstrov v. Menlo Therapeutics Inc., et al., and McKay v. Menlo Therapeutics Inc., et al. The underwriters for our initial public offering were also named as defendants in these lawsuits. The complaints contain identical allegations against the same defendants. Both complaints alleged that the Registration Statement and prospectus for our initial public offering contained false and misleading statements in violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in connection with our initial public offering. The complaints seek, among other things, an award of damages in an amount to be proven at trial, along with reimbursement of reasonable costs and expenses, including attorneys’ fees and expert fees. The McKay action has been consolidated with the Savelstrov action and the claim for violations of Section 12(a)(2) has been dismissed. 

The parties have mediated the consolidated lawsuit and reached a settlement, providing for payment to the class of plaintiffs in the amount of $9.5 million, the vast majority of which will be paid by the Company's insurance carriers, in return for a release of all claims against the defendants, including the Company and its current and former officers and directors. The

settlement is subject to final documentation and Court approval. The Court preliminarily approved the settlement on April 24, 2020, and will consider whether to grant final approval of the settlement at a hearing scheduled for August 14, 2020. Menlo accrued for the remaining settlement amount that is not covered by insurance carriers as of December 31, 2019, which did not have a material impact on its financial statements.

Merger Lawsuits

Seven lawsuits (collectively, the “Merger Lawsuits”) were filed in various U.S. federal district courts against Foamix and certain other defendants in connection with the Merger. The lawsuits generally alleged that the registration statement on Form S-4 and the prospectus/joint proxy statement included therein included false or misleading information regarding the Merger in violations of Section 14(a) and Section 20(a) of the Exchange Act and/or Rule 14a 9 promulgated under the Exchange Act. In addition, one of the lawsuits alleged that the members of Foamix’s board of directors breached their fiduciary duties in connection with the Merger. The plaintiffs sought, among other things, to enjoin consummation of the Merger, or alternatively rescission or rescissory damages; to compel the individual defendants to disseminate a joint proxy statement/prospectus that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading; a declaration that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act; a declaration that the Merger Agreement was entered into in breach of fiduciary duty and is therefore invalid and unenforceable; an order directing the individual defendants to commence a sale process for Foamix and obtain a transaction; and an award of costs, including attorneys’ and experts’ fees and expenses, as well as an accounting of damages allegedly suffered by the plaintiffs. The plaintiffs have agreed the Lawsuits were rendered moot by subsequent disclosure, and on April 22, 2020, each of the plaintiffs and defendants named in the Merger Lawsuits entered into a mootness resolution agreement pursuant to which the plaintiffs agreed to dismiss their lawsuits with prejudice as to the named plaintiff and Foamix agreed to pay a de minimis mootness fee to plaintiffs’ counsel. As of May 4, 2020, each of the Merger Lawsuits has been dismissed.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

Reverse Stock Split Proposal

At the Company's annual meeting of stockholders held on August 3, 2020, the Company's stockholders voted to approve a proposal to adopt an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect (a) a reverse stock split of the Company’s outstanding shares of common stock, at a reverse stock split ratio ranging from 1-for-2 shares to 1-for-7 shares, which may be determined by the Board at a later date, and (b) a reduction in the number of authorized shares of the Company’s common stock by a corresponding ratio. The exact timing for selection of the reverse stock split ratio and the effective date of the reverse stock split will be determined by the Board based upon its evaluation as to when such action will be most advantageous to the Company and its stockholders. The Board may delay or abandon the reverse stock split at any time prior to the effective time of the reverse stock split, if the Board determines that the reverse stock split is no longer in the best interests of the Company or its stockholders. The reverse stock split, if implemented, would become effective upon the filing of a charter amendment with the Delaware Secretary of State.

Amendment to Amended and Restated Credit Agreement

On August 5, 2020, the Company and the lenders entered into the Amendment. The Amendment provides for a covenant "holiday" with respect to the minimum net revenue covenant in the Amended and Restated Credit Agreement, such that the compliance with such covenant will commence with the fiscal quarter ending on December 31, 2020, rather than September 30, 2020. Accordingly, as of the last day of each fiscal quarter commencing on the fiscal quarter ending December 31, 2020, the Company must generate consolidated net product revenue for the trailing 12-month period in amounts set forth in the Amendment, which range from $6.0 million for the fiscal quarter ending December 31, 2020 to $97.0 million for the fiscal quarter ending June 30, 2024.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

6 Months Ended

Jun. 30, 2020

Jun. 30, 2020

Accounting Policies [Abstract]

Reverse Merger

Reverse Merger

On November 10, 2019, the Company, Foamix Pharmaceuticals Ltd. (“Foamix”) and Giants Merger Subsidiary Ltd. (“Merger Sub”), a wholly-owned subsidiary of Menlo, entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”) on March 9, 2020 (the “Effective Date”).

For accounting purposes, the Merger is treated as a “reverse acquisition” under generally accepted accounting principles in the United States (“U.S. GAAP”) and Foamix is considered the accounting acquirer. Accordingly, upon consummation of the Merger, the historical financial statements of Foamix became the Company’s historical financial statements, and the historical financial statements of Foamix are included in the comparative prior periods. See “Note 3 – Business Combination” for more information on the Merger.

Liquidity and Capital Resources

Liquidity and Capital Resources

The Company launched AMZEEQ in the United States in January 2020 and commenced generating product revenues in the first quarter of 2020. The Company’s activities prior to the commercial launch of AMZEEQ had primarily consisted of

developing product candidates, raising capital and performing research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations. For the six months ended June 30, 2020, the Company incurred a net loss of $207.7 million and used $88.1 million of cash in operations. As of June 30, 2020, the Company had cash, cash equivalents and investments of $100.4 million and an accumulated deficit of $518.3 million.

If the Company does not successfully commercialize AMZEEQ, ZILXI or any of its future product candidates, it may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through public or private debt or equity offerings, or other arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

Prior to the Merger, the Company was focused on the development and commercialization of serlopitant. Following the receipt of the results of the Phase 3 clinical trials evaluating serlopitant for the treatment of PN and the impact of the COVID-19 pandemic, the Company has revised its operating plan to focus on the commercialization of AMZEEQ, ZILXI and its other topical minocycline product candidates. The Company does not currently intend to pursue serlopitant further. In addition, the revised operating plan reflects prudent resource prioritization and allocation management, including the rationalization of research and development spend to focus on existing product candidates.

The Company believes that its existing cash, cash equivalents and investments as of June 30, 2020 and projected cash flows from revenues and the funds that the Company is entitled to receive under the license agreement with Cutia Therapeutics (HK) Limited ("Cutia"), will provide sufficient resources to fund its current ongoing needs for at least the next 12 months from the issuance of these financial statements, though there may be need for additional financing activity if the on-going COVID-19 pandemic continues for an extended duration and as the Company continues to grow.

Basis of Presentation

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations, cash flow and statement of stockholders' equity for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

These unaudited interim condensed consolidated financial statements should be read in conjunction with Foamix’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Current Report on Form 8-K/A filed with the Securities and Exchange Commission ("SEC") on May 7, 2020, and the Company's unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 11, 2020.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the year ending December 31, 2020.

Principles of Consolidation

Principles of ConsolidationThe consolidated financial statements include the accounts of Menlo and its subsidiaries. Intercompany balances and transactions, including profits from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.

Use of Estimates

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management 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 condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include accounting for business combinations, impairments of goodwill and intangible assets and revenue recognition. Actual results could differ from the Company’s estimates.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which the pandemic impacts worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage; the speed of the anticipated recovery; and governmental and business reactions to the pandemic. For the three and six months ended June 30, 2020, the Company's product sales for AMZEEQ were negatively impacted by office closures due to the pandemic. In addition, the Company further assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, impairments of long-lived assets and revenue recognition. The Company recorded impairments of goodwill and certain indefinite-lived intangible assets; however, these were unrelated to the impact of COVID-19 (See "Note 3 - Business Combination" for more information). The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Business Acquisition

Business Acquisition

The Company’s unaudited interim condensed consolidated financial statements include the operations of an acquired business after the completion of the acquisition. The Company accounts for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date and that the fair value of In-Process Research and Development and Goodwill be recorded on the balance sheet. Transaction costs are expensed as incurred.

Amounts recorded in connection with an acquisition can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

The Company is required to measure certain assets and liabilities at fair value, either upon initial recognition or for subsequent accounting or reporting.  For example, the Company uses fair value in the initial recognition of net assets acquired in a business combination and when measuring impairment losses.  The Company estimates fair value using an exit price approach, which requires, among other things, that Company determine the price that would be received to sell an asset or paid to transfer a liability in an orderly market. The determination of an exit price is considered from the perspective of market participants, considering the highest and best use of non-financial assets and, for liabilities, assuming that the risk of non-performance will be the same before and after the transfer.

When estimating fair value, depending on the nature and complexity of the asset or liability, the Company may use one or all of the following techniques:

•Income approach, which is based on the present value of a future stream of net cash flows.

•Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

•Cost approach, which is based on the cost to acquire or construct comparable assets, less an allowance for functional and/or economic obsolescence.

Our fair value methodologies depend on the following types of inputs:

•Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).

•Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are directly or indirectly observable, or inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (Level 2 inputs).

•Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely heavily on estimates and assumptions.

Asset Impairment

The Company reviews all of its long-lived assets for impairment indicators throughout the year. Impairment testing is performed for indefinite-lived intangible assets annually (or sooner if warranted) and for all other long-lived assets whenever impairment indicators are present. When necessary, the Company records charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Revenue Recognition

Revenue Recognition

The Company accounts for its revenue transactions under FASB ASC Topic 606, Revenue from Contracts with Customers. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.

The Company’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 90 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.

The Company’s net product revenues through June 30, 2020 were generated through sales of AMZEEQ, which was approved by the FDA in October 2019 and was commercially launched in the United States in January 2020. Product revenue is recorded net of distribution fees, trade discounts, allowances, rebates, copay program coupons, chargebacks, estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See “Note 4 – Revenue Recognition” for more information.

On April 23, 2020, the Company announced that it entered into a license agreement with Cutia for AMZEEQ as well as certain of the Company's other topical minocycline product candidates, once approved, on an exclusive basis in Greater China. Under the terms of the agreement, Cutia will have an exclusive license to obtain regulatory approval of and commercialize AMZEEQ, ZILXI and, if approved in the U.S., FCD105 in the Greater China territory. The Company will supply the finished licensed

products to Cutia for clinical and commercial use. The Company will receive an upfront cash payment of $10.0 million ($6.0 million received in the three months ended June 30, 2020) and will be eligible to receive an additional $1.0 million payment upon the receipt of marketing approval in China of the first licensed product. The Company will also receive royalties on net sales of any licensed products. The license is determined to be a distinct performance obligation of the arrangement, therefore the Company recognizes the revenues from the upfront license fee when the license is transferred to the licensee and the licensee is able to use and benefit from the license. See "Note 4 - Revenue Recognition" for more information.

Allowance for credit losses

Allowance for credit lossesAn allowance for doubtful accounts is maintained for potential credit losses based on the aging of trade receivables, historical bad debts experience and changes in customer payment patterns. Trade receivable balances are written off against the allowance when it is deemed probable that the receivable will not be collected. Trade receivables, net are stated net of reserves for certain sales allowances and provisions for doubtful accounts. Provisions for doubtful accounts were not material for the three and six months ended June 30, 2020.

Derivative instruments

Derivative instrumentsThe Company recognizes all derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheet at their respective fair values. All gains and losses associated with derivatives are reported as a finance expense (income) in the accompanying condensed consolidated statements of operations.

Fair value measurement

Fair value measurement

Fair value is based on the price that would be received from the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data or active market data of similar or identical assets or liabilities.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

Loss per share

Loss per share

The calculation of the weighted-average number of common stock outstanding during the period in which the reverse merger occurs was based on:

a.The number of common stock outstanding from the beginning of that period to the merge date was computed on the basis of the weighted-average number of common stock of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement

b.The number of common outstanding common stock outstanding from the merge date to the end of that period was the actual number of common stock of the legal acquirer (the accounting acquiree) outstanding during that period.

The basic and diluted loss per share for each comparative period before the acquisition date presented in the consolidated financial statements following the reverse merger was calculated by dividing (a) by (b):

a.The loss of the legal acquiree attributable to common stockholders in each of those periods.

b.The legal acquiree's historical weighted-average number of common stock outstanding multiplied by the exchange ratio established in the merge agreement

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of Ordinary shares outstanding during the period. Diluted net loss per share is based upon the weighted average number

of common stock and of common stock equivalents outstanding when dilutive. Common stock equivalents include outstanding stock options and warrants which are included under the treasury share method when dilutive.

The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

	Three months ended June 30		Six months ended June 30,
	2020	2019	2020	2019
Outstanding stock options, RSUs and shares under the ESPP	14,975,385	11,037,802	12,082,037	10,576,229
Warrants	1,893,032	—	1,272,336	—

In addition to the above, the CSR was excluded from the calculation of the diluted net loss per share because its effect would have been anti-dilutive for the periods presented. On April 6, 2020, the Company announced that each of Menlo’s Phase III PN Trials (study MTI-105 and study MTI-106) did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion of the CSR also affected the Exchange Ratio of the pre-Merger Foamix equity awards and warrants outstanding as of March 9, 2020. See "Note 3 - Business Combination" for more information.

Newly issued and recently adopted accounting pronouncements

Newly issued and recently adopted accounting pronouncements

Recent Accounting Guidance Issued:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-4, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" (ASU 2020-4), which provides guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions of ASU 2020-4 apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-4 are optional and are effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of ASU 2020-4 on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13), which requires companies to measure credit losses of financial instruments, including customer accounts receivable, utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional Accounting Standard Updates to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. As a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023 or at such time where it is no longer a smaller reporting company.

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following average stock options, restricted stock units (“RSUs”), warrants and incremental shares to be issued under the employee stock purchase plan (“ESPP”) were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (share data):

	Three months ended June 30		Six months ended June 30,
	2020	2019	2020	2019
Outstanding stock options, RSUs and shares under the ESPP	14,975,385	11,037,802	12,082,037	10,576,229
Warrants	1,893,032	—	1,272,336	—

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BUSINESS COMBINATION (Tables)

3 Months Ended

6 Months Ended

Jun. 30, 2020

Jun. 30, 2020

Business Combinations [Abstract]

Schedule of Merger Consideration to be transferred

The following is the Merger Consideration (as defined in the Merger Agreement) was transferred to effect the Merger:

(in thousands)	Total
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders	$	123,757
Deemed (for accounting purposes only) conversion of Menlo equity awards	7,322
Total consideration*	$	131,079

* This amount reflects total consideration prior to reduction in respect of the CSRs (which had a fair value of $19.6 million as of the Merger Date) that were issued to Foamix shareholders and that reduced the Menlo stockholders’ relative ownership in the combined company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $111.4 million, as shown in the purchase price allocation table below.

Schedule of allocation of the purchase price to the fair values of assets acquired and liabilities assumed

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	50,300
Goodwill	4,045
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Estimated purchase price*	$	111,443

* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.

The Company completed its analysis of the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as follows:

(in thousands)	March 9, 2020
Cash and cash equivalents	$	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	50,300
Goodwill	4,045
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Estimated purchase price*	$	111,443

* Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $19.6 million, convert into additional shares of the combined company for the Foamix shareholders, thereby resulting in a lower percentage of the combined company’s outstanding shares being owned by Menlo stockholders following the Merger.

Schedule of the calculation of goodwill from the merger

The purchase price of the transaction and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows:

(in thousands)	March 9, 2020
Purchase price	$	111,443
Less: fair value of net assets acquired, including other identifiable intangibles	(107,398)
Goodwill	$	4,045

Schedule of indefinite-lived intangible IPRD assets acquired in the merger

The IPR&D recognized relates to Menlo’s once-daily oral serlopitant for the treatment of pruritus (itch) associated with PN that has not reached technological feasibility as follows:

(in thousands)
Intangible asset	Estimated Fair Value
Acquired indefinite life intangible assets*	$	50,300
Fair value of identified intangible assets	$	50,300

* Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing.

Schedule of pro forma

Actual Menlo results of operations included in the condensed consolidated statement of operation for the three and six months ended June 30, 2020:

(in thousands)	Three months ended June 30, 2020		Six months ended June 30, 2020
	(Unaudited)
Revenues	$	—	$	—
Loss attributable to Menlo	$	7,594	$	19,637

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
(in thousands, except per share data)	(Unaudited)				(Unaudited)
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	$	11,688	$	—	$	13,438	$	308
Net loss	$	167,441	$	35,470	$	205,082	$	69,547
Loss per share - basic and diluted	$	1.21	$	0.59	$	1.23	$	1.16
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$	—	$	—	$	(14,931)	$	—
Acceleration of stock based compensation	—		—		(7,199)		—
Total Adjustments	$	—	$	—	$	(22,130)	$	—

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FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The Company’s assets and liabilities that are measured at fair value as of June 30, 2020 and December 31, 2019, are classified in the tables below in one of the three categories described in note 2H above:

	June 30, 2020
(in thousands)	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	591	$	2,018	$	—	$	2,609

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Marketable securities(1)	$	1,020	$	15,660	$	—	$	16,680

⁽¹⁾The Company’s debt securities are traded in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Accordingly, these assets are categorized as Level 2.

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MARKETABLE SECURITIES (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

The following table sets forth the Company’s marketable securities:

	June 30		December 31
(in thousands)	2020		2019
Israeli mutual funds	$	591	$	1,020
Certificates of deposit	—		151
U.S Government	—		6,031
U.S Treasury bills	—		9,478
Corporate notes	2,018		—
Total	$	2,609	$	16,680

Gain (Loss) on Securities

As of June 30, 2020 and December 31, 2019 the fair value, cost and gross unrealized holding gains and losses of the debt marketable securities owned by the Company were as follows:

	June 30, 2020
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding losses		Gross unrealized holding gains
Corporate notes	2,018		2,018		—		—
Total	$	2,018	$	2,018	$	—	$	—

	December 31, 2019
(in thousands)	Fair value		Cost or amortized cost		Gross unrealized holding loss		Gross unrealized holding gains
Certificates of deposit	$	151	$	151	$	—	$	—
U.S Government and agency bonds	6,031		6,030		—		1
U.S Treasury bills	9,478		9,475		—		3
Total	$	15,660	$	15,656	$	—	$	4

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INVENTORY (Tables)

6 Months Ended

Jun. 30, 2020

Inventory Disclosure [Abstract]

Schedule of inventories

The following table sets forth the Company’s inventory:

	June 30		December 31
(in thousands)	2020		2019
Raw materials	$	3,387	$	500
Work-in-process	954		—
Finished goods	1,460		856
Total	$	5,801	$	1,356

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SHARE CAPITAL (Tables)

6 Months Ended

Jun. 30, 2020

Stockholders' Equity Note [Abstract]

Schedule of share-based compensation awards granted for options and RSUs during the period

In the six months ended June 30, 2020 and 2019, the Company granted options and RSU as follows:

	Six months ended June 30, 2020
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	4,782,444	$1.95-$3.13	1 year -4 years	10 years
RSUs	2,589,710	—	1 year -4 years	—

	Six months ended June 30, 2019
	Award amount*	Exercise price range*	Vesting period	Expiration
Employees and Directors:
Options	2,299,899	$1.48-$2.12	1 year -4 years	10 years
RSUs	748,337	—	1 year -4 years	—

* All amounts and exercise prices for pre-Merge grants are presented following the exchange to Menlo options and RSUs at the Exchange Ratio described in Note 3-Business Combination.

Summary of underlying data used for computing the fair value of the options

The fair value of options granted was computed using the Black-Scholes model. The underlying data used for computing the fair value of the options are as follows:

	Six months ended June 30
	2020		2019
Dividend yield	0	%	0	%
Expected volatility	60.44%-69.83%		60.40%-61.40%
Risk-free interest rate	0.44%-1.26%		2.20%-2.62%
Expected term	6 years		6 years

Share-based Payment Arrangement, Expensed and Capitalized, Amount

The following table illustrates the effect of share-based compensation on the statements of operations:

	Three months ended June 30				Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Research and development expenses	$	3,050	$	384	$	3,566	$	738
Selling, general and administrative	7,718		1,004		8,961		1,599
Total	$	10,768	$	1,388	$	12,527	$	2,337

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OPERATING LEASE (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Lessee, Operating Lease, Liability, Maturity

Maturities of lease liabilities are as follows:

(in thousands)
2020	$	1,267
2021	993
2022	768
2023	90
Total lease payments	3,118
Less imputed interest	565
Total lease liability	$	2,553

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NATURE OF OPERATIONS (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) segments	Jun. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of segments | segments			1
Net loss	$ 167,440	$ 18,993	$ 207,673	$ 34,197
Cash used in operations			(88,070)	$ (29,361)
Cash and investments	100,400		100,400
Accumulated deficit	$ (518,301)		$ (518,301)		$ (310,587)

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SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Millions		3 Months Ended		6 Months Ended
	Apr. 23, 2020 USD ($)	Jun. 30, 2020 USD ($) shares	Jun. 30, 2019 shares	Jun. 30, 2020 shares	Jun. 30, 2019 shares	Apr. 06, 2020
Loss per share
Number of common stock shares issued per CSR (in shares)						1.2082
Effective exchange ratio of Foamix ordinary shares into Menlo common stock (share/share)						1.8006
Foamix
Loss per share
Upfront royalty receipt | $	$ 10.0	$ 6.0
Additional royalty upon receipt of marketing approval in China | $	$ 1.0
Outstanding stock options, RSUs and shares under the ESPP
Loss per share
Antidilutive securities (in shares) | shares		14,975,385	11,037,802	12,082,037	10,576,229
Warrants
Loss per share
Antidilutive securities (in shares) | shares		1,893,032	0	1,272,336	0

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BUSINESS COMBINATION - Narrative (Details) $ / shares in Units, $ in Thousands			3 Months Ended		6 Months Ended
	Apr. 06, 2020 USD ($) $ / shares shares	Mar. 09, 2020 USD ($) $ / shares shares	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	May 11, 2020 USD ($)
Business Acquisition [Line Items]
Number of common stock shares issued per CSR (in shares)	1.2082
Effective Exchange Ratio (CSR per share)	1.8006
Ownership percentage of parent by subsidiary stockholders	82.00%
Ownership percentage of parent by parent stockholders	18.00%
Closing share price (in usd per share) | $ / shares	$ 1.40
Goodwill impairment loss			$ 4,000		$ 4,000
Value of CSR converted into additional shares of the combined company		$ 19,600
Contingent Stock Right Remeasurement	$ 84,700		84,726	$ 0	84,726	$ 0
Contingent consideration, fair value of liability	$ 104,400
Share issued and delivered upon CSR conversion (in shares) | shares	74,544,413
In Process Research and Development
Business Acquisition [Line Items]
In process research and development impairment			$ 50,300		50,300
Foamix
Business Acquisition [Line Items]
Number of contingent stock rights issued (in CSR)		1
Transaction costs							$ 21,800
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders		$ 123,757
Deemed (for accounting purposes only) conversion of Menlo equity awards		7,322
Consideration transferred		$ 131,079
Closing share price (in usd per share) | $ / shares		$ 2.99
Number of shares deemed (for accounting purposes only) issued (in shares) | shares		41,400,000
Value of CSR converted into additional shares of the combined company		$ 19,600
Contingent consideration, fair value of liability		$ 19,600
Foamix | Employee benefits
Business Acquisition [Line Items]
Acquisition related costs					8,100
Foamix | Selling, general and administrative
Business Acquisition [Line Items]
Acquisition related costs					$ 11,700
Common stock | Foamix
Business Acquisition [Line Items]
Exchange ratio per ordinary share for common stock (share per share)		0.5924

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BUSINESS COMBINATION - Consideration Transferred in Merger (Details) - USD ($) $ in Thousands	Mar. 09, 2020	Apr. 06, 2020
Business Acquisition [Line Items]
Contingent consideration, fair value of liability		$ 104,400
Foamix
Business Acquisition [Line Items]
Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders	$ 123,757
Deemed (for accounting purposes only) conversion of Menlo equity awards	7,322
Total consideration	131,079
Contingent consideration, fair value of liability	19,600
Consideration net of the effect of CSRs	$ 111,400

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BUSINESS COMBINATION - Purchase Price Allocation (Details) $ in Thousands	Mar. 09, 2020 USD ($)
Allocations of purchase price
Value of CSR converted into additional shares of the combined company	$ 19,600
Foamix
Allocations of purchase price
Cash and cash equivalents	38,641
Investment in marketable securities	22,703
Prepaid expenses and other current assets	1,581
In-process research and development	50,300
Goodwill	4,045
Total assets	117,270
Current liabilities	(5,827)
Total liabilities	(5,827)
Purchase price	111,443
Value of CSR converted into additional shares of the combined company	$ 19,600

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BUSINESS COMBINATION - Goodwill (Details) - Foamix	Mar. 09, 2020 USD ($)
Business Combination, Goodwill [Abstract]
Goodwill deductible for income tax purposes	$ 0
Purchase price	111,443,000
Less: fair value of net assets acquired, including other identifiable intangibles	(107,398,000)
Goodwill	$ 4,045,000

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BUSINESS COMBINATION - IPRD and CSR (Details) - Foamix $ in Thousands	Mar. 09, 2020 USD ($)
In-Process Research and Development
Acquired indefinite life intangible assets	$ 50,300
Fair value of identified intangible assets	$ 50,300

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BUSINESS COMBINATION - Pro Forma (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Business Combinations [Abstract]
Revenues	$ 0		$ 0
Loss attributable to Menlo	7,594		19,637
SUPPLEMENTAL PRO FORMA COMBINED RESULTS OF OPERATIONS:
Revenues	11,688	$ 0	13,438	$ 308
Net loss	$ 167,441	$ 35,470	$ 205,082	$ 69,547
Loss per share - basic (in USD per share)	$ 1.21	$ 0.59	$ 1.23	$ 1.16
Loss per share - diluted (in dollars per share)	$ 1.21	$ 0.59	$ 1.23	$ 1.16
Adjustments to the supplemental pro forma combined results of operations, included in the above, are as follows:
Transaction costs	$ 0	$ 0	$ (14,931)	$ 0
Acceleration of stock based compensation	0	0	(7,199)	0
Total Adjustments	$ 0	$ 0	$ (22,130)	$ 0

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REVENUE RECOGNITION (Details) - USD ($)		3 Months Ended		6 Months Ended
	Apr. 23, 2020	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Product Sales
Product sales provisions		$ 5,900,000		$ 14,100,000
Minimum estimate product return (as a percent)		2.00%		2.00%
Maximum estimate product return (as a percent)		3.00%		3.00%
Other receivable		$ 4,000,000		$ 4,000,000		$ 0
Revenues		11,688,000	$ 0	13,438,000	$ 308,000
Foamix
Product Sales
Upfront royalty receipt	$ 10,000,000.0	6,000,000.0
Additional royalty upon receipt of marketing approval in China	$ 1,000,000.0
Royalty revenues
Product Sales
Revenues		$ 205,000	$ 0	$ 205,000	$ 308,000
Customers | Revenue from Contract with Customer, Product and Service Benchmark | Distributor One
Product Sales
Concentration risk, percentage		42.00%		46.00%
Customers | Revenue from Contract with Customer, Product and Service Benchmark | Distributor Two
Product Sales
Concentration risk, percentage		43.00%		39.00%
Customers | Revenue from Contract with Customer, Product and Service Benchmark | Distributor Three
Product Sales
Concentration risk, percentage		15.00%		14.00%

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FAIR VALUE MEASUREMENT - Assets and Liabilities Measured at Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	$ 2,609	$ 16,680
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	591	1,020
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	2,018	15,660
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	$ 0	$ 0

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FAIR VALUE MEASUREMENT - Narrative (Details)	6 Months Ended
	Jun. 30, 2020 USD ($)
FAIR VALUE MEASURMENTS [Abstract]
Currency hedging cost for a year	$ 0
Currency hedging transactions, maximum term	1 year
Derivative, Amount of Hedged Item	$ 0
Foreign exchange risk lien on marketable securities for bank guarantees granted to secure hedging transactions	300,000
Foreign exchange risk lien on checking account for bank guarantees granted to secure hedging transactions	$ 300,000

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MARKETABLE SECURITIES - Marketable Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Marketable securities	$ 2,609	$ 16,680
Israeli mutual funds
Debt Securities, Available-for-sale [Line Items]
Marketable securities	591	1,020
Certificates of deposit
Debt Securities, Available-for-sale [Line Items]
Marketable securities	0	151
U.S Government
Debt Securities, Available-for-sale [Line Items]
Marketable securities	0	6,031
U.S Treasury bills
Debt Securities, Available-for-sale [Line Items]
Marketable securities	0	9,478
Corporate notes
Debt Securities, Available-for-sale [Line Items]
Marketable securities	$ 2,018	$ 0

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MARKETABLE SECURITIES - Fair Value, Cost and Gross Unrealized Holding Gains of Securities Owned (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale [Line Items]
Fair value	$ 2,018	$ 15,660
Cost or amortized cost	2,018	15,656
Gross unrealized holding losses	0	0
Gross unrealized holding gains	0	4
Corporate notes
Debt Securities, Available-for-sale [Line Items]
Fair value	2,018
Cost or amortized cost	2,018
Gross unrealized holding losses	0
Gross unrealized holding gains	$ 0
Certificates of deposit
Debt Securities, Available-for-sale [Line Items]
Fair value		151
Cost or amortized cost		151
Gross unrealized holding losses		0
Gross unrealized holding gains		0
U.S Government
Debt Securities, Available-for-sale [Line Items]
Fair value		6,031
Cost or amortized cost		6,030
Gross unrealized holding losses		0
Gross unrealized holding gains		1
U.S Treasury bills
Debt Securities, Available-for-sale [Line Items]
Fair value		9,478
Cost or amortized cost		9,475
Gross unrealized holding losses		0
Gross unrealized holding gains		$ 3

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MARKETABLE SECURITIES - Narrative (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Permanent impairment loss, debt securities, available for sale	$ 0		$ 0
Proceeds from sale and maturity of marketable securities	36,400,000	$ 33,000,000.0
Restricted Investments	$ 400,000		$ 400,000

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INVENTORY (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Inventory Disclosure [Abstract]
Inventory write-down	$ 0	$ 0
Raw materials	3,387,000	3,387,000	$ 500,000
Work-in-process	954,000	954,000	0
Finished goods	1,460,000	1,460,000	856,000
Total	$ 5,801,000	$ 5,801,000	$ 1,356,000

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LONG-TERM DEBT - Credit agreement (Details)		2 Months Ended	3 Months Ended
	Mar. 09, 2020 USD ($) tranches	Dec. 31, 2020 USD ($)	Jun. 30, 2024 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 17, 2019 USD ($)	Jul. 29, 2019 USD ($) shareholders lenders
Credit Agreement
Debt instrument information
Number of trenches | tranches	3
Amended And Restated Credit Agreement
Debt instrument information
Debt Instrument, Face Amount	$ 50,000,000.0
Long-term debt, gross				$ 35,000,000.0	$ 35,000,000.0
Base interest rate	8.25%
Debt instrument fee as a percent of the aggregate principal amount	1.00%
Monthly payment as a percent of the aggregate principal amount beginning July 2023	1.50%
Debt covenants
Minimum aggregate cash balance to maintain after FDA approval	$ 2,500,000
Amended And Restated Credit Agreement | Forecast | Subsequent Event
Debt instrument information
Debt covenant, minimum quarterly revenue compliance		$ 6,000,000.0	$ 97,000,000.0
Amended And Restated Credit Agreement | One-month LIBOR
Debt instrument information
Basis spread on variable rate	2.75%
Amended and Restated Credit Agreement, Trench 1 Loan
Debt instrument information
Debt Instrument, Face Amount							$ 15,000,000
Amended and Restated Credit Agreement, Trench 2 Loan
Debt instrument information
Debt Instrument, Face Amount						$ 20,000,000
Amended and Restated Credit Agreement, Trench 3 Loan
Debt instrument information
Borrowing capacity				$ 15,000,000
Shareholder Lender | Credit Agreement
Debt instrument information
Borrowing capacity							$ 50,000,000
Number of lenders involved | shareholders							2
Registered offering per securities purchase agreement | Shareholder Lender
Debt instrument information
Number of lenders involved | lenders							1
Gross proceeds from issuance of common stock							$ 14,000,000

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LONG-TERM DEBT - Warrants (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended	6 Months Ended
	Mar. 09, 2020	Jul. 29, 2019	Jun. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Warrants issued
Warrant exercise price (in dollars per share)	$ 3.53
Shares issued in exchange of warrants	651,640
Debt offering expenses
Incurrred expenses related to Credit Agreement and Securities Purchase Agreement		$ 1,100		$ 300
Interest expense			$ 1,000	1,900
Discount cost			100	200
Amended and Restated Credit Agreement, Trench 2 Loan
Debt offering expenses
Incurrred expenses related to Credit Agreement and Securities Purchase Agreement		$ 300
Amended And Restated Credit Agreement
Debt instrument information
Long-term debt, gross			35,000	35,000	$ 35,000
Credit Agreement | Level 3
Debt offering expenses
Debt instrument, fair value			$ 35,800	$ 35,800
Foamix | Shareholder Lender
Warrants issued
Number of ordinary shares that may be purchased by exercise of warrants	1,100,000
Warrant exercise price (in dollars per share)	$ 2.09

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SHARE CAPITAL - Narrative (Details) $ / shares in Units, $ in Thousands					3 Months Ended			6 Months Ended
	Jun. 09, 2020 USD ($) $ / shares shares	Apr. 06, 2020	Mar. 09, 2020 USD ($) shares	Jul. 29, 2019 USD ($) $ / shares shares	Jun. 30, 2020 USD ($) votes $ / shares shares	Mar. 31, 2020 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($) votes $ / shares shares	Jun. 30, 2019 USD ($)	Dec. 31, 2019 $ / shares shares
Class of Stock [Line Items]
Preferred stock, shares authorized (in shares)					20,000,000			20,000,000		20,000,000
Preferred stock, par value (USD/share) | $ / shares					$ 0.0001			$ 0.0001		$ 0.0001
Preferred stock, shares issued (in shares)					0			0		0
Preferred stock, shares outstanding (in shares)					0			0		0
Common stock shares authorized (in shares)					300,000,000			300,000,000		300,000,000
Common stock par value (USD/share) | $ / shares					$ 0.0001			$ 0.0001		$ 0.0001
Incurrred expenses related to Credit Agreement and Securities Purchase Agreement | $				$ 1,100				$ 300
Deemed dividend to warrants holders due to warrant modification | $								0
Fair value of options and RSUs granted | $								11,400	$ 3,700
Share-based compensation | $					$ 10,768		$ 1,388	12,527	$ 2,337
Number of common stock shares issued per CSR (in shares)		1.2082
Effective Exchange Ratio (CSR per share)		1.8006
Additional paid in capital reclassified to derivate liabilities | $					$ (657)			$ 975
ESPP
Class of Stock [Line Items]
Percentage of fair market value used as purchase price			85.00%
Percent of annual earnings that may be used to purchase shares			15.00%
Shares reserved for future issuance (in shares)					9,371,258			9,371,258
2018 Plan
Class of Stock [Line Items]
Shares reserved for future issuance (in shares)					2,184,769			2,184,769
Increase in shares reserved for future issuance (in shares)					976,105			976,105
2019 Plan
Class of Stock [Line Items]
Shares reserved for future issuance (in shares)					2,849,843			2,849,843
Foamix
Class of Stock [Line Items]
Number of shares issued pursuant to the merger (in shares)			74,544,413
Number of contingent stock rights issued (in CSR)			1
Deemed dividend to warrants holders due to warrant modification | $			$ 41
Foamix | Employees and consultants
Class of Stock [Line Items]
Share-based compensation | $						$ 60
Incremental compensation costs incurred | $					$ 9,300
Incremental compensation costs incurred | $								$ 6,600
Incremental compensation costs, recognition period								2 years
Foamix | No longer employed or providing services
Class of Stock [Line Items]
Incremental compensation costs incurred | $					$ 500			$ 1,000
Additional paid in capital reclassified to derivate liabilities | $			1,600
Incremental compensation cost | $			$ 600
Foamix | CSR Agreement
Class of Stock [Line Items]
Number of shares issued pursuant to the merger (in shares)			36,550,335
Initial Public Offering
Class of Stock [Line Items]
Sale of stock (USD/share) | $ / shares	$ 1.85
Number of shares issued in transaction (in shares)	31,107,500
Consideration received in a transaction | $	$ 53,600
Common stock
Class of Stock [Line Items]
Number of votes entitled to each ordinary share | votes					1			1
Number of shares issued (in usd per share)			3,875,514		31,107,500
Gross proceeds from issuance of common stock | $				$ 14,000
Common stock | ESPP
Class of Stock [Line Items]
Shares issued during the period								109,892
Ordinary Shares | Foamix | ESPP
Class of Stock [Line Items]
Shares issued during the period								61,031
Ordinary Shares | Registered offering per securities purchase agreement | Foamix
Class of Stock [Line Items]
Number of shares issued (in usd per share)				6,542,057
Sale of stock (USD/share) | $ / shares				$ 2.14
Warrants | Foamix | Maximum
Class of Stock [Line Items]
Number of ordinary shares that may be purchased by exercise of warrants				1,100,000
Number of shares issued for warrants exercised				1,980,660

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SHARE CAPITAL - Options and RSU Grants (Details) - $ / shares	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option, award amount	4,782,444	2,299,899
Exercise price range, minimum (in usd per share)	$ 1.95	$ 1.48
Exercise price range, maximum (in usd per share)	$ 3.13	$ 2.12
Expiration	10 years	10 years
Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year	1 year
Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years	4 years
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
RSU, award amount	2,589,710	748,337
RSUs | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	1 year	1 year
RSUs | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years	4 years

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SHARE CAPITAL - Fair value assumptions (Details) - Options	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Share-based payment assumptions for computing fair value
Dividend yield	0.00%	0.00%
Expected volatility, minimum	60.44%	60.40%
Expected volatility, maximum	69.83%	61.40%
Risk-free interest rate, minimum	0.44%	2.20%
Risk-free interest rate, maximum	1.26%	2.62%
Expected term	6 years	6 years

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SHARE CAPITAL - Schedule of Share-based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Expense
Share-based compensation	$ 10,768	$ 1,388	$ 12,527	$ 2,337
Research and development expenses
Expense
Share-based compensation	3,050	384	3,566	738
Selling, general and administrative
Expense
Share-based compensation	$ 7,718	$ 1,004	$ 8,961	$ 1,599

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OPERATING LEASE - Operating lease costs (Details) $ in Thousands		6 Months Ended
	Mar. 13, 2019 USD ($) ft²	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Operating Lease
Operating lease right-of-use assets		$ 2,558	$ 1,694
Total lease liability		$ 2,553
Operating lease terms		3 years
Vehicles lease prepaid period		3 months
Lien on marketable securities to secure lease agreements		$ 700
Building [Member] | Redwood City, California
Operating Lease
Monthly base rent		$ 60
Original Space | Bridgewater, New Jersey
Operating Lease
Facility space leased | ft²	10,000
Operating lease right-of-use assets	$ 700
Additional Space | Bridgewater, New Jersey
Operating Lease
Facility space leased | ft²	4,639
Operating lease right-of-use assets	$ 300

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OPERATING LEASE - Maturities of Lease Liabilities (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Leases [Abstract]
2020	$ 1,267
2021	993
2022	768
2023	90
Total lease payments	3,118
Less imputed interest	565
Total lease liability	$ 2,553

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COMMITMENTS AND CONTINGENCIES (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($) lawsuits	Nov. 08, 2018 lawsuits
Current and Former Officers and Directors
Loss Contingencies [Line Items]
Payments for settlement | $	$ 9.5
IPO Lawsuits
Loss Contingencies [Line Items]
Number of class actions		2
Merger Lawsuits
Loss Contingencies [Line Items]
Number of class actions	7
Merger Lawsuits, Breach of Fiduciary Duties Of BOD
Loss Contingencies [Line Items]
Number of class actions	1

XML

SUBSEQUENT EVENTS (Details) $ in Millions			2 Months Ended	3 Months Ended
	Aug. 03, 2020	Apr. 06, 2020 shares	Dec. 31, 2020 USD ($)	Jun. 30, 2024 USD ($)
Subsequent Event [Line Items]
Number of common stock shares issued per CSR (in shares)		1.2082
Effective exchange ratio of Foamix ordinary shares into Menlo common stock (share/share)		1.8006
Share issued and delivered upon CSR conversion (in shares) | shares		74,544,413
Ownership percentage of parent by subsidiary stockholders		82.00%
Subsequent Event | Amended And Restated Credit Agreement | Forecast
Subsequent Event [Line Items]
Debt covenant, minimum quarterly revenue compliance | $			$ 6.0	$ 97.0
Subsequent Event | Minimum
Subsequent Event [Line Items]
Reverse stock split, consersion ratio (share/share)	2
Subsequent Event | Maximum
Subsequent Event [Line Items]
Reverse stock split, consersion ratio (share/share)	7

XML

Label	Element	Value
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 855,000
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 250,000